UNITEDTable STATESof Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended ~~June~~ September 30, 2009


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

Commission File Number 1-3924

MAXXAM INC.

(Exact name of Registrant as Specified in its Charter)

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

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

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

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes o x No o

Indicate by check mark whether the Registrant ~~has~~is ~~submitted~~a ~~electronically~~large ~~and~~accelerated ~~posted~~filer onan ~~its~~accelerated ~~corporate Web site~~filer, ifa ~~any~~non-accelerated filer, ~~every~~or a ~~Interactive~~smaller ~~Data~~reporting ~~File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232~~company.~~405~~ ~~of this chapter) during the preceding 12 months~~ (orCheck ~~for such shorter period that the Registrant was required to submit and post such files~~one)~~. Yes o No o~~:

~~Indicate~~Large byaccelerated ~~check~~filer ~~mark~~o ~~whether~~Accelerated ~~the~~filer ~~Registrant~~o ~~is a large~~ Non-accelerated filer, ano ~~accelerated~~Smaller ~~filer,~~reporting acompany ~~non-accelerated~~þ ~~filer~~(Do ornot check if a smaller reporting company~~. (Check one~~):

~~Large~~ Indicate ~~accelerated~~by ~~filer~~check omark ~~Accelerated~~whether ~~filer~~the oRegistrant ~~Non~~is a shell company (as defined in Rule 12b-~~accelerated~~2 ~~filer~~of the oExchange ~~Smaller~~Act). ~~reporting~~Yes ~~company~~o xNo þ

~~Indicate~~Number byof ~~check~~shares ~~mark~~of ~~whether~~common ~~the~~stock ~~Registrant~~outstanding isat aNovember 11, ~~shell~~2009: ~~company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x~~4,559,637

~~Number~~TABLE ofOF ~~shares of common stock outstanding at August 6, 2009: 4,559,637~~CONTENTS

	TABLE OF CONTENTS
		Page
		Page
PART I. – FINANCIAL INFORMATION
PART I. – FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited):
Item 1.	Financial Statements (unaudited):	3
Condensed Consolidated Balance Sheets			3
	Condensed Consolidated Balance Sheets	4
Condensed Consolidated Statements of Operations			4
	Condensed Consolidated Statements of Operations	5
Condensed Consolidated Statements of Cash Flows			5
	Condensed Consolidated Statements of Cash Flows	6
Condensed Notes to Unaudited Consolidated Financial Statements			6
	Condensed Notes to Unaudited Consolidated Financial Statements
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			24
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3. Quantitative and Qualitative Disclosures About Market Risk*			37
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	*
Item 4. Controls and Procedures			37
Item 4.	Controls and Procedures	33
PART II. – OTHER INFORMATION
PART II. – OTHER INFORMATION
Item 1. Legal Proceedings			38
Item 1.	Legal Proceedings	33
Item 1A. Risk Factors			38
Item 1A.	Risk Factors	33
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			38
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34
Item 6. Exhibits			39
Item 3.	Defaults Upon Senior Securities	34
Signatures			40
Item 4.	Submission of Matter to a Vote of Security Holders	34
APPENDIX A – GLOSSARY OF DEFINED TERMS			41
Item 6.	Exhibits	34
EX-31.1
Signatures		36
EX-31.2
APPENDIX A – GLOSSARY OF DEFINED TERMS		37
EX-32

* Indicates items that the Registrant is allowed (and has chosen) to omit under the disclosure provisions applicable to smaller reporting companies.

MAXXAM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions of dollars, except share information)
	June 30, 2009			December 31, 2008
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	18.4		$	59.6
Marketable securities and other short-term investments		14.6			2.5
Receivables:
Trade, net of allowance for doubtful accounts of $1.0 and $0.9, respectively		1.7			1.5
Other		1.4			1.4
Real estate inventory		2.7			2.7
Prepaid expenses and other current assets		7.1			6.8
Restricted cash		1.4			0.5
Total current assets		47.3			75.0
Property, plant and equipment, net of accumulated depreciation of $113.6 and $108.8, respectively		209.0			210.4
Real estate inventory		60.5			58.1
Deferred income taxes		42.0			41.6
Deferred financing costs		3.9			4.2
Investments in limited partnerships		0.2			0.5
Investments in joint ventures		-			3.8
Other long-term assets and investments		3.3			3.1
Restricted cash and certificates of deposit		4.1			3.6
	$	370.3		$	400.3
Liabilities and Stockholders’ Deficit
Current liabilities:
Accounts payable	$	3.2		$	5.4
Short-term borrowings and current maturities of long-term debt		6.3			6.1
Accrued interest		0.8			0.9
Accrued compensation and related benefits		2.3			1.8
Accrued defense costs		2.7			6.1
Accrued taxes		1.2			1.2
Deferred income		2.1			2.9
Other accrued liabilities		8.3			7.1
Total current liabilities		27.7			31.5
Long-term debt, less current maturities		203.6			205.7
Accrued pension and other postretirement benefits		18.8			19.4
Other noncurrent liabilities		45.1			46.5
Losses in excess of investment in Debtors		484.2			484.2
Total liabilities		778.6			787.3
Commitments and contingencies
Stockholders’ deficit:
Preferred stock, $0.50 par value; 2,500,000 shares authorized; Class A $0.05 Non-Cumulative Participating Convertible Preferred Stock, $0.75 liquidation preference, 668,964 shares issued and 668,119 shares outstanding		0.3			0.3
Common stock, $0.50 par value; 13,000,000 shares authorized; 10,063,359 shares issued; 4,559,637 shares outstanding		5.0			5.0
Additional paid in capital		225.3			225.3
Accumulated deficit		(458.0	)		(435.3	)
Accumulated other comprehensive loss		(13.1	)		(14.5	)
Treasury stock, at cost (shares held; preferred – 845; common – 5,503,722)		(167.8	)		(167.8	)
Total stockholders’ deficit		(408.3	)		(387.0	)
	$	370.3		$	400.3

MAXXAM INC. AND SUBSIDIARIES

~~The~~CONDENSED ~~accompanying~~CONSOLIDATED ~~notes~~BALANCE ~~are~~SHEETS (In anmillions ~~integral part~~ of ~~these~~dollars, ~~financial~~except ~~statements.~~share information)


	September 30,			December 31,
	2009			2008
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	10.5		$	59.6
Marketable securities and other short-term investments		17.4			2.5
Receivables:
Trade, net of allowance for doubtful accounts of $1.1 and $0.9, respectively		1.6			1.5
Other		1.3			1.4
Real estate inventory		2.8			2.7
Prepaid expenses and other current assets		6.6			6.8
Restricted cash		1.5			0.5

Total current assets		41.7			75.0
Property, plant and equipment, net of accumulated depreciation of $116.1 and $108.8, respectively		206.8			210.4
Real estate inventory		61.3			58.1
Deferred income taxes		41.6			41.6
Deferred financing costs		3.8			4.2
Investments in limited partnerships		0.1			0.5
Investments in joint ventures		—			3.8
Other long-term assets and investments		3.0			3.1
Restricted cash and certificates of deposit		3.3			3.6

	$	361.6		$	400.3

Liabilities and Stockholders’ Deficit
Current liabilities:
Accounts payable	$	3.2		$	5.4
Short-term borrowings and current maturities of long-term debt		6.3			6.1
Accrued interest		1.0			0.9
Accrued compensation and related benefits		2.6			1.8
Accrued defense costs		3.0			6.1
Accrued taxes		1.8			1.2
Deferred income		3.3			2.9
Other accrued liabilities		6.1			7.1

Total current liabilities		27.3			31.5
Long-term debt, less current maturities		202.6			205.7
Accrued pension and other postretirement benefits		18.9			19.4
Other noncurrent liabilities		45.0			46.5
Losses in excess of investment in Debtors		484.2			484.2

Total liabilities		778.0			787.3

Commitments and contingencies
Stockholders’ deficit:
Preferred stock, $0.50 par value; 2,500,000 shares authorized; Class A $0.05 Non-Cumulative Participating Convertible Preferred Stock, $0.75 liquidation preference, 668,964 shares issued and 668,119 shares outstanding		0.3			0.3
Common stock, $0.50 par value; 13,000,000 shares authorized; 10,063,359 shares issued; 4,559,637 shares outstanding		5.0			5.0
Additional paid in capital		225.3			225.3
Accumulated deficit		(466.5	)		(435.3	)
Accumulated other comprehensive loss		(12.7	)		(14.5	)
Treasury stock, at cost (shares held; preferred – 845; common – 5,503,722)		(167.8	)		(167.8	)

Total stockholders’ deficit		(416.4	)		(387.0	)

	$	361.6		$	400.3

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

MAXXAM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions of dollars, except per share information)
	Three Months Ended June 30,							Six Months Ended June 30,
	2009				2008			2009			2008
	(Unaudited)
Sales:
Real estate		$	7.4		$	9.7		$	14.8		$	18.6
Racing			11.2			10.7			19.5			23.5
Corporate			-			2.9			-			2.9
			18.6			23.3			34.3			45.0
Cost and expenses:
Cost of sales and operations:
Real estate			3.3			5.0			6.5			9.2
Racing			10.8			10.7			19.3			21.7
Corporate			-			4.1			-			4.1
Selling, general and administrative expenses			7.1			5.5			14.2			16.3
Depreciation, depletion and amortization			2.5			3.1			5.0			5.9
Proceeds on involuntary conversion and net insurance recoveries			(3.1	)		-			(4.5	)		-
Settlement of Wilson actions			-			-			4.0			-
			20.6			28.4			44.5			57.2
Operating income (loss):
Real estate			0.2			(1.7	)		0.3			(2.9	)
Racing			0.5			(2.7	)		(0.2	)		(3.5	)
Corporate			(2.7	)		(0.2	)		(10.3	)		(4.8	)
Forest products			-			(0.5	)		-			(1.0	)
			(2.0	)		(5.1	)		(10.2	)		(12.2	)
Other income (expense):
Investment, interest and other income (expense), net			(4.0	)		(3.2	)		(4.2	)		(5.8	)
Interest expense			(4.0	)		(4.0	)		(7.9	)		(8.1	)
Amortization of deferred financing costs			(0.1	)		(0.2	)		(0.3	)		(0.3	)
Loss before income taxes			(10.1	)		(12.5	)		(22.6	)		(26.4	)
Provision for income taxes			(0.1	)		(0.2	)		(0.1	)		(0.2	)
Net loss		$	(10.2	)	$	(12.7	)	$	(22.7	)	$	(26.6	)
Basic net loss per common and common equivalent share		$	(2.24	)	$	(2.78	)	$	(4.98	)	$	(5.50	)
Diluted net loss per common and common equivalent share		$	(2.24	)	$	(2.78	)	$	(4.98	)	$	(5.50	)
Weighted average shares outstanding - Basic and Diluted			4,559,637			4,561,237			4,559,637			4,836,984

TheTable accompanying notes are an integral part of these financial statements.Contents

4MAXXAM INC. AND SUBSIDIARIES

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

MAXXAM INC. AND SUBSIDIARIES
	Three Months Ended						Nine Months Ended
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
	September 30,						September 30,
(In millions of dollars)
	2009			2008			2009			2008
	Six Months Ended June 30,
				(Unaudited)
	2009			2008
Sales:
	(Unaudited)
Real estate	$	7.4		$	8.3		$	22.2		$	26.9
Cash flows from operating activities:
Racing		10.8			13.0			30.3			36.5
Net loss	$	(22.7	)	$	(26.6	)
Corporate		—			2.4			—			5.3
Adjustments to reconcile net loss to net cash used for operating activities:
		18.2			23.7			52.5			68.7
Depreciation, depletion and amortization		5.0			5.9
Cost and expenses:
Non-cash stock-based compensation expense		0.3			(1.6	)
Cost of sales and operations:
Net losses from investments		0.8			6.9
Real estate		3.2			3.7			9.7			12.9
Amortization of deferred financing costs		0.3			0.3
Racing		10.5			12.7			29.8			34.4
Equity (income) losses in joint ventures		4.6			(0.1	)
Corporate		—			1.0			—			5.1
Gain on involuntary conversion of property		(0.7	)		-
Selling, general and administrative expenses		7.1			10.4			21.3			26.7
Increase (decrease) in cash resulting from changes in:
Depreciation, depletion and amortization		2.6			4.1			7.6			10.0
Receivables		(0.2	)		0.6
Proceeds on involuntary conversion and net insurance recoveries		—			—			(4.5	)		—
Inventories		-			(0.9	)
Settlement of Wilson actions		—			—			4.0			—
Prepaid expenses and other assets		(0.3	)		0.2
		23.4			31.9			67.9			89.1
Accounts payable		(2.2	)		(2.7	)
Operating income (loss):
Accrued taxes		(0.4	)		(0.3	)
Real estate		(0.2	)		(0.4	)		0.1			(3.3	)
Other accrued liabilities		(2.7	)		3.0
Racing		(2.2	)		(3.9	)		(2.4	)		(7.4	)
Long-term assets and long-term liabilities		(5.6	)		(1.8	)
Corporate		(2.8	)		(3.5	)		(13.1	)		(8.3	)
Net cash used for operating activities		(23.8	)		(17.1	)
Forest products		—			(0.4	)		—			(1.4	)
Cash flows from investing activities:
		(5.2	)		(8.2	)		(15.4	)		(20.4	)
Proceeds on involuntary conversion of property		0.7			-
Other income (expense):
Maturities of marketable securities and other investments		-			11.6
Investment, interest and other income (expense), net		0.9			(0.6	)		(3.3	)		(6.4	)
Sales of marketable securities and other investments		2.5			26.5
Interest expense		(3.9	)		(4.0	)		(11.8	)		(12.1	)
Purchases of marketable securities and other investments		(13.8	)		(9.1	)
Amortization of deferred financing costs		(0.2	)		(0.2	)		(0.5	)		(0.5	)
Net proceeds from (contributions to) restricted cash		(1.4	)		0.6
Loss before income taxes		(8.4	)		(13.0	)		(31.0	)		(39.4	)
Capital expenditures		(3.6	)		(2.1	)
Provision for income taxes		(0.1	)		(52.4	)		(0.2	)		(52.6	)
Net cash provided by (used for) investing activities		(15.6	)		27.5
Net loss	$	(8.5	)	$	(65.4	)	$	(31.2	)	$	(92.0	)
Cash flows from financing activities:
Basic net loss per common and common equivalent share	$	(1.86	)	$	(14.34	)	$	(6.84	)	$	(19.39	)
Principal payments on long-term debt		(2.9	)		(2.5	)
Diluted net loss per common and common equivalent share	$	(1.86	)	$	(14.34	)	$	(6.84	)	$	(19.39	)
Borrowings under long-term debt		1.0			-
Weighted average shares outstanding — Basic and Diluted		4,559,637			4,561,237			4,559,637			4,744,398
Treasury stock purchases		-			(20.1	)
Net proceeds from refundable deposits		0.1			0.4
Net cash used for financing activities		(1.8	)		(22.2	)
Net decrease in cash and cash equivalents		(41.2	)		(11.8	)
Cash and cash equivalents at beginning of the period		59.6			67.8
Cash and cash equivalents at end of the period	$	18.4		$	56.0
Supplemental disclosure of cash flow information:
Interest paid	$	8.0		$	8.1

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

MAXXAM INC. AND SUBSIDIARIES

CONDENSED ~~NOTES~~CONSOLIDATED TOSTATEMENTS ~~UNAUDITED~~OF ~~CONSOLIDATED~~CASH ~~FINANCIAL~~FLOWS (In ~~STATEMENTS~~millions of dollars)

1. Basis of Presentation


	Nine Months Ended
	September 30,
	2009			2008
	(Unaudited)
Cash flows from operating activities:
Net loss	$	(31.2	)	$	(92.0	)
Adjustments to reconcile net loss to net cash used for operating activities:
Depreciation, depletion and amortization		7.6			10.0
Non-cash stock-based compensation benefit		(0.4	)		(6.0	)
Net losses from investments		—			7.8
Amortization of deferred financing costs		0.5			0.5
Equity losses in joint ventures, including write-offs		4.6			0.3
Gain on involuntary conversion of property		(0.7	)		—
Deferred taxes		—			51.7
Increase (decrease) in cash resulting from changes in:
Receivables		0.2			—
Inventories		(0.1	)		0.1
Prepaid expenses and other assets		0.2			(0.3	)
Accounts payable		(2.2	)		(0.3	)
Other accrued liabilities		(2.2	)		6.3
Long-term assets and long-term liabilities		(5.4	)		(2.0	)
Other		(0.1	)		—

Net cash used for operating activities		(29.2	)		(23.9	)


Cash flows from investing activities:
Proceeds on involuntary conversion of property		0.7			—
Maturities of marketable securities and other investments		2.4			11.6
Sales of marketable securities and other investments		3.1			31.9
Purchases of marketable securities and other investments		(18.9	)		(9.1	)
Net contributions to restricted cash		(0.7	)		—
Capital expenditures		(3.8	)		(2.4	)

Net cash provided by (used for) investing activities		(17.2	)		32.0


Cash flows from financing activities:
Principal payments on long-term debt		(4.2	)		(3.8	)
Borrowings under long-term debt		1.4			—
Treasury stock purchases		—			(20.1	)
Net proceeds from refundable deposits		0.1			0.4

Net cash used for financing activities		(2.7	)		(23.5	)


Net decrease in cash and cash equivalents		(49.1	)		(15.4	)
Cash and cash equivalents at beginning of the period		59.6			67.8

Cash and cash equivalents at end of the period	$	10.5		$	52.4


Supplemental disclosure of cash flow information:
Interest paid	$	11.7		$	12.1

The ~~information~~accompanying ~~contained in the following~~ notes toare ~~the~~an ~~consolidated~~integral ~~financial~~part ~~statements~~of isthese ~~condensed from that which would appear in the annual consolidated~~ financial statements; accordingly, the condensed consolidated financial statements included herein should be read in conjunction with the consolidated financial statements and related notes thereto contained in the Form 10-K. Any capitalized terms used but not defined in these Condensed Notes to Unaudited Consolidated Financial Statements are defined in the “Glossary of Defined Terms” contained in Appendix A. All references to the “Company” include MAXXAM Inc. and its consolidated majority and wholly owned subsidiaries, unless otherwise noted or the context indicates otherwise. All references to specific entities refer to the respective companies and their consolidated subsidiaries, unless otherwise specified or the context indicates otherwise. Accounting measurements at interim dates inherently involve greater reliance on estimates than at year end. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the entire year.

The condensed consolidated financial statements included herein are unaudited; however, they include all adjustments of a normal recurring nature which, in the opinion of management, are necessary for a fair presentation of the condensed consolidated financial position of the Company5 at June 30, 2009, the condensed consolidated results of operations for the three months and six months ended June 30, 2009 and 2008, and the condensed consolidated cash flows for the six months ended June 30, 2009 and 2008.

