----

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

|  Title of each class         |   | Name      of each exchangeon which registered |
|-----------------------------------|--------|-----------------------------------------------|
| Common      Stock, $.50 par value |   | American                                      |

----

|                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   Part      I                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |
|---------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|  Item 1.                          | Business                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  General                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |
|                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  Real Estate      Operations                                                                                                                                                       |   |
|                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  Racing      Operations                                                                                                                                                            |   |
|                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  Forest Products      Operations                                                                                                                                                   |   |
|                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |
|  Item 1A.                         | Risk Factors                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |
|  Item 1B.                              | Unresolved Staff Comments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |
|  Item 2.                | Properties                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|  Item 3.           | Legal Proceedings                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|  Item 4.                          | Submission of Matters to a Vote of Security      Holders                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |        Part      II                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |
|                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|  Item 5.      | Market for Registrant’s Common Equity, Related Stockholder      Matters and Issuer Purchases of Equity      Securities                                                                                                                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                              |   |
|  Item 6.                     | Selected Financial      Data                                                                                                                                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|  Item 7.                     | Management’s Discussion and Analysis of Financial Condition      and Results of      Operations                                                                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|  Item 7A                               | Quantitative and Qualitative Disclosures About Market      Risk                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|  Item 8.                          | Financial Statements and Supplementary      Data                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  Report of Independent Registered Public      Accounting      Firm                                                                                                                 |   |
|                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  Consolidated Balance      Sheets                                                                                                                                                  |   |
|                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  Consolidated Statements of      Operations                                                                                                                                        |   |
|                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  Consolidated Statements of Cash      Flows                                                                                                                                        |   |
|                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  Consolidated Statements of Stockholders’      Deficit                                                                                                                       |   |
|                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  Notes to Consolidated Financial      Statements                                                                                                                                   |   |
|                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|  Item 9.                     | Changes      in and Disagreements with Accountants on Accounting and Financial      Disclosure                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|  Item 9A.                         | Controls and Procedures                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|  Item 9B.                         | Other Information                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   Part      III                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |
|  Items 10-14.           | To be filed with the Registrant’s definitive proxy      statement                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |
|                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   Part      IV                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |
|  Item 15.                         | Exhibits                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |
|  Signatures                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |
|                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |
|  Index of Exhibits                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|  Glossary of Defined Terms        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |
|                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |
|                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |
|                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |
|                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |

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ITEM1.                         BUSINESS

General

| • | Real      estate investment and development, through MAXXAM Property Company (“MPC”) and other wholly      owned subsidiaries of the Company, as well as joint      ventures.  These subsidiaries are engaged in the business of      residential and commercial real estate investment and development,      primarily in Arizona, California, Puerto Rico and Texas, including      associated golf course or resort operations in certain locations, and also      own several commercial real estate properties that are subject to      long-term lease arrangements. |
|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| • | Racing      operations, through Sam Houston Race Park, Ltd. (“SHRP, Ltd.”), a Texas      limited partnership wholly owned by the Company.  SHRP, Ltd.      owns and operates a Texas Class 1 pari-mutuel horse racing facility in the      greater Houston metropolitan area, and a pari-mutuel greyhound racing      facility in Harlingen, Texas. |
|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| • | Forest      products, through MAXXAM Group Inc. (“MGI”) and MGI’s wholly      owned subsidiaries, principally The Pacific Lumber Company (“Palco”), Scotia Pacific      Company LLC (“Scopac”), Britt Lumber      Co., Inc. (“Britt”) and Scotia      Development LLC (“SDLLC”).  MGI      and its subsidiaries primarily engage in the growing and harvesting of      redwood and Douglas-fir timber, the milling of logs into lumber and      related operations and activities.  On January 18, 2007, Palco,      Scopac, Britt, SDLLC and Palco’s other subsidiaries (the “Debtors”) filed for      reorganization under Chapter 11 of the U.S. Bankruptcy Code (the “Bankruptcy Code”) in      the U.S. Bankruptcy Court for the Southern District of Texas (the “Bankruptcy      Court”).  See Note 1, “–Reorganization Proceedings of      Palco and its Subsidiaries.” |
|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

Real Estate Operations

|                                                                        |   |   |   |   |   | Book      Value as of December 31, 2007 |
|-----------------------------------------------------------------------------|--------|--------|--------|--------|--------|-----------------------------------------|
|                                                                        |   |   |   |   |   | (In      millions)                      |   |
|                                                                        |   |   |   |   |   |                                    |   |
| Palmas      del Mar (Puerto Rico):                                          |   |   |   |   |   |                                    |   |
|         Undeveloped land and parcels held for sale                |   |   | 988    |   | acres  |                                    | $ | 31.8 |   |
|         Property, plant and equipment, receivables and other, net |   |   |   |   |   |                                    |   | 6.1 |   |
|           Total                                         |   |   |   |   |   |                                    |   | 37.9 |   |
|   Resort      operations - Palmas Country Club      (1)           |   |   |   |   |   |                                    |   | 17.4 |   |
|           Total                                         |   |   |   |   |   |                                    |   | 55.3 |   |
| Fountain      Hills (Arizona):                                              |   |   |   |   |   |                                    |   |   |   |
|         Residential developed lots and lots under development     |   |   | 124    |   | lots   |                                    |   | 19.1 |   |
|         Undeveloped residential land                              |   |   | 431    |   | acres  |                                    |   | 4.6 |   |
|         Property, plant, equipment and receivables, net           |   |   |   |   |   |                                    |   | 1.2 |   |
|           Total                                         |   |   |   |   |   |                                    |   | 24.9 |   |
| Mirada      (California):                                                   |   |   |   |   |   |                                    |   |   |   |
|         Residential developed lots                                |   |   | 3      |   | lots   |                                    |   | 1.1 |   |
|         Property, plant, equipment and receivables, net           |   |   |   |   |   |                                    |   | 0.1 |   |
|           Total                                         |   |   |   |   |   |                                    |   | 1.2 |   |
| Commercial      lease properties:                                           |   |   |   |   |   |                                    |   |   |   |
|         Property, plant and equipment, net:                       |   |   |   |   |   |                                    |   |   |   |
|         Lake Pointe Plaza (Texas)                                 |   |   |   |   |   |                                    |   | 100.1 |   |
|         Cooper Cameron building (Texas)                           |   |   |   |   |   |                                    |   | 25.9 |   |
|         Motel 6 facilities (10 states)                            |   |   |   |   |   |                                    |   | 37.7 |   |
|         Other                                                     |   |   |   |   |   |                                    |   | 2.7 |   |
|           Total                                         |   |   |   |   |   |                                    |   | 166.4 |   |
| Other,      principally receivables                                         |   |   |   |   |   |                                    |   | 0.1 |   |
|           Total real estate properties and receivables  |   |   |   |   |   |                                    | $ | 247.9 |   |

| (1) | Palmas      Country Club operations include two 18-hole golf courses, a 20-court      tennis facility, a member clubhouse, and a beach club.  Amounts      shown are net of accumulateddepreciation. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                                                   |   | Book      Value as of December 31, 2007 |   |
|----------------------------------------------------------------------------------------|--------|-----------------------------------------|--------|
|                                                                                   |   | (In      millions)                      |   |
|                                                                                   |   |                                    |   |
| Joint      Ventures:                                                                   |   |                                    |   |
|        FireRock, LLC:                                                             |   |                                    |   |
|      Golf      course, clubhouse and other club facilities(1) |   | $                                       | 13.8   |   |
|      Other      property, plant and equipment, net(1)         |   |                                    | 2.3    |   |
|             Total                                        |   |                                    | 16.1   |   |
|      Investment      in FireRock, LLC(2)                      |   | $                                       | 0.4    |   |
|   RMCAL      Development LP:                                                 |   |                                    |   |   |
|           Residential units under development                      |   | $                                       | 32.4   |   |
|      Investment      in RMCAL Development LP(2)               |   | $                                       | 4.0    |   |
|                                                                                   |   |                                    |   |   |

| (1) | Amounts      reflect 100% of the book value of the joint venture’s    assets. |
|-----|-------------------------------------------------------------------------------------|

| (2) | Amounts      reflect the book value of the Company’s 50%  interest. |
|-----|---------------------------------------------------------------------------|

|                                                              |   | Years      Ended December 31, |   |
|-------------------------------------------------------------------|--------|-------------------------------|--------|
|                                                              |   | 2007                          |   |   | 2006 |   |
|                                                              |   | (In      millions)            |   |
|                                                              |   |                          |   |   |   |   |
| Palmas      del Mar:                                              |   |                          |   |   |   |   |
|         Real estate sales                               |   | $                             | 0.3    |   |   | $ | 27.6 |   |
|         Commercial, resort operations and other         |   |                          | 11.7   |   |   |   | 12.5 |   |
|            Total                         |   |                          | 12.0   |   |   |   | 40.1 |   |
| Fountain      Hills:                                              |   |                          |   |   |   |   |   |   |
|         Real estate sales                               |   |                          | 7.7    |   |   |   | 15.6 |   |
|         Commercial operations and other                 |   |                          | 3.3    |   |   |   | 3.7 |   |
|            Total                         |   |                          | 11.0   |   |   |   | 19.3 |   |
| Mirada:                                                           |   |                          |   |   |   |   |   |   |
|    Real      estate sales                          |   |                          | 3.0    |   |   |   | 26.6 |   |
|         Commercial operations and other                 |   |                          | 0.1    |   |   |   | 0.3 |   |
|            Total                         |   |                          | 3.1    |   |   |   | 26.9 |   |
| Commercial      lease properties:                                 |   |                          |   |   |   |   |   |   |
|         Lake Pointe Plaza                               |   |                          | 11.1   |   |   |   | 11.1 |   |
|         Cooper Cameron building                         |   |                          | 2.3    |   |   |   | 2.3 |   |
|         Motel 6 facilities                              |   |                          | 4.8    |   |   |   | 4.8 |   |
|         Other                                           |   |                          | 0.2    |   |   |   | 0.2 |   |
|       Total                         |   |                          | 18.4   |   |   |   | 18.4 |   |
| Other:                                                            |   |                          |   |   |   |   |   |   |
|         Commercial operations and other                 |   |                          | 0.2    |   |   |   | 0.2 |   |
|            Total                         |   |                          | 0.2    |   |   |   | 0.2 |   |
|                Total |   | $                             | 44.7   |   |   | $ | 104.9 |   |
|                                                              |   |                          |   |   |   |   |   |   |
| FireRock,      LLC(1):                                            |   |                          |   |   |   |   |   |   |
|         Golf course operations                          |   | $                             | 4.0    |   |   | $ | 3.7 |   |
|                                                              |   |                          |   |   |   |   |   |   |
| RMCAL      Development LP(1):                                     |   |                          |   |   |   |   |   |   |
|         Real estate sales                               |   | $                             | 17.1   |   |   | $ | 9.1 |   |
|                                                              |   |                          |   |   |   |   |   |   |

| (1) | Amounts      reflect 100% of the joint venture’srevenues. |
|-----|-----------------------------------------------------------------|

Racing Operations

----

Forest Products Operations

| (i)   | consenting      to the dilution of its indirect equity interest in both Palco and      Scopac; |
|-----------------|------------------------------------------------------------------------------------------------|

| (ii)   | providing      additional liquidity to Palco throughout the remainder of the case through      redwood log and/or lumber purchases (either directly or indirectly) in an      amount not to exceed $12.0 million, subject to Board    approval; |
|------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (iii)   | making      a $10.0 million cash equity contribution to reorganized Palco on the      effective date; |
|-------------------|-------------------------------------------------------------------------------------------------------|

| (iv)   | forgiving      $40.0 million of intercompanyindebtedness; |
|------------------|-----------------------------------------------------------|

| (v)   | using      its best efforts to assist the reorganized Debtors in obtaining exit      financing; and |
|-----------------|-----------------------------------------------------------------------------------------------------|

| (vi)   | assisting      the reorganized Debtors by providing its extensive real estate expertise      in connection with various post-confirmation aspects of the Joint      Plan. |
|------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

RISK FACTORS

|   | • | employment      levels and population growth andshifts; |
|--------|---------|---------------------------------------------------------|

|   | • | interest      rates and the availability offinancing; |
|--------|---------|-------------------------------------------------------|

|   | • | consumer      confidence; and |
|--------|---------|-------------------------------|

|   | • | changes      in the desirability of residential and commercial  areas. |
|--------|---------|------------------------------------------------------------------------|

----

| •   | a      variety of liquid money marketinstruments, |
|---------------------|---------------------------------------------------|

| •   | U.S.      equity securities and corporate debt securities, U.S. treasury obligations      and other debt securities, and |
|---------------------|--------------------------------------------------------------------------------------------------------------------------|

| •   | equity      interests in several limited partnerships which invest in diversified      portfolios of common stocks and equity securities, and exchange-traded      options, futures, forward foregoing currency contracts, and other      arbitrage opportunities. |
|---------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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ITEM1B.                           UNRESOLVEDSTAFF COMMENTS

ITEM2.                         PROPERTIES

ITEM3.                         LEGALPROCEEDINGS

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ITEM4.                         SUBMISSIONOF MATTERS TO A VOTE OF SECURITY HOLDERS

| ITEM 5. | MARKET      FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER      PURCHASES OF EQUITY SECURITIES |
|---------|------------------------------------------------------------------------------------------------------------------------------|

|                |   | 2007   |   |   | 2006   |   |
|---------------------|--------|--------|--------|--------|--------|--------|
|                |   | High   |   |   | Low    |   |   | High |   |   | Low |   |
|                |   |   |   |   |   |   |   |   |   |   |   |   |
| First      quarter  |   | $      | 30.00  |   |   | $      | 27.20 |   |   | $ | 35.60 |   |   | $ | 31.77 |   |
| Second      quarter |   |   | 32.00  |   |   |   | 27.60 |   |   |   | 33.00 |   |   |   | 26.75 |   |
| Third      quarter  |   |   | 29.00  |   |   |   | 26.25 |   |   |   | 28.50 |   |   |   | 27.00 |   |
| Fourth      quarter |   |   | 29.50  |   |   |   | 25.55 |   |   |   | 29.27 |   |   |   | 25.20 |   |

----

|                                                                                  |   | (a)                                                                                                   |      |   | (b)                                                                              |   |   | (c)                                                                                                                                                        |
|---------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------|-----------|--------|----------------------------------------------------------------------------------|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Plan      Category                                                                    |   | Number      of Securities to be Issued upon Exercise of Outstanding Options, Warrants      and Rights |      |   | Weighted-Average      Exercise Price of Outstanding Options, Warrants and Rights |   |   | Number      of Securities Remaining Available for Future Issuance under Equity      Compensation Plans (Excluding Securities Reflected in Column      (a)) |   |
|                                                                                  |   |                                                                                                  |      |   |                                                                             |   |   |                                                                                                                                                       |   |   |   |   |
| Equity      compensation plans approved by      security holders:                |   |                                                                                                  |      |   |                                                                             |   |   |                                                                                                                                                       |   |   |
|           Common Stock                                            |   |                                                                                                  | 1,019,086 |   |                                                                             | $      | 24.11  |                                                                                                                                                       |   |   |   |  |   |   | 101,554  | (1) |
|           Preferred Stock                                         |   |                                                                                                  | -         |   |                                                                             |   | -      |                                                                                                                                                       |   |   |   |   |   |   | 70,000  | (1) |
|                                                                                  |   |                                                                                                  |      |   |                                                                             |   |   |                                                                                                                                                       |   |   |   |   |   |   |   |   |
| Equity      compensation plans not   approved      by security holders |   |                                                                                                  | -         |   |                                                                             |   | -      |                                                                                                                                                       |   |   |   |   |   |   | -  |   |
|                                                                                  |   |                                                                                                  |      |   |                                                                             |   |   |                                                                                                                                                       |   |   |   |   |   |   |   |   |
| Total                                                                                 |   |                                                                                                  | 1,019,086 |   |                                                                             | $      | 24.11  |                                                                                                                                                       |   |   |   |   |   |   | 171,554,  | (1) |

| (1) | Includes      (a) 89,254 shares of Common Stock and 70,000 shares of Class A $0.05      Non-Cumulative Participating Convertible Preferred Stock (the “Class A Preferred      Stock”) available for issuance under the Company’s 2002 Omnibus      Employee Incentive Plan (the “2002 Omnibus Plan”),      and (b) 12,300 shares of Common Stock available for issuance under the      Company’s Non-Employee Director Stock Plan (the “Director      Plan”).  Awards under the 2002 Omnibus Plan may be made      in the form of incentive or non-qualified stock options, stock      appreciation rights, performance units or shares, and restricted and      unrestricted stock. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

ITEM6.                         SELECTEDFINANCIAL DATA

|                                                                                                                                                                                 | Years      Ended December 31, |                                                    |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------|---------------------------------------------------------|
|                                                                                                                                                                                 | 2007                          |                                                    |   | 2006 |   |   | 2005 |   |   | 2004 |   |   | 2003 |   |
|                                                                                                                                                                                 |                          | (In      millions of dollars, except per share amounts) |   |
|                                                                                                                                                                                 |                          |                                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Consolidated statement of      operations(1):                                                                                                                                        |                          |                                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
|           Sales(2)                                                                                                                                               |                          | $                                                       | 95.9 |   |   | $ | 291.5 |   |   | $ | 406.4 |   |   | $ | 347.5 |   |   | $ | 336.6 |   |
|           Income (loss) before income taxes, minority      interests and cumulative effect      of accounting      change (3) |                          |                                                    | (46.4 | ) |   |   | 370.9 |   |   |   | (4.1 | ) |   |   | (46.9 | ) |   |   | (10.6 | ) |
|           Income (loss) from continuing operations                                                                                                               |                          |                                                    | (46.9 | ) |   |   | 375.1 |   |   |   | (4.0 | ) |   |   | (46.9 | ) |   |   | (11.6 | ) |
|           Cumulative effect of accounting change                                                                                                                 |                          |                                                    | - |   |   |   | (0.7 | ) |   |   | - |   |   |   | - |   |   |   | - |   |
|           Net income (loss)                                                                                                                                      |                          |                                                    | (46.9 | ) |   |   | 374.4 |   |   |   | (4.0 | ) |   |   | (46.6 | ) |   |   | (11.6 | ) |
|                                                                                                                                                                                 |                          |                                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Consolidated balance sheet at      end of period(4):                                                                                                                                 |                          |                                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|           Total assets                                                                                                                                           |                          |                                                    | 518.9 |   |   |   | 1,009.9 |   |   |   | 1,048.3 |   |   |   | 1,015.2 |   |   |   | 1,060.8 |   |
|      Long-term      debt, less current maturities                                                                                                           |                          |                                                    | 211.2 |   |   |   | 885.4 |   |   |   | 889.6 |   |   |   | 912.0 |   |   |   | 953.5 |   |
|           Stockholders’ deficit                                                                                                                            |                          |                                                    | (261.2 | ) |   |   | (211.8 | ) |   |   | (661.3 | ) |   |   | (657.1 | ) |   |   | (601.9 | ) |
|                                                                                                                                                                                 |                          |                                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Per      share information:                                                                                                                                                          |                          |                                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|           Basic net income (loss) per share before             cumulative effect of accounting change                         |                          | $                                                       | (8.93 | ) |   | $ | 67.77 |   |   | $ | (0.66 | ) |   | $ | (7.79 | ) |   | $ | (1.79 | ) |
|                                                                                                                                                                                 |                          |                                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|           Basic net income (loss) per share             after cumulative effect of accounting change                          |                          |                                                    | (8.93 | ) |   |   | 67.64 |   |   |   | (0.66 | ) |   |   | (7.79 | ) |   |   | (1.79 | ) |
|                                                                                                                                                                                 |                          |                                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|           Diluted net income (loss) per share        before      cumulative effect of accounting change                  |                          |                                                    | (8.93 | ) |   |   | 59.82 |   |   |   | (0.66 | ) |   |   | (7.79 | ) |   |   | (1.79 | ) |
|                                                                                                                                                                                 |                          |                                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|           Diluted net income (loss) per share        after      cumulative effect of accounting change                   |                          |                                                    | (8.93 | ) |   |   | 59.71 |   |   |   | (0.66 | ) |   |   | (7.79 | ) |   |   | (1.79 | ) |