TheTable accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company’s two operating segments incurred operating losses in 2007 and 2008 and weak real estate market conditions have continued into the first half of 2009. In 2005 and 2006, the Company’s real estate operations realized substantial revenues related to sales at the Company’s Fountain Hills (located near Phoenix, Arizona), Mirada (located in California) and Palmas (located in Puerto Rico) real estate developments. Commencing in 2007 and continuing through 2008 and into 2009, there have been significant declines in real estate demand in areas where the Company operates, due primarily to general economic recessions in Puerto Rico and in the United States. The economic recession has particularly affected the Company’s real estate business as its real estate developments are predominately second home or seasonal home communities and it will likely take longer for these markets to recover. The Company has had no real estate sales since June 2008 and the Company anticipates demand for its real estate will continue to be adversely affected for some time. There has also been a steady decline in resort revenues at the Company’s Palmas development (located in Puerto Rico) attributable to lower member spending and a high member attrition rate, reflecting the impact of the economic recession in Puerto Rico. In addition, the Company has material uncertainties as a result of the Bankruptcy Cases (see Note 10). The unaudited condensed consolidated financial statements do not include any adjustments that may result from the outcome of these uncertainties. The Company believes that its cash and other resources will be sufficient to fund its working capital requirements for the next twelve months. Nonetheless, it has implemented cost reduction initiatives and is continuing efforts to reduce overhead and discretionary spending as appropriate. Additionally, the Company is attempting to enhance its liquidity through the monetization of certain assets and/or third party financing.Contents

~~Use~~MAXXAM ofINC. ~~Estimates~~AND ~~and Assumptions~~SUBSIDIARIES

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

61. Basis of Presentation

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

~~Some~~ The ofcondensed ~~the~~consolidated ~~more~~financial ~~significant~~statements ~~estimates~~included herein are unaudited; however, ~~management~~they include ~~judgments~~all ~~and~~adjustments ~~uncertainties~~of ~~that~~a normal recurring nature which, toin the ~~extent~~opinion ~~there~~of management, are necessary ~~material~~for ~~differences~~a ~~between~~fair presentation of the ~~estimates~~condensed ~~and~~consolidated ~~actual~~financial position of the Company at September 30, 2009, the condensed consolidated results orof ~~unfavorable~~operations ~~outcomes~~for the three months and nine months ended September 30, ~~could~~2009 ~~materially~~and ~~affect~~2008, and the ~~Company’s~~condensed consolidated ~~financial~~cash ~~position,~~flows ~~results~~for ofthe ~~operations~~nine ~~and/or~~months ~~liquidity~~ended ~~include:~~September 30, 2009 and 2008.

~~(i)~~ The accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the ~~ultimate~~realization ~~outcome~~of assets and the satisfaction of liabilities in the ~~Bankruptcy~~normal ~~Cases~~course ~~discussed~~of inbusiness. ~~Note~~The 10Company faces rapidly declining cash balances, limited opportunities to generate operating revenues, and uncertainties as to its future liquidity, resulting from ongoing economic recessions in the United States and Puerto Rico and adverse developments and ongoing depressed conditions in both of the Company’s lines of business – real estate operations and racing operations.

Sales by the Company’s real estate subsidiaries have fallen off dramatically since 2005. In 2005 and 2006, the Company’s real estate operations realized substantial revenues related to sales at the Company’s Fountain Hills (iilocated near Phoenix, Arizona), ~~recoveries~~Mirada (located in California) and Palmas (located in Puerto Rico) real estate developments. Commencing in 2007 and continuing through 2008 and into 2009, ifthere ~~any~~have been significant declines in real estate demand in areas where the Company operates, due primarily to general economic recessions in Puerto Rico and in the United States. Property sales revenues fell from ~~insurers~~$147.6 million ~~related~~for the year ended December 31, 2005 to $6.0 million for the ~~Wilson~~year ~~actions~~ended ~~discussed~~December 31, 2008, and the Company has had no property sales since June of 2008. There has also been a steady decline in resort revenues at the Company’s Palmas development attributable to lower member spending and a high member attrition rate, reflecting the impact of the economic recession in Puerto Rico (see Note 96 for additional discussion regarding the liquidity issues of PCCI, a Palmas subsidiary). Moreover, the Company does not foresee any near term recovery for its real estate business, particularly since the Company’s real estate developments are primarily second home or seasonal home communities in Phoenix, Arizona and Puerto Rico and those markets are expected to be slow to recover.

~~(iii)~~ As to the ~~ultimate~~Company’s ~~outcome~~racing operations, the Company has tried to increase revenues through its longstanding pursuit of Texas gaming legislation favorable to the ~~tax~~Company. ~~examinations~~However, ~~discussed~~such gaming legislation failed to pass in ~~Note~~the 7regular biennial session of the Texas Legislature that ended in May 2009, and was not considered in the subsequently called special session. While the Company intends to continue pursuing favorable Texas gaming legislation, there is no way for the Company to predict if such legislation will ever be enacted.

Significant amounts of cash have been required in recent periods to support the operating and capital needs of the Company’s subsidiaries and to defend the Company against two lawsuits related to the Company’s former forest products subsidiaries (ivwhich were settled in the first half of 2009). ~~estimates~~The ~~used~~Company’s unrestricted cash, cash equivalents and marketable securities balance declined from $63.6 million at December 31, 2008 to ~~determine~~$29.7 million ~~projected~~at ~~pension~~September 30, ~~obligations~~2009. The Company anticipates that it will continue to experience negative cash flows and declining liquidity in future periods. In addition, the ~~expected~~Company ~~value~~has material uncertainties as a result of ~~pension~~the Bankruptcy ~~plan~~Cases ~~assets,~~(see Note 10). The unaudited condensed consolidated financial statements do not include any adjustments that may result from the outcome of these uncertainties.

~~(v) projected future cash flows and estimated fair values used in the evaluation of long-lived assets for possible impairment, and~~6

(vi)Table the value of the Company’s investment portfolio.Contents

The Company’s ~~financial~~believes ~~instruments~~that ~~include~~its cash and ~~short-term~~other ~~investments,~~resources ~~noncurrent~~will ~~investments~~be insufficient ~~auction~~to ~~rate~~fund ~~securities~~its working capital requirements for the next twelve months. However, ~~accounts~~due ~~receivable~~to existing market conditions, ~~accounts~~there are ~~payable~~uncertainties with respect to future liquidity, ~~other~~accordingly, ~~accrued~~the ~~liabilities~~Company ~~and~~remains ~~debt~~focused on reducing costs. ~~Except~~The Company has implemented cost reduction initiatives and is continuing efforts to reduce overhead and discretionary spending, as ~~described~~appropriate. As part of these overall cost reduction efforts, the Company is seeking to eliminate over $1.5 million per year of cash expenses, currently incurred on a recurring basis in ~~Note~~complying 4with SEC reporting and related requirements, by reducing the ~~estimated~~number ~~fair~~of ~~value~~record holders of ~~such~~the ~~financial~~Company’s ~~instruments~~Common Stock to below 300 through the atReverse ~~June~~Stock 30Split, ~~2009~~a ~~approximates~~proposed ~~their~~1-for-250 ~~carrying~~reverse ~~value~~stock split. See Part I, Item 2. “Management’s Discussion and Analysis of Financial condition and Results of Operations–Financial Condition and Investing and Financing Activities–MAXXAM Parent” for additional information. The Company has also explored alternative ways to increase cash, such as ~~reflected~~marketing inits ~~the~~commercial ~~condensed~~lease ~~consolidated~~properties ~~balance~~and seeking ~~sheet~~capital partners for some of its projects. To date, these efforts have not been successful.

~~The fair value of debt which is not publicly traded is estimated using cash flows discounted at current borrowing rates.~~ AtUse ~~June 30, 2009, the estimated fair value~~ of ~~current~~Estimates and ~~long-term debt was $208.7 million.~~Assumptions

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

~~The~~ Some ~~Company~~of ~~has~~the ~~evaluated~~more ~~subsequent~~significant ~~events~~estimates, ~~through~~management ~~August~~judgments ~~11,~~and ~~2009~~uncertainties that, to the extent ~~date~~there ofare ~~issuance~~material ofdifferences ~~these~~between ~~condensed~~the estimates and actual results or unfavorable outcomes, could materially affect the Company’s consolidated financial ~~statements.~~position, results of operations and/or liquidity include:

~~Effective~~(i) ~~Date~~the ultimate outcome of ~~FASB~~the ~~Statement~~Bankruptcy ~~No.~~Cases ~~157~~discussed in Note 10, (ii) recoveries, if any, from insurers related to the Wilson actions discussed in Note 9, (iii) the ultimate outcome of the tax examinations discussed in Note 7, (iv) estimates used to determine projected pension obligations and the expected value of pension plan assets, (v) projected future cash flows and estimated fair values used in the evaluation of long-lived assets for possible impairment, and (vi) the value of the Company’s investment portfolio.

In February 2008, the FASB issued FSP No. SFAS 157-2, Effective Date of FASB Statement No. 157, which delays the effective date of SFAS No. 157 to January 1, 2009, for all nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). ~~The~~Financial ~~adoption of the delayed items of SFAS No. 157 did not have a material impact on the Company’s consolidated financial statements.~~Instruments

~~Determining~~ The Company’s financial instruments include cash and short-term investments, noncurrent investments in auction rate securities, accounts receivable, accounts payable, other accrued liabilities and debt. Except as described in Note 4, the ~~Fair~~estimated ~~Value~~fair value of asuch ~~Financial~~financial instruments ~~Asset~~at ~~When~~September 30, ~~the~~2009 ~~Market~~approximates ~~for~~their ~~That~~carrying ~~Asset~~value, Isas ~~Not~~reflected ~~Active~~in the condensed consolidated balance sheet.

In The ~~October~~fair ~~2008,~~value ~~the FASB issued FSP SFAS No. 157-3, Determining the Fair Value~~ of adebt ~~Financial~~which ~~Asset When the Market for That Asset Is Not Active. This position clarifies the application of SFAS No. 157, Fair Value Measurements, in a market that~~ is not ~~active~~publicly ~~and~~traded ~~provides~~is anestimated ~~example~~using tocash ~~illustrate~~flows ~~key~~discounted at ~~considerations~~current inborrowing ~~determining the fair value of a financial asset when the market for that financial asset is not active~~rates. ItAt ~~also~~September 30, ~~reaffirms~~2009, the ~~notion~~estimated of fair value ~~as an exit price as~~ of ~~the~~current ~~measurement~~and long-term ~~date.~~debt ~~This position~~ was ~~effective upon issuance, including prior periods for which financial statements had not yet been issued~~$207. ~~The Company’s adoption of FSP SFAS No~~8 million. ~~157-3 had no impact on the Company’s~~ ~~consolidated financial statements.~~

~~Determining~~ Subsequent ~~Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly~~Events

In April 2009, the FASB issued FSP SFAS No. 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly. This The ~~position~~Company ~~clarifies~~has ~~the~~evaluated ~~application~~subsequent ofevents ~~SFAS~~through ~~No. 157~~November 16, ~~Fair Value Measurements~~2009, ~~in a market where transactions are not orderly and provides an example to illustrate key considerations in determining~~ the ~~fair~~date ~~value~~ of ~~a financial asset when the market for that financial asset is not orderly. This position was effective upon~~ issuance, ~~including prior periods for which financial statements had not yet been issued. The Company’s adoption~~ of these ~~FSP~~condensed ~~SFAS No. 157-4 had no impact on the Company’s~~ consolidated financial statements.

~~Recognition~~2. ~~and~~New ~~Presentation~~Accounting ~~of Other-Than-Temporary Impairments~~Standards

In ~~April~~February ~~2009~~2008, the FASB ~~issued~~delayed ~~FSP~~until ~~No.~~January ~~SFAS 115-2 and SFAS 124-2~~1, ~~Recognition~~2009 ~~and~~the ~~Presentation~~effective date of ~~Other-Than-Temporary Impairments, which provides new~~ amended guidance onregarding ~~the~~determination ~~recognition~~ of ~~other-than-temporary~~the ~~impairments~~fair value of ~~investments~~ inall ~~debt~~nonfinancial ~~securities~~assets and ~~provides~~nonfinancial liabilities, ~~new~~except ~~presentation and disclosure requirements~~ for ~~other-than-temporary~~items ~~impairments~~that ofare ~~investments~~recognized inor ~~debt~~disclosed ~~and~~at ~~equity~~fair ~~securities. FSP~~value ~~SFAS~~in ~~No.~~the ~~115-2~~financial statements ison ~~effective~~a ~~for~~recurring ~~the~~basis ~~three~~(at ~~months~~least ~~ending June 30, 2009~~annually). The ~~Company’s~~ adoption of ~~FSP~~these ~~SFAS~~delayed ~~No.~~items ~~115-2~~did ~~had~~not have noa material impact on the Company’s consolidated financial statements.

~~Interim~~ In ~~Disclosures~~October 2008, ~~about~~the ~~Fair~~FASB ~~Value~~issued guidance clarifying the application of ~~Financial~~fair ~~Instruments~~value in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. It also reaffirms the notion of fair value as an exit price as of the measurement date. This guidance was effective upon issuance, including prior periods for which financial statements had not yet been issued. The Company’s adoption of this guidance had no impact on the Company’s consolidated financial statements.

In April 2009, the FASB issued ~~FSP~~guidance ~~No. SFAS~~on ~~107-1~~determining ~~and~~fair ~~APB~~value ~~28-1,~~when ~~Interim~~the ~~Disclosures~~volume ~~about~~and ~~Fair~~level ~~Value~~ of activity ~~Financial~~for ~~Instruments. FSP~~an ~~SFAS~~asset ~~No.~~or ~~107-1~~liability ~~amends~~has ~~SFAS~~significantly ~~No. 107~~decreased, ~~Disclosures~~and in identifying transactions ~~about~~that ~~Fair~~are ~~Value~~not oforderly. ~~Financial~~Based ~~Instruments~~on the guidance, toif ~~require~~an ~~disclosures~~entity ~~about~~determines ~~fair~~that ~~value~~the level of ~~financial~~activity ~~instruments~~for an inasset ~~interim~~or ~~reporting~~liability ~~periods. Such~~has ~~disclosures~~significantly ~~were~~decreased ~~previously~~and ~~required~~that ~~only~~a intransaction ~~annual~~is ~~financial~~not ~~statements. FSP~~orderly, ~~SFAS~~further analysis ~~No.~~of ~~107-1~~transactions or quoted prices is ~~effective~~needed, ~~for~~and a significant adjustment to the transaction ~~three~~or ~~months~~quoted ~~ending~~prices ~~June 30,~~may ~~2009. Because~~be ~~FSP~~necessary ~~SFAS~~to Noestimate fair value. ~~107-1~~This ~~applies~~guidance ~~only~~was toeffective upon issuance, including prior periods for which financial ~~statement~~statements ~~disclosures,~~had not yet been issued. The Company’s adoption ~~did~~of ~~not~~this ~~have~~guidance aduring ~~material~~the ~~effect~~second quarter of 2009 had no impact on the Company’s consolidated financial statements.

~~Business~~ In ~~Combinations~~April 2009, the FASB issued new guidance on the recognition of other-than-temporary impairments of investments in debt securities and provides new presentation and disclosure requirements for other-than-temporary impairments of investments in debt and equity securities. This guidance was effective for the three months ending June 30, 2009 and had no impact on the Company’s consolidated financial statements.

In ~~December~~April ~~2007~~2009, the FASB issued ~~SFAS~~guidance ~~No. 141(R)~~to ~~(revised~~require ~~2007),~~disclosures ~~Business~~about ~~Combinations. SFAS~~fair ~~No.~~value ~~141(R)~~of ~~replaces~~financial instruments ~~FASB~~in ~~Statement~~interim ~~No. 141,~~reporting ~~Business Combinations~~periods. ~~SFAS No.~~ ~~141(R)~~Such ~~retains~~disclosures ~~the~~were ~~purchase~~previously ~~method~~required ofonly ~~accounting used~~ in ~~business~~annual financial ~~combinations, but replaces SFAS No~~statements. ~~141~~This byguidance ~~establishing~~was ~~principles~~effective ~~and requirements~~ for the ~~recognition~~three ~~and~~months ~~measurement~~ending ~~of assets~~June 30, ~~liabilities~~2009 and because ~~goodwill,~~this ~~including~~guidance ~~the~~applies ~~requirement~~only ~~that most transaction costs and restructuring costs be expensed. In addition, the Statement requires disclosures~~ to ~~enable users to evaluate the nature and~~ financial ~~effects~~statement ofdisclosures, ~~the~~adoption ~~business~~did ~~combination. SFAS~~not ~~No.~~have ~~141(R) is effective for business~~an ~~combinations~~impact ~~for which the acquisition date is~~ on ~~or after~~ the ~~beginning of the first annual reporting period beginning on or after December 15, 2008. The~~ Company’s ~~adopted~~consolidated ~~SFAS~~financial Nostatements. ~~141(R) on January 1, 2009 for any acquisitions on or after such date.~~

~~Accounting~~ In ~~for~~December 2007, ~~Assets~~the ~~Acquired~~FASB issued amended guidance regarding business combinations, which was required to be applied to business combinations on a prospective basis. The revised guidance requires that the acquisition method of accounting be applied to a broader set of business combinations, amends the definition of a business combination, provides a definition of a business, requires an acquirer to recognize an acquired business at its fair value at the acquisition date and ~~Liabilities~~requires ~~Assumed~~the assets and liabilities assumed in a ~~Business~~business ~~Combination~~combination ~~That~~to ~~Arise~~be ~~from~~measured ~~Contingencies~~and recognized at their fair values as of the acquisition date (with limited exceptions). This guidance is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company adopted this guidance on January 1, 2009 for any acquisitions on or after such date.

In April 2009, the FASB issued ~~FSP~~an ~~No.~~amendment ~~SFAS~~to ~~141(R)-1,~~the ~~Accounting~~revised business combination guidance regarding the accounting for ~~Assets~~assets ~~Acquired~~acquired and ~~Liabilities~~liabilities ~~Assumed~~assumed in a ~~Business~~business ~~Combination~~combination ~~That~~that arise ~~Arise~~ from ~~Contingencies,~~contingencies. ~~which~~The ~~amends~~requirements ~~SFAS~~of ~~No.~~this ~~141(R)~~amended byguidance ~~establishing~~carry aforward ~~model~~without significant torevision ~~account for~~the ~~certain~~guidance ~~pre-acquisition~~on contingencies~~. Under~~ ~~FSP~~which ~~No.~~existed ~~SFAS~~prior ~~141(R)-~~to January 1, an2009. ~~acquirer is required to recognize at fair value an asset~~ Assets acquired orand aliabilities ~~liability~~ assumed in a business combination that ~~arises~~arise from acontingencies ~~contingency~~are recognized ifat ~~the acquisition-date~~ fair value ofif ~~that~~fair ~~asset~~value ~~or liability~~ can be ~~determined~~reasonably ~~during the measurement period~~estimated. If ~~the acquisition-date~~ fair value cannot be reasonably ~~determined~~estimated, ~~then~~ the ~~acquirer~~asset ~~should~~or ~~follow~~liability ~~the~~would ~~recognition~~generally ~~criteria~~be recognized in ~~SFAS~~accordance ~~No.~~with ~~5, Accounting~~the ~~for~~Accounting ~~Contingencies,~~Standards ~~and~~Codification ~~FASB~~(ASC) Topic ~~Interpretation~~450 ~~No.~~on ~~14, Reasonable Estimation of the Amount of a Loss – an interpretation of FASB Statement No~~contingencies. ~~5. FSP~~This ~~SFAS~~guidance ~~No. 141(R)-1~~ is effective beginning July 1, 2009, and will apply prospectively to business combinations completed on or after that date. The impact of the adoption of ~~and~~this ~~FSP~~guidance ~~SFAS 141(R)-1~~ will depend on the nature of any acquisitions completed after the date of adoption.

~~Employers~~ In December 2008, the FASB issued guidance on an employer’s ~~Disclosures~~disclosures about ~~Postretirement~~plan ~~Benefit~~assets ~~Plan~~of ~~Assets~~a defined benefit pension or other postretirement plan. This guidance requires the disclosure of investment policies and strategies, major categories of plan assets, fair value measurement of plan assets and significant concentration of credit risks. This guidance is effective for fiscal years ending after December 15, 2009 and the Company will adopt the new disclosure requirements required by this guidance in the fourth quarter of 2009.

In ~~December~~May ~~2008~~2009, the FASB issued ~~FSP~~guidelines ~~SFAS~~on ~~No.~~subsequent ~~132(R)-1,~~event ~~Employers’~~accounting ~~Disclosures~~which ~~about~~establishes general ~~Postretirement~~standards ~~Benefit~~of ~~Plan~~accounting ~~Assets. FSP SFAS No. 132(R)-1 amends FASB Statement No. 132 (revised 2003)~~for, ~~Employers’ Disclosures about Pensions~~ and ~~Other~~disclosures ~~Postretirement Benefits~~of, toevents ~~provide~~that ~~guidance~~occur onafter anthe ~~employer’s~~balance ~~disclosures~~sheet date ~~about~~but ~~plan~~before ~~assets~~the offinancial astatements ~~defined~~are ~~benefit~~issued ~~pension~~ or ~~other~~are ~~postretirement~~available ~~plan. FSP~~to ~~SFAS~~be Noissued. ~~132(R)-1~~It requires the disclosures of investment policies and strategies, major categories of plan assets, fair value measurement of plan assets and significant concentration of credit risks. FSP SFAS No. 132(R)-1 is effective for fiscal years ending after December 15, 2009. The ~~Company will adopt the new~~ disclosure ~~requirements~~ of ~~FSP~~the ~~SFAS~~date ~~No.~~through ~~132(R)-1~~which inan ~~the~~entity ~~fourth quarter of 2009.~~has

~~Subsequent Events~~8

DuringTable the second quarter of 2009, the Company adopted SFAS No. 165, Subsequent Events, which establishes general standards of accounting for, and disclosures of, events that occur after the balance sheet date but before the financial statements are issued or are available to be issued. It requires the disclosure of the date through which an entity has evaluated subsequent events. Contents

~~The~~evaluated ~~FASB~~subsequent ~~Accounting~~events. ~~Standards~~These ~~Codification~~guidelines were effective for interim and annual periods ending after June 15, 2009, and the ~~Hierarchy~~Company adopted them in the second quarter of ~~Generally~~2009. ~~Accepted~~There ~~Accounting~~was ~~Principles~~no ~~(“GAAP”)~~impact ~~(as~~on ~~amended)~~the Company’s consolidated financial statements.

In June 2009, the FASB issued ~~SFAS~~guidance ~~No.~~making ~~168,~~the ~~The~~ FASB Accounting Standards Codification ~~and~~ the ~~Hierarchy of Generally Accepted Accounting Principles (“GAAP”) (as amended). SFAS No. 168 makes the FASB Accounting~~ ~~Standards Codification the~~ single source of authoritative nongovernmental U.S. GAAP. The Codification is not intended to change GAAP, however, it will represent a significant change in researching issues and referencing U.S. GAAP in financial statements and accounting policies. This statement iswas effective for financial statements issued for interim and annual periods ending after September 15, 2009. The adoption of this guidance did not have an impact on the Company’s consolidated financial statements.

~~The~~3. ~~Company’s~~Segment ~~operations~~Information ~~are organized~~ and ~~managed~~Other ~~as distinct business units that offer different products and services and are managed separately through the Company’s subsidiaries.~~Items

The Company’s ~~currently~~operations ~~has two reportable segments (prior to the deconsolidation of the Debtors, it had three). The current segments~~ are ~~real~~organized ~~estate investment~~ and ~~development~~managed ~~and~~as ~~racing~~distinct ~~operations. The~~business ~~Company~~units ~~evaluates~~that ~~segment performance based on sales, operating~~offer ~~income~~different ~~excluding~~products ~~depreciation,~~and ~~depletion~~services and ~~amortization,~~are ~~and~~managed ~~income~~separately ~~before~~through ~~income~~the ~~taxes~~Company’s subsidiaries.

8 The Company currently has two reportable segments (prior to the deconsolidation of the Debtors, it had three). The current segments are real estate investment and development and racing operations. The Company evaluates segment performance based on sales, operating income excluding depreciation, depletion and amortization, and income before income taxes.

~~Table~~ Sales and operating income (loss) for each reportable segment are presented in the Condensed Consolidated Statements of ~~Contents~~Operations. The following table sets forth other financial information regarding the Company’s reportable segments. The amounts reflected in the “MGI” column represent MGI’s assets, liabilities, general and administrative expenses and other amounts in respect of MGI, on a stand-alone basis (without Palco or any of Palco’s subsidiaries). The amounts reflected in the “Corporate” column represent income, expenses, assets and other amounts not directly attributable to the reportable segments. The amounts reflected in the “Corporate” column also serve to reconcile the total of the reportable segments’ amounts to totals in the Company’s consolidated financial statements.

Sales and operating income (loss) for each reportable segment are presented in the Condensed Consolidated Statements of Operations. The following table sets forth other financial information regarding the Company’s reportable segments. The amounts reflected9 in the “MGI” column represent MGI’s assets, liabilities, general and administrative expenses and other amounts in respect of MGI, on a stand-alone basis (without Palco or any of Palco’s subsidiaries). The amounts reflected in the “Corporate” column represent income, expenses, assets and other amounts not directly attributable to the reportable segments. The amounts reflected in the “Corporate” column also serve to reconcile the total of the reportable segments’ amounts to totals in the Company’s consolidated financial statements.

Reportable Segments Consolidated RealTable Estate Racing MGI Corporate Total (In millions of dollars) Investment, interest and other income for the three months ended: June 30, 2009 $ (3.9 )(1) $ - $ - $ (0.1 ) $ (4.0 ) June 30, 2008 (1.2 ) - - (2.0 ) (3.2 ) Investment, interest and other income for the six months ended: June 30, 2009 $ (3.9 )(1) $ - $ - $ (0.3 ) $ (4.2 ) June 30, 2008 (1.0 ) - - (4.8 ) (5.8 ) Selling, general and administrative expense for the three months ended: June 30, 2009 $ 2.0 $ 2.5 $ - $ 2.6 (2) $ 7.1 June 30, 2008 3.9 2.2 0.5 (1.1 )(2) 5.5 Selling, general and administrative expense for the six months ended: June 30, 2009 $ 4.0 $ 4.0 $ - $ 10.2 (2)(3) $ 18.2 June 30, 2008 7.4 4.4 1.0 3.5 (2) 16.3 Operating income (loss) for the three months ended: June 30, 2009 $ 0.2 $ 0.5 (4) $ - $ (2.7 )(2)(3) $ (2.0 ) June 30, 2008 (1.7 ) (2.7 ) (0.5 ) (0.2 )(2) (5.1 ) Operating income (loss) for the six months ended: June 30, 2009 $ 0.3 $ (0.2 )(4) $ - $ (10.3 )(2)(3) $ (10.2 ) June 30, 2008 (2.9 ) (3.5 ) (1.0 ) (4.8 )(2) (12.2 ) Interest expense for the three months ended (5): June 30, 2009 $ (4.1 ) $ - $ - $ - $ (4.1 ) June 30, 2008 (4.2 ) - - - (4.2 ) Interest expense for the six months ended (5): June 30, 2009 $ (8.2 ) $ - $ - $ - $ (8.2 ) June 30, 2008 (8.4 ) - - - (8.4 )___________________________________________Contents

Table and Notes continued on next page


	Reportable
	Segments												Consolidated
	Real Estate			Racing			MGI			Corporate			Total
				(In millions of dollars)
Investment, interest and other income for the three months ended:
September 30, 2009	$	0.4		$	—		$	—		$	0.5		$	0.9
September 30, 2008		(0.3	)		(0.3	)		—			—			(0.6	)

Investment, interest and other income for the nine months ended:
September 30, 2009	$	(3.5	) ⁽¹⁾	$	—		$	—		$	0.2		$	(3.3	)
September 30, 2008		(1.3	)		(0.3	)		—			(4.8	)		(6.4	)

Selling, general and administrative expense for the three months ended:
September 30, 2009	$	2.4		$	1.9		$	—		$	2.8	⁽²⁾	$	7.1
September 30, 2008		2.7			2.4			0.4			4.9	⁽²⁾		10.4

Selling, general and administrative expense for the nine months ended:
September 30, 2009	$	6.4		$	5.9		$	—		$	13.0	^{(2) (3)}	$	25.3
September 30, 2008		10.1			6.8			1.4			8.4	⁽²⁾		26.7

Operating income (loss) for the three months ended:
September 30, 2009	$	(0.2	)	$	(2.2	)	$	—		$	(2.8	) ⁽²⁾	$	(5.2	)
September 30, 2008		(0.4	)		(3.9	) ⁽⁴⁾		(0.4	)		(3.5	) ⁽²⁾		(8.2	)

Operating income (loss) for the nine months ended:
September 30, 2009	$	0.1		$	(2.4	) ⁽⁵⁾	$	—		$	(13.1	) ^{(2) (3)}	$	(15.4	)
September 30, 2008		(3.3	)		(7.4	) ⁽⁴⁾		(1.4	)		(8.3	) ⁽²⁾		(20.4	)

Interest expense for the three months ended ⁽⁶⁾:
September 30, 2009	$	4.0		$	—		$	—		$	0.1		$	4.1
September 30, 2008		4.1			—			—			0.1			4.2

Interest expense for the nine months ended ⁽⁶⁾:
September 30, 2009	$	12.2		$	—		$	—		$	0.1		$	12.3
September 30, 2008		12.5			—			—			0.1			12.6

9Table and Notes continued on next page

~~Table of Contents~~10

	Reportable Segments												Consolidated
	Real Estate			Racing			MGI			Corporate			Total
	(In millions of dollars)
Depreciation, depletion and amortization for the three months ended:
June 30, 2009	$	1.9		$	0.5		$	-		$	0.1		$	2.5
June 30, 2008		2.5			0.5			-			0.1			3.1
Depreciation, depletion and amortization for the six months ended:
June 30, 2009	$	4.0		$	0.9		$	-		$	0.1		$	5.0
June 30, 2008		4.9			0.9			-			0.1			5.9
Loss before income taxes for the three months ended:
June 30, 2009	$	(7.8	)(1)	$	0.5	(4)	$	-		$	(2.8	)	$	(10.1	)
June 30, 2008		(7.1	)		(2.7	)		(0.5	)		(2.2	)		(12.5	)
Loss before income taxes for the six months ended:
June 30, 2009	$	(11.8	)(1)	$	(0.2	)(4)	$	-		$	(10.6	)(3)	$	(22.6	)
June 30, 2008		(12.3	)		(3.5	)		(1.0	)		(9.6	)		(26.4	)
Capital expenditures for the six months ended:
June 30, 2009	$	0.1		$	3.5		$	-		$	-		$	3.6
June 30, 2008		0.5			1.6			-			-			2.1
Total assets as of:
June 30, 2009	$	258.5		$	37.7		$	-		$	74.1		$	370.3
December 31, 2008		267.3			38.1			-			94.9			400.3

___________________________________________


	Reportable
	Segments												Consolidated
	Real Estate			Racing			MGI			Corporate			Total
				(In millions of dollars)
Depreciation, depletion and amortization for the three months ended:
September 30, 2009	$	2.0		$	0.6		$	—		$	—		$	2.6
September 30, 2008		2.3			1.8	⁽⁴⁾		—			—			4.1

Depreciation, depletion and amortization for the nine months ended:
September 30, 2009	$	6.0		$	1.5		$	—		$	0.1		$	7.6
September 30, 2008		7.2			2.7	⁽⁴⁾		—			0.1			10.0

Loss before income taxes for the three months ended:
September 30, 2009	$	(3.8	)	$	(2.2	)	$	—		$	(2.4	)	$	(8.4	)
September 30, 2008		(4.8	)		(4.2	) ⁽⁴⁾		(0.4	)		(3.6	)		(13.0	)

Loss before income taxes for the nine months ended:
September 30, 2009	$	(15.6	) ⁽¹⁾	$	(2.4	) ⁽⁵⁾	$	—		$	(13.0	) ⁽³⁾	$	(31.0	)
September 30, 2008		(17.1	)		(7.7	) ⁽⁴⁾		(1.4	)		(13.2	) ⁽⁷⁾		(39.4	)

Capital expenditures for the nine months ended:
September 30, 2009	$	0.2		$	3.6		$	—		$	—		$	3.8
September 30, 2008		0.7			1.7			—			—			2.4

Total assets as of:
September 30, 2009	$	255.4		$	35.2		$	—		$	71.0		$	361.6
December 31, 2008		267.3			38.1			—			94.9			400.3

(1) Includes an impairment charge of $4.1 million related to RMCAL (see Note 5).


⁽¹⁾		Includes an impairment charge of $4.1 million related to RMCAL recognized in the second quarter of 2009 (see Note 5).

⁽²⁾		Includes stock-based compensation benefit of $0.1 million and $0.4 million for the three months and nine months ended September 30, 2009, respectively, and a benefit of $4.4 million and $6.0 million for the three months and nine months ended September 30, 2008, respectively.

⁽³⁾		Includes $4.0 million for settlement of the Wilson actions (see Note 9).

⁽⁴⁾		Includes a write-off of $1.3 million during the three months ended September 30, 2008 representing the estimated net book value of the property damaged or destroyed by Hurricane Ike (see Note 14).

⁽⁵⁾		Includes an aggregate of $4.5 million of insurance recoveries during the nine months ended September 30, 2009 related to the damage at Sam Houston Race Park caused by Hurricane Ike (see Note 14).

⁽⁶⁾		Interest expense includes amortization of deferred financing costs.

⁽⁷⁾		Includes a $3.7 million impairment charge related to the Company’s auction rate securities.

(2) Includes stock-based compensation expense of $0.5 million and a benefit of $0.3 million for the three months and six months ended June 30, 2009, respectively, and a benefit of $3.4 million and $1.6 million for the three months and six months ended June 30, 2008, respectively.11

(3)Table Includes $4.0 million for settlement of the Wilson actions (see Note 9).Contents

(4~~) Includes an aggregate $3~~.1 ~~million~~Cash, ~~and~~Cash ~~$4.5~~Equivalents ~~of insurance recoveries during the three months~~ and ~~six~~Marketable ~~months ended June 30, 2009, respectively, related to the damage at Sam Houston Race Park caused by Hurricane Ike (see Note 14).~~Securities

~~(5)~~ The ~~Interest~~following ~~expense~~table ~~includes~~presents ~~amortization~~cash, ofcash ~~deferred~~equivalents ~~financing~~and ~~costs.~~marketable securities, in the aggregate (in millions):


	September 30,			December 31,
	2009			2008
Current:
Cash and cash equivalents	$	10.5		$	59.6
Marketable securities — other		17.4			2.5
Restricted cash		1.5			0.5

Total current		29.4			62.6

Non-Current:
Marketable securities — auction rate securities⁽¹⁾		1.8			1.5
Restricted cash and certificates of deposit		3.3			3.6

Total non-current		5.1			5.1

		34.5			67.7
Less: restricted amounts		(4.8	)		(4.1	)

Total unrestricted cash, cash equivalents and marketable securities	$	29.7		$	63.6

~~Table~~(1) ofIncluded ~~Contents~~in other long-term assets and investments on the Condensed Consolidated Balance Sheets.

4. Cash, ~~Cash~~ Equivalents ~~and Marketable Securities~~

~~The~~ Cash ~~following~~equivalents ~~table~~consist ~~presents~~of ~~cash,~~highly ~~cash~~liquid ~~equivalents~~money market instruments with maturities of three months or less from the date of purchase. As of September 30, 2009 and ~~marketable~~December 31, ~~securities~~2008, inthe carrying amounts of the ~~aggregate~~Company’s ~~(in~~cash ~~millions):~~equivalents approximated fair value.

	June 30, 2009			December 31, 2008
Current:
Cash and cash equivalents	$	18.4		$	59.6
Marketable securities - other		14.6			2.5
Restricted cash		1.4			0.5
Total current		34.4			62.6
Non-Current:
Marketable securities - auction rate securities (1)		1.7			1.5
Restricted cash and certificates of deposit		4.1			3.6
Total non-current		5.8			5.1
		40.2			67.7
Less: restricted amounts		(5.5	)		(4.1	)
Total unrestricted cash, cash equivalents and marketable securities	$	34.7		$	63.6

At September 30, 2009 and December 31, 2008, there were cash balances in banks in excess of Federal Depository Insurance Company limits.