| (1) | Results      for the Debtors’ operations have only been included for the period from      January 1, 2007, through January 18, 2007. See Note 1 for a discussion of      the Chapter 11 filings of Debtors, including the effect on the Company’s      financial results. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | Sales      for the Company’s forest products operations are shown net of      discounts.  The Company’s remaining sales are shown on a gross      basis. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3) | Income      (loss) before income taxes and minority interests includes the following      items: |
|-----|--------------------------------------------------------------------------------------------------|

|   | • | 2006      includes a $430.9 million reversal of net investment in Kaiser Aluminum      Corporation (“Kaiser”), an $11.6      million gain from the sale by Palco and Scopac of certain of their      properties, and a $1.5 million charge for employee severance and benefit      costs at Palco and Scopac. |
|--------|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | 2005      includes a $0.7 million charge for employee severance and benefit costs at      Palco, a $1.9 million charge in connection with an environmental matter      associated with a former subsidiary of the Company, a $3.1 million gain      from an insurance settlement, a $4.6 million asset impairment charge at      Palco, and a $4.3 million benefit to correct the cumulative effect of an      overstatement of intercompany interest from 1995 to  2000. |
|--------|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | 2004      includes a $1.4 million charge for employee severance and benefit costs at      Palco and a $1.9 million charge in connection with an environmental matter      associated with a former subsidiary of the  Company. |
|--------|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | 2003      includes a gain on the sale of timberlands of $16.8 million, $8.0 million      of insurance recoveries related to the OTS and FDIC actions, and a      $1.4 million charge to write-down the Company’s casino-related assets to      estimated fair value. |
|--------|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (4) | As      a result of the deconsolidation of the Debtors, the Debtors’ amounts are      not included in the consolidated total as of December 31,      2007. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| ITEM 7. | MANAGEMENT’S      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF      OPERATIONS |
|---------|-------------------------------------------------------------------------------------------------------|

|                                                                                   |   | Years      Ended December 31, |   |
|----------------------------------------------------------------------------------------|--------|-------------------------------|--------|
|                                                                                   |   | 2007                          |   |   | 2006 |   |   | 2005 |   |
|                                                                                   |   | (In      millions of dollars) |   |
|                                                                                   |   |                          |   |   |   |   |   |   |   |
| Sales                                                                                  |   | $                             | 91.5   |   |   | $ | 151.5 |   |   | $ | 224.6 |   |
| Costs      and expenses                                                                |   |                          | (117.3 | ) |   |   | (128.8 | ) |   |   | (159.7 | ) |
| Reversal      of net investment in Kaiser                                              |   |                          | -      |   |   |   | 430.9 |   |   |   | - |   |
| Gains      on sales of assets                                                          |   |                          | 0.1    |   |   |   | - |   |   |   | - |   |
| Operating      income (loss)                                                           |   |                          | (25.7  | ) |   |   | 453.6 |   |   |   | 64.9 |   |
| Other      income                                                                      |   |                          | 1.6    |   |   |   | 8.0 |   |   |   | 14.6 |   |
| Interest      expense                                                                  |   |                          | (17.1  | ) |   |   | (17.2 | ) |   |   | (17.6 | ) |
| Income      (loss) before income taxes and cumulative effect of accounting      change |   |                          | (41.2  | ) |   |   | 444.4 |   |   |   | 61.9 |   |
| Benefit      (provision) for income taxes                                              |   |                          | (0.5   | ) |   |   | (0.8 | ) |   |   | 0.1 |   |
| Income      (loss) before cumulative effect of accounting change                       |   | $                             | (41.7  | ) |   | $ | 443.6 |   |   | $ | 62.0 |   |
| Cumulative      effect of accounting change, net of tax                                |   |                          | -      |   |   |   | (0.7 | ) |   |   | - |   |
| Net      income (loss)                                                                 |   | $                             | (41.7  | ) |   | $ | 442.9 |   |   | $ | 62.0 |   |
|                                                                                   |   |                          |   |   |   |   |   |   |   |   |   |   |
| Revenues      by segment as a percentage of total:                                     |   |                          |   |   |   |   |   |   |   |   |   |   |
| Real      estate                                                                       |   |                          | 48.8   | % |   |   | 69.2 | % |   |   | 79.4 | % |
| Racing                                                                                 |   |                          | 51.2   | % |   |   | 30.8 | % |   |   | 20.6 | % |
|                                                                                   |   |                          | 100.0  | % |   |   | 100.0 | % |   |   | 100.0 | % |

----

|                                                                                                    |   | Years      Ended December 31, |   |
|---------------------------------------------------------------------------------------------------------|--------|-------------------------------|--------|
|                                                                                                    |   | 2007                          |   |   | 2006 |   |   | 2005 |   |
|                                                                                                    |   | (In      millions of dollars) |   |
|                                                                                                    |   |                          |   |   |   |   |   |   |   |
| Sales:                                                                                                  |   |                          |   |   |   |   |   |   |   |
| Real      estate:                                                                                       |   |                          |   |   |   |   |   |   |   |
|         Fountain Hills                                                                        |   | $                             | 7.7    |   |   | $ | 15.6 |   |   | $ | 42.9 |   |
|         Mirada                                                                                |   |                          | 3.0    |   |   |   | 26.6 |   |   |   | 56.9 |   |
|         Palmas                                                                                |   |                          | 0.3    |   |   |   | 27.6 |   |   |   | 42.3 |   |
|         Other                                                                                 |   |                          | -      |   |   |   | - |   |   |   | 0.1 |   |
|              Total                                                   |   |                          | 11.0   |   |   |   | 69.8 |   |   |   | 142.2 |   |
|                                                                                                    |   |                          |   |   |   |   |   |   |   |   |   |   |
| Resort,      commercial and other:                                                                      |   |                          |   |   |   |   |   |   |   |   |   |   |
|         Fountain Hills                                                                        |   |                          | 3.3    |   |   |   | 3.7 |   |   |   | 5.4 |   |
|         Palmas                                                                                |   |                          | 11.7   |   |   |   | 12.5 |   |   |   | 12.1 |   |
|         Commercial lease properties                                                           |   |                          | 18.4   |   |   |   | 18.4 |   |   |   | 18.3 |   |
|         Other                                                                                 |   |                          | 0.3    |   |   |   | 0.5 |   |   |   | 0.3 |   |
|              Total                                                   |   | $                             | 33.7   |   |   | $ | 35.1 |   |   | $ | 36.1 |   |
|                                                                                                    |   |                          |   |   |   |   |   |   |   |   |   |   |
| Total      sales                                                                                        |   | $                             | 44.7   |   |   | $ | 104.9 |   |   | $ | 178.3 |   |
|                                                                                                    |   |                          |   |   |   |   |   |   |   |   |   |   |
| Operating      income (loss):                                                                           |   |                          |   |   |   |   |   |   |   |   |   |   |
|         Fountain Hills                                                                        |   | $                             | 0.1    |   |   | $ | 6.6 |   |   | $ | 23.3 |   |
|         Mirada                                                                                |   |                          | 1.6    |   |   |   | 14.6 |   |   |   | 35.9 |   |
|         Palmas                                                                                |   |                          | (12.8  | ) |   |   | 8.2 |   |   |   | 22.6 |   |
|         Commercial lease properties                                                           |   |                          | 10.6   |   |   |   | 9.4 |   |   |   | 8.3 |   |
|         Other                                                                                 |   |                          | (1.3   | ) |   |   | (1.4 | ) |   |   | (1.1 | ) |
|         Total operating income (loss)                                                         |   | $                             | (1.8   | ) |   | $ | 37.4 |   |   | $ | 89.0 |   |
|                                                                                                    |   |                          |   |   |   |   |   |   |   |   |   |   |
| Investment,      interest and other income:                                                             |   |                          |   |   |   |   |   |   |   |   |   |   |
|         Equity in earning (losses) from real estate joint ventures                            |   | $                             | -      |   |   | $ | (0.4 | ) |   | $ | (1.0 | ) |
|         Other                                                                                 |   |                          | 1.7    |   |   |   | 5.5 |   |   |   | 3.4 |   |
|                                                                                                    |   | $                             | 1.7    |   |   | $ | 5.1 |   |   | $ | 2.4 |   |
|                                                                                                    |   |                          |   |   |   |   |   |   |   |   |   |   |
| Interest      expense                                                                                   |   |                          | (17.0  | ) |   |   | (17.3 | ) |   |   | (17.4 | ) |
|                                                                                                    |   |                          |   |   |   |   |   |   |   |   |   |   |
| Income      (loss) before income taxes and cumulative   effect      of accounting change |   | $                             | (17.1  | ) |   | $ | 25.2 |   |   | $ | 74.0 |   |

----

----

|                                                                               |                                      | Years      Ended December 31,                                                       |
|------------------------------------------------------------------------------------|-------------------------------------------|-------------------------------------------------------------------------------------|
|                                                                               |                                      | 2007                                                                                |   | 2006 |   | 2005 |
|                                                                               |        (In      millions of dollars) |
|                                                                               |                                      |                                                                                |   |   |   |   |   |   |   |
| Number      of live racing days:                                                   |                                      |                                                                                |   |   |   |   |   |   |   |
|           Sam Houston Race Park                                |                                      |                                                                                | 104 |   |   | 110 |   |   | 120 |
|           Valley Race Park                                     |                                      |                                                                                | 99 |   |   | 94 |   |   | 89 |
|                                                                               |                                      |                                                                                |   |   |   |   |   |   |   |
| Handle:                                                                            |                                      |                                                                                |   |   |   |   |   |   |   |
|           Sam Houston Race Park:                               |                                      |                                                                                |   |   |   |   |   |   |   |
|             On-track handle                          |                                      | $                                                                                   |            124.2 |   | $ |            132.0 |   | $ |            126.6 |
|             Off-track handle                         |                                      |                                                                                |            122.7 |   |   |            132.7 |   |   |            140.9 |
|              Total                              |                                      | $                                                                                   |            246.9 |   | $ |            264.7 |   | $ |            267.5 |
|                                                                               |                                      |                                                                                |   |   |   |   |   |   |   |
|        Valley Race Park:                                                      |                                      |                                                                                |   |   |   |   |   |   |   |
|             On-track handle                          |                                      | $                                                                                   |              17.4 |   | $ |              18.2 |   | $ |              19.0 |
|             Off-track handle                         |                                      |                                                                                |                3.9 |   |   |                3.4 |   |   |                2.5 |
|              Total                              |                                      | $                                                                                   |              21.3 |   | $ |              21.6 |   | $ |              21.5 |
|                                                                               |                                      |                                                                                |   |   |   |   |   |   |   |
| Sales:                                                                             |                                      |                                                                                |   |   |   |   |   |   |   |
|        Sam Houston Race Park:                                                 |                                      |                                                                                |   |   |   |   |   |   |   |
|           Gross pari-mutuel commissions                        |                                      | $                                                                                   |              31.0 |   | $ |              32.8 |   | $ |              32.1 |
|           Other revenues                                       |                                      |                                                                                |              10.7 |   |   |                8.5 |   |   |                8.8 |
|              Total                              |                                      |                                                                                |              41.7 |   |   |              41.3 |   |   |              40.9 |
|        Valley Race Park:                                                      |                                      |                                                                                |   |   |   |   |   |   |   |
|           Gross pari-mutuel commissions                        |                                      |                                                                                |                4.1 |   |   |                4.3 |   |   |                4.4 |
|           Other revenues                                       |                                      |                                                                                |                1.0 |   |   |                1.0 |   |   |                1.0 |
|              Total                              |                                      |                                                                                |                5.1 |   |   |                5.3 |   |   |                5.4 |
|           Total sales                                          |                                      | $                                                                                   |              46.8 |   | $ |              46.6 |   | $ |              46.3 |
|                                                                               |                                      |                                                                                |   |   |   |   |   |   |   |
| Operating      loss:                                                               |                                      |                                                                                |   |   |   |   |   |   |   |
|        Sam Houston Race Park                                                  |                                      | $                                                                                   |              (6.6) |   | $ |              (2.4) |   | $ |               (2.8) |
|        Valley Race Park                                                       |                                      |                                                                                |              (0.9) |   |   |              (0.9) |   |   |               (0.6) |
|        Other                                                                  |                                      |                                                                                |              (0.6) |   |   |              (1.3) |   |   |               (0.7) |
|      Total      operating loss                            |                                      | $                                                                                   |              (8.1) |   | $ |              (4.6) |   | $ |               (4.1) |
|                                                                               |                                      |                                                                                |   |   |   |   |   |   |   |
| Loss      before income taxes and cumulative      effect of accounting change | $                                         |              (8.0) |   | $ |              (4.4) |   | $ |               (4.1) |
|                                                                               |                                      |                                                                                |   |   |   |   |   |   |   |

----

|                                                                                                                                    | Years      Ended December 31, |   |
|-----------------------------------------------------------------------------------------------------------------------------------------|-------------------------------|--------|
|                                                                                                                                    | 2007                          |   | 2006 |   | 2005 |   |
|                                                                                                                                    | (In      millions of dollars) |   |
|                                                                                                                                    |                          |   |   |   |   |   |   |   |   |
| Reversal      of net investment in Kaiser (see Note 1)                                                                                  |                          | $      | - |   |   | $ | 430.9 |   |   | $ | - |   |
| Operating      loss, excluding reversal of net investment in Kaiser                                                                     |                          |   | (13.8 | ) |   |   | (5.6 | ) |   |   | (16.0 | ) |
| Loss      before income taxes and cumulative effect of   accounting      change and reversal of net investment in Kaiser |                          |   | (14.2 | ) |   |   | (2.8 | ) |   |   | (4.1 | ) |

|                                                                        | Years      Ended December 31, |   |
|-----------------------------------------------------------------------------|-------------------------------|--------|
|                                                                        | 2007                          |   | 2006 |   |   | 2005 |   |
|                                                                        | (In      millions of dollars) |   |
|                                                                        |                          |   |   |   |   |   |   |   |   |
| Operating      loss                                                         |                          | $      | (1.9 | ) |   | $ | (4.4 | ) |   | $ | (4.0 | ) |
| Loss      before income taxes and cumulative effect of accounting    change |                          |   | (1.9 | ) |   |   | (4.3 | ) |   |   | (3.9 | ) |

|                                                                                           |   | Years      Ended December 31,                                                         |   |
|------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------|--------|
|                                                                                           |   | 2007                                                                                  |   |   | 2006 |   |   | 2005 |   |
|                                                                                           |   | (In      millions of dollars, exceptharvest,      shipments and average sales prices) |   |
|                                                                                           |   |                                                                                  |   |   |   |   |   |   |   |
|                                                                                           |   |                                                                                  |   |   |   |   |   |   |   |
| Timber      harvest(1)                                                                         |   |                                                                                  | 74.2   |   |   |   | 99.6 |   |   |   | 145.5 |   |
|                                                                                           |   |                                                                                  |   |   |   |   |   |   |   |   |   |   |
| Shipments:                                                                                     |   |                                                                                  |   |   |   |   |   |   |   |   |   |   |
|         Lumber:(2)                                                                   |   |                                                                                  |   |   |   |   |   |   |   |   |   |   |
|            Redwood upper grades                                       |   |                                                                                  | 4.8    |   |   |   | 3.4 |   |   |   | 6.4 |   |
|            Redwood common grades                                      |   |                                                                                  | 84.5   |   |   |   | 136.5 |   |   |   | 178.8 |   |
|            Douglas-fir upper grades                                   |   |                                                                                  | -      |   |   |   | - |   |   |   | 0.6 |   |
|            Douglas-fir common grades                                  |   |                                                                                  | 30.5   |   |   |   | 66.7 |   |   |   | 92.6 |   |
|            Other                                                      |   |                                                                                  | 0.1    |   |   |   | - |   |   |   | 3.6 |   |
|   Total      lumber                                                                  |   |                                                                                  | 119.9  |   |   |   | 206.6 |   |   |   | 282.0 |   |
|        Cogeneration power(3)                                                              |   |                                                                                  | 97.0   |   |   |   | 111.3 |   |   |   | 164.0 |   |
|                                                                                           |   |                                                                                  |   |   |   |   |   |   |   |   |   |   |
| Average      sales price:                                                                      |   |                                                                                  |   |   |   |   |   |   |   |   |   |   |
|         Lumber:(4)                                                                   |   |                                                                                  |   |   |   |   |   |   |   |   |   |   |
|            Redwood upper grades                                       |   | $                                                                                     | 1,467  |   |   | $ | 1,671 |   |   | $ | 1,243 |   |
|            Redwood common grades                                      |   |                                                                                  | 810    |   |   |   | 678 |   |   |   | 620 |   |
|            Douglas-fir upper grades                                   |   |                                                                                  | 320    |   |   |   | 549 |   |   |   | 914 |   |
|            Douglas-fir common grades                                  |   |                                                                                  | 296    |   |   |   | 351 |   |   |   | 373 |   |
|        Cogeneration power(5)                                                              |   |                                                                                  | 81     |   |   |   | 73 |   |   |   | 65 |   |
|                                                                                           |   |                                                                                  |   |   |   |   |   |   |   |   |   |   |
| Sales:                                                                                         |   |                                                                                  |   |   |   |   |   |   |   |   |   |   |
|        Lumber, net of discount                                                            |   | $                                                                                     | 80.1   |   |   | $ | 121.6 |   |   | $ | 155.9 |   |
|        Logs                                                                               |   |                                                                                  | 15.1   |   |   |   | 3.5 |   |   |   | 8.2 |   |
|        Cogeneration power(5)                                                              |   |                                                                                  | 8.1    |   |   |   | 8.5 |   |   |   | 10.9 |   |
|        Wood chips                                                                         |   |                                                                                  | 3.6    |   |   |   | 2.7 |   |   |   | 3.5 |   |
|        Other                                                                              |   |                                                                                  | 3.5    |   |   |   | 3.7 |   |   |   | 3.3 |   |
|           Total sales                                                      |   | $                                                                                     | 110.4  |   |   | $ | 140.0 |   |   | $ | 181.8 |   |
| Operating      loss(6)                                                                         |   | $                                                                                     | (55.4  | ) |   | $ | (9.1 | ) |   | $ | (13.4 | ) |
| Loss      before income taxes and cumulative   effect      of accounting change |   | $                                                                                     | (139.8 | ) |   | $ | (78.0 | ) |   | $ | (69.9 | ) |

| (1) |  Timber      harvest is expressed in millions of board feet, net Scribner      scale. |
|-----|--------------------------------------------------------------------------------------------|

| (2) |  Lumber      shipments are expressed in millions of board  feet. |
|-----|-----------------------------------------------------------------------|

| (3) |  Power      deliveries are expressed in thousands of megawatt  hours. |
|-----|----------------------------------------------------------------------------|

| (4) |  Dollars      per thousand board feet. |
|-----|---------------------------------------------|

| (5) |  Dollars      per megawatt hour. |
|-----|---------------------------------------|

| (6)   | • | Operating      losses for 2007 includes bankruptcy-related legal and advisor fees of      $34.1 million. |
|-----------------|---------|----------------------------------------------------------------------------------------------------------|

|   | • | Operating      losses for 2006 includes an $11.6 million gain from the sale by Palco and      Scopac of certain of theirproperties. |
|--------|---------|-------------------------------------------------------------------------------------------------------------------------------------|

|   | • | Operating      losses for 2006 and 2005 include a $0.7 million and $4.6 million,      respectively, of impairment charges related    to the      write-down to estimated salvage value of certain long-lived      assets. |
|--------|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