~~___________________________________________~~ Restricted Cash

~~(1)~~ Restricted ~~Included~~cash inat ~~other~~September 30, ~~long-term~~2009 ~~assets~~ and ~~investments~~December 31, on2008 ~~the~~consisted ~~Condensed~~of ~~Consolidated~~the ~~Balance~~following ~~Sheets.~~(in millions):

Cash Equivalents


	September 30,		December 31,
	2009		2008
Funds held in escrow for the PCCI Notes (see Note 6)	$	1.0	$	3.3
Certificate of deposit — insurance collateral (see Note 6)		2.0		—
Horsemen custodial accounts		—		0.2
Other		1.8		0.6

Total restricted cash	$	4.8	$	4.1

Cash equivalents consist of highly liquid money market instruments with maturities of three months or less from the date of purchase. As of June 30, 2009 and December 31, 2008, the carrying amounts of the Company’s cash equivalents approximated fair value.12

AtTable June 30, 2009 and December 31, 2008, there were cash balances in banks in excess of Federal Depository Insurance Company limits.Contents

~~Restricted~~ Marketable ~~Cash~~Securities

~~Restricted~~ Marketable ~~cash~~securities atconsist ~~June~~of ~~30,~~the ~~2009~~following ~~and~~classification ~~December 31, 2008 consisted~~ of ~~the~~investments ~~following~~ (in millions):

	June 30, 2009		December 31, 2008
	September 30, 2009
Funds held in escrow for the Palmas Country Club, Inc. notes (see Note 6)	$	1.8	$	3.3
	Carrying		Aggregate		Gross Gains		Gross Losses
Certificate of deposit - insurance collateral (see Note 6)		2.0		-
	Value		Fair Value		in AOCL		in AOCL
Horsemen custodial accounts		-		0.2
Debt securities — Corporate Bonds:
Other		1.7		0.6
Maturities of less than one year	$	7.3	$	7.3	$	0.1	$	—
Total restricted cash	$	5.5	$	4.1
Maturities of one to five years		0.3		0.3		—		—
Maturities of greater than five years		1.6		1.6		0.2		—
Equity securities and mutual fund investments		8.2		8.2		0.1		—
Auction rate securities		1.8		1.8		0.3		—
Total	$	19.2	$	19.2	$	0.7	$	—


	December 31, 2008
	Carrying		Aggregate		Gross Gains		Gross Losses
	Value		Fair Value		in AOCL		in AOCL
Equity securities and other investments	$	2.5	$	2.5	$	—	$	(1.3	)
Auction rate securities		1.5		1.5		—		—

Total	$	4.0	$	4.0	$	—	$	(1.3	)

~~Table~~ Fair ofValue ~~Contents~~Hierarchy

~~Marketable~~ Guidance ~~Securities~~issued by FASB establishes three levels of inputs that may be used to measure fair value:

~~Marketable~~ Level ~~securities~~1 ~~consist~~— ofQuoted ~~the~~prices ~~following~~in ~~classification~~active ofmarkets ~~investments~~for ~~(in~~identical ~~millions):~~assets or liabilities.

	June 30, 2009
	Carrying Value		Aggregate Fair Value		Net Gains in AOCL		Net Losses in AOCL
Debt securities - Corporate Bonds:
Maturities of less than one year	$	6.4	$	6.4	$	-	$	-
Maturities of one to five years		1.0		1.0		-		-
Maturities of greater than five years		1.6		1.6		0.2		-
Equity securities and mutual fund investments		5.6		5.6		-		(0.3	)
Auction rate securities		1.7		1.7		0.2		-
Total	$	16.3	$	16.3	$	0.4	$	(0.3	)
	December 31, 2008
	Carrying Value		Aggregate Fair Value		Net Gains in AOCL		Net Losses in AOCL
Equity securities and other investments	$	2.5	$	2.5	$	-	$	(1.3	)
Auction rate securities		1.5		1.5		-		-
Total	$	4.0	$	4.0	$	-	$	(1.3	)

Level 2 — Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

~~Fair~~ Level ~~Value~~3 ~~Hierarchy~~— Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

~~SFAS~~ The NoCompany utilizes the market approach to measure fair value for its financial assets and liabilities. ~~157~~The ~~establishes~~market ~~three~~approach ~~levels~~uses ofprices ~~inputs~~and ~~that~~other ~~may~~relevant beinformation ~~used~~generated toby ~~measure~~market transactions ~~fair~~involving ~~value:~~identical or comparable assets or liabilities. The Company did not change its valuation methodology during 2008 or the first nine months of 2009.

~~Level~~ Financial 1assets -and ~~Quoted~~financial ~~prices~~liabilities inmeasured ~~active~~at ~~markets~~fair ~~for~~value ~~identical~~on ~~assets~~a orrecurring ~~liabilities.~~basis are summarized below (in millions):

Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.


	Fair Value Measurements as of
	September 30, 2009
	Total		Level 1		Level 2		Level 3
Description:

Short-term marketable securities	$	17.4	$	17.4	$	—	$	—

Auction rate securities		1.8		—		—		1.8


Total	$	19.2	$	17.4	$	—	$	1.8

~~Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.~~13

TheTable Company utilizes the market approach to measure fair value for its financial assets and liabilities. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. The Company did not change its valuation methodology during 2008 or the first six months of 2009.Contents

~~Financial~~ The ~~assets~~following ~~and~~table ~~financial~~summarizes ~~liabilities~~the ~~measured~~activity atfor ~~fair~~those ~~value~~financial onassets awhere ~~recurring~~fair ~~basis~~value measurements are ~~summarized~~estimated ~~below~~utilizing Level 3 inputs (in millions):

	Fair Value Measurements as of June 30, 2009
	Auction Rate
	Total		Level 1		Level 2		Level 3
	Securities
Description:
Carrying value as of January 1, 2009	$	1.5
Short-term marketable securities	$	14.6	$	14.6	$	-	$	-
Settlements		—
Auction rate securities		1.7		-		-		1.7
Impairment charge included in the Consolidated Statement of Operations		—
Total	$	16.3	$	14.6	$	-	$	1.7
Amount included in Accumulated Other Comprehensive Income (Loss)		0.3
Carrying value as of September 30, 2009	$	1.8

12 In prior quarters, based on valuation models and an analysis of other-than-temporary impairment factors, the Company recorded other-than-temporary-impairments of its auction rate securities in the Condensed Consolidated Statements of Operations. The Company intends to sell these securities and believes that it will more likely than not sell the securities before the recovery from carrying value to par value occurs.

~~Table~~ The Company has used the best available information as of ~~Contents~~the filing date to estimate the market value of its investment portfolio. Given the uncertainties in the markets, particularly as it relates to auction rate and equity securities, it is possible the Company’s valuation estimates could change materially in the next year.

~~The~~5. ~~following~~Investments ~~table summarizes the activity for those financial assets where fair value measurements are estimated utilizing Level 3 inputs (~~in ~~millions):~~Joint Ventures

	Auction Rate Securities
Carrying value as of January 1, 2009	$	1.5
Settlements		-
Impairment charge included in the Consolidated Statement of Operations		-
Amount included in Accumulated Other Comprehensive Income (Loss)		0.2
Carrying value as of June 30, 2009	$	1.7

RMCAL Development LP (Mirada Villas)

In ~~prior quarters~~April 2004, ~~based~~a onsubsidiary ~~valuation~~of ~~models~~the Company and ana ~~analysis~~third ofparty ~~other-than-temporary~~real ~~impairment~~estate ~~factors~~development company formed RMCAL, ~~the~~a ~~Company~~joint ~~recorded~~venture ~~other-than-temporary-impairments~~named ofRMCAL ~~its~~Development ~~auction~~LP, ~~rate~~to ~~securities~~develop a residential parcel located in the ~~Condensed~~Company’s ~~Statement~~Mirada ofreal ~~Operations~~estate development in Rancho Mirage California. The Company ~~intends~~accounts for tothe ~~sell~~joint ~~these~~venture ~~securities~~under ~~and believes~~the itequity ismethod. ~~more~~In ~~likely~~connection ~~than~~with ~~not~~the ~~that~~formation itof ~~will~~the ~~sell~~joint venture, the ~~securities~~Company ~~before~~sold a 50% interest in the ~~recovery~~parcel ~~from~~for ~~carrying~~$4.5 million ~~value~~and contributed the remainder of the parcel to ~~par~~the ~~value~~joint ~~occurs~~venture in return for a 50% interest in the venture.

~~The~~ RMCAL’s ~~Company~~development ~~has~~loan ~~used~~(with ~~the~~an ~~best~~outstanding ~~available~~principal ~~information~~balance as of $10.5 million at March 31, 2009) matured in March 2009. During the ~~filing~~second ~~date~~quarter of 2009, it became evident RMCAL would require substantial additional capital to ~~estimate~~continue its business. In June 2009, the ~~market~~Company ~~value~~agreed to ofsell its ~~investment~~entire ~~portfolio~~interest in RMCAL for a nominal amount, in accordance with a provision in the limited partnership agreement. ~~Given~~ As a result, the ~~uncertainties~~Company recorded a $4.1 million impairment charge in the ~~markets,~~second ~~particularly~~quarter asof it2009 ~~relates~~related to ~~auction~~this ~~rate~~investment. ~~and~~The ~~equity~~sale ~~securities,~~closed itin isAugust 2009 ~~possible~~and the ~~Company’s~~ ~~valuation~~Company ~~estimates~~no ~~could~~longer ~~change~~has ~~materially~~any ownership interest in the ~~next year~~venture.

5. ~~Investments~~FireRock, ~~in Joint Ventures~~LLC

~~The~~ A subsidiary of the Company ~~has~~holds ~~investments~~a 50% interest in ~~two~~a joint ~~ventures~~venture named FireRock, LLC, which was formed to develop an 808-acre area in Fountain Hills called FireRock. The Company accounts for the joint venture under the equity method. The development is a residential, golf-oriented, upscale master-planned community. Lot sales concluded in 2004, but the venture continues to own and operate the country club located in the development.

~~RMCAL Development LP (Mirada Villas)~~14

InTable April 2004, a subsidiary of the Company and a third party real estate development company formed RMCAL, a joint venture named RMCAL Development LP to develop a residential parcel located in the Company’s Mirada real estate development in Rancho Mirage California. The Company accounts for the joint venture under the equity method. In connection with the formation of the joint venture, the Company sold a 50% interest in the parcel for $4.5 million and contributed the remainder of the parcel to the joint venture in return for a 50% interest in the venture.Contents

~~RMCAL’s development loan (with an outstanding principal balance of $10~~6.5 ~~million at March 31, 2009) matured in March 2009. During the second quarter of 2009, it became evident RMCAL would require substantial additional capital to continue its business. In June~~Debt 2009, the Company agreed to sell its entire interest in RMCAL for a nominal amount, in accordance with a provision in the limited partnership agreement. Once the transaction closes, the Company will no longer have any ownership interest in the venture. As a result of these developments, the Company recorded a $4.1 million impairment charge in the second quarter of 2009 related to this investment.

~~FireRock,~~ Principal ~~LLC~~amounts of outstanding debt consist of the following (in millions):

A subsidiary of the Company holds a 50% interest in a joint venture named FireRock, LLC, which was formed to develop an 808-acre area in Fountain Hills called FireRock. The Company accounts for the joint venture under the equity method. The development is a residential, golf-oriented, upscale master-planned community. Lot sales concluded in 2004, but the venture continues to own and operate the country club located in the development.


	September 30,			December 31,
	2009			2008
7.56% Lakepointe Notes due June 8, 2021	$	108.6		$	110.0
7.03% Motel Notes due May 1, 2018		39.8			41.4
6.08% Beltway Notes due November 9, 2024		26.7			27.2
7.12% PCCI Notes due December 20, 2030		27.4			27.7
Prime + 0.5% EN Facility due October 29, 2011		2.0			0.6
Other notes and contracts, primarily secured by receivables, buildings, real estate and equipment		4.4			4.9

Total principal outstanding		208.9			211.8

Less: Short-term borrowings and current maturities		(6.3	)		(6.1	)

	$	202.6		$	205.7

13 Letters of Credit

~~Table~~ The Company’s real estate segment has posted a letter of ~~Contents~~credit in the amount of $2.0 million at September 30, 2009 to satisfy certain liability insurance policy requirements. The letter of credit is secured by a $2.0 million certificate of deposit (see Note 4).

6. ~~Debt~~Loan Covenants

~~Principal~~ Certain ~~amounts~~debt ofinstruments ~~outstanding~~restrict ~~debt~~the ~~consist~~ability of some Company subsidiaries to transfer assets, make loans and advances or pay dividends to the ~~following~~Company, ~~(in~~and ~~millions):~~require certain subsidiaries to maintain a minimum net worth.

	June 30, 2009			December 31, 2008
7.56% Lakepointe Notes due June 8, 2021	$	109.1		$	110.0
7.03% Motel Notes due May 1, 2018		40.4			41.4
6.08% Beltway Notes due November 9, 2024		26.9			27.2
7.12% PCCI Notes due December 20, 2030		27.4			27.7
Prime + 0.5% EN Facility due October 29, 2011		1.6			0.6
Other notes and contracts, primarily secured by receivables, buildings, real estate and equipment		4.5			4.9
Total principal outstanding		209.9			211.8
Less: Short-term borrowings and current maturities		(6.3	)		(6.1	)
	$	203.6		$	205.7

PCCI Notes

~~Letters~~ The PCCI Notes are secured by all of ~~Credit~~PCCI’s assets, a $30.0 million letter of credit issued by TDF, and cash reserves being held in escrow by the lender (see Note 4). PCCI continues to experience operational cash flow shortfalls and PCCI anticipates it will not have sufficient operational cash flow to pay its debt obligations. In March 2009, PCCI defaulted under a letter of credit reimbursement agreement for failure to pay letter of credit fees owed to TDF. PCCI has not cured and remains in default under this agreement. During the first nine months of 2009, $2.3 million of the funds held in escrow were released to (i) pay interest and principal on the PCCI Notes, (ii) pay the overdue letter of credit fees to TDF, (iii) pay property insurance premiums, and (iv) pay operating expenses. On October 19, 2009, PCCI and TDF entered into a loan agreement under which TDF is providing PCCI a $0.5 million non-revolving line of credit maturing on April 20, 2010; this facility is expected to provide PCCI with funds to continue to operate through December 31, 2009. PCCI is engaged in discussions with TDF in an effort to obtain additional financing to enable PCCI to continue as a going concern. There can be no assurances that PCCI will be successful in these efforts.

~~The Company’s real estate segment has posted a letter of credit in the amount of $2~~7.0 ~~million~~Income ~~at June 30, 2009 to satisfy certain liability insurance policy requirements. The letter of credit is secured by a $2.0 million certificate of deposit (see Note 4).~~Taxes

~~Loan~~ The ~~Covenants~~Company had losses before income taxes of $31.0 million for the first nine months of 2009; however, the Company has not recorded any tax benefit during these periods as the Company anticipates an effective tax rate of zero for 2009 (excluding any revisions to tax accounts resulting from changes in facts and circumstances related to the reorganization proceedings of Palco and its subsidiaries – see Note 10). Each period, the Company evaluates appropriate factors in determining the realizability of the deferred tax assets attributable to losses and credits generated in that period and those being carried forward. Based on this evaluation, the Company provided valuation allowances with respect to the deferred tax assets attributable to the losses and credits generated during the nine months ended September 30, 2009. These valuation allowances were in addition to the valuation allowances that were provided in prior years.

~~Certain~~ The ~~debt~~Company ~~instruments~~has ~~restrict~~unrecognized ~~the~~tax ~~ability~~benefits ofassociated ~~some~~with ~~Company~~net ~~subsidiaries~~operating tolosses ~~transfer~~and ~~assets,~~capital losses. ~~make~~These ~~loans~~unrecognized ~~and~~tax ~~advances~~benefits, orif ~~pay~~recognized, ~~dividends~~would not be expected to affect the effective ~~Company,~~tax ~~and~~rate ~~require~~because ~~certain~~it ~~subsidiaries~~is toexpected ~~maintain~~that avaluation ~~minimum~~allowances ~~net~~would ~~worth~~be required in respect of the related tax benefits.

The PCCI Notes are secured by PCCI’s assets, a letter of credit issued by the TDF, and cash reserves being held in escrow by the lender (see Note 4). PCCI continues to experience operational cash flow shortfalls and during the first six months of 2009 failed to pay the letter15 of credit fees owed to TDF under a letter of credit reimbursement agreement. During the first six months of June 2009, $1.5 million of the funds held in escrow were released to (i) pay interest and principal on the PCCI Notes, (ii) pay the overdue letter of credit fees to TDF and (iii) pay property insurance premiums. In July 2009, an additional $0.5 million of the funds held in escrow were released to (i) pay interest on the PCCI Notes and (ii) PCCI for operating purposes. PCCI anticipates it will not have sufficient operational cash flow to pay PCCI’s debt obligations. PCCI is engaged in discussions with TDF in an effort to obtain additional financing to improve PCCI’s cash flow situation. There can be no assurances that PCCI will be successful in these efforts.

7. IncomeTable Taxesof Contents

The Company ~~had~~files ~~losses~~U.S. ~~before~~federal income ~~taxes~~tax ofreturns ~~$22.6~~as ~~million~~well ~~for~~as ~~the~~income ~~first~~tax ~~six~~returns ~~months~~in ofvarious states ~~2009;~~and ~~however,~~Puerto ~~the~~Rico. ~~Company~~The ~~has~~tax ~~not~~years ~~recorded~~of ~~any~~2005 ~~tax~~to ~~benefit~~2008 ~~during~~remain ~~these~~open ~~periods~~to asexamination by the ~~Company~~United States ~~anticipates~~taxing anjurisdictions ~~effective~~and the tax ~~rate~~years of2004 ~~zero~~to ~~for~~2008 ~~2009~~remain ~~(excluding~~open ~~any revisions~~ to ~~tax~~examination ~~accounts~~by ~~resulting~~the Puerto ~~from~~Rican ~~changes~~taxing injurisdiction. ~~facts~~Additionally, ~~and~~any ~~circumstances~~net ~~related~~operating tolosses ~~the~~that ~~reorganization~~were ~~proceedings~~generated ofin ~~Palco~~prior years and ~~its~~utilized ~~subsidiaries~~in –subsequent ~~see~~years ~~Note~~may ~~10). Each~~also ~~period,~~be ~~the~~subject ~~Company~~to ~~evaluates~~examination ~~appropriate~~by ~~factors in determining~~ the ~~realizability~~taxing authorities. ofTaxing ~~the~~authorities ~~deferred~~are auditing tax ~~assets~~returns ~~attributable~~related to ~~losses~~one ~~and~~of ~~credits~~the ~~generated~~Company’s subsidiaries inand ~~that~~this ~~period~~audit ~~and~~could ~~those~~result ~~being~~in ~~carried~~assessments ~~forward. Based~~of onadditional ~~this~~taxes. ~~evaluation,~~The ~~the~~ Company’s subsidiary ~~provided~~believes ~~valuation~~it ~~allowances~~has ~~with~~substantial ~~respect~~defenses to the ~~deferred~~questions ~~tax~~being ~~assets~~raised ~~attributable~~and towill ~~the~~pursue ~~losses~~all legal ~~and~~remedies ~~credits~~should ~~generated during~~an ~~the~~acceptable ~~six~~resolution ~~months~~not ~~ended~~be ~~June~~reached. 30However, ~~2009. These~~resolution ~~valuation~~of ~~allowances~~this ~~were~~matter involves inuncertainties ~~addition~~and tothere ~~the~~can ~~valuation~~be ~~allowances~~no ~~that~~assurance ~~were~~the ~~provided~~outcome inwill ~~prior~~be ~~years~~favorable.

~~The Company has unrecognized tax benefits associated with net operating losses and capital losses~~8. ~~These~~Employee ~~unrecognized~~Benefit ~~tax benefits, if recognized, would not be expected to affect the effective tax rate because it is expected that valuation allowances would be required in respect of the~~Plans ~~related tax benefits.~~

The ~~Company~~components ~~files U.S. federal income tax returns as well as income tax returns in various states and Puerto Rico. The tax years~~ of ~~2005~~pension ~~to 2008 remain open to examination by the United States taxing jurisdictions~~ and ~~the~~other ~~tax~~postretirement ~~years~~benefits ~~2004~~expense to 2008 remain open to examination by the Puerto Rican taxing jurisdiction. Additionally, any net operating losses that were generated in prior years and utilized in subsequent years may also be subject to examination by the taxing authorities. Taxing authorities are ~~auditing~~as ~~tax~~follows ~~returns related to one of the Company’s subsidiaries and this audit could result~~ (in ~~assessments of additional taxes. The Company’s subsidiary believes it has substantial defenses to the questions being raised and will pursue all~~millions): ~~legal remedies should an acceptable resolution not be reached. However, resolution of this matter involves uncertainties and there can be no assurance the outcome will be favorable.~~


	Pension Benefits						Medical/Life					Pension Benefits						Medical/Life
	Three Months Ended September 30,											Nine Months Ended September 30,
	2009			2008			2009		2008			2009			2008			2009			2008
Components of net periodic benefit costs:
Service cost	$	—		$	—		$	—	$	0.1		$	—		$	—		$	0.1		$	0.1
Interest cost		0.5			0.5			—		—			1.4			1.4			0.1			0.1
Expected return on assets		(0.5	)		(0.6	)		—		—			(1.5	)		(1.7	)		—			—
Recognized net actuarial loss		0.1			—			—		—			0.2			—			—			—
Amortization of prior service costs		—			—			—		(0.1	)		—			—			(0.1	)		(0.1	)

Net periodic benefit costs		0.1			(0.1	)		—		—			0.1			(0.3	)		0.1			0.1
Curtailments, settlements and other		—			—			—		—			—			—			—			—

Adjusted net periodic benefit costs	$	0.1		$	(0.1	)	$	—	$	—		$	0.1		$	(0.3	)	$	0.1		$	0.1

~~Table~~ On July 10, 2008, the Company entered into the PBGC Agreement pursuant to which the Company essentially agreed, among other things, that should the PBGC elect to terminate the Palco Pension Plan in the future, the Company would be liable for any unfunded obligations then outstanding with respect to the Palco Pension Plan. If such a termination was to be initiated, the Company expects it would first take actions to assume sponsorship of ~~Contents~~the Palco Pension Plan in order to avoid such termination. The PBGC Agreement terminates on the earliest of (i) its fifth anniversary, (ii) the date the Palco Pension Plan is assumed by the Company, (iii) the date the Palco Pension Plan is terminated under certain standard termination procedures set forth in ERISA, or (iv) the date the Palco Pension Plan is properly merged into another plan in accordance with ERISA and the Internal Revenue Code. The estimated unfunded termination obligation attributable to the Palco Pension Plan as of September 30, 2009, was approximately $33.0 million based upon an annuity placement interest rate assumption as of such date.

89. ~~Employee~~ ~~Benefit Plans~~Contingencies

Certain present and former directors and officers of the Company or its subsidiaries are or were defendants in certain of the actions described below. The ~~components~~Company’s charter and bylaws provide for indemnification of ~~pension~~its officers and directors to the fullest extent permitted by Delaware law, among other ~~postretirement~~things. ~~benefits~~The ~~expense~~Company ~~are~~is asobligated ~~follows~~to ~~(in~~advance ~~millions):~~defense costs to its officers and directors, subject to the individual’s obligation to repay such amount if it is ultimately determined that the individual was not entitled to indemnification. In addition, the Company’s indemnity obligation can under certain circumstances include amounts other than defense costs, including judgments and settlements.

	Pension Benefits						Medical/Life					Pension Benefits						Medical/Life
	Three Months Ended June 30,											Six Months Ended June 30,
	2009			2008			2009			2008		2009			2008			2009			2008
Components of net periodic benefit costs:
Service cost	$	-		$	-		$	0.1		$	-	$	-		$	-		$	0.1		$	-
Interest cost		0.4			0.4			0.1			0.1		0.9			0.9			0.1			0.1
Expected return on assets		(0.4	)		(0.5	)		-			-		(1.0	)		(1.1	)		-			-
Recognized net actuarial loss		-			-			-			-		0.1			-			-			-
Amortization of prior service costs		-			-			(0.1	)		-		-			-			(0.1	)		-
Net periodic benefit costs		-			(0.1	)		0.1			0.1		-			(0.2	)		0.1			0.1
Curtailments, settlements and other		-			-			-			-		-			-			-			-
Adjusted net periodic benefit costs	$	-		$	(0.1	)	$	0.1		$	0.1	$	-		$	(0.2	)	$	0.1		$	0.1

Shareholder Litigation

On ~~July 10~~September 11, ~~2008~~2009, ~~the~~a ~~Company~~lawsuit ~~entered~~entitled ~~into~~Alan ~~the~~R. ~~PBGC~~Kahn ~~Agreement~~v. ~~pursuant~~Charles toE. ~~which~~Hurwitz, ~~the~~et ~~Company essentially agreed~~al., ~~among~~No. 4893-VCP ~~other~~was ~~things,~~filed ~~that~~against ~~should~~ the ~~PBGC~~Company ~~elect~~and toits ~~terminate~~Board ~~the~~of ~~Palco~~Directors ~~Pension Plan~~ in the ~~future,~~Chancery ~~the~~Court ~~Company~~of ~~would~~the State beof ~~liable~~Delaware. ~~for~~The ~~any~~lawsuit ~~unfunded~~contains ~~obligations~~a ~~then~~variety ~~outstanding with~~of ~~respect~~allegations, toincluding that the ~~Palco~~defendants violated ~~Pension~~their ~~Plan. If~~fiduciary ~~such~~duties ain ~~termination~~approving ~~was~~the toReverse beStock ~~initiated~~Split, and that the ~~Company~~cash ~~expects~~out itprices do ~~would~~not ~~first~~constitute ~~take~~fair ~~actions~~value toas ~~assume~~required ~~sponsorship~~by Section 155(2) of the ~~Palco~~Delaware ~~Pension~~General ~~Plan~~Corporation inLaw. The ~~order~~plaintiff seeks to ~~avoid~~preliminarily ~~such~~and ~~termination. The~~permanently ~~PBGC~~enjoin ~~Agreement terminates on~~ the ~~earliest~~defendants offrom ~~(i)~~effectuating ~~its~~the Reverse ~~fifth~~Stock ~~anniversary~~Split, ~~(ii)~~rescission of the ~~date~~Reverse ~~the~~Stock ~~Palco~~Split ~~Pension~~if ~~Plan~~it is ~~assumed~~consummated bybefore the ~~Company, (iii) the date the Palco Pension Plan~~ lawsuit is ~~terminated~~resolved, ~~under~~unspecified ~~certain~~damages ~~standard~~and ~~termination~~attorneys’ ~~procedures~~fees. ~~set~~On ~~forth~~October 9, ~~in ERISA~~2009, ora ~~(iv)~~second ~~the date the~~lawsuit, ~~Palco~~entitled ~~Pension~~James ~~Plan~~L. isand ~~properly~~Eleanor ~~merged~~A. ~~into~~Gayner ~~another~~v. ~~plan~~Charles inE. ~~accordance~~Hurwitz, ~~with~~et ~~ERISA~~al., ~~and the Internal Revenue Code~~No. ~~The~~ 4971-VCP, ~~estimated~~was ~~unfunded~~filed against ~~termination~~the ~~obligation~~Company ~~attributable~~and toits ~~the~~Board of ~~Palco~~Directors ~~Pension~~in ~~Plan~~Delaware asChancery ofCourt. ~~December~~The ~~31,~~Company ~~2008,~~believes the ~~was~~allegations ~~approximately~~in ~~$35.0~~these ~~million~~lawsuits ~~based~~are ~~upon~~without anmerit ~~annuity~~and ~~placement~~intends ~~interest~~to ~~rate~~defend ~~assumption~~the ascases ~~of such date~~vigorously.

~~9. Contingencies~~16

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

Forest Products Related Litigation

Cave, Cook and Johnson actions

In November 2002, two similar actions entitled the Cook action and the Cave action were filed in the Superior Court of Humboldt County, California. The original defendants in these actions included certain of the Debtors, the Company, and various affiliates such as Charles E. Hurwitz, the Company’s Chairman of the Board and Chief Executive Officer. The Cook action alleges, among other things, that Palco’s logging practices contributed to an increase in flooding along Freshwater Creek (which ran through Palco’s timberlands), resulting in personal injury and damages to the plaintiffs’ properties. Plaintiffs further allege that in order to have timber harvest plans approved in the affected areas, the defendants engaged in certain unfair business practices. The plaintiffs seek, among other things, compensatory and exemplary damages, injunctive relief, and appointment of a receiver to ensure the watershed is restored. The Cave action contains similar allegations and requests relief similar to the Cook action, but with respect to the Elk River watershed (a portion of which was contained on Palco’s timberlands). In October 2005, the Johnson action was filed in Humboldt County Superior Court and contains allegations and requests relief similar to the Cave and Cook actions, also with respect to the Elk River watershed. The original defendants in the Johnson action included certain of the Debtors, the Company and various affiliates such as Mr. Hurwitz. On February 1, 2008, the plaintiffs settled for nominal amounts the Cave, Cook and Johnson actions as to the Debtor defendants. The actions are proceeding as to the remaining defendants. The Company does not believe the resolution of these actions should result in a material adverse effect on its consolidated financial condition, results of operations or liquidity.

15 Wilson actions

~~Table~~ On April 28, 2009, the Company and Mr. Hurwitz reached a settlement (see below) of ~~Contents~~two December 2006 actions filed against them and certain of the Debtors (which had previously settled). The first action, the Wilson state action, was filed in the Superior Court of San Francisco, California. The second action, the Wilson federal action, was filed in the U.S. District Court for the Northern District of California. The Wilson actions alleged violations of the California False Claims Act and the Federal False Claims Act, respectively, and were qui tam actions (actions ostensibly brought by the government, but on the information and at the instigation of a private individual, who would receive a portion of any amount recovered). The private individuals proceeded with the suits when the State of California declined to participate in the Wilson state action and the United States declined to participate in the Wilson federal action.

Both suits alleged that the defendants made false claims by submitting to a California agency a sustained yield plan misrepresenting as sustainable the projected harvest yields on timberlands owned by the former forest products subsidiaries. The remedies being sought were actual damages (essentially based on over $300.0 million of cash and approximately 7,700 acres of timberlands transferred by the United States and California in exchange for various timberlands purchased from Palco and its subsidiaries), as well as treble damages and civil penalties. The Company announced on April 28, 2009 that a settlement had been reached with the plaintiffs in the Wilson actions. Under the terms of the settlement, the Company agreed to pay a total of $4.0 million to settle these matters. This amount compares to the legal fees the Company estimates it would have incurred in continuing to defend the litigation. There was no admission of liability by either the Company or Mr. Hurwitz. This settlement brings an end to these actions against the Company and Mr. Hurwitz. The $4.0 million settlement was accrued as of March 31, 2009 and reflected in the statement of operations for the three months ended March 31, 2009. The settlement amount was paid in May 2009.

On The ~~April 28, 2009, the~~ Company ~~and~~has ~~Mr.~~incurred ~~Hurwitz~~significant ~~reached~~attorneys’ afees ~~settlement~~and ~~(see~~costs ~~below)~~related ofto ~~two~~the ~~December~~defense ~~2006 actions filed against them~~ and settlement ~~certain~~ of the ~~Debtors~~Wilson ~~(which~~actions. ~~had~~As ~~previously~~of ~~settled). The~~September 30, ~~first action~~2009, ~~the~~such ~~Wilson~~fees ~~state~~and ~~action, was~~costs ~~filed~~were in ~~the~~excess ~~Superior~~of $22.0 million ~~Court~~ (of ~~San~~which ~~Francisco, California~~$2. ~~The second action~~5 million, ~~the~~is ~~Wilson~~reflected ~~federal~~as ~~action,~~an ~~was~~accrued ~~filed~~liability inas ~~the~~of USeptember 30, 2009).S. ~~District~~The ~~Court~~Company ~~for~~has ~~the~~insurance ~~Northern~~contracts ~~District~~that ofprovide ~~California. The~~coverage ~~Wilson~~related ~~actions~~to ~~alleged~~claims ~~violations~~against ofits directors ~~the California False Claims Act~~ and ~~the~~officers ~~Federal~~(subject ~~False~~to ~~Claims~~a ~~Act~~$5.0 million deductible), ~~respectively~~however, ~~and~~the ~~were~~insurers ~~qui~~have ~~tam actions~~denied ~~(actions~~coverage ~~ostensibly~~with ~~brought~~respect byto the ~~government,~~Wilson ~~but~~actions. onThe ~~the~~Company ~~information~~has ~~and~~filed ~~at the instigation of~~ a ~~private~~lawsuit ~~individual,~~against ~~who~~its ~~would~~insurers for ~~receive~~recovery ~~a portion~~ of ~~any~~such ~~amount~~costs, ~~recovered). The~~however, ~~private~~there ~~individuals~~can ~~proceeded~~be ~~with~~no assurance the ~~suits~~Company ~~when~~will ~~the~~be ~~State~~successful ofin its ~~California~~efforts ~~declined~~ to ~~participate~~recover inall ~~the~~or ~~Wilson~~any ~~state~~portion ~~action~~of ~~and~~ the ~~United~~costs ~~States~~incurred. ~~declined~~No torecoveries ~~participate~~have inbeen ~~the~~accrued as ~~Wilson~~of ~~federal~~September 30, ~~action~~2009.

Both suits alleged that the defendants made false claims by submitting to a California agency a sustained yield plan misrepresenting as sustainable the projected harvest yields on timberlands owned by the former forest products subsidiaries. The remedies being sought were17 actual damages (essentially based on over $300.0 million of cash and approximately 7,700 acres of timberlands transferred by the United States and California in exchange for various timberlands purchased from Palco and its subsidiaries), as well as treble damages and civil penalties. The Company announced on April 28, 2009 that a settlement had been reached with the plaintiffs in the Wilson actions. Under the terms of the settlement, the Company agreed to pay a total of $4.0 million to settle these matters. This amount compares to the legal fees the Company estimates it would have incurred in continuing to defend the litigation. There was no admission of liability by either the Company or Mr. Hurwitz. This settlement brings an end to these actions against the Company and Mr. Hurwitz. The $4.0 million settlement was accrued as of March 31, 2009 and reflected in the statement of operations for the three months ended March 31, 2009. The settlement amount was paid in May 2009.

TheTable Company has incurred significant attorneys’ fees and costs related to the defense and settlement of the Wilson actions. As of June 30, 2009, such fees and costs were in excess of $20.0 million (of which $2.5 million, is reflected as an accrued liability as of June 30, 2009). The Company has insurance contracts that provide coverage related to claims against its directors and officers (subject to a $5.0 million deductible), however, the insurers have denied coverage with respect to the Wilson actions. The Company has filed a lawsuit against its insurers for recovery of such costs, however, there can be no assurance the Company will be successful in its efforts to recover all or any portion of the costs incurred. No recoveries have been accrued as of June 30, 2009 or December 31, 2008.Contents

Forest Products

Bankruptcy Proceedings

See Note 10 for a discussion of the Bankruptcy Cases, including potential impacts on MAXXAM Parent and its affiliates.

Other Matters

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

10. Investment in Palco

Deconsolidation of Palco and its Subsidiaries and Potential Impact on the Company

As discussed below, on January 18, 2007, the Debtors -— Palco and its subsidiaries -— filed for reorganization under Chapter 11 of the Bankruptcy Code. As a result, the Company deconsolidated the Debtors’ financial results beginning January 19, 2007, and began reporting its investment in the Debtors using the cost method. The consolidated balance sheets include the Company’s $484.2 million of losses in excess of its investment in the Debtors; this investment balance includes obligations attributable to the Palco Pension Plan (see Note 8).

16 The MRC/Marathon Plan was consummated on July 30, 2008, resulting in the loss entirely of the Company’s indirect equity interests in Palco and its subsidiaries, including Scopac; however, various parties appealed the matter to the Fifth Circuit. On September 29, 2009, the Fifth Circuit issued a ruling that reversed certain liability releases of plan proponents that were part of the MRC/Marathon Plan, remanded one matter to the Bankruptcy Court for further consideration, and otherwise rejected the appeal; the ruling had no impact on the Settlement Agreement discussed below. On October 13, 2009, the Indenture Trustee and others filed a petition with the Fifth Circuit for a rehearing with the panel of judges that originally heard the appeal and a petition for a rehearing before the entire Fifth Circuit. On October 29, 2009, the Fifth Circuit denied these petitions. As a result of the continuing uncertainties surrounding the ultimate resolution of the Bankruptcy Cases, the Company has not reversed any portion of its investment in the Debtors. The Company expects it will reverse all or a significant portion of its investment in the Debtors during the period in which the Bankruptcy Cases are ultimately resolved. The reversal of the Company’s losses in excess of its investment in the Debtors would have a material impact on stockholders’ deficit (i.e. it would result in a substantial increase to stockholders’ equity). The Company cannot predict when the Bankruptcy Cases will ultimately be resolved.

~~Table~~ The ultimate resolution of ~~Contents~~the Bankruptcy Cases could result in claims against and could have adverse impacts on MAXXAM Parent and its affiliates, including MGHI and/or MGI. It is possible that the Fifth Circuit ruling described above could result in the unwinding of the MRC/Marathon Plan. If that were to occur, the Company would be required to return the $2.25 million of cash consideration it received when the MRC/Marathon Plan was consummated, MGI would be obligated for certain tax liabilities and Newco’s assumption of the Palco Pension Plan would no longer be effective, among other things. The estimated unfunded termination obligation attributable to the Palco Pension Plan as of September 30, 2009, was approximately $33.0 million based upon annuity placement interest rate assumptions as of such date. See Note 8 for a summary of a July 10, 2008 agreement between the Company and the PBGC regarding the Palco Pension Plan. Moreover, the MRC/Marathon Plan (and the Noteholder Plan) provides for litigation trusts, which could bring claims against the Company and certain of its affiliates.