----

|                                                                                                                       | Real      Estate                    |   | Racing |   |   | MGI    |   |   | MAXXAM      Parent |   |   | Total  |   |
|----------------------------------------------------------------------------------------------------------------------------|-------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------------------|--------|--------|--------|--------|
|                                                                                                                       |  (In      millions of dollars) |
|                                                                                                                       |                                |   |   |   |   |   |   |   |               |   |   |   |   |   |   |
| Debt and credit facilities (excluding      intercompany notes)                                                   |                                |   |   |   |   |   |   |   |               |   |   |   |   |   |
|         Short-term borrowings and current maturities           of long-term debt:  |                                |   |   |   |   |   |   |   |               |   |   |   |   |   |
|            December 31, 2007                                                                      |                                | $      | 5.2    |   |   | $      | 0.1    |   |               | $      | -      |   |   | $ | - |   |   | $ | 5.3 |   |
|            December 31, 2006                                                                      |                                |   | 4.7    |   |   |   | 0.2    |   |               |   | -      |   |   |   | - |   |   |   | 4.9 |   |
|                                                                                                                       |                                |   |   |   |   |   |   |   |               |   |   |   |   |   |   |   |   |   |   |   |
|    Long-term      debt, excluding current maturities and           discounts: |                                |   |   |   |   |   |   |   |               |   |   |   |   |   |   |   |   |   |
|            December 31, 2007                                                                      |                                | $      | 210.4  |   |   | $      | 0.8    |   |               | $      | -      |   |   | $ | - |   |   | $ | 211.2 |   |
|            December 31, 2006                                                                      |                                |   | 215.3  |   |   |   | 0.2    |   |               |   | -      |   |   |   | - |   |   |   | 215.5 |   |
|                                                                                                                       |                                |   |   |   |   |   |   |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Cash, cash equivalents, marketable      securities and other  investments                              |                                |   |   |   |   |   |   |   |               |   |   |   |   |   |
|            December 31, 2007                                                                      |                                |   |   |   |   |   |   |   |               |   |   |   |   |   |   |   |   |   |   |   |
|            Current restricted amounts                                                        |                                | $      | 0.2    |   |   | $      | 2.1    |   |               | $      | -      |   |   | $ | - |   |   | $ | 2.3 |   |
|            Other current amounts                                                                  |                                |   | 12.9   |   |   |   | 1.4    |   |               |   | 0.1    |   |   |   | 99.6 |   |   |   | 114.0 |   |
|                                                                                                                       |                                |   | 13.1   |   |   |   | 3.5    |   |               |   | 0.1    |   |   |   | 99.6 |   |   |   | 116.3 |   |
|                                                                                                                       |                                |   |   |   |   |   |   |   |               |   |   |   |   |   |   |   |   |   |   |   |
|            Long-term unrestricted investments                                                     |                                |   | -      |   |   |   | -      |   |               |   | -      |   |   |   | 8.9 |   |   |   | 8.9 |   |
|            Long-term restricted  amounts                                                |                                |   | 3.6    |   |   |   | -      |   |               |   | -      |   |   |   | - |   |   |   | 3.6 |   |
|                                                                                                                       |                                | $      | 16.7   |   |   | $      | 3.5    |   |               | $      | 0.1    |   |   | $ | 108.5 |   |   | $ | 128.8 |   |

----

|                                                                                                                                                                                    | Real      Estate                          |   | Racing |   | MGI    |   | MAXXAM      Parent |   |   | Total  |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------|--------|--------|--------|--------|--------|--------------------|--------|--------|--------|--------|
|                                                                                                                                                                                    |        (In      millions of dollars) |
|                                                                                                                                                                               |                                      |   |   |   |   |   |               |   |   |   |   |   |   |   |   |   |   |
| Changes      in cash and cash   equivalents                                                                                                                              |                                      |   |   |   |   |   |               |   |   |   |   |   |   |   |   |   |   |
|     Capital      expenditures:                                                                                                                                      |                                      |   |   |   |   |   |               |   |   |   |   |   |   |   |   |   |   |
|            December 31, 2007                                                                                                                                   |                                      | $      | 2.0    |   |   |   | $                  | 2.9    |   |   | $      | - |   |   |   | $ | 0.1 |   |   | $ | 5.0 |   |
|            December 31, 2006                                                                                                                                   |                                      |   | 1.7    |   |   |   |               | 0.6    |   |   |   | - |   |   |   |   | - |   |   |   | 2.3 |   |
|            December 31, 2005                                                                                                                                   |                                      |   | 1.2    |   |   |   |               | 3.4    |   |   |   | - |   |   |   |   | 0.4 |   |   |   | 5.0 |   |
|                                                                                                                                                                                    |                                      |   |   |   |   |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|         Net proceeds from dispositions           of property and investments:                                                                        |                                      |   |   |   |   |   |               |   |   |   |   |   |   |   |   |   |   |   |   |
|            December 31, 2007                                                                                                                                   |                                      | $      | 0.1    |   |   |   | $                  | -      |   |   | $      | - |   |   |   | $ | - |   |   | $ | 0.1 |   |
|            December 31, 2006                                                                                                                                   |                                      |   | -      |   |   |   |               | -      |   |   |   | - |   |   |   |   | - |   |   |   | - |   |
|            December 31, 2005                                                                                                                                        |                                      |   | -      |   |   |   |               | -      |   |   |   | - |   |   |   |   | - |   |   |   | - |   |
|                                                                                                                                                                                    |                                      |   |   |   |   |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    Borrowings      (repayments) of           debt and credit facilities,           net of financing costs:                  |                                      |   |   |   |   |   |               |   |   |   |   |   |   |   |
|            December 31, 2007                                                                                                                                   |                                      | $      | (4.3   | )      |   |   | $                  | 0.6    |   |   | $      | - |   |   |   | $ | - |   |   | $ | (3.7 | ) |
|            December 31, 2006                                                                                                                                   |                                      |   | (3.8   | )      |   |   |               | -      |   |   |   | - |   |   |   |   | - |   |   |   | (3.8 | ) |
|            December 31, 2005                                                                                                                                   |                                      |   | (4.6   | )      |   |   |               | (0.1   | )      |   |   | - |   |   |   |   | - |   |   |   | (4.7 | ) |
|                                                                                                                                                                                    |                                      |   |   |   |   |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    Dividends,      advances including      interest      paid and tax sharing           payments received (paid): |                                      |   |   |   |   |   |               |   |   |   |   |
|            December 31, 2007                                                                                                                                   |                                      | $      | 5.8    |   |   |   | $                  | 5.8    |   |   | $      | (0.4 | ) |   |   | $ | (11.2 | ) |   | $ | - |   |
|            December 31, 2006                                                                                                                                   |                                      |   | (58.8  | )      |   |   |               | 1.0    |   |   |   | 2.8 |   |  (1)(2) |   |   | 22.4 |   |   |   | (32.6 | ) |
|            December 31, 2005                                                                                                                                   |                                      |   | (66.2  | )      |   |   |               | 9.3    |   |   |   | 1.7 |   |   |   |   | 47.2 |   |   |   | (8.0 | ) |

| (1) | Advances      of $8.1 million were used by MGI to fund timber/log purchases from Scopac      during 2006.  At December 31, 2006, $1.6 million of timber/log      purchases had not been settled. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | Reflects      $21.0 million of intercompany loans from MGI to Palco used to fund Palco’s      liquidity shortfalls and $10.0 million of additional intercompany loans      from MGI required in connection with the closing of the Palco Term Loan      and the Palco Revolving Credit Facility in July  2006. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                                                                                                        |   |        |  Payments      Due by Period |        |
|-----------------------------------------------------------------------------------------------------------------------------|--------|-------------|-----------------------------------|-------------|
| Contractual      Obligations                                                                                                |        |  Total |                              | 2008        |   |   | 2009 |   |   | 2010 |   |   | 2011 |   |   | 2012 |   |   | Thereafter |   |
|                                                                                                                        |   |        |                              |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Debt      obligations                                                                                                       |   |        | $                                 |  216.5 |   | $ | 5.3 |   |   | $ | 5.9 |   |   | $ | 6.4 |   |   | $ | 6.9 |   |   | $ | 7.7 |   |   | $ | 184.3 |   |
| Interest      due on long-term   debt      obligations                                                       |   |        |                              |  182.0 |   |   | 16.0 |   |   |   | 15.6 |   |   |   | 15.2 |   |   |   | 14.8 |   |   |   | 14.3 |   |   |   | 106.1 |   |
| Operating      lease obligations                                                                                            |   |        |                              |  6.5   |   |   | 1.2 |   |   |   | 1.4 |   |   |   | 1.2 |   |   |   | 0.9 |   |   |   | 0.8 |   |   |   | 1.0 |   |
| Pension      funding obligations                                                                                            |   |        |                              |  3.1   |   |   | 0.7 |   |   |   | 0.6 |   |   |   | 0.3 |   |   |   | 0.5 |   |   |   | 0.5 |   |   |   | 0.5 |   |
| Other      long-term liabilities   reflected      on the Company's   balance      sheet(1)(2) |   |        |                              |  5.0   |   |   | 3.5 |   |   |   | 1.5 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Total                                                                                                                       |   |        |  $                           |  413.1 |   | $ | 26.7 |   |   | $ | 25.0 |   |   | $ | 23.1 |   |   | $ | 23.1 |   |   | $ | 23.3 |   |   | $ | 291.9 |   |

|   | • | $1.9      million in 2008 under the terms of various executive compensation      agreements. |
|--------|---------|----------------------------------------------------------------------------------------------|

|   | • | $0.4      million in 2008 and $1.5 million in 2009 for PDMPI’s cost sharing      agreement with the Puerto Rico Power Authority for the construction of an      electrical substation that will provide capacity to new projects within      Palmas. |
|--------|---------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | $1.2      million in 2008 for contractual amounts owed under agreements with various      professional firms (principally audit and tax compliance      fees). |
|--------|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | Excludes      liabilities for litigation, environmental remediation, self-insurance      claims, and other contingent liabilities due to the uncertainty as to when      cash payments will be required. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

ITEM7A

----

ITEM8.  

REPORT OF INDEPENDENT REGISTERED PUBLICACCOUNTING FIRM

----

| MAXXAM      INC. AND SUBSIDIARIES                                                                                                                                                                                                                                                                                             |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                          |
| CONSOLIDATED BALANCE    SHEETS                                                                                                                                                                                                                                                                                                |
| (In      millions of dollars, except share information)                                                                                                                                                                                                                                                                       |
|                                                                                                                                                                                                                                                                                                                          |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                          | December      31, |   |
|                                                                                                                                                                                                                                                                                                                          | 2007 |   |   | 2006 |   |
| Assets                                                                                                                                                                                                                                                                                                                        |   |   |   |   |   |   |
| Current      assets:                                                                                                                                                                                                                                                                                                          |   |   |   |   |   |   |
|         Cash and cash equivalents                                                                                                                                                                                                                                                                                   |   | $ | 67.8 |   |   | $ | 34.8 |   |
|         Marketable securities and other short-term investments                                                                                                                                                                                                                                                      |   |   | 46.2 |   |   |   | 126.2 |   |
|         Receivables:                                                                                                                                                                                                                                                                                                |   |   |   |   |   |   |   |   |
|            Trade, net of allowance for doubtful accounts of $0.5 and $0.7,      respectively                                                                                                                                                                                                         |   |   | 3.0 |   |   |   | 9.9 |   |
|            Other                                                                                                                                                                                                                                                                                     |   |   | 1.6 |   |   |   | 9.7 |   |
|         Inventories:                                                                                                                                                                                                                                                                                                |   |   |   |   |   |   |   |   |
|            Lumber                                                                                                                                                                                                                                                                                    |   |   | - |   |   |   | 16.3 |   |
|            Logs                                                                                                                                                                                                                                                                                      |   |   | - |   |   |   | 25.5 |   |
|         Real estate inventory                                                                                                                                                                                                                                                                                       |   |   | 3.9 |   |   |   | 5.8 |   |
|         Prepaid expenses and other current assets                                                                                                                                                                                                                                                                   |   |   | 2.9 |   |   |   | 16.2 |   |
|         Restricted cash and marketable securities                                                                                                                                                                                                                                                                   |   |   | 2.3 |   |   |   | 43.1 |   |
|               Total current assets                                                                                                                                                                                                                                                    |   |   | 127.7 |   |   |   | 287.5 |   |
| Property,      plant and equipment, net of accumulated depreciation of $99.1      and   $234.5,      respectively                                                                                                                                                                                              |   |   | 219.8 |   |   |   | 337.0 |   |
| Timber      and timberlands, net of accumulated depletion of $232.2 at December 31,      2006                                                                                                                                                                                                                                 |   |   | - |   |   |   | 200.3 |   |
| Real      estate inventory                                                                                                                                                                                                                                                                                                    |   |   | 52.7 |   |   |   | 46.0 |   |
| Deferred      income taxes                                                                                                                                                                                                                                                                                                    |   |   | 94.7 |   |   |   | 97.5 |   |
| Intangible      assets                                                                                                                                                                                                                                                                                                        |   |   | - |   |   |   | 2.0 |   |
| Deferred      financing costs                                                                                                                                                                                                                                                                                                 |   |   | 4.9 |   |   |   | 22.6 |   |
| Long-term      receivables and other assets                                                                                                                                                                                                                                                                                   |   |   | 15.5 |   |   |   | 8.8 |   |
| Restricted      cash and marketable securities                                                                                                                                                                                                                                                                                |   |   | 3.6 |   |   |   | 8.2 |   |
|                                                                                                                                                                                                                                                                                                                          |   | $ | 518.9 |   |   | $ | 1,009.9 |   |
| Liabilities      and Stockholders' Deficit                                                                                                                                                                                                                                                                                    |   |   |   |   |   |   |   |   |
| Current      liabilities:                                                                                                                                                                                                                                                                                                     |   |   |   |   |   |   |   |   |
|         Accounts payable                                                                                                                                                                                                                                                                                            |   | $ | 6.5 |   |   | $ | 10.0 |   |
|         Accrued interest                                                                                                                                                                                                                                                                                            |   |   | 0.9 |   |   |   | 28.8 |   |
|         Accrued compensation and related benefits                                                                                                                                                                                                                                                                   |   |   | 2.3 |   |   |   | 13.8 |   |
|         Accrued development costs                                                                                                                                                                                                                                                                                   |   |   | 1.6 |   |   |   | 1.8 |   |
|         Accrued other taxes                                                                                                                                                                                                                                                                                         |   |   | 1.3 |   |   |   | 2.6 |   |
|         Deferred revenue                                                                                                                                                                                                                                                                                            |   |   | 0.7 |   |   |   | 1.8 |   |
|         Other accrued liabilities                                                                                                                                                                                                                                                                                   |   |   | 14.0 |   |   |   | 20.1 |   |
|         Short-term borrowings and current maturities of long-term    debt                                                                                                                                                                                                                                           |   |   | 5.3 |   |   |   | 180.7 |   |
|              Total current liabilities                                                                                                                                                                                                                                                     |   |   | 32.6 |   |   |   | 259.6 |   |
| Long-term      debt, less current maturities                                                                                                                                                                                                                                                                                  |   |   | 211.2 |   |   |   | 885.4 |   |
| Accrued      pension and other postretirement benefits                                                                                                                                                                                                                                                                        |   |   | 7.0 |   |   |   | 20.8 |   |
| Other      noncurrent liabilities                                                                                                                                                                                                                                                                                             |   |   | 45.1 |   |   |   | 55.9 |   |
| Losses      in excess of investment in Debtors                                                                                                                                                                                                                                                                                |   |   | 484.2 |   |   |   | - |   |
|              Total liabilities                                                                                                                                                                                                                                                             |   |   | 780.1 |   |   |   | 1,221.7 |   |
| Commitments      and contingencies (see Note 10)                                                                                                                                                                                                                                                                              |   |   |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                          |   |   |   |   |   |   |   |   |
| Stockholders'      deficit:                                                                                                                                                                                                                                                                                                   |   |   |   |   |   |   |   |   |
|         Preferred stock, $0.50 par value; $0.75 liquidation preference; 2,500,000      shares           authorized; Class A $0.05 Non-Cumulative Participating      Convertible           Preferred Stock; 668,964 shares issued; 668,119 shares      outstanding |   |   | 0.3 |   |   |   | 0.3 |   |
| Common      stock, $0.50 par value; 13,000,000 shares authorized;      10,063,359   shares      issued; 5,248,717 and 5,257,657 outstanding, respectively                                                                                                                                                      |   |   | 5.0 |   |   |   | 5.0 |   |
| Additional      capital                                                                                                                                                                                                                                                                                                       |   |   | 225.3 |   |   |   | 225.3 |   |
| Accumulated      deficit                                                                                                                                                                                                                                                                                                      |   |   | (342.9 | ) |   |   | (296.0 | ) |
| Accumulated      other comprehensive income (loss)                                                                                                                                                                                                                                                                            |   |   | (1.2 | ) |   |   | 1.0 |   |
| Treasury      stock, at cost (shares held:  preferred - 845; common -      4,814,642 and   4,805,702      , respectively)                                                                                                                                                                            |   |   | (147.7 | ) |   |   | (147.4 | ) |
|               Total stockholders' deficit                                                                                                                                                                                                                                             |   |   | (261.2 | ) |   |   | (211.8 | ) |
|                                                                                                                                                                                                                                                                                                                          |   | $ | 518.9 |   |   | $ | 1,009.9 |   |