~~The~~ In ~~MRC/Marathon~~addition ~~Plan~~to ~~was~~the ~~consummated~~foregoing ~~on July 30~~matters, ~~2008, resulting in~~ the ~~loss~~consummation ~~entirely~~ of the ~~Company’s~~MRC/Marathon ~~indirect~~Plan ~~equity~~resulted ~~interests~~ in the ~~Palco~~utilization ~~and~~of ~~its~~a ~~subsidiaries,~~substantial ~~including~~portion ~~Scopac;~~of ~~however,~~the ~~various~~Company’s ~~parties~~net ~~have~~operating ~~appealed~~losses ~~the~~and ~~matter~~other totax attributes ~~the~~for ~~Fifth~~federal ~~Circuit. As~~income atax ~~result~~purposes. ofThe ~~uncertainties surrounding~~Company ~~the~~recorded ~~appeal,~~ the ~~Company~~estimated ~~has~~tax ~~not~~impacts ~~reversed any portion~~ of ~~its investment in~~ the ~~Debtors. If the~~ MRC/Marathon Plan isin ~~upheld by the Fifth Circuit, the Company expects it will reverse all or a significant portion of~~ its ~~investment~~2008 infederal ~~the~~income ~~Debtors~~tax ~~during~~return ~~the~~and ~~period~~ in ~~which~~its ~~the~~2008 ~~Fifth~~statement ~~Circuit~~of ~~renders its decision~~operations. The ~~reversal~~income oftax ~~the~~accounts ~~Company’s~~as ~~losses~~of inSeptember 30, ~~excess~~2009 ofand ~~its~~December 31, ~~investment~~2008, ininclude the ~~Debtors~~estimated ~~would have a material impact on stockholders’ deficit (i.e. would result in a substantial~~tax ~~increase~~impacts toof ~~stockholders’ equity). If~~ the ~~Fifth Circuit overturns the~~ MRC/Marathon Plan. orIt ~~renders~~is anpossible ~~inconclusive decision,~~ the Company’s ~~will~~estimates ~~re-evaluate~~could ~~its~~change ~~position~~materially in ~~based~~the onfuture ~~the~~should facts and circumstances ~~at that time~~change. ~~The Company cannot predict when the Fifth Circuit will rule or what its decision will be.~~

The ultimate resolution of the Bankruptcy Cases could result in claims against and could have adverse impacts on MAXXAM Parent and its affiliates, including MGHI and/or MGI. It is possible that the MRC/Marathon Plan could be overturned and unwound as a result of the18 appeal pending before the Fifth Circuit. If that occurs, the Company would be required to return the $2.25 million of cash consideration it received when the MRC/Marathon Plan was consummated, MGI would be obligated for certain tax liabilities and Newco’s assumption of the Palco Pension Plan would no longer be effective, among other things. The estimated unfunded termination obligation attributable to the Palco Pension Plan as of December 31, 2008, was approximately $35.0 million based upon annuity placement interest rate assumptions as of such date. See Note 8 for a summary of a July 10, 2008 agreement between the Company and the PBGC regarding the Palco Pension Plan. Moreover, the MRC/Marathon Plan (and the Noteholder Plan) provides for litigation trusts, which could bring claims against the Company and certain of its affiliates.

InTable addition to the foregoing matters, the consummation of the MRC/Marathon Plan (or the Noteholder Plan, in the event the MRC/Marathon Plan is overturned upon appeal) is expected to result in the utilization of a substantial portion of the Company’s net operating losses and other tax attributes for federal income tax purposes. The Company is required to record the estimated tax impacts of the MRC/Marathon Plan in its 2008 federal income tax return and, consequently, was required to record the estimated tax impacts of the reorganization in the Company’s 2008 statement of operations. The income tax accounts as of June 30, 2009 and December 31, 2008, include the estimated tax impacts of the MRC/Marathon Plan. It is possible the Company’s estimates could change materially in the future should facts and circumstances change.Contents

Bankruptcy Filings

The filing of the Bankruptcy Cases was precipitated by liquidity shortfalls at Palco and Scopac and their resultant inability to make January 2007 interest payments on their respective debt obligations. As of the Filing Date, Scopac’s indebtedness consisted of the Scopac Timber Notes ($713.8 million principal outstanding as of December 31, 2006) and a line of credit with a group of banks ($36.2 million principal outstanding as of December 31, 2006). These obligations were each secured by Scopac’s timber, timberlands and timber rights and various related assets. As As of the Filing Date, Palco’s principal indebtedness consisted of a five-year $85.0 million secured term loan ($84.3 million principal outstanding as of December 31, 2006), and a five-year $60.0 million secured asset-based revolving credit facility ($24.1 million of borrowings outstanding and $13.7 million of letters of credit issued as of December 31, 2006). Marathon provided both facilities, which were secured by the stock of Palco owned by its parent, MGI, and substantially all of the assets of the Palco Debtors (other than Palco’s equity interest in Scopac).

Filing of Plans of Reorganization

In December 2007, the Bankruptcy Court approved an agreement allowing the Debtors and certain others to file plans of reorganization. The Debtors subsequently filed the Joint Plan. As the Debtors did not believe the Joint Plan was eligible to be “crammed down” (forced) on creditors who voted against it, the Palco Debtors as a group and Scopac each filed ~~the~~ alternative ~~plan~~stand-alone plans of reorganization.

Two other plans of reorganization were filed. The first, the MRC/Marathon Plan, was filed by MRC and Marathon. The second, the Noteholder Plan, was filed by the Indenture Trustee on behalf of the Timber Noteholders. The MRC/Marathon Plan provided for the Debtors to be reorganized and continued under two new companies, one, Newco, to be owned jointly by MRC and Marathon, and the other to be owned by Marathon, with substantial cash payments to be made to all of the creditor classes other than Marathon. The Noteholder Plan, which did not address the Palco Debtors, would have effectively resulted in an auction of Scopac’s timberlands to the highest bidder. ~~The~~ The MRC/Marathon Plan provided for the loss entirely of the Company’s indirect equity interests in the Palco Debtors and Scopac; the Noteholder Plan also provided for the loss of the Company’s indirect equity interest in Scopac.

17 Plan Confirmation and Related Proceedings

~~Table~~ On July 8, 2008, the Bankruptcy Court entered the Confirmation Order confirming the MRC/Marathon Plan and denying confirmation of ~~Contents~~the Noteholder Plan, among other things. On July 11, 2008, the Bankruptcy Court approved the Settlement Agreement described below. The Indenture Trustee and other parties appealed the Confirmation Order to the Fifth Circuit and requested the Fifth Circuit to stay the Confirmation Order pending appeal.

Following the Fifth Circuit’s denial of the request for a stay of the Confirmation Order, the MRC/Marathon Plan closed on July 30, 2008 and the Debtors emerged from bankruptcy. The consummation of the MRC/Marathon Plan resulted in the loss entirely of the Company’s indirect equity interest in Palco and its subsidiaries, including Scopac. Oral arguments on the appeal by the Indenture Trustee and others of the Confirmation Order were heard in October 2008. On September 29, 2009, the Fifth Circuit issued a ruling that reversed certain liability releases of plan proponents that were part of the MRC/Marathon Plan, remanded one matter to the Bankruptcy Court for further consideration, and ~~Related~~otherwise ~~Proceedings~~rejected the appeal; the ruling had no impact on the Settlement Agreement discussed below. On October 13, 2009, the Indenture Trustee and others filed a petition with the Fifth Circuit for a rehearing with the panel of judges that originally heard the appeal and a petition for a rehearing before the entire Fifth Circuit. On October 29, 2009, the Fifth Circuit denied these petitions. The ultimate outcome of the Bankruptcy Cases is impossible to predict and, as described above, could result in claims against and could have adverse impacts on MAXXAM Parent and its affiliates.

On July 8, 2008, the Bankruptcy Court entered the Confirmation Order confirming the MRC/Marathon Plan and denying confirmation of the Noteholder Plan, among other things. On July 11, 2008, the Bankruptcy Court approved the Settlement Agreement ~~described below. The Indenture~~ ~~Trustee and other parties appealed the Confirmation Order to the Fifth Circuit and requested the Fifth Circuit to stay the Confirmation Order pending appeal.~~

~~Following~~ On ~~the~~May 1, ~~Fifth Circuit’s denial of the request for a stay of the Confirmation Order~~2008, ~~the~~ MRC~~/Marathon Plan closed on July 30~~, ~~2008 and the Debtors emerged from bankruptcy. The consummation of the MRC/~~Marathon, ~~Plan resulted in~~ the ~~loss~~MAXXAM ~~entirely of the Company’s indirect equity interest in Palco and its subsidiaries~~Entities, ~~including~~ ~~Scopac. Oral arguments on the appeal by the Indenture Trustee~~ and ~~others of~~ the ~~Confirmation~~Palco ~~Order~~Debtors ~~were~~entered ~~heard~~into ~~in October 2008, but~~ the Settlement ~~Fifth Circuit has not yet ruled~~Agreement. ~~There~~ ~~can~~Scopac bewas ~~no assurance that the MRC/Marathon Plan will~~ not bea ~~overturned~~party byto the ~~Fifth~~Settlement ~~Circuit~~Agreement. ~~The~~ ~~outcome~~Except ~~of the appeal is impossible to predict and,~~ as otherwise noted ~~above~~below, ~~an adverse decision would likely have a material adverse effect on~~ the ~~business~~provisions of the ~~Debtors,~~Settlement onAgreement ~~the~~were ~~interests~~effective ofupon ~~creditors~~execution ~~and~~by the ~~Company and certain of its affiliates~~parties.

As required by the Settlement Agreement, the Palco Debtors withdrew the Joint Plan and the Palco Debtors’ alternative stand-alone plan of reorganization and the MAXXAM Entities withdrew as co-proponents of the Joint Plan and the alternative plans of reorganization of the Palco Debtors and Scopac. The Settlement Agreement

On May 1, 2008, MRC, Marathon, the MAXXAM Entities, and the Palco Debtors entered into the Settlement Agreement. Scopac was not a party to the Settlement Agreement. Except as otherwise noted below, the provisions of the Settlement Agreement were effective upon execution19 ~~by the parties.~~

AsTable required by the Settlement Agreement, the Palco Debtors withdrew the Joint Plan and the Palco Debtors’ alternative plan of reorganization and the MAXXAM Entities withdrew as co-proponents of the Joint Plan and the alternative plans of reorganization of the Palco Debtors and Scopac. The Settlement Agreement required MRC and Marathon to amend the terms of the MRC/Marathon Plan, among other things, to provide for (i) a cash payment of not less than $520.0 million to the Timber Noteholders in satisfaction of their bankruptcy claims, and (ii) assumption of the Palco Pension Plan by Newco upon consummation of the MRC/Marathon Plan (although item (ii) would no longer be effective were the MRC/Marathon Plan to be overturned and unwound on appeal). As called for by the Settlement Agreement, the Company received consideration of $2.25 million at the time the MRC/Marathon Plan was consummated. However, such cash payment would have to be refunded were the MRC/Marathon Plan to be overturned and unwound on appeal.Contents

~~Pursuant~~required MRC and Marathon to amend the ~~provisions~~terms of the MRC/Marathon ~~Settlement~~Plan, ~~Agreement~~among other things, anto ~~indirect~~provide ~~wholly-owned~~for ~~subsidiary~~(i) a cash payment of not less than $520.0 million to the ~~Company~~Timber Noteholders in ~~June~~satisfaction ~~2008~~of ~~required~~their ~~MRC~~bankruptcy toclaims, ~~re-purchase~~and (ii) assumption ~~lumber~~of ~~that~~the Palco Pension Plan by Newco upon consummation of the ~~subsidiary~~MRC/Marathon ~~had~~Plan (although ~~previously~~item ~~purchased~~(ii) would ~~from~~no ~~Palco~~longer be effective were the MRC/Marathon Plan to unwind). ~~The~~ ~~subsidiary~~As called for by the Settlement Agreement, the Company received consideration of $32.9 25 million at the time the ofMRC/Marathon ~~closing~~Plan ~~and~~was ~~an additional $1~~consummated.2 ~~million~~However, ofsuch ~~contingent~~cash ~~consideration~~payment atwould ~~the~~have ~~time~~to be refunded were the MRC/Marathon Plan ~~was~~to ~~consummated~~unwind.

~~The~~ Pursuant ~~MAXXAM Entities granted a release in favor of MRC, Marathon and various related parties. MRC and Marathon granted a release in favor of the MAXXAM Entities and various related parties. Subject~~ to ~~certain exceptions relating to Marathon and~~ the ~~MAXXAM~~provisions ~~Entities, the releases cover any and all claims (a) that MRC, Marathon or the MAXXAM Entities had against any~~ of the ~~released~~Settlement ~~parties~~Agreement, ~~and~~an ~~(b)~~indirect ~~relating~~wholly-owned tosubsidiary ~~any~~ of the ~~Debtors~~Company orin ~~their~~June 2008 ~~bankruptcy~~required ~~cases that might thereafter arise. Effective upon the Bankruptcy Court’s approval of the Settlement Agreement, the MAXXAM Entities,~~ MRC ~~and~~to ~~Marathon~~re-purchase ~~released~~lumber ~~the Palco Debtors and various related parties against any and all claims (a)~~ that the ~~MAXXAM~~subsidiary ~~Entities, MRC and Marathon~~ had ~~against~~previously purchased ~~any~~from ofPalco. ~~the~~The ~~released~~subsidiary ~~parties (including~~received ~~approximately~~ $403.0 9 million ofat ~~intercompany indebtedness owed by~~ the ~~Palco~~time ~~Debtors~~of toclosing ~~the MAXXAM Entities),~~ and ~~(b)~~an additional ~~relating~~$1.2 million ~~to any~~ of ~~the~~contingent ~~Debtors~~consideration orat ~~their bankruptcy cases that might thereafter arise. Effective upon~~ the ~~consummation~~time of the MRC/Marathon Plan, the Palco Debtors released each other, MRC, Marathon, the MAXXAM Entities and various related parties against any and all claims (a) that the Palco Debtors may have had against any of the released parties, and (b) relating to any ofwas ~~the Debtors or their bankruptcy cases that might thereafter arise~~consummated. ~~The Settlement Agreement also obligates the Company to indemnify MRC, Marathon, Newco and certain affiliates against certain tax liabilities assessed on such parties subsequent to the reorganization.~~

11 The MAXXAM Entities granted a release in favor of MRC, Marathon and various related parties. ~~Stock-Based~~ MRC ~~Compensation~~and ~~Plans~~Marathon granted a release in favor of the MAXXAM Entities and various related parties. Subject to certain exceptions relating to Marathon and the MAXXAM Entities, the releases cover any and all claims (a) that MRC, Marathon or the MAXXAM Entities had against any of the released parties, and (b) relating to any of the Debtors or their bankruptcy cases that might thereafter arise. Effective upon the Bankruptcy Court’s approval of the Settlement Agreement, the MAXXAM Entities, MRC and Marathon released the Palco Debtors and various related parties against any and all claims (a) that the MAXXAM Entities, MRC and Marathon had against any of the released parties (including approximately $40.0 million of intercompany indebtedness owed by the Palco Debtors to the MAXXAM Entities), and (b) relating to any of the Debtors or their bankruptcy cases that might thereafter arise. Effective upon the consummation of the MRC/Marathon Plan, the Palco Debtors released each other, MRC, Marathon, the MAXXAM Entities and various related parties against any and all claims (a) that the Palco Debtors may have had against any of the released parties, and (b) relating to any of the Debtors or their bankruptcy cases that might thereafter arise. The Settlement Agreement also obligates the Company to indemnify MRC, Marathon, Newco and certain affiliates against certain tax liabilities assessed on such parties subsequent to the reorganization.

Under the Company’s stock-based compensation plans, stock options and similar instruments may be granted to employees and outside directors at no less than the fair market value of the Company’s Common Stock on the date of grant11. ~~Grants~~ ~~generally vest ratably over a five~~Stock-~~year~~Based ~~period~~Compensation ~~for grants to employees and over a four-year period for grants to outside directors and expire ten years after the grant date. Grants have generally been settled in cash upon exercise.~~Plans

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

~~Table~~ The fair value of ~~Contents~~grants is determined using a Black-Scholes option-pricing model. The following assumptions apply to the options granted prior to or during the periods presented.

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


	Nine Months Ended
	September 30,
	2009			2008
Expected volatility		51	%		33	%
Expected dividends		—			—
Expected term (in years)		7.34			7.14
Risk-free rate		2.3	%		3.0	%

	Six Months Ended June 30,
		2009	2008
Expected volatility		48%	25%
Expected dividends		-	-
Expected term (in years)		7.34	7.31
Risk-free rate		2.54%	3.30%

Expected volatilities are based on historical volatility of the market price for the Company’s Common Stock. The dividend yield on the Company’s Common Stock is assumed to be zero since the Company has not paid dividends in the past five years and has no current plans to do so. The expected term represents the period of time that the options granted are expected to remain outstanding (based on historical experience). The risk-free interest rate is the five-year U.S. Treasury yield curve rate as of the indicated dates.

~~Expected~~ A ~~volatilities~~summary ~~are based on historical volatility~~ of ~~the~~activity ~~market~~under ~~price for~~ the Company’s ~~Common~~stock ~~Stock. The~~option ~~dividend~~plans ~~yield~~during on the ~~Company’s~~first ~~Common~~nine ~~Stock~~months ~~is assumed to be zero since the Company has not paid dividends in the past five years and has no current plans~~of to2009 ~~do so. The expected term represents the period of time that the options granted are expected to remain outstanding (based on historical experience). The risk-free interest rate~~ is ~~the~~presented ~~five-year U.S. Treasury yield curve rate as of the indicated dates.~~below:

~~A summary of activity under the Company’s stock option plans during the first six months of 2009 is presented below:~~20

	Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)		Aggregate Fair Value (in millions)
Balance at January 1, 2009		1,052,182		$	21.04
Granted		3,000			11.73
Exercised		-			-
Forfeited or expired		( 34,300	)		55.37
Balance at June 30, 2009		1,020,882		$	19.86		4.88	$	0.2
Exercisable at June 30, 2009		754,797		$	19.82		3.62	$	0.2

The Company has recognized a liability for stock-based compensation in the amount of $0.6 million at June 30, 2009 and $1.0 million at December 31, 2008. The decline is the result of a lower market price for the Company’s Common Stock as of June 30, 2009. Total compensation benefit for stock-based payment arrangements for the six months ended June 30, 2009, was $0.3 million. As of June 30, 2009, total estimated compensation related to non-vested grants (not yet recognized) was $0.9 million, although the Company may ultimately not have to pay all of such amount and the weighted average period over which it is expected to be recognized is 3 years. There were 3,000 options and 2,400 options with a grant date fair value of $0.1 million granted during the second quarter of 2009 and 2008, respectively. There were no options exercised during the six months ended June 30, 2009 and 2008.