----

| MAXXAM      INC. AND SUBSIDIARIES                                                                                                         |                          |
|-------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------|
|                                                                                                                                      |                          |
| CONSOLIDATED STATEMENTS OF OPERATIONS                                                                                                     |                          |
| (In      millions of dollars, except per share information)                                                                               |                          |
|                                                                                                                                      |                          |   |   |   |   |   |   |   |   |
|                                                                                                                                      | Years      Ended December 31, |   |
|                                                                                                                                      | 2007                          |   |   | 2006 |   |   | 2005 |   |
|                                                                                                                                      |                          |   |   |   |   |   |   |   |   |
| Sales:                                                                                                                                    |                          |   |   |   |   |   |   |   |   |
|         Real estate                                                                                                             |                          | $ | 44.7 |   |   | $ | 104.9 |   |   | $ | 178.3 |   |
|         Racing                                                                                                                  |                          |   | 46.8 |   |   |   | 46.6 |   |   |   | 46.3 |   |
|         Forest products, net of discounts                                                                                       |                          |   | 4.4 |   |   |   | 140.0 |   |   |   | 181.8 |   |
|                                                                                                                                      |                          |   | 95.9 |   |   |   | 291.5 |   |   |   | 406.4 |   |
|                                                                                                                                      |                          |   |   |   |   |   |   |   |   |   |   |   |
| Cost      and expenses:                                                                                                                   |                          |   |   |   |   |   |   |   |   |   |   |   |
|  Cost      of sales and operations:                                                                                                  |                          |   |   |   |   |   |   |   |   |   |   |   |
|         Real estate                                                                                                             |                          |   | 20.5 |   |   |   | 36.4 |   |   |   | 52.0 |   |
|         Racing                                                                                                                  |                          |   | 42.0 |   |   |   | 40.9 |   |   |   | 40.1 |   |
|         Forest products                                                                                                         |                          |   | 4.3 |   |   |   | 117.1 |   |   |   | 146.3 |   |
|  Selling,      general and administrative expenses                                                                                   |                          |   | 42.2 |   |   |   | 56.3 |   |   |   | 72.3 |   |
|  Gain      on sales of timberlands and other assets                                                                                  |                          |   | (0.1 | ) |   |   | (11.6 | ) |   |   | (0.3 | ) |
|  Impairment      of assets                                                                                                           |                          |   | - |   |   |   | 0.7 |   |   |   | 4.6 |   |
|  Depreciation,      depletion and amortization                                                                                       |                          |   | 14.9 |   |   |   | 33.6 |   |   |   | 35.9 |   |
|  Reversal      of net investment in Kaiser                                                                                           |                          |   | - |   |   |   | (430.9 | ) |   |   | - |   |
|                                                                                                                                      |                          |   | 123.8 |   |   |   | (157.5 | ) |   |   | 350.9 |   |
|                                                                                                                                      |                          |   |   |   |   |   |   |   |   |   |   |   |
| Operating      income (loss):                                                                                                             |                          |   |   |   |   |   |   |   |   |   |   |   |
|         Real estate                                                                                                             |                          |   | (1.8 | ) |   |   | 37.4 |   |   |   | 89.0 |   |
|         Racing                                                                                                                  |                          |   | (8.1 | ) |   |   | (4.6 | ) |   |   | (4.1 | ) |
|         Forest products                                                                                                         |                          |   | (4.2 | ) |   |   | (9.1 | ) |   |   | (13.4 | ) |
|         Corporate, including reversal of net investment in Kaiser                                                               |                          |   | (13.8 | ) |   |   | 425.3 |   |   |   | (16.0 | ) |
|                                                                                                                                      |                          |   | (27.9 | ) |   |   | 449.0 |   |   |   | 55.5 |   |
|                                                                                                                                      |                          |   |   |   |   |   |   |   |   |   |   |   |
| Other      income (expense):                                                                                                              |                          |   |   |   |   |   |   |   |   |   |   |   |
|  Investment,      interest and other income, net                                                                                     |                          |   | 1.7 |   |   |   | 9.6 |   |   |   | 18.6 |   |
|  Interest      expense                                                                                                               |                          |   | (19.4 | ) |   |   | (81.1 | ) |   |   | (74.4 | ) |
|  Amortization      of deferred financing costs                                                                                       |                          |   | (0.8 | ) |   |   | (6.6 | ) |   |   | (3.8 | ) |
| Income      (loss) before income taxes and cumulative effect of   accounting      change                                   |                          |   | (46.4 | ) |   |   | 370.9 |   |   |   | (4.1 | ) |
| Benefit      (provision) for income taxes                                                                                                 |                          |   | (0.5 | ) |   |   | 4.2 |   |   |   | 0.1 |   |
| Income      (loss) before cumulative effect of accounting change                                                                          |                          |   | (46.9 | ) |   |   | 375.1 |   |   |   | (4.0 | ) |
| Cumulative      effect of accounting change                                                                                               |                          |   | - |   |   |   | (0.7 | ) |   |   | - |   |
| Net      income (loss)                                                                                                                    |                          | $ | (46.9 | ) |   | $ | 374.4 |   |   | $ | (4.0 | ) |
|                                                                                                                                      |                          |   |   |   |   |   |   |   |   |   |   |   |
| Basic      net income (loss) per common and common equivalent share   before      cumulative effect of accounting change   |                          | $ | (8.93 | ) |   | $ | 67.77 |   |   | $ | (0.66 | ) |
| Cumulative      effect of accounting change                                                                                               |                          |   | - |   |   |   | (0.13 | ) |   |   | - |   |
| Basic      net income (loss) per common and common equivalent   share      after cumulative effect of accounting change    |                          | $ | (8.93 | ) |   | $ | 67.64 |   |   | $ | (0.66 | ) |
|                                                                                                                                      |                          |   |   |   |   |   |   |   |   |   |   |   |
| Diluted      net income (loss) per common and common equivalent   share      before cumulative effect of accounting change |                          | $ | (8.93 | ) |   | $ | 59.82 |   |   | $ | (0.66 | ) |
| Cumulative      effect of accounting change                                                                                               |                          |   | - |   |   |   | (0.11 | ) |   |   | - |   |
| Diluted      net income (loss) per common and common equivalent   share      after cumulative effect of accounting change  |                          | $ | (8.93 | ) |   | $ | 59.71 |   |   | $ | (0.66 | ) |

----

| MAXXAM      INC. AND SUBSIDIARIES                                                                                                                                               |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                                                            |   |
| CONSOLIDATED STATEMENTS OF CASH FLOWS                                                                                                                                           |   |
| (In      millions of dollars)                                                                                                                                                   |   |
|                                                                                                                                                                            |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                                            |   | Years      Ended December 31, |   |
|                                                                                                                                                                            |   | 2007 |   |   | 2006 |   |   | 2005 |   |
|                                                                                                                                                                            |   |   |   |   |   |   |   |   |   |
| Cash      flows from operating activities:                                                                                                                                      |   |   |   |   |   |   |   |   |   |
|         Net income (loss)                                                                                                                                             |   | $ | (46.9 | ) |   | $ | 374.4 |   |   | $ | (4.0 | ) |
|         Adjustments to reconcile net income (loss) to net cash      provided           by (used for) operating activities:                   |   |   |   |   |   |
|            Reversal of net investment in Kaiser                                                                                                        |   |   | - |   |   |   | (430.9 | ) |   |   | - |   |
|            Depreciation, depletion and amortization                                                                                                    |   |   | 14.9 |   |   |   | 33.6 |   |   |   | 35.9 |   |
|            Non-cash stock-based compensation (benefit) expense                                                                                         |   |   | 0.3 |   |   |   | (2.0 | ) |   |   | 3.7 |   |
|            Non-cash impairment charge                                                                                                                  |   |   | - |   |   |   | 0.7 |   |   |   | 4.6 |   |
|            Gains on sales and/or disposals of timberlands and other      assets                                                                        |   |   | (0.1 | ) |   |   | (11.6 | ) |   |   | (0.3 | ) |
|            Net losses (gains) on marketable securities                                                                                                 |   |   | 4.4 |   |   |   | (2.2 | ) |   |   | (6.6 | ) |
|            Amortization of deferred financing costs and discounts on long-term      debt                                                               |   |   | 0.8 |   |   |   | 6.6 |   |   |   | 3.8 |   |
|            Equity in loss (earnings) of unconsolidated affiliates, net of      dividends              received |   |   | - |   |   |   | 0.4 |   |   |   | 1.0 |   |
|            Increase (decrease) in cash resulting from changes in:                                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |
|               Receivables                                                                                                               |   |   | 7.6 |   |   |   | (2.8 | ) |   |   | 5.4 |   |
|               Inventories                                                                                                               |   |   | 0.8 |   |   |   | (15.3 | ) |   |   | (1.1 | ) |
|               Prepaid expenses and other assets                                                                                         |   |   | 2.9 |   |   |   | 7.0 |   |   |   | 0.5 |   |
|              Accounts payable                                                                                                                |   |   | 1.4 |   |   |   | (1.2 | ) |   |   | (3.4 | ) |
|              Accrued and deferred income taxes                                                                                               |   |   | 0.5 |   |   |   | (6.5 | ) |   |   | 0.2 |   |
|              Other accrued liabilities                                                                                                       |   |   | (4.1 | ) |   |   | (14.7 | ) |   |   | 8.1 |   |
|              Accrued interest                                                                                                                |   |   | 2.7 |   |   |   | 2.9 |   |   |   | 1.0 |   |
|               Long-term assets and long-term liabilities                                                                                |   |   | (8.3 | ) |   |   | (14.2 | ) |   |   | 3.0 |   |
|              Other                                                                                                                           |   |   | (0.5 | ) |   |   | - |   |   |   | (0.1 | ) |
|               Net cash provided by (used for) operating activities                                                                      |   |   | (23.6 | ) |   |   | (75.8 | ) |   |   | 51.7 |   |
|                                                                                                                                                                            |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash      flows from investing activities:                                                                                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |
|         Net proceeds from dispositions of property and investments                                                                                                    |   |   | 0.1 |   |   |   | 15.9 |   |   |   | 0.1 |   |
|         Maturities of marketable securities and other investments                                                                                                     |   |   | 157.6 |   |   |   | 164.2 |   |   |   | 124.2 |   |
|         Sales of marketable securities and other investments                                                                                                          |   |   | 117.9 |   |   |   | 463.7 |   |   |   | 584.1 |   |
|          Purchases of marketable securities and other investments                                                                                                |   |   | (210.6 | ) |   |   | (625.4 | ) |   |   | (728.4 | ) |
|         Net proceeds (used for) from restricted cash                                                                                                                  |   |   | (0.7 | ) |   |   | 2.2 |   |   |   | 5.2 |   |
|         Capital expenditures                                                                                                                                          |   |   | (5.0 | ) |   |   | (15.6 | ) |   |   | (19.7 | ) |
|         Decrease in cash due to deconsolidation of Debtors                                                                                                            |   |   | (1.1 | ) |   |   | - |   |   |   | - |   |
|         Return of investment in (contribution to) joint venture                                                                                                       |   |   | (0.6 | ) |   |   | - |   |   |   | 0.8 |   |
|         Other, net                                                                                                                                                    |   |   | - |   |   |   | - |   |   |   | 0.2 |   |
|               Net cash provided by (used for) investing activities                                                                      |   |   | 57.6 |   |   |   | 5.0 |   |   |   | (33.5 | ) |
|                                                                                                                                                                            |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash      flows from financing activities:                                                                                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |
|         Proceeds from issuances of long-term debt                                                                                                                     |   |   | - |   |   |   | - |   |   |   | 38.0 |   |
|         Proceeds from sale of Scopac Timber Notes held in the SAR      Account                                                                                        |   |   | - |   |   |   | 31.8 |   |   |   | - |   |
|         Redemptions and repurchase of, and principal payments on long-term      debt                                                                                  |   |   | (4.9 | ) |   |   | (67.9 | ) |   |   | (32.1 | ) |
|         Principal payments on Scopac Timber Notes held in the SAR      Account                                                                                        |   |   | - |   |   |   | 11.1 |   |   |   | 9.5 |   |
|         Borrowings under revolving and short-term creditfacilities                                                                                                    |   |   | 3.3 |   |   |   | 89.4 |   |   |   | 23.0 |   |
|         Incurrence of deferred financing costs                                                                                                                        |   |   | - |   |   |   | (10.6 | ) |   |   | (3.6 | ) |
|         Treasury stock purchases                                                                                                                                      |   |   | (0.3 | ) |   |   | (22.5 | ) |   |   | (0.2 | ) |
|         Net proceeds from refundable deposits                                                                                                                         |   |   | 0.9 |   |   |   | 1.4 |   |   |   | 1.6 |   |
|               Net cash provided by (used for) financing activities                                                                      |   |   | (1.0 | ) |   |   | 32.7 |   |   |   | 36.2 |   |
|                                                                                                                                                                            |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      increase (decrease) in cash and cash equivalents                                                                                                                       |   |   | 33.0 |   |   |   | (38.1 | ) |   |   | 54.4 |   |
| Cash      and cash equivalents at beginning of year                                                                                                                             |   |   | 34.8 |   |   |   | 72.9 |   |   |   | 18.5 |   |
| Cash      and cash equivalents at end of year                                                                                                                                   |   | $ | 67.8 |   |   | $ | 34.8 |   |   | $ | 72.9 |   |

----

| MAXXAM      INC. AND SUBSIDIARIES                                                      |   |
|----------------------------------------------------------------------------------------|--------|
|                                                                                   |   |
| CONSOLIDATED STATEMENTS OF STOCKHOLDERS'      DEFICIT                                  |   |
| (In      millions, except per share information)                                       |   |
|                                                                                   |   |   |   |   |   |   |   |   |   |
|                                                                                   |   | Years      Ended December 31, |   |
|                                                                                   |   | 2007 |   |   | 2006 |   |   | 2005 |   |
|                                                                                   |   |   |   |   |   |   |   |   |   |
| Preferred      Stock ($.50 Par)                                                        |   |   |   |   |   |   |   |   |   |
|         Balance at beginning and end of year                                 |   | $ | 0.3 |   |   | $ | 0.3 |   |   | $ | 0.3 |   |
|                                                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common      Stock ($.50 Par)                                                           |   |   |   |   |   |   |   |   |   |   |   |   |
|         Balance at beginning and end of year                                 |   | $ | 5.0 |   |   | $ | 5.0 |   |   | $ | 5.0 |   |
|                                                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Additional      Capital                                                                |   |   |   |   |   |   |   |   |   |   |   |   |
|         Balance at beginning and end of year                                 |   | $ | 225.3 |   |   | $ | 225.3 |   |   | $ | 225.3 |   |
|                                                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Accumulated      Deficit                                                               |   |   |   |   |   |   |   |   |   |   |   |   |
|    Balance      at beginning of year                                    |   | $ | (296.0 | ) |   | $ | (670.4 | ) |   | $ | (666.4 | ) |
|            Net income (loss)                                  |   |   | (46.9 | ) |   |   | 374.4 |   |   |   | (4.0 | ) |
|    Balance      at end of year                                          |   | $ | (342.9 | ) |   | $ | (296.0 | ) |   | $ | (670.4 | ) |
|                                                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Accumulated      Other Comprehensive Income (Loss)                                     |   |   |   |   |   |   |   |   |   |   |   |   |
|         Minimum pension liability adjustment, net of taxes                   |   | $ | (0.4 | ) |   | $ | 11.1 |   |   | $ | 0.1 |   |
|         Reversal of other comprehensive income related to Kaiser             |   |   | - |   |   |   | 85.3 |   |   |   | - |   |
|         Other                                                                |   |   | 0.1 |   |   |   | (0.1 | ) |   |   | - |   |
|         Unrealized gains (losses) on available-for-saleinvestments           |   |   | (1.9 | ) |   |   | 1.3 |   |   |   | (0.1 | ) |
|         Other comprehensive income (loss)                                    |   |   | (2.2 | ) |   |   | 97.6 |   |   |   | - |   |
|         Accumulated other comprehensive income (loss) beginning of      year |   |   | 1.0 |   |   |   | (96.6 | ) |   |   | (96.6 | ) |
|         Accumulated other comprehensive income (loss) at end of    year      |   | $ | (1.2 | ) |   | $ | 1.0 |   |   | $ | (96.6 | ) |
|                                                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Treasury      Stock                                                                    |   |   |   |   |   |   |   |   |   |   |   |   |
|         Balance at beginning of year                                         |   | $ | (147.4 | ) |   | $ | (124.9 | ) |   | $ | (124.7 | ) |
|            Treasury stock purchases                           |   |   | (0.3 | ) |   |   | (22.5 | ) |   |   | (0.2 | ) |
|         Balance at end of year                                               |   | $ | (147.7 | ) |   | $ | (147.4 | ) |   | $ | (124.9 | ) |
|                                                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Comprehensive      Income (Loss)                                                       |   |   |   |   |   |   |   |   |   |   |   |   |
|         Net income (loss)                                                    |   | $ | (46.9 | ) |   | $ | 374.4 |   |   | $ | (4.0 | ) |
|         Other comprehensive income (loss)                                    |   |   | (2.2 | ) |   |   | 97.6 |   |   |   | - |   |
|         Total comprehensive income (loss)                                    |   | $ | (49.1 | ) |   | $ | 472.0 |   |   | $ | (4.0 | ) |

----

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

| • | Real      estate investment and development, through MAXXAM Property Company (“MPC”) and other wholly      owned subsidiaries of the Company, as well as joint      ventures.  These subsidiaries are engaged in the business of      residential and commercial real estate investment and development,      primarily in Arizona, California, Puerto Rico and Texas, including      associated golf course or resort operations in certain locations, and also      own several commercial real estate properties that are subject to      long-term lease arrangements. |
|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| • | Racing      operations, through Sam Houston Race Park, Ltd. (“SHRP, Ltd.”), a Texas      limited partnership wholly owned by the Company.  SHRP, Ltd.      owns and operates a Texas Class 1 pari-mutuel horse racing facility in the      greater Houston metropolitan area, and a pari-mutuel greyhound racing      facility in Harlingen, Texas. |
|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| • | Forest      products, through MAXXAM Group Inc. (“MGI”) and MGI’s wholly      owned subsidiaries, principally The Pacific Lumber Company (“Palco”), Scotia Pacific      Company LLC (“Scopac”), Britt Lumber      Co., Inc. (“Britt”) and Scotia      Development LLC (“SDLLC”).  MGI      and its subsidiaries primarily engage in the growing and harvesting of      redwood and Douglas-fir timber, the milling of logs into lumber and      related operations and activities.  On January 18, 2007, Palco,      Scopac, Britt, SDLLC and Palco’s other subsidiaries (the “Debtors”) filed for      reorganization under Chapter 11 of the U.S. Bankruptcy Code (the “Bankruptcy Code”) in      the U.S. Bankruptcy Court for the Southern District of Texas (the “Bankruptcy      Court”).  The term “Palco Debtors” is used      to refer to all of the Debtors other than Scopac.  See Note 1,      “–Reorganization Proceedings of Palco and its      Subsidiaries.”  The proceedings of the Debtors are collectively      referred to herein as the “Bankruptcy      Cases.” |
|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                                                   |   | Years      Ended December 31, |   |
|----------------------------------------------------------------------------------------|--------|-------------------------------|--------|
|                                                                                   |   | 2007                          |   |   | 2006 |   |   | 2005 |   |
|                                                                                   |   | (In      millions of dollars) |   |
|                                                                                   |   |                          |   |   |   |   |   |   |   |
| Sales                                                                                  |   | $                             | 91.5   |   |   | $ | 151.5 |   |   | $ | 224.6 |   |
| Costs      and expenses                                                                |   |                          | (117.3 | ) |   |   | (128.8 | ) |   |   | (159.7 | ) |
| Reversal      of net investment in Kaiser                                              |   |                          | -      |   |   |   | 430.9 |   |   |   | - |   |
| Gains      on sales of assets                                                          |   |                          | 0.1    |   |   |   | - |   |   |   | - |   |
| Operating      income (loss)                                                           |   |                          | (25.7  | ) |   |   | 453.6 |   |   |   | 64.9 |   |
| Other      income                                                                      |   |                          | 1.6    |   |   |   | 8.0 |   |   |   | 14.6 |   |
| Interest      expense                                                                  |   |                          | (17.1  | ) |   |   | (17.2 | ) |   |   | (17.6 | ) |
| Income      (loss) before income taxes and cumulative effect of accounting      change |   |                          | (41.2  | ) |   |   | 444.4 |   |   |   | 61.9 |   |
| Benefit      (provision) for income taxes                                              |   |                          | (0.5   | ) |   |   | (0.8 | ) |   |   | 0.1 |   |
| Income      (loss) before cumulative effect of accounting change                       |   | $                             | (41.7  | ) |   | $ | 443.6 |   |   | $ | 62.0 |   |
| Cumulative      effect of accounting change, net of tax                                |   |                          | -      |   |   |   | (0.7 | ) |   |   | - |   |
| Net      income (loss)                                                                 |   | $                             | (41.7  | ) |   | $ | 442.9 |   |   | $ | 62.0 |   |

----

|                                                                |   | December      31, |
|---------------------------------------------------------------------|--------|-------------------|
|                                                                |   | 2006(1)           |
|                                                                |   |              |   |
| Current      assets                                                 |   | $                 | 105.5 |   |
| Property,      plant and equipment, net                             |   |              | 108.3 |   |
| Timber      and timberlands, net                                    |   |              | 200.4 |   |
| Other      assets                                                   |   |              | 40.4 |   |
|         Total assets                                      |   | $                 | 454.6 |   |
|                                                                |   |              |   |   |
| Liabilities,      not subject to compromise                         |   | $                 | 877.9 |   |
| Liabilities,      subject to compromise                             |   |              | 106.3 |   |
| Stockholders’      deficit                                    |   |              | (529.6 | ) |
|          Total liabilities and stockholders' deficit |   | $                 | 454.6 |   |

|                                      |   | Years      Ended December 31, |   |
|-------------------------------------------|--------|-------------------------------|--------|
|                                      |   | 2007(2)                       |   |   | 2006 |   |   | 2005 |   |
|                                      |   |                          |   |   |   |   |   |   |   |
| Sales,      net of discounts              |   | $                             | 4.4    |   |   | $ | 140.0 |   |   | $ | 181.8 |   |
| Costs      and expenses                   |   |                          | (6.6   | ) |   |   | (144.7 | ) |   |   | (191.2 | ) |
| Operating      loss                       |   |                          | (2.2   | ) |   |   | (4.7 | ) |   |   | (9.4 | ) |
| Other      income (expense), net          |   |                          | 0.1    |   |   |   | 1.6 |   |   |   | 4.0 |   |
| Interest      expense                     |   |                          | (3.1   | ) |   |   | (70.5 | ) |   |   | (60.6 | ) |
| Loss      before income taxes             |   |                          | (5.2   | ) |   |   | (73.6 | ) |   |   | (66.0 | ) |
| Benefit      (provision) for income taxes |   |                          | -      |   |   |   | 5.2 |   |   |   | - |   |
| Net      loss                             |   | $                             | (5.2   | ) |   | $ | (68.4 | ) |   | $ | (66.0 | ) |

----

| (1) | The      Debtors balance sheet at December 31, 2006 is presented as it is the last      balance sheet in which the Debtors’ results were included in the Company’s      consolidated results. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | Results      for the Debtors’ operations have been included in the Company’s      consolidated results for the period from January 1, 2007 through January      18, 2007. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                              | As      of and for the Year Ended December 31, |
|-------------------------------------------------------------------|------------------------------------------------|
|                                                              | 2007                                           |   | 2006 |   | 2005 |
|                                                              |                                           |   |   |   |   |   |
| Weighted      average number of common shares outstanding-basic   | 5,251,355                                      |   | 5,534,981 |   | 5,972,180 |   |
|                                                              |                                           |   |   |   |   |   |
|         Effect of dilution(1):                          |                                           |   |   |   |   |   |
|         Conversion of Class A Preferred Stock           | -                                              | (1) | 668,119 |   | - | (1) |
|         Exercise of stock options                       | -                                              | (1) | 67,104 |   | - | (1) |
|                                                              |                                           |   |   |   |   |   |
| Weighted      average number of common shares outstanding-diluted | 5,251,355                                      |   | 6,270,204 |   | 5,972,180 |   |

| (1) | The      Company had a loss for the years ended December 31, 2007 and 2005; the      Class A Preferred Stock and options were therefore not included in the      computation of earnings per share for the period as the effect would be      anti-dilutive.  If the Company was required to include dilutive      shares in its per share calculations, the number of Class A Preferred      Stock dilutive shares for the year ended December 31, 2007 and December      31, 2005 would be 668,119 and 668,122, respectively and the number of      dilutive options for the year ended December 31, 2007 and December 31,      2005 would be 65,192 and 90,769,respectively. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                                                                   |   | December      31, |   |
|----------------------------------------------------------------------------------------|--------|-------------------|--------|
|                                                                                   |   | 2007              |   |   | 2006 |   |
|                                                                                   |   |              |   |   |   |   |
| Minimum      pension liability, net of related income tax effects of $2.9      million |   | $                 | 0.4    |   |   | $ | 0.8 |   |
| Unrealized      gains (losses) on available-for-sale securities                        |   |              | (1.3   | ) |   |   | 0.6 |   |
| Other                                                                                  |   |              | (0.3   | ) |   |   | (0.4 | ) |
|                                                                                   |   | $                 | (1.2   | ) |   | $ | 1.0 |   |

----

----

|                                                                                                                    |   | Reportable      Segments |                                    |   |          |                                              |   |      |                                  | Total                  |    | Reportable      Segments                                                  |      |    |                                          |   |
|-------------------------------------------------------------------------------------------------------------------------|--------|--------------------------|-----------------------------------------|--------|---------------|---------------------------------------------------|--------|-----------|---------------------------------------|------------------------|---------|---------------------------------------------------------------------------|-----------|---------|-----------------------------------------------|--------|
|                                                                                                                    |   | Real      Estate         |                                    | Racing |          | MGI                                               |   | Corporate |                                  | Excluding      Debtors |    | Debtors(1)                                                                |      |    | Consolidated      Total                       |
|                                                                                                                    |   |                     |                                    |   |          |                                              |   |      |                                  |                   |    |                                                                      |      |    |                                          |   |   |   |   |   |   |   |
| Investment,      interest and    other      income for the    years      ended: |   |                     |                                    |   |          |                                              |   |      |                                  |                   |    |                                                                      |      |    |                                          |   |   |   |   |   |   |   |
| December      31, 2007                                                                                                  |   |  $                  |       1.7 |   |  $       |      0.1                 |   |  $   |   -                         |                   |  $ |        (0.2)                           |      |  $ |        1.6 |   |  $ |          0.1 |   |   |  $ |              1.7 |
| December      31, 2006                                                                                                  |   |                     |       5.1 |   |          |      0.2                 |   |      |    0.1                 |                   |    |          2.6                 |      |    |        8.0 |   |   |          1.6 |   |   |   |              9.6 |
| December      31, 2005                                                                                                  |   |                     |       2.4 |   |          |         - |   |      |    0.1                 |                   |    |        12.1                            |  (2) |    |      14.6            |   |   |          4.0 |  (3) |   |   |            18.6 |
|                                                                                                                    |   |                     |                                    |   |          |                                              |   |      |                                  |                   |    |                                                                      |      |    |                                          |   |   |   |   |   |   |   |
| Selling,      general and   administrative      expense   for      the years ended:       |   |                     |                                    |   |          |                                              |   |      |                                  |                   |    |                                                                      |      |    |                                          |   |   |   |   |   |   |   |
| December      31, 2007                                                                                                  |   |  $                  |     13.9            |   |  $       |    11.3                            |   |  $   |    1.9                 |                   |  $ |        13.6                            |  (4) |  $ |      40.7            |   |  $ |          1.5 |   |   |  $ |            42.2 |
| December      31, 2006                                                                                                  |   |                     |     17.7            |   |          |      8.8                 |   |      |    4.4                 |                   |    |          5.4                 |  (4) |    |      36.3            |   |   |        20.0 |  (5) |   |   |            56.3 |
| December      31, 2005                                                                                                  |   |                     |     23.1            |   |          |      8.6                 |   |      |    4.0                 |                   |    |        15.8                            |  (4) |    |      51.5            |   |   |        20.8 |  (6) |   |   |            72.3 |
|                                                                                                                    |   |                     |                                    |   |          |                                              |   |      |                                  |                   |    |                                                                      |      |    |                                          |   |   |   |   |   |   |   |
| Operating      income (loss)   for      the years ended:                                                 |   |                     |                                    |   |          |                                              |   |      |                                  |                   |    |                                                                      |      |    |                                          |   |   |   |   |   |   |   |
| December      31, 2007                                                                                                  |   |  $                  |      (1.8)     |   |  $       |     (8.1)                     |   |  $   |   (1.9)                     |                   |  $ |      (13.9)                                      |      |  $ |    (25.7)                      |   |  $ |         (2.2) |   |   |  $ |           (27.9) |
| December      31, 2006                                                                                                  |   |                     |     37.4            |   |          |     (4.6)                     |   |      |   (4.5)                     |                   |    |      425.4                                       |  (7) |    |    453.7                       |   |   |         (4.7) |   |   |   |          449.0 |
| December      31, 2005                                                                                                  |   |                     |     89.0            |   |          |     (4.1)                     |   |      |   (4.0)                     |                   |    |      (16.0)                                      |      |    |      64.9            |   |   |         (9.4) |   |   |   |            55.5 |
|                                                                                                                    |   |                     |                                    |   |          |                                              |   |      |                                  |                   |    |                                                                      |      |    |                                          |   |   |   |   |   |   |   |
| Interest      expense for   the      years ended:(8)                                                     |   |                     |                                    |   |          |                                              |   |      |                                  |                   |    |                                                                      |      |    |                                          |   |   |   |   |   |   |   |
| December      31, 2007                                                                                                  |   |  $                  |    17.0                  |        |   $ |         - |   | $         |       - |                   |  $ |          0.1                 |      |  $ |      17.1            |   |  $ | 3.1 |   |   |  $ |            20.2 |
| December      31, 2006                                                                                                  |   |                     |     17.3            |   |          |         - |   |      |       - |                   |    |        (0.1)                           |      |    |      17.2            |   |   | 70.5 |   |   |   |            87.7 |
| December      31, 2005                                                                                                  |   |                     |     17.4            |   |          |         - |   |      |       - |                   |    |          0.2                 |      |    |      17.6            |   |   | 60.6 |   |   |   |            78.2 |
|                                                                                                                    |   |                     |                                    |   |          |                                              |   |      |                                  |                   |    |                                                                      |      |    |                                          |   |   |   |   |   |   |   |
| Depreciation,      depletion   and      amortization   for      the years ended:          |   |                     |                                    |   |          |                                              |   |      |                                  |                   |    |                                                                      |      |    |                                          |   |   |   |   |   |   |   |
| December      31, 2007                                                                                                  |   |  $                  |     12.2            |   |  $       |      1.6                 |   |  $   |       - |                   |  $ |          0.2                 |      |  $ |      14.0            |   |  $ |          0.9 |   |   |  $ |            14.9 |
| December      31, 2006                                                                                                  |   |                     |     13.4            |   |          |      1.5                 |   |      |       - |                   |    |          0.2                 |      |    |      15.1            |   |   |        18.5 |   |   |   |            33.6 |
| December      31, 2005                                                                                                  |   |                     |     14.2            |   |          |      1.6                 |   |      |       - |                   |    |          0.2                 |      |    |      16.0            |   |   |        19.9 |   |   |   |            35.9 |
|                                                                                                                    |   |                     |                                    |   |          |                                              |   |      |                                  |                   |    |                                                                      |      |    |                                          |   |   |   |   |   |   |   |
| Income      (loss) before   income      taxes for the   years      ended:                 |   |                     |                                    |   |          |                                              |   |      |                                  |                   |    |                                                                      |      |    |                                          |   |   |   |   |   |   |   |
| December      31, 2007                                                                                                  |   |  $                  |    (17.1)                |   |  $       |     (8.0)                     |   |  $   |   (1.9)                     |                   |  $ |      (14.2)                                      |      |  $ |    (41.2)                      |   |  $ |         (5.2) |   |   |  $ |           (46.4) |
| December      31, 2006                                                                                                  |   |                     |     25.2            |   |          |     (4.4)                     |   |      |   (4.5)                     |                   |    |      428.2                                       |  (7) |    |    444.5                       |   |   |       (73.6) |  (9) |   |   |          370.9 |
| December      31, 2005                                                                                                  |   |                     |     74.0            |   |          |     (4.1)                     |   |      |   (3.9)                     |                   |    |        (4.1)                           |      |    |      61.9            |   |   |       (66.0) |   |   |   |             (4.1) |
|                                                                                                                    |   |                     |                                    |   |          |                                              |   |      |                                  |                   |    |                                                                      |      |    |                                          |   |   |   |   |   |   |   |
| Capital      expenditures   for      the years ended:                                                    |   |                     |                                    |   |          |                                              |   |      |                                  |                   |    |                                                                      |      |    |                                          |   |   |   |   |   |   |   |
| December      31, 2007                                                                                                  |   |  $                  |       2.0 |   |  $       |      2.9                 |   | $         |       - |                   |  $ |          0.1                 |      |  $ |        5.0 |   |  $ |             - |   |   |  $ |              5.0 |
| December      31, 2006                                                                                                  |   |                     |       1.7 |   |          |      0.6                 |   |      |       - |                   |    |             - |      |    |        2.3 |   |   |        13.3 |   |   |   |            15.6 |
| December      31, 2005                                                                                                  |   |                     |       1.2 |   |          |      3.4                 |   |      |       - |                   |    |          0.4                 |      |    |        5.0 |   |   |        14.7 |   |   |   |            19.7 |
|                                                                                                                    |   |                     |                                    |   |          |                                              |   |      |                                  |                   |    |                                                                      |      |    |                                          |   |   |   |   |   |   |   |
| Total      assets as of:                                                                                                |   |                     |                                    |   |          |                                              |   |      |                                  |                   |    |                                                                      |      |    |                                          |   |   |   |   |   |   |   |
| December      31, 2007                                                                                                  |   |  $                  |   281.5                       |   |  $       |    36.0                            |   |  $   |       - |                   |  $ |      201.4                                       |      |  $ |    518.9                       |   |  $ |             - |   |   |  $ |          518.9 |
| December      31, 2006                                                                                                  |   |                     |   299.5                       |   |          |    36.4                            |   |      |    0.9                 |                   |    |      232.1                                       |      |    |    568.9                       |   |   |      441.0 |   |   |   |       1,009.9 |

| (1) | Results      for the Debtors’ operations for 2007 have been included for the period      from January 1, 2007, through January 18,2007. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | Includes      a $4.3 million benefit to correct the cumulative effect of an      overstatement of intercompany interest from 1995 to 2000 and $7.3 million      of income from investments in limited  partnerships. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3) | Includes      $3.1 million for settlement of a lawsuit filed by Palco against several      insurance companies seeking reimbursement of settlement payments and      defense costs related to a legal matter which was settled in      2002. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (4) | Includes      stock-based compensation expense (benefit) of $0.3 million in 2007, $(2.0)      million in 2006 and $3.7 million in 2005.  Also includes a $1.9      million charge in 2005 in connection with an environmental matter      associated with a former subsidiary of the  Company. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (5) | Includes      severance costs of $1.5 million related to a reduction in      workforce. |
|-----|-----------------------------------------------------------------------------------------|

| (6) | Includes      severance costs of $0.7 million related to the closure of Palco’s Fortuna      mill and $4.6 million of asset impairment  charges. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------|

| (7) | 2006      includes a $430.9 million reversal of net investment in      Kaiser. |
|-----|--------------------------------------------------------------------------------|

| (8) | Interest      expense also includes amortization of deferred financing      costs. |
|-----|------------------------------------------------------------------------------------|

| (9) | Includes      an $11.6 million gain from the sale of certain timberlands and other      properties by Scopac and Palco. |
|-----|-------------------------------------------------------------------------------------------------------------------------|

|                                         |   | Years      Ended December 31, |
|----------------------------------------------|--------|-------------------------------|
|                                         |   | 2007(1)                       |   |   | 2006 |   |   | 2005 |   |
|                                         |   |                          |   |   |   |   |   |   |   |
| Real      estate:                            |   |                          |   |   |   |   |   |   |   |
| Real      estate and development             |   | $                             | 11.0 |   |   | $ | 69.8 |   |   | $ | 142.2 |   |
| Resort,      commercial and other operations |   |                          | 15.3 |   |   |   | 16.7 |   |   |   | 17.8 |   |
| Commercial      lease properties             |   |                          | 18.4 |   |   |   | 18.4 |   |   |   | 18.3 |   |
| Total      real estate sales                 |   | $                             | 44.7 |   |   | $ | 104.9 |   |   | $ | 178.3 |   |
|                                         |   |                          |   |   |   |   |   |   |   |   |   |   |
| Racing:                                      |   |                          |   |   |   |   |   |   |   |   |   |   |
| Gross      pari-mutuel commissions           |   | $                             | 35.1 |   |   | $ | 37.1 |   |   | $ | 36.5 |   |
| Other                                        |   |                          | 11.7 |   |   |   | 9.5 |   |   |   | 9.8 |   |
| Total      racing sales                      |   | $                             | 46.8 |   |   | $ | 46.6 |   |   | $ | 46.3 |   |
|                                         |   |                          |   |   |   |   |   |   |   |   |   |   |
| Forest      products:                        |   |                          |   |   |   |   |   |   |   |   |   |   |
| Lumber,      net of discount                 |   | $                             | 2.7 |   |   | $ | 121.6 |   |   | $ | 155.9 |   |
| Logs                                         |   |                          | 1.1 |   |   |   | 3.5 |   |   |   | 8.2 |   |
| Wood      chips                              |   |                          | 0.2 |   |   |   | 2.7 |   |   |   | 3.5 |   |
| Cogeneration      power                      |   |                          | 0.3 |   |   |   | 8.5 |   |   |   | 10.9 |   |
| Other                                        |   |                          | 0.1 |   |   |   | 3.7 |   |   |   | 3.3 |   |
| Total      forest products sales             |   | $                             | 4.4 |   |   | $ | 140.0 |   |   | $ | 181.8 |   |

----

| (1) | Results for the Debtors’      operations have been included for the period from January 1, 2007 through      January 18, 2007. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------|

----

|                                                             |   | December      31, |   |
|------------------------------------------------------------------|--------|-------------------|--------|
|                                                             |   | 2007              |   |   | 2006 |   |
|                                                             |   |              |   |   |   |   |
| Cash      and cash equivalents (including restricted amounts)    |   | $                 | 73.7   |   |   | $ | 44.0 |   |
| Marketable      securities (including restricted amounts)        |   |              | 31.0   |   |   |   | 142.2 |   |
| Investments      in limited partnerships (current and long-term) |   |              | 24.1   |   |   |   | 26.1 |   |
|                                                             |   |              | 128.8  |   |   |   | 212.3 |   |
| Less:  restricted      cash and marketable securities  |   |              | (5.9   | ) |   |   | (51.3 | ) |
| Unrestricted      cash and marketable securities                 |   | $                 | 122.9  |   |   | $ | 161.0 |   |

|                                                                                         | December      31, |
|----------------------------------------------------------------------------------------------|-------------------|
|                                                                                         | 2007              |   | 2006 |
|                                                                                         |              |   |   |   |   |
| Current:                                                                                     |              |   |   |   |   |
|         Restricted cash and cash equivalents                                       | $                 |           2.3 |   | $ |           3.6 |
|         Restricted marketable securities, held in SAR Account                      |              |   | (1) |            39.5 |
|                                                                                         |              |              2.3 |   |   |            43.1 |
|                                                                                         |              |   |   |   |   |
| Non-Current:                                                                                 |              |   |   |   |   |
|         Restricted Scopac Timber Notes and other amounts held in SAR      Account  |              |   | (1) |              2.8 |
|         Other amounts restricted under the Scopac Indenture                        |              |   | (1) |              2.5 |
|         Other long-term restricted amounts                                         |              |              3.6 |   |   |              5.7 |
|         Less: Amounts attributable to Scopac Timber Notes held in SAR      Account |              |   | (1) |             (2.8) |
|                                                                                         |              |              3.6 |   |   |              8.2 |
|                                                                                         |              |   |   |   |   |
|                                                                                         |              |   |   |   |   |
| Total      restricted cash and cash equivalents and marketable    securities                 | $                 |              5.9 |   | $ |            51.3 |

| (1) | As      a result of the deconsolidation of the Debtors, the Debtors’ amounts are      not included in the consolidated total as of December 31,      2007. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                         |   | December      31, 2007 (1)(2) |   |
|----------------------------------------------|--------|-------------------------------|--------|
|                                         |   | CarryingValue                 |   |   | AggregateFair      Value |   |   | Net      Gainsin      AOCI |   |   | Net      Lossesin      AOCI |   |
|                                         |   |                          |   |   |   |   |   |   |   |   |   |   |
| Debt      securities:                        |   |                          |   |   |   |   |   |   |   |   |   |   |
| Maturities      of less than one year        |   | $                             | 6.3    |   |   | $ | 6.3 |   |   | $ | - |   |   | $ | - |   |
| Maturities      of one to five years         |   |                          | -      |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Auction      Rate Securities                 |   |                          | 11.5   |   |   |   | 11.5 |   |   |   | - |   |   |   | - |   |
| Equity      securities and other investments |   |                          | 13.2   |   |   |   | 13.2 |   |   |   | 0.4 |   |   |   | (1.7 | ) |
| Total      marketable securities             |   | $                             | 31.0   |   |   | $ | 31.0 |   |   | $ | 0.4 |   |   | $ | (1.7 | ) |

| (1) | As      a result of the deconsolidation of the Debtors, the Debtors’ amounts are      not included in the consolidated total as of December 31,      2007. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | There      were no investments in a continuous unrealized loss position for 12 months      or longer. |
|-----|-------------------------------------------------------------------------------------------------------|

|                                         |   | December      31, 2006 |   |
|----------------------------------------------|--------|------------------------|--------|
|                                         |   | CarryingValue          |   |   | AggregateFair      Value |   |   | Net      Gainsin      AOCI |   |   | Net      Lossesin      AOCI |   |
|                                         |   |                   |   |   |   |   |   |   |   |   |   |   |
| Debt      securities:                        |   |                   |   |   |   |   |   |   |   |   |   |   |
| Maturities      of less than one year        |   | $                      | 100.2  |   |   | $ | 100.2 |   |   | $ | - |   |   | $ | - |   |
| Maturities      of one to five years         |   |                   | 6.2    |   |   |   | 6.2 |   |   |   | - |   |   |   | - |   |
| Auction      Rate Securities                 |   |                   | 26.5   |   |   |   | 26.5 |   |   |   | - |   |   |   | - |   |
| Equity      securities and other investments |   |                   | 9.3    |   |   |   | 9.3 |   |   |   | 0.6 |   |   |   | - |   |
| Total      marketable securities             |   | $                      | 142.2  |   |   | $ | 142.2 |   |   | $ | 0.6 |   |   | $ | - |   |