						Weighted Average
				Weighted Average		Remaining Contractual		Aggregate Fair Value
	Options			Exercise Price		Term (in years)		(in millions)
Balance at January 1, 2009		1,052,182		$	21.04
Granted		3,000			11.73
Exercised		—			—
Forfeited or expired		(34,300	)		55.37

Balance at September 30, 2009		1,020,882		$	19.86		4.62	$	0.1

Exercisable at September 30, 2009		754,797		$	19.82		3.37	$	0.1

12 The Company has recognized a liability for stock-based compensation in the amount of $0. ~~Per~~6 million ~~Share~~at ~~Information~~September 30, 2009 and $1.0 million at December 31, 2008. The decline is the result of a lower market price for the Company’s Common Stock as of September 30, 2009. Total compensation benefit for stock-based payment arrangements for the nine months ended September 30, 2009 and September 30, 2008, was $0.4 million and $6.0 million, respectively. As of September 30, 2009, total estimated compensation related to non-vested grants (not yet recognized) was $0.9 million, although the Company may ultimately not have to pay all of such amount and the weighted average period over which it is expected to be recognized is 3 years. There were 3,000 options and 2,400 options with a grant date fair value of $0.1 million granted during the second quarter of 2009 and 2008, respectively. There were no options exercised during the nine months ended September 30, 2009. During the nine months ended September 30, 2008, options with a fair value of less than $0.1 million were exercised, resulting in cash payments of less than $0.1 million (the difference between the market price of the Common Stock on the exercise date and the exercise prices of the options exercised).

~~The~~12. ~~weighted~~Per ~~average~~Share ~~number of shares used to determine basic and diluted earnings per share was:~~Information

	Three Months Ended June 30,				Six Months Ended June 30,
	2009		2008 (1)		2009		2008 (1) (2)
Weighted average number of common shares outstanding-basic:		4,559,637		4,561,237		4,559,637		4,836,984
Effect of dilution (3):
Conversion of Class A Preferred Stock		-		-		-		-
Exercise of stock options		-		-		-		-
Weighted average number of common shares outstanding-diluted		4,559,637		4,561,237		4,559,637		4,836,984

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

___________________________________________


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2009		2008 ⁽¹⁾		2009		2008 ⁽¹⁾
Weighted average number of common shares outstanding-basic:		4,559,637		4,561,237		4,559,637		4,744,398

Effect of dilution ⁽²⁾:
Conversion of Class A Preferred Stock		—		—		—		—
Exercise of stock options		—		—		—		—


Weighted average number of common shares outstanding-diluted		4,559,637		4,561,237		4,559,637		4,744,398


⁽¹⁾		In March 2008, MAXXAM Parent purchased 687,480 shares of its Common Stock from two affiliated institutional holders in a privately negotiated transaction for an aggregate cost of $20.1 million.

⁽²⁾		The Company had a loss for the three months and nine months ended September 30, 2009 and 2008. 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 dilutive shares of Class A Preferred Stock for the three months and nine months ended September 30, 2009 and 2008 would be 668,119 and 668,119, respectively, and the number of dilutive options for the three months ended September 30, 2009 and 2008 would be 1,700 and 104,265, respectively, and the number of dilutive options for the nine months ended September 30, 2009 and 2008 would be 567 and 34,755, respectively.

~~Table of Contents~~21

(1)Table In March 2008, MAXXAM Parent purchased 687,480 shares of its Common Stock from two affiliated institutional holders in a privately negotiated transaction for an aggregate cost of $20.1 million.Contents

(2) In the second quarter of 2008, a mathematical error was discovered in the calculation of the weighted average number of shares used to determine basic and diluted shares outstanding for the first quarter of 200813. AsComprehensive ~~a result, earnings per share for the three months ended March 31, 2008 was incorrectly reported as a loss of $2.58 per share, rather than a loss of $2.72 per share.~~Loss

~~(3)~~ The ~~Company~~following ~~had~~table asets ~~loss~~forth ~~for~~comprehensive ~~the~~loss ~~three months and six months ended June 30, 2009 and 2008. 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 dilutive shares of Class A Preferred Stock for the three months and six months ended June 30, 2009 and 2008 would be 668,119 and 668,119, respectively, and the number of dilutive options for the three months ended June 30, 2009 and 2008 would be 10,285 and 278,247, respectively, and the number of dilutive options for the six months ended June 30, 2009 and 2008 would be 5,143 and 139,124, respectively.millions):

13. Comprehensive Loss


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2009			2008			2009			2008
Net loss	$	(8.5	)	$	(65.4	)	$	(31.2	)	$	(92.0	)
Other comprehensive loss:
Change in unrealized gain (loss) on available-for-sale investments		0.3			(1.2	)		1.1			0.4

Total comprehensive loss	$	(8.2	)	$	(66.6	)	$	(30.1	)	$	(91.6	)

~~The~~14. ~~following~~Damage ~~table~~to ~~sets~~SHRP ~~forth comprehensive loss (in millions):~~Facility

	Three Months Ended June 30,						Six Months Ended June 30,
	2009			2008			2009			2008
Net loss	$	(10.2	)	$	(12.7	)	$	(22.7	)	$	(26.6	)
Other comprehensive loss:
Change in unrealized gain (loss) on available-for-sale investments		(0.7	)		0.2			(0.8	)		0.2
Total comprehensive loss	$	(9.5	)	$	(12.5	)	$	(21.9	)	$	(26.4	)

On September 13, 2008, Sam Houston Race Park, SHRP’s racing facility in Houston, Texas, was damaged by Hurricane Ike. As a result of the damage, the live racing meets scheduled for November 2008 through April 2009 were cancelled, although indoor simulcasting continued. The planned repairs to the grandstand are substantially complete and live racing resumed in May 2009.

~~14. Damage~~ The Company had insurance coverage related to the facility and SHRP’s ~~Facility~~operations. The insurance policies provided for the reimbursement of the Company’s cost of repairing or rebuilding the damaged portion of the facility. The Company’s insurance policies also provided for the reimbursement of specified continuing expenses incurred during the interruption period plus lost profits (or less expected losses) plus other expenses incurred as a result of the property damage. The insurance coverage components are discussed below.

On Property September 13, 2008, Sam Houston Race Park, SHRP’s racing facility in Houston, Texas, was damaged by Hurricane Ike. As a result of the damage, the live racing meets scheduled for November 2008 through April 2009 were cancelled, although indoor simulcasting continued.Damage

~~The~~ In ~~Company~~2008, ~~has insurance coverage related to~~ the ~~facility~~Company received and ~~SHRP’s~~recognized ~~operations~~$4. ~~The~~8 million of insurance ~~policies~~proceeds ~~provide~~(net ~~for the reimbursement~~ of the deductible) ~~Company’s~~related ~~cost~~to ofproperty ~~repairing~~damage. orIn ~~rebuilding~~ the ~~damaged~~second ~~portion~~quarter of 2009, the ~~facility. The~~ Company’s ~~insurance~~received and ~~policies~~recognized ~~also~~an ~~provide~~additional ~~for~~$0.7 million ~~the reimbursement~~ of ~~specified~~insurance ~~continuing~~proceeds ~~expenses~~related ~~incurred~~to ~~during the interruption period plus lost profits (or less expected losses) plus other expenses incurred as a result of the~~ property damage. ~~The insurance coverage components are discussed below.~~

~~Property~~ Business ~~Damage~~Interruption

In The ~~2008,~~Company ~~the~~has ~~Company~~also received ~~and~~cumulative ~~recognized~~advances of $4.8 0 million ofrelated ~~insurance~~to ~~proceeds~~business interruption losses incurred in 2008 and 2009 (~~net~~$1.4 million as of ~~the~~December 31, ~~deductible)~~2008, ~~related~~$1.1 million received toin ~~property~~January 2009 ~~damage~~and additional $1. In5 million ~~the~~in ~~second~~April 2009). ~~quarter~~This ofamount ~~2009,~~represented the minimum ~~Company~~probable insurance recoveries for business interruption to be received related to 2008 and 2009. ~~recognized~~The anCompany ~~additional~~recorded loss recoveries of approximately $0.7 8 million in the fourth quarter of 2008, ~~insurance~~$1.4 million ~~proceeds~~in ~~related~~the tofirst ~~property~~quarter ~~damage. The Company~~of ~~may~~2009 ~~receive~~and ~~additional~~$1.8 million ~~recoveries~~in ~~related~~the tosecond ~~property~~quarter ~~damage;~~of ~~any~~2009, based ~~additional~~on ~~recoveries~~the ~~will~~paid beapportioned ~~recognized~~rate; ~~when~~no ~~realized~~gains were recognized.

~~Business~~ In ~~Interruption~~April 2009, the Company received additional insurance advances of $0.6 million related to the reimbursement of certain insurance claim preparation costs. The recoveries were recognized in the second quarter of 2009.

The Company has also received cumulative advances of $4.0 million related to business interruption losses incurred in 2008 and 2009 ($1.4 million as of December 31, 2008, $1.1 million received in January 2009 and additional $1.5 million in April 2009). The Company believes this22 amount represents minimum probable insurance recoveries for business interruption to be received related to 2008 and 2009. The Company recorded loss recoveries of approximately $0.8 million in the fourth quarter of 2008, $1.4 million in the first quarter of 2009 and $1.8 million in the second quarter of 2009, based on the paid apportioned rate; no gains have been recognized. The Company continues to provide information to its insurers and their representatives regarding the claim; any additional insurance recoveries will be recognized when realized.

TheTable following table summarizes the net impacts reflected in the consolidated statements of operations of the insurance recoveries described above (in millions):Contents

20 The following table summarizes the net impacts reflected in the consolidated statements of operations of the insurance recoveries described above (in millions):

Table of Contents


	Three Months Ended
	December 31,		March 31,		June 30,		September 30,		Cumulative
	2008		2009		2009		2009		2009		Cumulative
Property damage	$	4.8	$	—	$	0.7	$	—	$	0.7	$	5.5
Business interruption		0.8		1.4		1.8		—		3.2		4.0
Claims preparation		—		—		0.6		—		0.6		0.6


Net impact reflected in the statement of operations	$	5.6	$	1.4	$	3.1	$	—	$	4.5	$	10.1



Cash received	$	6.2	$	1.1	$	2.8	$	—	$	3.9	$	10.1



Recoveries received but not yet recognized	$	0.6	$	0.3	$	—	$	—	$	—	$	—

	Three Months Ended
	June 30, 2009		March 31, 2009		December 31, 2008		2009		Inception to Date
Property damage	$	0.7	$	-	$	4.8	$	0.7	$	5.5
Business interruption		1.8		1.4		0.8		3.2		4.0
Claims preparation		0.6		-		-		0.6		0.6
Net impact reflected in the
statement of operations	$	3.1	$	1.4	$	5.6	$	4.5	$	10.1
Cash received	$	2.8	$	1.1	$	6.2	$	3.9	$	10.1
Recoveries not yet recognized	$	-	$	0.3	$	0.6	$	-	$	-

In October 2009, the Company reached final settlement with its insurers on all claims related to Hurricane Ike and received an additional $1.6 million. The Company will recognize these additional recoveries in the fourth quarter of 2009.

~~In April 2009, the Company received additional insurance advances of $0.6 million related to the reimbursement of certain insurance claim preparation costs.~~23

TheTable plannedof repairs to the grandstand are substantially complete and live racing resumed in May 2009. SHRP’s management continues to work with its insurers and their representatives to resolve the claim.Contents

21ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

~~ITEM~~ This 2Quarterly Report on Form 10-Q contains statements which constitute “forward-looking statements” within the meaning of the PSLRA. ~~MANAGEMENT~~These statements appear in a number of places in this report. Such statements can be identified by the use of forward-looking terminology such as “believes,” “expects,” “may,” “estimates,” “should,” “could,” “plans,” “intends,” “projects,” “seeks,” or “anticipates” or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy or objectives. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and involve significant risks and uncertainties. Actual results could vary materially from the forward-looking statements as a result of various factors. These factors include the effectiveness of management’Ss ~~DISCUSSION~~strategies ~~AND~~and decisions, ~~ANALYSIS~~general OFeconomic ~~FINANCIAL~~and ~~CONDITION~~business ~~AND~~conditions, ~~RESULTS~~developments OFin ~~OPERATIONS~~technology, the ability to obtain financing, new or modified statutory, environmental or regulatory requirements, litigation developments, and changing prices and market conditions. This Form 10-Q and the Form 10-K identify other factors which could cause differences between such forward-looking statements and actual results. No assurance can be given that these are all of the factors that could cause actual results to vary materially from the forward-looking statements.

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

This ~~Quarterly~~section ~~Report on Form 10-Q~~ contains statements which constitute “forward-looking statements” within the meaning of the PSLRA. ~~These~~ ~~statements~~See ~~appear~~the insecond aparagraph ~~number~~ of ~~places in~~ this ~~report. Such~~Item 2 ~~statements~~for ~~can~~cautionary beinformation ~~identified~~with byrespect the use of forward-looking terminology such as “believes,” “expects,” “may,” “estimates,” “should,” “could,” “plans,” “intends,” “projects,” “seeks,” or “anticipates” or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy or objectives. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and involve significant risks and uncertainties. Actual results could vary materially from the forward-looking statements as a result of various factors. These factors include the effectiveness of management’s strategies and decisions, general economic and business conditions, developments in technology, the ability to obtain financing, new or modified statutory, environmental or regulatory requirements, litigation developments, and changing prices and market conditions. This Form 10-Q and the Form 10-K identify other factors which could cause differences between such forward-looking statements ~~and actual results~~. ~~No assurance can be given that these are all of the factors that could cause actual results to vary materially from the forward-looking statements.~~

~~Results~~ The Company now operates in two primary industries: real estate investment and development (through various subsidiaries and joint ventures) and racing operations (through SHRP). MGHI owns 100% of ~~Operations~~MGI and is a wholly owned subsidiary of the Company. Any reference herein to a company includes the subsidiaries of that company unless otherwise noted or the context indicates otherwise.

~~This~~ The ~~section~~Company ~~contains~~faces ~~statements~~rapidly ~~which~~declining ~~constitute~~cash ~~“forward-looking~~balances, ~~statements”~~limited ~~within~~opportunities ~~the~~to ~~meaning~~generate ofoperating revenues, ~~the~~and ~~PSLRA. See~~uncertainties as to its future liquidity, resulting from ongoing economic recessions in the ~~second~~United ~~paragraph~~States ofand ~~this~~Puerto ~~Item~~Rico 2and ~~for~~adverse ~~cautionary~~developments ~~information~~and ~~with~~ongoing ~~respect~~depressed toconditions ~~such~~in both ~~forward-looking~~of ~~statements~~the Company’s lines of business.

~~The~~ Sales by the Company’s ~~now~~real ~~operates~~estate insubsidiaries ~~two~~have ~~primary~~fallen ~~industries:~~off dramatically since 2005. In 2005 and 2006, the Company’s real estate ~~investment~~operations ~~and~~realized ~~development~~substantial revenues related to sales at the Company’s Fountain Hills (~~through~~located ~~various~~near ~~subsidiaries~~Phoenix, ~~and~~Arizona), ~~joint~~Mirada ~~ventures~~(located in California) and Palmas ~~racing~~(located ~~operations~~in ~~(through~~Puerto ~~SHRP~~Rico) real estate developments. ~~MGHI~~ ~~owns~~Commencing ~~100%~~in of2007 ~~MGI~~and continuing through 2008 and isinto a2009, ~~wholly~~there ~~owned~~have ~~subsidiary~~been ofsignificant declines in real estate demand in areas where the Company operates, due primarily to general economic recessions in Puerto Rico and in the United States. Property sales revenues fell from $147.6 million for the year ended December 31, 2005 to $6.0 million for the year ended December 31, 2008, and the Company has had no property sales since June of 2008. ~~Any~~ ~~reference~~There has also been a steady decline in resort revenues at the Company’s Palmas ~~herein~~development attributable to lower member spending and a ~~company~~high ~~includes~~member attrition rate, reflecting the impact ~~subsidiaries~~of the economic recession in Puerto Rico (see Note 6 for additional discussion regarding the liquidity issues of ~~that~~PCCI, ~~company~~a ~~unless~~Palmas ~~otherwise~~subsidiary). ~~noted~~Moreover, orthe Company does not foresee any near term recovery for its real estate business, particularly since the ~~context~~Company’s ~~indicates~~real ~~otherwise~~estate developments are primarily second home or seasonal home communities in Phoenix, Arizona and Puerto Rico and those markets are expected to be slow to recover.

~~Consolidated~~ As ~~Operations~~to the Company’s racing operations, the Company has tried to increase revenues through its longstanding pursuit of Texas gaming legislation favorable to the Company. However, such gaming legislation failed to pass in the regular biennial session of the Texas Legislature that ended in May 2009, and was not considered in the subsequently called special session. While the Company intends to continue pursuing favorable Texas gaming legislation, there is no way for the Company to predict if such legislation will ever be enacted.

~~Selected Operational Data~~24

TheTable followingof table presents selected financial information for the periods indicated for the Company’s consolidated operations (in millions).Contents

	Three Months Ended June 30,						Six Months Ended June 30,
	2009			2008			2009			2008
	(In millions of dollars)
Sales	$	18.6		$	23.3		$	34.3		$	45.0
Costs and expenses		(20.6	)		(28.4	)		(44.5	)		(57.2	)
Operating loss		(2.0	)		(5.1	)		(10.2	)		(12.2	)
Other income (expense)		(4.0	)		(3.2	)		(4.2	)		(5.8	)
Interest expense, including amortization of deferred financing costs		(4.1	)		(4.2	)		(8.2	)		(8.4	)
Loss before income taxes		(10.1	)		(12.5	)		(22.6	)		(26.4	)
Provision for income taxes		(0.1	)		(0.2	)		(0.1	)		(0.2	)
Net loss	$	(10.2	)	$	(12.7	)	$	(22.7	)	$	(26.6	)
Revenues by segment as a percentage of total:
Real estate		39.8	%		41.6	%		43.1	%		41.3	%
Racing		60.2	%		45.9	%		56.9	%		52.2	%
Corporate		-			12.5	%		-			6.5	%
		100.0	%		100.0	%		100.0	%		100.0	%

Consolidated Operations

22 Selected Operational Data

~~Table~~ The offollowing ~~Contents~~table presents selected financial information for the periods indicated for the Company’s consolidated operations (in millions).