----

|                                                                       |   | As      of and for the Year Ended December      31, |     |
|----------------------------------------------------------------------------|--------|-----------------------------------------------------|----------|
|                                                                       |   | 2007                                                |     |   | 2006 |   |   | 2005 |   |
|                                                                       |   |                                                |     |   |   |   |   |   |   |
| Combined      Statement of Operations:                                     |   |                                                |     |   |   |   |   |   |   |
|                                                                       |   |                                                |     |   |   |   |   |   |   |
|      Net      income (loss)                       |   | $                                                   | (1,157.2 | ) |   | $ | (228.2 | ) |   | $ | 974.7 |   |
|                                                                       |   |                                                |     |   |   |   |   |   |   |   |   |   |
| Combined      Financial Position:                                          |   |                                                |     |   |   |   |   |   |   |   |   |   |
|                                                                       |   |                                                |     |   |   |   |   |   |   |   |   |   |
|      Current      assets                          |   | $                                                   | 6,157.9  |   |   | $ | 10,361.2 |   |   | $ | 7,140.3 |   |
|      Total      assets                            |   | $                                                   | 6,157.9  |   |   | $ | 10,361.2 |   |   | $ | 7,140.3 |   |
|                                                                       |   |                                                |     |   |   |   |   |   |   |   |   |   |
|      Current      liabilities                     |   | $                                                   | 4,177.9  |   |   | $ | 6,131.9 |   |   | $ | 4,060.4 |   |
|      Partners'      capital                       |   |                                                | 1,980.0  |   |   |   | 4,229.3 |   |   |   | 3,079.9 |   |
|      Total      liabilities and partners' capital |   | $                                                   | 6,157.9  |   |   | $ | 10,361.2 |   |   | $ | 7,140.3 |   |
|                                                                       |   |                                                |     |   |   |   |   |   |   |   |   |   |
| Number      of Individual Investments                                      |   |                                                | 6        |   |   |   | 4 |   |   |   | 2 |   |

|                                           |                        |   | December      31, |   |
|------------------------------------------------|-----------------------------|--------|-------------------|--------|
|                                           | Estimated      Useful Lives |   | 2007(1)           |   |   | 2006 |   |
|                                           |                        |   |              |   |   |   |   |
| Land      and improvements                     | 5 -      30 years           |   | $                 | 78.5   |   |   | $ | 145.3 |   |
| Buildings                                      | 5 -      40 years           |   |              | 211.6  |   |   |   | 267.6 |   |
| Machinery      and equipment                   | 3 -      15 years           |   |              | 27.7   |   |   |   | 157.6 |   |
| Construction      in progress                  |                        |   |              | 1.1    |   |   |   | 1.0 |   |
|                                           |                        |   |              | 318.9  |   |   |   | 571.5 |   |
| Less:  Accumulated      depreciation |                        |   |              | (99.1  | ) |   |   | (234.5 | ) |
|                                           |                        |   | $                 | 219.8  |   |   | $ | 337.0 |   |

| (1) | As      a result of the deconsolidation of the Debtors, the Debtors’ amounts are      not included in the consolidated total as of December 31,      2007. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                                                       | As      of and for the Year Ended December      31, |   |
|----------------------------------------------------------------------------|-----------------------------------------------------|--------|
|                                                                       | 2007                                                |   | 2006 |   | 2005 |   |
|                                                                       |                                                |   |   |   |   |   |   |   |   |
| Combined      Statement of Operations:                                     |                                                |   |   |   |   |   |   |   |   |
|                                                                       |                                                |   |   |   |   |   |   |   |   |
|      Revenue                                      |                                                | $      | 21.1 |   |   | $ | 12.8 |   |   | $ | 3.4 |   |
|      Operating      income                        |                                                |   | (0.6 | ) |   |   | (1.5 | ) |   |   | (2.0 | ) |
|      Net      income (loss)                       |                                                |   | (0.6 | ) |   |   | (1.4 | ) |   |   | (2.0 | ) |
|                                                                       |                                                |   |   |   |   |   |   |   |   |   |   |   |
| Combined      Financial Position:                                          |                                                |   |   |   |   |   |   |   |   |   |   |   |
|                                                                       |                                                |   |   |   |   |   |   |   |   |   |   |   |
|      Current      assets                          |                                                | $      | 5.1 |   |   | $ | 5.9 |   |   | $ | 25.9 |   |
|      Noncurrent      assets                       |                                                |   | 48.9 |   |   |   | 53.6 |   |   |   | 18.0 |   |
|      Total      assets                            |                                                | $      | 54.0 |   |   | $ | 59.5 |   |   | $ | 43.9 |   |
|                                                                       |                                                |   |   |   |   |   |   |   |   |   |   |   |
|      Current      liabilities                     |                                                | $      | 3.1 |   |   | $ | 23.0 |   |   | $ | 3.0 |   |
|      Noncurrent      liabilities                  |                                                |   | 38.0 |   |   |   | 23.8 |   |   |   | 26.3 |   |
|      Partners'      capital                       |                                                |   | 12.9 |   |   |   | 12.7 |   |   |   | 14.6 |   |
|      Total      liabilities and partners' capital |                                                | $      | 54.0 |   |   | $ | 59.5 |   |   | $ | 43.9 |   |

|                                                                                                                              | December      31, |
|-----------------------------------------------------------------------------------------------------------------------------------|-------------------|
|                                                                                                                              |              | 2007 |   |   | 2006 |
|                                                                                                                              |              |   |   |   |   |
| 7.56%      Lakepointe Notes due June 8, 2021                                                                                      | $                 |      111.8 |   | $ |      113.5 |
| 7.03%      Motel Notes due May 1, 2018                                                                                            |              |        43.3 |   |   |        44.7 |
| 6.08%      Beltway Notes due November 9, 2024                                                                                     |              |        27.9 |   |   |        28.6 |
| 7.12%      Palmas Notes due December 20, 2030                                                                                     |              |        28.2 |   |   |        28.7 |
| Other      notes and contracts, primarily secured by receivables, buildings, real      estate   and      equipment |              |          5.3 |   |   |          4.8 |
| Total      principal outstanding                                                                                                  |              |      216.5 |   |   |      220.3 |
|                                                                                                                              |              |   |   |   |   |
| Forest      products segment debt obligations(1):                                                                                 |              |   |   |   |   |
| Palco      Revolving Credit Facility                                                                                              |              |   | (1) |   |        24.1 |
| Palco      Term Loan                                                                                                              |              |   | (1) |   |        84.3 |
| Scopac      Line of Credit                                                                                                        |              |   | (1) |   |        36.2 |
| 6.55%      Scopac Class A-1 Timber Notes                                                                                          |              |   | (1) |   |          7.3 |
| 7.11%      Scopac Class A-2 Timber Notes                                                                                          |              |   | (1) |   |      243.2 |
| 7.71%      Scopac Class A-3 Timber Notes                                                                                          |              |   | (1) |   |      463.3 |
| Other      notes and contracts, primarily secured by receivables, buildings, real      estate   and      equipment |              |   | (1) |   |          0.5 |
| Total      principal outstanding                                                                                                  |              |   | (1) |   |      858.9 |
|                                                                                                                              |              |   |   |   |   |
| Less:  Short-term      borrowings and current maturities                                                                |              |        (5.3) |   |   |     (180.7) |
| Scopac      Class A-1 Timber Notes held in the SAR Account, at par    value                                                       |              |   | (1) |   | (2.8) |
| Discount      on sale of Scopac Class A-2 Timber Notes held in SAR    Account                                                     |              |   | (1) |   |       (10.3) |
|                                                                                                                              | $                 |      211.2 |   | $ |      885.4 |

| (1) | As      a result of the deconsolidation of the Debtors, their debt amounts are not      included in the consolidated total as of December 31,  2007. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                  |   | Years      Ending December 31, |   |
|-----------------------|--------|--------------------------------|--------|
|                  |   | 2008                           |   |   | 2009 |   |   | 2010 |   |   | 2011 |   |   | 2012 |   |   | Thereafter |   |
|                  |   |                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Lakepointe      Notes |   | $                              | 1.8    |   |   | $ | 2.0 |   |   | $ | 2.1 |   |   | $ | 2.5 |   |   | $ | 3.0 |   |   | $ | 100.4 |   |
| Motel      Notes      |   |                           | 1.8    |   |   |   | 2.2 |   |   |   | 2.3 |   |   |   | 2.5 |   |   |   | 2.7 |   |   |   | 31.8 |   |
| Beltway      Notes    |   |                           | 0.7    |   |   |   | 0.8 |   |   |   | 0.8 |   |   |   | 0.8 |   |   |   | 0.9 |   |   |   | 23.9 |   |
| Palmas      Notes     |   |                           | 0.5    |   |   |   | 0.5 |   |   |   | 0.6 |   |   |   | 0.6 |   |   |   | 0.7 |   |   |   | 25.3 |   |
| Other                 |   |                           | 0.5    |   |   |   | 0.4 |   |   |   | 0.6 |   |   |   | 0.5 |   |   |   | 0.4 |   |   |   | 2.9 |   |
|                  |   | $                              | 5.3    |   |   | $ | 5.9 |   |   | $ | 6.4 |   |   | $ | 6.9 |   |   | $ | 7.7 |   |   | $ | 184.3 |   |

|     |   | Years      Ended December 31, |   |
|----------|--------|-------------------------------|--------|
|     |   | 2007                          |   |   | 2006 |   |   | 2005 |   |
|     |   |                          |   |   |   |   |   |   |   |
| Domestic |   | $                             | (28.3  | ) |   | $ | 365.8 |   |   | $ | (23.9 | ) |
| Foreign  |   |                          | (18.1  | ) |   |   | 5.1 |   |   |   | 19.8 |   |
|     |   | $                             | (46.4  | ) |   | $ | 370.9 |   |   | $ | (4.1 | ) |

----

|                              |   | Years      Ended December 31, |   |
|-----------------------------------|--------|-------------------------------|--------|
|                              |   | 2007                          |   |   | 2006 |   |   | 2005 |   |
|                              |   |                          |   |   |   |   |   |   |   |
| Current:                          |   |                          |   |   |   |   |   |   |   |   |   |   |
|          Federal   |   | $                             | -      |   |   | $ | - |   |   | $ | - |   |
|         State and local |   |                          | (0.5   | ) |   |   | - |   |   |   | 1.1 |   |
|         Foreign         |   |                          | -      |   |   |   | (1.8 | ) |   |   | (0.6 | ) |
|                              |   |                          | (0.5   | ) |   |   | (1.8 | ) |   |   | 0.5  |   |
| Deferred:                         |   |                          |   |   |   |   |   |   |   |   |   |   |
|         Federal         |   |                          | -      |   |   |   | - |   |   |   | - |   |
|         State and local |   |                          | -      |   |   |   | 4.2 |   |   |   | (1.1 | ) |
|         Foreign         |   |                          | -      |   |   |   | 1.8 |   |   |   | 0.7 |   |
|                              |   |                          | -      |   |   |   | 6.0 |   |   |   | (0.4 | ) |
|                              |   | $                             | (0.5   | ) |   | $ | 4.2 |   |   | $ | 0.1 |   |

|                                                                                       |   | Years      Ended December 31, |   |
|--------------------------------------------------------------------------------------------|--------|-------------------------------|--------|
|                                                                                       |   | 2007                          |   |   | 2006 |   |   | 2005 |   |
|                                                                                       |   |                          |   |   |   |   |   |   |   |
| Income      (loss) before income taxes and cumulative effect of accounting      change     |   | $                             | (46.4  | ) |   | $ | 370.9 |   |   | $ | (4.1 | ) |
|                                                                                       |   |                          |   |   |   |   |   |   |   |   |   |   |
| Amount      of federal income tax benefit (expense) based upon the statutory      rate     |   | $                             | 16.2   |   |   | $ | (129.8 | ) |   | $ | 1.4 |   |
| Gain      on reversal of net investment in Kaiser                                          |   |                          | -      |   |   |   | 150.8 |   |   |   | - |   |
| Changes      in valuation allowances and revision of prior years’ tax      estimates |   |                          | (16.1  | ) |   |   | (20.9 | ) |   |   | (1.3 | ) |
| Foreign      taxes, net of federal tax benefit                                             |   |                          | -      |   |   |   | - |   |   |   | 0.1 |   |
| State      and local taxes, net of federal tax effect                                      |   |                          | (0.5   | ) |   |   | - |   |   |   | - |   |
| Effect      of change in state tax code                                                    |   |                          | -      |   |   |   | 4.2 |   |   |   | - |   |
| Other                                                                                      |   |                          | (0.1   | ) |   |   | (0.1 | ) |   |   | (0.1 | ) |
|                                                                                       |   | $                             | (0.5   | ) |   | $ | 4.2 |   |   | $ | 0.1 |   |

----

|                                             |   | December      31, |   |
|--------------------------------------------------|--------|-------------------|--------|
|                                             |   | 2007              |   |   | 2006 |   |
|                                             |   |              |   |   |   |   |
| Deferred      income tax assets:                 |   |              |   |   |   |   |
| Postretirement      benefits other than pensions |   | $                 | 4.1    |   |   | $ | 4.8 |   |
| Loss      and credit carryforwards               |   |              | 252.0  |   |   |   | 181.0 |   |
| Other      liabilities                           |   |              | 21.1   |   |   |   | 20.1 |   |
| Real      estate                                 |   |              | 9.1    |   |   |   | 9.3 |   |
| Timber      and timberlands                      |   |              | 19.0   |   |   |   | 25.9 |   |
| Other                                            |   |              | 15.8   |   |   |   | 15.6 |   |
| Valuation      allowances                        |   |              | (194.0 | ) |   |   | (125.1 | ) |
| Total      deferred income tax assets, net       |   |              | 127.1  |   |   |   | 131.6 |   |
| Deferred      income tax liabilities:            |   |              |   |   |   |   |   |   |
| Property,      plant and equipment               |   |              | (29.1  | ) |   |   | (33.3 | ) |
| Other                                            |   |              | (8.1   | ) |   |   | (8.4 | ) |
| Total      deferred income tax liabilities       |   |              | (37.2  | ) |   |   | (41.7 | ) |
| Net      deferred income tax assets              |   | $                 | 89.9   |   |   | $ | 89.9 |   |

|                                                  |   |   |                                                                              |   | Expiring   |
|-------------------------------------------------------|--------|--------|-----------------------------------------------------------------------------------|--------|------------|
|                                                  |   |   |                                                                              |   |       |
| Regular      tax attribute carryforwards:             |   |   |                                                                              |   |       |
|         Net operating loss carryforwards    |   | $      |          739.3                       |   | 2008-2027  |
|         Net capital loss carryforwards      |   |   |          252.7                       |   | 2011       |
|         Alternative minimum tax credits     |   |   |              4.4 |   | Indefinite |
|         General business tax credits        |   |   |              3.4 |   | 2025-2026  |
|                                                  |   |   |                                                                              |   |       |
| Alternative      minimum tax attribute carryforwards: |   |   |                                                                              |   |       |
|         Net operating losses                |   |   |          750.3                       |   | 2008-2027  |
|         Net capital loss carryforwards      |   |   |          252.7                       |   | 2011       |

----

| Unrecognized      tax benefits at January 1, 2007   |   | $      | 147.0 |   |
|-----------------------------------------------------|--------|--------|-------|--------|
| Increases      in tax positions for prior years     |   |   | -     |   |
| Decreases      in tax positions for prior years     |   |   | -     |   |
| Increases      in tax positions for current year    |   |   | -     |   |
| Settlements                                         |   |   | (1.0  | )      |
| Lapse      in statute of limitations                |   |   | -     |   |
| Unrecognized      tax benefits at December 31, 2007 |   | $      | 146.0 |   |

9.         EmployeeBenefit and Incentive Plans

----

|                                                        |   | Pension      Benefits         |    |   | Medical/Life      Benefits |   |
|-------------------------------------------------------------|--------|-------------------------------|---------|--------|----------------------------|--------|
|                                                        |   | Years      Ended December 31, |    |
|                                                        |   | 2007      (1)                 |    |   | 2006                       |   |   | 2007(1) |   |   | 2006 |   |
|                                                        |   |                          |    |   |                       |   |   |   |   |   |   |   |
| Change      in projected benefit obligation:                |   |                          |    |   |                       |   |   |   |   |   |   |   |
| Projected      benefit obligation at beginning of year      |   | $                             | 30.8    |   |                       | $      | 98.2 |   |   | $ | 3.1 |   |   | $ | 10.3 |   |
| Service      cost                                           |   |                          | -       |   |                       |   | - |   |   |   | 0.1 |   |   |   | 0.3 |   |
| Interest      cost                                          |   |                          | 1.8     |   |                       |   | 5.4 |   |   |   | 0.2 |   |   |   | 0.5 |   |
| Actuarial      (gain) loss                                  |   |                          | (0.4    | )      |                       |   | (6.2 | ) |   |   | - |   |   |   | (0.8 | ) |
| Curtailments,      settlements and amendments               |   |                          | -  |   |                       |   | - |   |   |   | - |   |   |   | - |   |
| Benefits      paid                                          |   |                          | (1.3    | )      |                       |   | (3.3 | ) |   |   | (0.2 | ) |   |   | (0.7 | ) |
| Projected      benefit obligation at end of year            |   | $                             | 30.9    |   |                       | $      | 94.1 |   |   | $ | 3.2 |   |   | $ | 9.6 |   |
|                                                        |   |                          |    |   |                       |   |   |   |   |   |   |   |   |   |   |   |
| Change      in plan assets:                                 |   |                          |    |   |                       |   |   |   |   |   |   |   |   |   |   |   |
| Fair      value of plan assets at beginning of year         |   | $                             | 25.1    |   |                       | $      | 63.4 |   |   | $ | - |   |   | $ | - |   |
| Actual      return on assets                                |   |                          | 1.9     |   |                       |   | 8.1 |   |   |   | - |   |   |   | - |   |
| Employer      contributions                                 |   |                          | 1.1     |   |                       |   | 11.0 |   |   |   | 0.2 |   |   |   | 0.7 |   |
| Plan      participants’ contributions                 |   |                          | -       |   |                       |   | - |   |   |   | 0.1 |   |   |   | 0.3 |   |
| Benefits      paid                                          |   |                          | (1.3    | )      |                       |   | (3.3 | ) |   |   | (0.3 | ) |   |   | (1.0 | ) |
| Fair      value of plan assets at end of year               |   | $                             | 26.8    |   |                       | $      | 79.2 |   |   | $ | - |   |   | $ | - |   |
|                                                        |   |                          |    |   |                       |   |   |   |   |   |   |   |   |   |   |   |
| Funded      status:                                         |   |                          |    |   |                       |   |   |   |   |   |   |   |   |   |   |   |
| Projected      benefits obligation in excess of plan assets |   | $                             | (4.2    | )      |                       | $      | (15.0 | ) |   | $ | (3.3 | ) |   | $ | (9.6 | ) |

| (1) | As      a result of the deconsolidation of the Debtors, the Debtors’ amounts are      not included in this table for the year of2007. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------|

|                                |   | December      31, |   |
|-------------------------------------|--------|-------------------|--------|
|                                |   | 2007              |   |   | 2006 |   |
|                                |   |              |   |   |   |   |
| Projected      benefit obligation   |   | $                 | 30.9   |   |   | $ | 94.1 |   |
| Accumulated      benefit obligation |   | $                 | 30.9   |   |   | $ | 94.1 |   |
| Fair      value of plan assets      |   | $                 | 26.8   |   |   | $ | 79.2 |   |

|                                           |   | Pension      Benefits         |    |   | Medical/Life      Benefits |   |
|------------------------------------------------|--------|-------------------------------|---------|--------|----------------------------|--------|
|                                           |   | Years      Ended December 31, |    |
|                                           |   | 2007(1)                       |    |   | 2006                       |   |   | 2005 |   |   | 2007(1) |   |   | 2006 |   |   | 2005 |   |
|                                           |   |                          |    |   |                       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Components      of net periodic benefit costs: |   |                          |    |   |                       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Service      cost                              |   | $                             | -       |   |                       | $      | - |   |   | $ | 2.8 |   |   | $ | 0.1 |   |   | $ | 0.3 |   |   | $ | 0.4 |   |
| Interest      cost                             |   |                          | 1.8     |   |                       |   | 5.4 |   |   |   | 5.6 |   |   |   | 0.2 |   |   |   | 0.5 |   |   |   | 0.5 |   |
| Expected      return on assets                 |   |                          | (2.1    | )      |                       |   | (5.7 | ) |   |   | (5.3 | ) |   |   | -  |   |   |   | - |   |   |   | - |   |
| Recognized      net actuarial loss             |   |                          | -  |   |                       |   | 0.3 |   |   |   | 0.7 |   |   |   | -  |   |   |   | - |   |   |   | - |   |
| Amortization      of prior service costs       |   |                          | -  |   |                       |   | - |   |   |   | - |   |   |   | (0.1 | ) |   |   | (0.2 | ) |   |   | (0.2 | ) |
| Net      periodic benefit costs                |   |                          | (0.3    | )      |                       |   | - |   |   |   | 3.8 |   |   |   | 0.2 |   |   |   | 0.6 |   |   |   | 0.7 |   |
| Curtailments,      settlements and other       |   |                          | -  |   |                       |   | - |   |   |   | (0.2 | ) |   |   | -  |   |   |   | - |   |   |   | (0.1 | ) |
| Adjusted      net periodic benefit costs       |   | $                             | (0.3    | )      |                       | $      | - |   |   | $ | 3.6 |   |   | $ | 0.2 |   |   | $ | 0.6 |   |   | $ | 0.6 |   |

| (1) | As      a result of the deconsolidation of the Debtors, the Debtors’ amounts are      not included in the consolidated total as of December 31,      2007. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                                                                    |   | Pension      Benefits         |   |   | Medical/Life      Benefits    |          |
|---------------------------------------------------------------------------------------------------------|--------|-------------------------------|--------|--------|-------------------------------|---------------|
|                                                                                                    |   |                          |   |   |                          |          |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                    |   | Years      Ended December 31, |   |   | Years      Ended December 31, |          |
|                                                                                                    |   | 2007                          |   |   | 2006                          |          |   | 2005 |   |   | 2007 |   |   | 2006 |   |   | 2005 |   |
| Net      loss (gain)                                                                                    |   | $                             | (0.3   | )      |                          | $             | - |   |   |   | N/A |   |   | $ | 0.2 |   |   | $ | 0.6 |   |   |   | N/A |   |
| Transition      obligation (asset)                                                                      |   |                          | -      |   |                          |          | - |   |   |   | N/A |   |   |   | - |   |   |   | - |   |   |   | N/A |   |
| Prior      service cost (credit)                                                                        |   |                          | -      |   |                          |          | - |   |   |   | N/A |   |   |   | - |   |   |   | (1.2 | ) |   |   | N/A |   |
| Amortization      of net loss (gain)                                                                    |   |                          | (0.2   | )      |                          |          | 4.2 |   |   |   | N/A |   |   |   | - |   |   |   | (0.9 | ) |   |   | N/A |   |
| Amortization      of transition obligation (asset)                                                      |   |                          | -      |   |                          |          | - |   |   |   | N/A |   |   |   | - |   |   |   | - |   |   |   | N/A |   |
| Amortization      of prior service cost                                                                 |   |                          | -      |   |                          |          | - |   |   |   | N/A |   |   |   | 0.1 |   |   |   | - |   |   |   | N/A |   |
|                                                                                                    |   |                          |   |   |                          |          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      recognized in other comprehensive income                                                     |   |        $                 | (0.2   | )      |                          |        $ | 4.2 |   |   |   | N/A |   |   |        $ | 0.1 |   |   |        $ | (2.1 | ) |   |   | N/A |   |
| Total      recognized in net periodic benefit cost   and      other comprehensive income |   |        $                 | (0.5   | )      |                          |        $ | 4.2 |   |   |   | N/A |   |   |        $ | 0.3 |   |   |        $ | (1.5 | ) |   |   | N/A |   |

|                        | Pension      Benefits         |   | Medical/Life      Benefits |   |
|-----------------------------|-------------------------------|--------|----------------------------|--------|
|                        | Years      Ended December 31, |   |
|                        | 2007(1)                       |   | 2006                       |   | 2007(1) |   | 2006 |   |
|                        |                          |   |                       |   |   |   |   |   |   |   |   |   |
| Current      liabilities    |                          | $      | 0.3                        |   |   | $ | 0.3 |   |   | $ | 0.2 |   |   | $ | 0.4 |   |
| Noncurrent      liabilities |                          |   | 3.9                        |   |   |   | 14.7 |   |   |   | 3.1 |   |   |   | 9.1 |   |
|                        |                          | $      | 4.2                        |   |   | $ | 15.0 |   |   | $ | 3.3 |   |   | $ | 9.5 |   |

| (1) | As      a result of the deconsolidation of the Debtors, the Debtors’ amounts are      not included in the consolidated total as of December 31,      2007. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                | Pension      Benefits         |   | Medical/Life      Benefits |      |
|--------------------------------|-------------------------------|--------|----------------------------|-----------|
|                           | Years      Ended December 31, |   |
|                           | 2007                          |   | 2006                       |      | 2007 |   | 2006 |   |
|                           |                          |   |                       |      |   |   |   |   |   |   |   |   |
| Net      actuarial (gain) loss |                          | $      | 0.8                        |  (1) |   | $ | 4.2 |   |   | $ | (0.4) |  (1) |   | $ | (0.9 | ) |
| Prior      service cost        |                          |   | -                          |      |   |   | - |   |   |   | (0.7) |  (2) |   |   | (1.2 | ) |
|                           |                          | $      | 0.8                        |      |   | $ | 4.2 |   |   | $ | (1.1) |   |   | $ | (2.1 | ) |

----

|                                                           | Pension      Benefits         |   | Medical/Life      Benefits |
|----------------------------------------------------------------|-------------------------------|--------|----------------------------|
|                                                           | Years      Ended December 31, |
|                                                           | 2007                          |   | 2006                       |   | 2005 |   | 2007 |   | 2006 |   | 2005 |
|                                                           |                          |   |                       |   |   |   |   |   |   |   |   |   |   |   |
| Weighted-average      assumptions:                             |                          |   |                       |   |   |   |   |   |   |   |   |   |   |   |
| Discount      rate used to determine benefit obligation        |                          | 6.125% |                       |   | 6.0% |   |   | 5.625% |   | 6.125% |   | 6.0% |   | 5.625% |
| Discount      rate used to determine net periodic benefit cost | 6.0%                          |   |                       | 5.625% |   |   | 5.875% |   | 6.0% |   | 5.625% |   | 5.875% |
| Expected      return on plan assets                            |                          | 8.75%  |                       |   | 8.75% |   |   | 8.75% |   | - |   | - |   | - |
| Rate      of compensation increase                             |                          | -      | (1)                        |   | - | (1) |   | - | (1) | - |   | - |   | - |

|                                                         |   | 1-Percentage-Point      Increase |   |   | 1-Percentage-Point      Decrease |   |
|--------------------------------------------------------------|--------|----------------------------------|--------|--------|----------------------------------|--------|
|                                                         |   |                             |   |   |                             |   |
| Effect      on total of service and interest cost components |   | $                                | 0.1    |   |                             | $      | (0.1 | ) |
| Effect      on the postretirement benefit obligations        |   |                             | 0.4    |   |                             |   | (0.4 | ) |

|                                |   | Years      Ended December 31, |   |
|-------------------------------------|--------|-------------------------------|--------|
|                                |   | 2007                          |   |   | 2006 |   |
|                                |   |                          |   |   |   |   |
| Asset      Category:                |   |                          |   |   |   |   |
|        Equity securities       |   |                          | 70     | % |   |   | 70 | % |
|        Debt securities         |   |                          | 30     | % |   |   | 30 | % |
|           Total |   |                          | 100    | % |   |   | 100 | % |

| Years      Ended December 31, |   | Pension      Benefits |   |   | Medical/Life      Benefits |   |
|-------------------------------|--------|-----------------------|--------|--------|----------------------------|--------|
|                          |   |                  |   |   |                       |   |
| 2008                          |   | $                     | 1.7    |   |                       | $      | 0.2 |   |
| 2009                          |   |                  | 1.8    |   |                       |   | 0.2 |   |
| 2010                          |   |                  | 1.8    |   |                       |   | 0.2 |   |
| 2011                          |   |                  | 1.8    |   |                       |   | 0.2 |   |
| 2012                          |   |                  | 2.0    |   |                       |   | 0.2 |   |
| Years      2013-2017          |   |                  | 10.1   |   |                       |   | 1.2 |   |

----

10.         Commitments,Regulatory and Environmental Factors and Contingencies

| Years      Ended December 31,     |   | (In      millions) |   |
|-----------------------------------|--------|--------------------|--------|
|                              |   |               |   |
| 2008                              |   | $                  | 1.2    |   |
| 2009                              |   |               | 1.4    |   |
| 2010                              |   |               | 1.2    |   |
| 2011                              |   |               | 0.9    |   |
| 2012                              |   |               | 0.8    |   |
| Thereafter                        |   |               | 1.0    |   |
| Total      minimum lease payments |   | $                  | 6.5    |   |

| Years      Ended December 31, |   | (In      millions) |   |
|-------------------------------|--------|--------------------|--------|
|                          |   |               |   |
| 2008                          |   | $                  | 17.8   |   |
| 2009                          |   |               | 18.0   |   |
| 2010                          |   |               | 18.0   |   |
| 2011                          |   |               | 18.3   |   |
| 2012                          |   |               | 18.5   |   |
| Thereafter                    |   |               | 153.3  |   |
| Total      minimum rentals    |   | $                  | 243.9  |   |

----

11.         Stockholders’Deficit

|                                                                                                                                                                                                  | Year      ended December 31,2005 |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------|--------|
|                                                                                                                                                                                                  |                             |   |   |
| Net      loss, as reported                                                                                                                                                                            |                             | $      | (4.0 | ) |
| Add:  Non-cash      stock-based employee compensation expenses   included      in net income (loss), net of related tax effects                                              |                             |   | 3.7 |   |
| Deduct:  Total      stock-based employee compensation expense   determined      under the fair value method for all awards, net of   related      tax effects |                             |   | (3.7 | ) |
| Pro      forma net loss                                                                                                                                                                               |                             | $      | (4.0 | ) |
|                                                                                                                                                                                                  |                             |   |   |   |
| Basic      and diluted loss per share:                                                                                                                                                                |                             |   |   |   |
|  As      reported                                                                                                                                                                                |                             | $      | (0.66 | ) |
|  Pro      forma                                                                                                                                                                                  |                             |   | (0.67 | ) |

|                          |   | Years      Ended December 31, |   |
|-------------------------------|--------|-------------------------------|--------|
|                          |   | 2007                          |   |   | 2006 |   |   | 2005 |   |
|                          |   |                          |   |   |   |   |   |   |   |
| Expected      volatility      |   |                          | 25     | % |   |   | 33 | % |   |   | 38 | % |
| Expected      dividends       |   |                          | -      |   |   |   | - |   |   |   | - |   |
| Expected      term (in years) |   |                          | 7.44   |   |   |   | 6.20 |   |   |   | 6.44 |   |
| Risk-free      rate           |   |                          | 3.45   | % |   |   | 4.70 | % |   |   | 4.35 | % |

----

|                                  |   | Options |      |   | Weighted      Average Exercise Price |   |   | Weighted      Average Remaining Contractual Term (in      years) |   |   | Aggregate      Intrinsic Value (in      millions) |   |
|---------------------------------------|--------|---------|-----------|--------|--------------------------------------|--------|--------|------------------------------------------------------------------|--------|--------|---------------------------------------------------|--------|
|                                  |   |    |      |   |                                 |   |   |                                                             |   |   |                                              |   |
| Balance      at January 1, 2007       |   |    | 1,081,853 |   |                                 | $      | 25.52  |                                                             |   |   |                                              |   |   |   |
| Granted                               |   |    | 77,625    |   |                                 |   | 27.08  |                                                             |   |   |                                              |   |   |   |
| Exercised                             |   |    | (37,652   | )      |                                 |   | 17.00  |                                                             |   |   |                                              |   |   |   |
| Forfeited      or expired             |   |    | (102,740  | )      |                                 |   | 43.76  |                                                             |   |   |                                              |   |   |   |
| Balance      at December 31, 2007     |   |    | 1,019,086 |   |                                 | $      | 24.11  |                                                             |   |   | 5.33                                              |   |   | $ | 7.5 |   |
| Exercisable      at December 31, 2007 |   |    | 768,420   |   |                                 | $      | 22.78  |                                                             |   |   | 4.32                                              |   |   | $ | 7.0 |   |

|                                  |   | Options |      |   | Weighted      Average Exercise Price |   |   | Weighted      Average Remaining Contractual Term (in years) |   |   | Aggregate      Intrinsic Value (in millions) |   |
|---------------------------------------|--------|---------|-----------|--------|--------------------------------------|--------|--------|-------------------------------------------------------------|--------|--------|----------------------------------------------|--------|
|                                  |   |    |      |   |                                 |   |   |                                                        |   |   |                                         |   |
| Balance      at January 1, 2006       |   |    | 1,114,306 |   |                                 | $      | 25.06  |                                                        |   |   |                                         |   |   |   |
| Granted                               |   |    | 94,300    |   |                                 |   | 27.93  |                                                        |   |   |                                         |   |   |   |
| Exercised                             |   |    | (42,744   | )      |                                 |   | 16.76  |                                                        |   |   |                                         |   |   |   |
| Forfeited      or expired             |   |    | (84,009   | )      |                                 |   | 26.65  |                                                        |   |   |                                         |   |   |   |
| Balance      at December 31, 2006     |   |    | 1,081,853 |   |                                 | $      | 25.52  |                                                        |   |   | 5.50                                         |   |   | $ | 8.5 |   |
| Exercisable      at December 31, 2006 |   |    | 796,261   |   |                                 | $      | 25.38  |                                                        |   |   | 4.52                                         |   |   | $ | 7.1 |   |

| Range      of Exercise Prices |   | Shares |      |   | Weighted      Average Remaining Contractual Life |   |   | Weighted      Average Exercise Price |   |   | Options      Exercisable |   |   | Weighted      Average Exercise Price |    |
|-------------------------------|--------|--------|-----------|--------|--------------------------------------------------|--------|--------|--------------------------------------|--------|--------|--------------------------|--------|--------|--------------------------------------|---------|
|                          |   |   |      |   |                                             |   |   |                                 |   |   |                     |   |   |                                 |    |
| From      $9.40 to $15.88     |   |   | 278,210   |   |                                             |   | 4.13   |                                 |   | $      | 12.14                    |   |   |                                 | 278,210 |   |   | $ | 12.14 |   |
| From      $16.38 to $19.72    |   |   | 300,976   |   |                                             |   | 4.82   |                                 |   |   | 18.69                    |   |   |                                 | 272,920 |   |   |   | 18.59 |   |
| From      $22.58 to $45.50    |   |   | 352,300   |   |                                             |   | 7.89   |                                 |   |   | 31.08                    |   |   |                                 | 129,690 |   |   |   | 34.22 |   |
| From      $50.50 to $62.00    |   |   | 87,600    |   |                                             |   | 0.56   |                                 |   |   | 52.71                    |   |   |                                 | 87,600  |   |   |   | 52.71 |   |
|                          |   |   | 1,019,086 |   |                                             |   | 5.33   |                                 |   |   | 24.11                    |   |   |                                 | 768,420 |   |   |   | 22.78 |   |

12.         SignificantAcquisitions and Dispositions

13.         SupplementalCash Flow and Other Information

|                                            | Years      Ended December 31, |   |
|-------------------------------------------------|-------------------------------|--------|
|                                            | 2007                          |   | 2006 |   | 2005 |   |
|                                            | (In      millions)            |   |
|                                            |                          |   |   |   |   |   |   |   |   |
| Interest      paid, net of capitalized interest |                          | $      | 16.4 |   |   | $ | 81.1 |   |   | $ | 73.5 |   |
| Income      taxes paid, net                     |                          |   | - |   |   |   | 1.5 |   |   |   | 0.3 |   |

----

14.         QuarterlyFinancial Information (Unaudited)

|                                                                                                                                                                |   | Three      Months Ended |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|
|                                                                                                                                                                |   | March      31(1)        |   |   | June      30 |   |   | September      30 |   |   | December      31 |   |
|                                                                                                                                                                |   |                    |   |   |   |   |   |   |   |   |   |   |
| 2007:                                                                                                                                                               |   |                    |   |   |   |   |   |   |   |   |   |   |
| Sales                                                                                                                                                               |   | $                       | 28.7 |   |   | $ | 23.3 |   |   | $ | 23.0 |   |   | $ | 20.9 |   |
| Operating      loss                                                                                                                                                 |   |                    | (6.1 | ) |   |   | (4.3 | ) |   |   | (7.6 | ) |   |   | (9.9 | ) |
| Loss      before income taxes                                                                                                                                       |   |                    | (12.3 | ) |   |   | (6.7 | ) |   |   | (10.5 | ) |   |   | (16.9 | ) |
| Net      loss                                                                                                                                                       |   |                    | (12.3 | ) |   |   | (6.7 | ) |   |   | (10.5 | ) |   |   | (17.4 | ) |
|                                                                                                                                                                |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic      loss per common and   common      equivalent share(2)                                                                                     |   | $                       | (2.33 | ) |   | $ | (1.28 | ) |   | $ | (2.00 | ) |   | $ | (3.32 | ) |
| Diluted      loss per common and common   equivalent      share (2)                                                                                  |   | $                       | (2.33 | ) |   | $ | (1.28 | ) |   | $ | (2.00 | ) |   | $ | (3.32 | ) |
|                                                                                                                                                                |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 2006:                                                                                                                                                               |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Sales                                                                                                                                                               |   | $                       | 80.2 |   |   | $ | 63.5 |   |   | $ | 77.8 |   |   | $ | 70.0 |   |
| Operating      income (loss)                                                                                                                                        |   |                    | 6.3 |   |   |   | 2.0 |   |   |   | 443.5 |  (3) |   |   | (2.8 | ) |
| Income      (loss) before income taxes                                                                                                                              |   |                    | (9.5 | ) |   |   | (15.4 | ) |   |   | 418.7 |  (3) |   |   | (22.9 | ) |
| Net      income (loss)                                                                                                                                              |   |                    | (10.2 | ) |   |   | (11.2 | ) |   |   | 418.7 |  (3) |   |   | (22.9 | ) |
|                                                                                                                                                                |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic      net income (loss), after cumulative effect of   accounting      change, per common   and      common equivalent share(2)   |   | $                       | (1.59 | ) |   | $ | (1.97 | ) |   | $ | 79.61 |   |   | $ | (4.36 | ) |
|                                                                                                                                                                |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Diluted      net income (loss), after cumulative effect of   accounting      change, per common and common   equivalent      share(2) |   | $                       | (1.59 | ) |   | $ | (1.97 | ) |   | $ | 69.32 |   |   | $ | (4.36 | ) |

| (1) | Results      for the Debtors’ operations have been included for the period from January      1, 2007 through January 18, 2007. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------|

| (2) | The      sum of the quarterly income per share amounts may not equal the annual      amount reported, as per share amounts are computed independently for each      quarter and for the full year based on the respective weighted average      common shares outstanding. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3) | Includes      gain of $430.9 million related to reversal of the Company’s net investment      in Kaiser. |
|-----|----------------------------------------------------------------------------------------------------------------|

15.         SubsequentEvents

| ITEM      9. | CHANGES      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL      DISCLOSURE |
|--------------|------------------------------------------------------------------------------------------------|

ITEM9A.               CONTROLSAND PROCEDURES

----

ITEM9B.                           OTHERINFORMATION

PART III

ITEM15.                         EXHIBITS

|    | Exhibits |
|--------------|----------|

----

SIGNATURES

| Date:           April      30, 2008 | By:    | CHARLES      E. HURWITZ                                                             |
|--------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------|
|                                                                                       |   | Charles      E. HurwitzChairman      of the Board and Chief Executive Officer  |

| Date:           April      30, 2008 | By:    | SHAWN      M. HURWITZ                                                                                                                                    |
|--------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                       |   | Shawn      M. HurwitzCo-Vice      Chairman of the Board andPresident                                                                                     |
|                                                                                       |   |                                                                                                                                                     |
| Date:           April      30, 2008 | By:    | J.      KENT FRIEDMAN                                                                                                                                    |
|                                                                                       |   | J.      Kent FriedmanCo-Vice      Chairman of the Board andGeneral      Counsel                                                                          |
|                                                                                       |   |                                                                                                                                                     |
| Date:           April      30, 2008 | By:    | M.      EMILY MADISON                                                                                                                                    |
|                                                                                       |   | M.      Emily MadisonVice      President, Finance andChief      Financial Officer(Principal      Accounting Officer andPrincipal      Financial Officer) |
|                                                                                       |   |                                                                                                                                                     |
| Date:           April      30, 2008 | By:    | ROBERT      J. CRUIKSHANK                                                                                                                                |
|                                                                                       |   | Robert      J. CruikshankDirector                                                                                                                        |
|                                                                                       |   |                                                                                                                                                     |
| Date:           April      30, 2008 | By:    | EZRA      G. LEVIN                                                                                                                                       |
|                                                                                       |   | Ezra      G. LevinDirector                                                                                                                               |
|                                                                                       |   |                                                                                                                                                     |
| Date:           April      30, 2008 | By:    | STANLEY      D. ROSENBERG                                                                                                                                |
|                                                                                       |   | Stanley      D. RosenbergDirector                                                                                                                        |
|                                                                                       |   |                                                                                                                                                     |
| Date:           April      30, 2008 | By:    | MICHAEL      J. ROSENTHAL                                                                                                                                |
|                                                                                       |   | Michael      J. RosenthalDirector                                                                                                                        |
|                                                                                       |   |                                                                                                                                                     |

----

INDEX OF EXHIBITS

| ExhibitNumber             |   |  Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|---------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                      |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 3.1                       |   | Restated      certificate of incorporation of the Company (conformed to include all      amendments and certificates of designation thereto and incorporated herein      by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q      for the quarter ended June 30, 2004)                                                                                                                                                                                                                                                                                                                |
| 3.2                       |   | Certificate      of Powers, Designations, Preferences and Relative, Participating, Optional      and Other Rights of the Company’s Class B Junior Participating Preferred      Stock (incorporated herein by reference to Exhibit 3.2 to the Company’s      Annual Report on Form 10-K for the year ended December 31,      1989)                                                                                                                                                                                                                                                                      |
| 3.3                       |   | Certificate      of Designations of Class A $.05 Non-Cumulative Participating Convertible      Preferred Stock of the Company (incorporated herein by reference to      Exhibit 3.3 to the Company’s Annual Report on Form 10-K for the year ended      December 31, 1999)                                                                                                                                                                                                                                                                                                                                   |
| 3.4                       |   | Amended      and Restated By-laws of the Company, dated March 30, 2000 (incorporated      herein by reference to Exhibit 3.1 to the Company’s Quarterly Report on      Form 10-Q for the quarter ended March 31, 2000)                                                                                                                                                                                                                                                                                                                                                                                       |
| 4.1                       |   | Rights      Agreement, dated December 15, 1999, by and between the Company and      American Stock Transfer & Trust Company (incorporated herein by      reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed      on January 14, 2000)                                                                                                                                                                                                                                                                                                                                            |
|                      |   | Note:      Pursuant to Regulation § 229.601, Item 601(b)(4)(iii) of Regulation S-K,      upon request of the Securities and Exchange Commission, the Company hereby      agrees to furnish a copy of any unfiled instrument which defines the      rights of holders of long-term debt of the Company and its consolidated      subsidiaries (and for any of its unconsolidated subsidiaries for which      financial statements are required to be filed) wherein the total amount of      securities authorized thereunder does not exceed 10 percent of the total      consolidated assets of the Company  |
| 10.1                      |   | Loan      Agreement, dated June 28, 2001, between Lakepointe Assets LLC and Legg      Mason Real Estate Services, Inc. (incorporated herein by reference to      Exhibit 4.2 to MGHI’s Quarterly Report on Form 10-Q for the quarter ended      June 30, 2001; File No. 333-18723; the “MGHI June 2001 Form      10-Q”)                                                                                                                                                                                                                                                                          |
| 10.2                      |   | Promissory      Note, dated June 28, 2001, between Lakepointe Assets LLC and Legg Mason      Real Estate Services, Inc. (incorporated herein by reference to Exhibit      4.3 to the MGHI June 2001 Form 10-Q)                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.3                      |   | Lease      Agreement, dated June 28, 2001, between Lakepointe Assets LLC and Fluor      Enterprises Inc. (incorporated herein by reference to Exhibit 10.1 to the      MGHI June 2001 Form 10-Q)                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 10.4                      |   | Guarantee      of Lease dated June 28, 2001, between Fluor Corporation and Lakepointe      Assets LLC (incorporated herein by reference to Exhibit 10.2 to the MGHI      June 2001 Form 10-Q)                                                                                                                                                                                                                                                                                                                                                                                                                      |
| *10.5                     |   | Loan      Agreement, dated April 30, 1998, between Nomura Asset Capital Corporation      and M-Six Penvest II Business Trust                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| *10.6                     |   | Indenture,      Mortgage, Deed of Trust, Security Agreement, Fixture Filing, Financing      Statement and Assignment of Rents and Leases, dated April 30, 1998, among      Nomura Asset Capital Corporation and the owners of the properties subject      to the M-Six Indenture                                                                                                                                                                                                                                                                                                                                   |
| *10.7                     |   | Amendment      No. 1 to Indenture and Other Operative Documents, dated September 1, 1998,      among Nomura Asset Capital Corporation and the property owners party      thereto                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| *10.8                     |   | Amendment      No. 2 to Indenture and Other Operative Documents, dated September 1, 1998,      among Nomura Asset Capital Corporation and the property owners party      thereto                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| *10.9                     |   | Class      A Promissory Note, dated April 30, 1998, executed by M-Six Penvest II      Business Trust, M-Six Penvest II Business Trust (LA), and M-Six Penvest II      Business Trust (NEV.) in favor of The Capital Company of America LLC and      Nomura Asset Capital Corporation                                                                                                                                                                                                                                                                                                                               |
| *10.10                    |   | Class      B Promissory Note, dated April 30, 1998, executed by M-Six Penvest II      Business Trust, M-Six Penvest II Business Trust (LA), and M-Six Penvest II      Business Trust (NEV.) in favor of The Capital Company of America LLC and      Nomura Asset Capital Corporation                                                                                                                                                                                                                                                                                                                               |
| *10.11                    |   | Lease      Agreement, dated April 30, 1998 (the “M-Six Lease”), among      Universal Commercial Credit Leasing III, Inc. and M-Six Penvest II      Business Trust and the other owners of the properties subject to the M-Six      Lease                                                                                                                                                                                                                                                                                                                                                               |
| *10.12                    |   | Lease      Guaranty, dated April 30, 1998, executed by Accor in favor of M-Six      Penvest II Business Trust and the other owners of the properties subject      to the M-Six Lease                                                                                                                                                                                                                                                                                                                                                                                                                               |
| *10.13                    |   | Purchase      Agreement, dated November 12, 2002, between USRA Leveraged Net Lease, LLC      and Motel Assets Holdings LLC                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| *10.14                    |   | Lender’s      Consent to Transfer, dated December 5, 2002, among, LaSalle Bank National      Association, as Trustee for BH Finance LLC Trust, Credit Lease Loan      Pass-Through Certificates, Series 2000-A Pools V-IX; LaSalle Bank National      Association, as Trustee for Capco America Securitization Corporation,      Commercial Mortgage Pass-Through Certificates, Series 1998-D7; M-Six      Penvest II Business Trust; M-Six Penvest II Business Trust (LA); USRA      Leveraged Net Lease, LLC; and Motel Assets Holdings LLC                                                                |
| 10.15      to10.18   |   | [Reserved]                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| *10.19                    |   | Loan      Agreement, dated November 19, 2002, between Beltway Assets LLC and Legg      Mason Real Estate Services, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| *10.20                    |   | Indemnity      and Guarantee Agreement, dated November 19, 2007, by and between Beltway      Assets Holdings LLC and Legg Mason Real Estate Services, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| *10.21                    |   | Promissory      Note, dated November 18, 2002, executed by Beltway Assets LLC in favor of      Legg Mason Real Estate Services, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| *10.22                    |   | Lease      Agreement, dated November 19, 2002, between Beltway Assets LLC and Cooper      Cameron Corporation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.23      to10.27   |   | [Reserved]                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| *10.28                    |   | Loan      Agreement, dated October 26, 2000, between the Puerto Rico Industrial      Tourist, Educational, Medical and Environmental Control Facilities      Financing Authority and Palmas Country Club, Inc.                                                                                                                                                                                                                                                                                                                                                                                                     |
| *10.29                    |   | Letter      of Credit and Reimbursement Agreement, dated as October 26, 2000, between      the Puerto Rico Tourism Development Fund and Palmas Country Club,      Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| *10.30                    |   | Letter      of Credit, dated October 26, 2000, issued by the Puerto Rico Tourism      Development Fund or the benefit of Palmas Country Club, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| *10.31                    |   | Trust      Agreement, dated October 26, 2000, between the Puerto Rico Industrial      Tourist, Educational, Medical and Environmental Control Facilities      Financing Authority and PaineWebber Trust Company of Puerto      Rico                                                                                                                                                                                                                                                                                                                                                                                |
| 10.32      to10.35        |   | [Reserved]                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.36                     |   | Stock      Purchase Agreement, dated May 25, 2006, among the Company, Scion Qualified      Value Fund and Scion Value Fund (incorporated herein by reference to      Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on May 26,      2006)                                                                                                                                                                                                                                                                                                                                                    |
| 10.37                     |   | Stock      Purchase Agreement, dated March 11, 2008, among the Company, Luxor Capital      partners, LP and Luxor Capital Partners Offshore, Ltd. (incorporated      herein by reference 10.1 to the Company’s Current Report on Form 8-K filed      on March 17, 2008)                                                                                                                                                                                                                                                                                                                                      |
| 10.38                     |   | Tax      Allocation Agreement (the “MGHI Tax Allocation      Agreement”), dated December 23, 1996, between the Company and MGHI      (incorporated herein by reference to Exhibit 10.1 to MGHI’s Registration      Statement on Form S-4; Registration No. 333-18723)                                                                                                                                                                                                                                                                                                                            |
| 10.39                     |   | Amendment      of MGHI Tax Allocation Agreement, dated December 31, 2001 (incorporated      herein by reference to Exhibit 10.2 to MGHI’s Annual Report on Form 10-K      for the year ended December 31, 2001; File No. 333-18723; the “MGHI 2001 Form      10-K”)                                                                                                                                                                                                                                                                                                                              |
| 10.40                     |   | Tax      Allocation Agreement (the “MGI Tax Allocation      Agreement”), dated August 4, 1993, between the Company and MGI      (incorporated herein by reference to Exhibit 10.6 to Amendment No. 2 to      MGI’s Registration Statement on Form S-2; Registration No.      33-56332)                                                                                                                                                                                                                                                                                                           |
| 10.41                     |   | Amendment      of MGI Tax Allocation Agreement, dated December 31, 2001, between the      Company and MGI (incorporated herein by reference to Exhibit 10.4 to the      MGHI 2001 Form 10-K)                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 10.42                     |   | Tax      Allocation Agreement, dated May 21, 1988, among the Company, MGI, Palco      and the corporations signatory thereto (incorporated herein by reference      to Exhibit 10.8 to Palco’s Annual Report on Form 10-K for the year ended      December 31, 1988; File No. 1-9204)                                                                                                                                                                                                                                                                                                                        |
| 10.43                     |   | Tax      Allocation Agreement (the “Palco Tax Allocation      Agreement”), dated March 23, 1993, among Palco, Scotia Pacific      Holding Company, Salmon Creek Corporation and the Company (incorporated      herein by reference to Exhibit 10.1 to Amendment No. 3 to the Registration      Statement on Form S-1 of Scotia Pacific Holding Company; Registration No.      33-55538)                                                                                                                                                                                                                |
| 10.44                     |   | Amendment      of Palco Tax Allocation Agreement, dated December 31, 2001 (incorporated      herein by reference to Exhibit 10.7 to the MGHI 2001 Form      10-K)                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.45                     |   | Tax      Allocation Agreement, dated February 9, 2004, among Britt, Palco, MGI and      the Company (incorporated herein by reference to Exhibit 10.8 to the      Company’s Annual Report on Form 10-K for the year ended December 31,      2003)                                                                                                                                                                                                                                                                                                                                                            |
| 10.46      to 10.50  |   | [Reserved]                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|                      |   | Executive Compensation Plans and      Agreements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.51                     |   | MAXXAM      2002 Omnibus Employee Incentive Plan (incorporated herein by reference to      Exhibit 99 to the Company’s Schedule 14A dated April 30,2002)                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.52                     |   | Form      of Stock Option Agreement under the MAXXAM 2002 Omnibus Employee Incentive      Plan (incorporated herein by reference to Exhibit 10.64 to the Company’s      Annual Report on Form 10-K for the year ended December 31,      2006)                                                                                                                                                                                                                                                                                                                                                                |
| 10.53                     |   | MAXXAM      1994 Omnibus Employee Incentive Plan (incorporated herein by reference to      Exhibit 99 to the Company’s Schedule 14A dated April 29,1994)                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.54                     |   | Form      of Stock Option Agreement under the MAXXAM 1994 Omnibus Employee Incentive      Plan (incorporated herein by reference to Exhibit 10.30 to the Company’s      Annual Report on Form 10-K for the year ended December 31,      1994)                                                                                                                                                                                                                                                                                                                                                                |
| 10.55                     |   | MAXXAM      Amended and Restated Non-Employee Director Stock Plan (incorporated herein      by reference to Exhibit 99.1 to the Company’s Schedule 14A dated April 20,      2004)                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.56                     |   | Form      of Stock Option Agreement under the Amended and Restated Non-Employee      Director Plan (incorporated herein by reference to Exhibit 10.68 to the      Company’s Annual Report on Form 10-K for the year ended December 31,      2006)                                                                                                                                                                                                                                                                                                                                                            |
| 10.57                     |   | Form      of deferred fee agreement for Company directors (incorporated herein by      reference to Exhibit 10.26 to the Company’s Annual Report on Form 10-K for      the year ended December 31, 1996)                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.58                     |   | MAXXAM      1994 Executive Bonus Plan (Amended and Restated 2003) (incorporated herein      by reference to Exhibit 99 to the Company’s Schedule 14A dated April 5,      2004)                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.59                     |   | MAXXAM      Revised Capital Accumulation Plan of 1988 (As Amended and Restated      December 2006) (incorporated herein by reference to Exhibit 10.71 to the      Company’s Annual Report on Form 10-K for the year ended December 31,      2006)                                                                                                                                                                                                                                                                                                                                                            |
| 10.60                     |   | MAXXAM      Supplemental Executive Retirement Plan (incorporated herein by reference      to Exhibit 10(ii) to MGI’s Registration Statement on Form S-4 on Form S-2;      Registration No. 33-42300)                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.61                     |   | MAXXAM      Supplemental Savings Plan, effective January 1, 2006 (incorporated herein      by reference to Exhibit 10.73 to the Company’s Annual Report on Form 10-K      for the year ended December 31, 2006)                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.62                     |   | Form      of Company deferred compensation agreement (incorporated herein by      reference to Exhibit 10.35 to the Company’s Annual Report on Form 10-K for      the year ended December 31, 1995)                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.63      to 10.66       |   | [Reserved]                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.67                     |   | Executive      Employment Agreement, dated April 1, 2005, between the Company and M.      Emily Madison (incorporated herein by reference to Exhibit 10.1 to the      Company’s Current Report on Form 8-K filed on April 1, 2005)                                                                                                                                                                                                                                                                                                                                                                           |
| 10.68                     |   | Restricted      Stock Agreement (the “Restricted Stock      Agreement”), dated December 13, 1999, between the Company and      Charles E. Hurwitz (incorporated herein by reference to Exhibit 10.53 to      the Company’s Annual Report on Form 10-K for the year ended December 31,      1999)                                                                                                                                                                                                                                                                                                 |
| 10.69                     |   | Amendment,      dated December 16, 2003, to the Restricted Stock Agreement (incorporated      herein by reference to Exhibit 10.35 to the Company’s Annual Report on      Form 10-K for the year ended December 31, 2003)                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.70                     |   | 2006      Bonus Criteria for the MAXXAM Chief Executive Officer under the MAXXAM      1994 Executive Bonus Plan (incorporated herein by reference to Exhibit      10.2 to the Company’s Current Report on Form 8-K filed on April 4,      2006)                                                                                                                                                                                                                                                                                                                                                              |
| 10.71                     |   | 2006      Bonus Criteria for the MAXXAM Vice Chairman and General Counsel under the      MAXXAM 1994 Executive Bonus Plan (incorporated herein by reference to      Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on April 4,      2006)                                                                                                                                                                                                                                                                                                                                                    |
| *21.1                     |   | List      of the Company’s Subsidiaries                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| *23.1 *23.2          |   | Consent      of Deloitte & Touche LLP Consent of      PricewaterhouseCoopers LLP                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| *31.1                     |   | Section      302 Certification of Chief Executive Officer                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| *31.2                     |   | Section      302 Certification of Chief Financial Officer                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| *32.1                     |   | Section      906 Certification of Chief Financial Officer                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| *32.2                     |   | Section      906 Certification of Chief Financial Officer                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| *99.1                     |   | Report      of Independent Registered Public Accounting Firm on the Audited Financial      Statements of Sam Houston Race Park, Ltd. as of and for the years ended      December 31, 2006 and 2005                                                                                                                                                                                                                                                                                                                                                                                                                 |
|  *99.2               |   | Audited      Financial Statement of Goldman Sachs Golden Alpha fund, L.P.  as of      and for the year ended December 31, 2005                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|                      |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |
|                      |   | *Included      with this filing                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |

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Glossary of Defined Terms

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