Overview of Results of Operations


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2009			2008			2009			2008
				(In millions of dollars)
Sales	$	18.2		$	23.7		$	52.5		$	68.7
Costs and expenses		(23.4	)		(31.9	)		(67.9	)		(89.1	)

Operating loss		(5.2	)		(8.2	)		(15.4	)		(20.4	)
Other income (expense)		0.9			(0.6	)		(3.3	)		(6.4	)
Interest expense, including amortization of deferred financing costs		(4.1	)		(4.2	)		(12.3	)		(12.6	)

Loss before income taxes		(8.4	)		(13.0	)		(31.0	)		(39.4	)
Provision for income taxes		(0.1	)		(52.4	)		(0.2	)		(52.6	)

Net loss	$	(8.5	)	$	(65.4	)	$	(31.2	)	$	(92.0	)


Revenues by segment as a percentage of total:
Real estate		40.7	%		35.0	%		42.3	%		39.2	%
Racing		59.3	%		54.9	%		57.7	%		53.1	%
Corporate		0.0	%		10.1	%		0.0	%		7.7	%

		100.0	%		100.0	%		100.0	%		100.0	%

~~Sales~~Overview of Results of Operations

Consolidated sales for the three months ended June 30, 2009 were $18.6 million as compared to $23.3 million for the same period in 2008. The $4.7 million decline is primarily attributable to non-recurring lumber sales in 2008 (that generated revenues of $2.9 million), and Sales the absence of any real estate transactions at any of the Company’s real estate developments in 2009 (there were two real estate sales in the three months ended June 30, 2008 that generated revenues of $1.5 million).

Consolidated sales for the ~~six~~three months ended ~~June~~ September 30, 2009, ~~declined~~were $1018.7 2 million, as compared to $23.7 million for the same period in ~~the~~2008. ~~prior~~Real ~~year,~~estate ~~reflecting~~revenues noof ~~real~~$7.4 million ~~estate~~for the ~~sales~~three ~~transactions~~months inended September 30, 2009 ~~(compared~~were toapproximately ~~three~~$1.0 million ~~real~~less ~~estate~~than ~~sales~~the ~~that~~prior ~~generated~~year period ~~sales~~primarily ofdue ~~$2.1~~to ~~million~~lower ~~for~~resort revenues at the ~~first~~Company’s ~~six~~Palmas ~~months~~resort operations and lower levels of ~~2008),~~deferred ~~the~~profit ~~impacts~~recognition. Racing revenues of ~~Hurricane~~$10.8 million ~~Ike,~~for ~~which~~the ~~led~~three tomonths ~~the~~ended September 30, ~~cancellation~~2009 ofwere ~~live~~approximately ~~racing~~$2.2 million ~~that~~less ~~was~~than ~~scheduled~~the same period in the ~~first~~prior ~~quarter~~year, primarily as a result of ~~2009~~holding fewer concerts at Sam Houston Race Park. Additionally, ~~and~~in the three months ended September 30, 2008 there was a non-recurring ~~lumber~~ sales transaction in 2008 related to the Company’s former lumber operations (that generated revenues of $2.4 million).

~~Operating~~ Consolidated ~~Loss~~sales for the nine months ended September 30, 2009, declined $16.2 million, as compared to the same period in the prior year. Real estate sales of $22.2 million, as compared to $26.9 million in the same period in the prior year, reflect no sales of real estate parcels or lots in 2009, lower resort revenues at the Company’s Palmas resort operations and lower levels of deferred revenue recognition. Racing sales of $30.3 million, as compared to $36.5 million in the same period in the prior year, reflect the impacts of Hurricane Ike, which led to the cancellation of live racing that was scheduled in the first quarter of 2009 and lower concert revenues at Sam Houston Race Park.

The Company’s consolidated operating losses of $2.0 million for the three months ended June 30, 2009 include net insurance recoveries of approximately $3.1 million related to damage at Sam Houston Race Park caused by Hurricane Ike and a $0.9 million charge for additional defense25 costs related to the Wilson actions, partially offset by cost reduction initiatives. Operating results for the three months ended June 30, 2009 also include a $0.5 million expense related to stock-based compensation, as compared to a benefit of $3.4 million in the second quarter of 2008, resulting from fluctuations in the quoted market price of the Company’s Common Stock.

TheTable Company’s consolidated operating loss improved by $2.0 million for the six months ended June 30, 2009, as compared to the same period in the prior year, reflecting the impact of cost reduction initiatives at the real estate segment and net insurance recoveries of approximately $4.5 million related to damage at Sam Houston Race Park caused by Hurricane Ike, partially offset by the impact of stock-based compensation.Contents

~~Other~~ Operating ~~Income (expense)~~Loss

~~Consolidated~~ The ~~investment,~~following ~~interest~~table ~~and~~shows ~~other income for~~ the ~~three~~significant ~~months~~items ~~and~~impacting ~~six months ended June 30, 2009, was impacted by reduced earnings due to lower levels of investment and a $4.1 million impairment charge related to~~ the Company’s ~~investment~~operating inresults ~~a California real estate joint venture,~~for ~~RMCAL. In~~ the ~~three~~periods ~~months and six months ended June 30, 2008, the Company recognized an impairment charge of $1.9 million and $3.7 million, respectively, related to the Company’s auction rate securities.~~presented:

	Three Months Ended June 30,						Six Months Ended June 30,
	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2009			2008			2009			2008
	~~(In millions of dollars)~~			(In millions of dollars)
Money market accounts and other investments	$	0.5		$	0.5		$	0.8		$	1.1
Costs related to Wilson actions and related matters (see Note 9)	$	(0.1	)	$	(8.1	)	$	(7.8	)	$	(8.1	)
Auction rate securities		-			(1.9	)		-			(3.7	)
SHRP net insurance recoveries (see Note 14)		—			—			4.5			—
Marketable securities		(0.3	)		(2.1	)		(0.6	)		(2.6	)
SHRP Hurricane Ike damaged property write-off (see Note 3)		—			(1.3	)		—			(1.3	)
Investments in limited partnerships		-			0.4			-			(0.6	)
Stock-based compensation		0.1			4.4			0.4			6.0
Joint ventures		(4.4	)		0.1			(4.6	)		0.1
Corporate expenses, excluding costs related to Wilson actions		(2.8	)		0.2			(5.7	)		(6.2	)
Other		0.2			(0.2	)		0.2			(0.1	)
Operating losses at subsidiaries		(2.4	)		(3.4	)		(6.8	)		(10.8	)
Investment interest and other income (expense), net	$	(4.0	)	$	(3.2	)	$	(4.2	)	$	(5.8	)
Operating losses	$	(5.2	)	$	(8.2	)	$	(15.4	)	$	(20.4	)

~~Real~~ Other ~~Estate~~Income ~~Operations~~(expense)

~~Industry~~ The ~~Overview~~following table provides a detail of net investment and ~~Selected~~other ~~Operational~~income ~~Data~~(expense) for the periods presented:

The Company, principally through wholly owned subsidiaries and joint ventures, owns, invests in and develops residential (primarily second home or seasonal home communities) and commercial real estate, primarily in Puerto Rico and Arizona and to a limited extent in California and Texas. Results of operations between quarterly periods for the Company’s real estate operations are generally not comparable due to the timing of individual real estate sales and cash collections. Accordingly, results for any one quarter are not necessarily indicative of results to be expected for any other quarter or for the full year. In 2005 and 2006, the Company’s real estate operations realized substantial revenues related to sales at the Company’s Fountain Hills (located near Phoenix, Arizona), Mirada (located in California) and Palmas (located in Puerto Rico) real estate developments. Commencing in 2007 and continuing through 2008 and into 2009, there have been significant declines in real estate demand in areas where the Company operates, due primarily to general economic recessions in Puerto Rico and in the United States. The economic recession has particularly affected the Company’s real estate business as the Company’s real estate developments are primarily second home or seasonal home communities and it will likely take these markets longer to recover. The Company has had no real estate sales since June 2008 and the Company anticipates demand for its real estate will continue to be adversely affected for some time.


	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2009		2008			2009			2008
			(In millions of dollars)
Money market accounts and other investments	$	0.2	$	0.3		$	0.6		$	1.4
Auction rate securities		—		(0.1	)		—			(3.7	)
Marketable securities		0.2		0.6			(0.5	)		(2.0	)
Investments in limited partnerships		—		(0.9	)		—			(1.5	)
Joint ventures		0.3		(0.3	)		(4.1	)		(0.2	)
Other		0.2		(0.2	)		0.7			(0.4	)

Investment and other income (expense), net	$	0.9	$	(0.6	)	$	(3.3	)	$	(6.4	)

23 Consolidated investment, interest and other income for the three months and nine months ended September 30, 2009, was impacted by reduced earnings due to lower levels of investment and a $4.1 million impairment charge recorded in the second quarter of 2009 related to the Company’s investment in RMCAL (see Note 5). In the three months and nine months ended September 30, 2008, the Company recognized an impairment charge of $0.1 million and $3.7 million, respectively, related to the Company’s auction rate securities.

~~Table~~ Provision offor ~~Contents~~Income Taxes

~~There~~ As ~~has~~disclosed ~~also~~in ~~been~~“Potential aImpact ~~steady~~on ~~decline~~the Company and Certain Related Entities” in ~~resort~~Note ~~revenues~~10, atthe consummation of the MRC/Marathon Plan resulted in the utilization of a substantial portion of the Company’s ~~Palmas~~net ~~development~~operating ~~(located~~losses inand ~~Puerto~~other ~~Rico)~~tax ~~attributable~~attributes tofor ~~lower~~federal ~~member~~income ~~spending~~tax purposes. The Company recorded the estimated tax impacts of the MRC/Marathon Plan in its 2008 federal income tax return and in its 2008 statement of operations. Included in the 2008 consolidated provision for income taxes is a ~~high~~$52.3 million ~~member~~provision ~~attrition~~for ~~rate,~~federal incomes taxes reflecting the estimated ~~impact~~utilization of tax attributes resulting from the ~~economic~~consummation ~~recession~~of the MRC/Marathon Plan. It is possible the Company’s estimates could change materially in ~~Puerto~~the ~~Rico~~future should facts and circumstances change.

~~The~~ Real ~~following~~Estate ~~table presents selected operational and financial information for the three months and six months ended June 30, 2009 and 2008, for the Company’s real estate operations.~~Operations

	Three Months Ended June 30,						Six Months Ended June 30,
	2009			2008			2009			2008
	(In millions of dollars)
Sales:
Real estate:
Fountain Hills	$	-		$	0.9		$	-		$	1.4
Mirada		-			0.5			-			0.5
Palmas		-			0.1			-			0.2
Total		-			1.5			-			2.1
Resort, commercial and other:
Fountain Hills		0.7			0.8			1.3			1.8
Palmas		2.0			2.7			4.2			5.4
Commercial lease properties		4.6			4.6			9.2			9.2
Other		0.1			0.1			0.1			0.1
Total	$	7.4		$	8.2		$	14.8		$	16.5
Total sales	$	7.4		$	9.7		$	14.8		$	18.6
Operating income (loss):
Fountain Hills	$	(0.5	)	$	(0.3	)	$	(1.4	)	$	(1.2	)
Mirada		(0.1	)		(0.1	)		(0.1	)		(0.2	)
Palmas		(2.2	)		(3.8	)		(4.3	)		(6.8	)
Commercial lease properties		3.2			3.2			6.5			6.5
Other		(0.2	)		(0.7	)		(0.4	)		(1.2	)
Total operating income (loss)	$	0.2		$	(1.7	)	$	0.3		$	(2.9	)
Investment, interest and other income:
Equity in earnings (losses) from real estate joint ventures	$	(4.4	)	$	0.1		$	(4.6	)	$	0.1
Other		0.5			(1.3	)		0.7			(1.1	)
	$	(3.9	)	$	(1.2	)	$	(3.9	)	$	(1.0	)
Interest expense and amortization of deferred financing costs		(4.1	)		(4.2	)		(8.2	)		(8.4	)
Loss before income taxes	$	(7.8	)	$	(7.1	)	$	(11.8	)	$	(12.3	)

Industry Overview and Selected Operational Data

The Company, principally through wholly owned subsidiaries and joint ventures, owns, invests in and develops residential and commercial real estate, primarily in Puerto Rico and Arizona and to a limited extent in California and Texas. Results of operations between quarterly periods for the Company’s real estate operations are generally not comparable due to the timing of individual real estate sales and cash collections. Accordingly, results for any one quarter are not necessarily indicative of results to be expected for any other quarter or for the full year. Sales by the Company’s real estate subsidiaries have fallen off dramatically since 2005. In 2005 and ~~Operating~~2006, ~~Income~~the Company’s ~~(Loss)~~real

The Company’s real estate subsidiaries have had no real estate sales in 2009, reflecting the effects of the continuing economic recessions in Puerto Rico and in the United States and limited demand for real estate in Puerto Rico and Arizona. Additionally, there has also26 been a steady decline in resort revenues at the Company’s Palmas development (located in Puerto Rico) attributable to lower member spending and a high member attrition rate, reflecting the impact of the economic recession in Puerto Rico. The $1.9 million and $3.2 million improvement in real estate operating results for the three months and six months ended June 30, 2009, respectively, as compared to the same period a year ago, primarily reflects the impact of cost reduction initiatives.

24Table of Contents

~~Table~~estate operations realized substantial revenues related to sales at the Company’s Fountain Hills (located near Phoenix, Arizona), Mirada (located in California) and Palmas (located in Puerto Rico) real estate developments. Commencing in 2007 and continuing through 2008 and into 2009, there have been significant declines in real estate demand in areas where the Company operates, due primarily to general economic recessions in Puerto Rico and in the United States. Property sales revenues fell from $147.6 million for the year ended December 31, 2005 to $6.0 million for the year ended December 31, 2008, and the Company has had no property sales since June of ~~Contents~~2008. There has also been a steady decline in resort revenues at the Company’s Palmas development attributable to lower member spending and a high member attrition rate, reflecting the impact of the economic recession in Puerto Rico (see Note 6 for additional discussion regarding the liquidity issues of PCCI, a Palmas subsidiary). Moreover, the Company does not foresee any near term recovery for its real estate business, particularly since the Company’s real estate developments are primarily second home or seasonal home communities in Phoenix, Arizona and Puerto Rico and those markets are expected to be slow to recover.

~~Other~~ The ~~Income~~following ~~(expense)~~table presents selected operational and financial information for the three months and nine months ended September 30, 2009 and 2008, for the Company’s real estate operations.

The three months and six months ended June 30, 2009, reflect a $4.1 million impairment charge related to the Company’s investment in a California real estate joint venture, RMCAL.


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2009			2008			2009			2008
				(In millions of dollars)
Sales:
Real estate:
Fountain Hills	$	—		$	0.5		$	—		$	1.9
Mirada		0.4			—			0.4			0.5
Palmas		—			0.4			—			0.6

Total		0.4			0.9			0.4			3.0


Resort, commercial and other:
Fountain Hills		0.6			0.4			1.9			2.2
Palmas		1.8			2.4			6.0			7.8
Commercial lease properties		4.6			4.6			13.8			13.8
Other		—			—			0.1			0.1

Total	$	7.0		$	7.4		$	21.8		$	23.9


Total sales	$	7.4		$	8.3		$	22.2		$	26.9


Operating income (loss):
Fountain Hills	$	(0.9	)	$	(0.4	)	$	(2.3	)	$	(1.6	)
Mirada		0.3			—			0.2			(0.2	)
Palmas		(2.8	)		(2.9	)		(7.1	)		(9.7	)
Commercial lease properties		3.3			3.2			9.8			9.7
Other		(0.1	)		(0.3	)		(0.5	)		(1.5	)

Total operating income (loss)	$	(0.2	)	$	(0.4	)	$	0.1		$	(3.3	)


Investment, interest and other income:
Equity in earnings (losses) from real estate joint ventures	$	—		$	(0.4	)	$	(4.6	)	$	(0.3	)
Other		0.4			0.1			1.1			(1.0	)

	$	0.4		$	(0.3	)	$	(3.5	)	$	(1.3	)



Interest expense and amortization of deferred financing costs		(4.0	)		(4.1	)		(12.2	)		(12.5	)


Loss before income taxes	$	(3.8	)	$	(4.8	)	$	(15.6	)	$	(17.1	)

~~Racing Operations~~27

IndustryTable Overviewof and Selected Operational DataContents

~~The~~ Sales ~~Company owns SHRP, which owns~~ and ~~operates~~Operating ~~Sam~~Income Houston Race Park, a Class 1 horse racing facility in Houston, Texas, and Valley Race Park, a greyhound racing facility located in Harlingen, Texas. Quarterly results for each of these facilities are generally not comparable(Loss) due to the timing, varying lengths and types of racing meets held. Accordingly, the results for any one quarter are not necessarily indicative of the results to be expected for any other quarter or for the full year. Historically, Sam Houston Race Park and Valley Race Park have derived a significant amount of their annual pari-mutuel commissions from live racing and simulcasting. Pari-mutuel commissions have typically been highest during the first and fourth quarters of the year, the time during which Sam Houston Race Park and Valley Race Park have historically conducted live thoroughbred and greyhound racing, respectively.

On There ~~September~~have ~~13,~~been no sales of real estate parcels or lots since June 2008. The $0.4 million of revenue recognized during the third quarter of 2009, ~~SHRP’s~~and ~~racing~~the ~~facility~~$0.9 million inof ~~Houston~~revenue recognized during the third quarter of 2008, ~~Texas~~relate ~~was~~to ~~damaged~~deferred byrevenue ~~Hurricane~~on ~~Ike~~prior sales. As aThe ~~result,~~lack of sales of real estate parcels or lots reflects the ~~live~~effects ~~racing~~of ~~meets~~the ~~scheduled~~continuing economic recessions in Puerto Rico and in the United States and limited demand for ~~November~~real ~~2008~~estate ~~through~~in ~~April~~Puerto ~~2009~~Rico ~~were~~and ~~cancelled~~Arizona. Additionally, ~~although~~there ~~indoor~~has ~~simulcasting~~also ~~continued~~been ~~while~~a steady decline in resort revenues at the ~~facility~~Company’s ~~was~~Palmas development ~~being~~(located ~~repaired~~in Puerto Rico) attributable to lower member spending and a high member attrition rate, reflecting the impact of the economic recession in Puerto Rico. The $0.2 million ~~planned~~and ~~repairs~~$3.4 million toimprovement in real estate operating results for the ~~Sam~~three ~~Houston~~months ~~Race~~and ~~Park~~nine months ended September ~~grandstand~~30, ~~are~~2009, ~~substantially~~respectively, ~~complete~~as compared to the same period a year ago, primarily reflects the impact of cost reduction initiatives and ~~live~~lower ~~racing~~depreciation ~~resumed~~expense resulting from assets that are now fully depreciated. Additionally, 2008 results reflect costs related to a development project in ~~May~~Puerto ~~2009~~Rico.

~~The~~ Other ~~following~~Income ~~table presents selected operational and financial information for the three months and six months ended June 30, 2009 and 2008, for the Company’s racing operations.~~(expense)

25 The nine months ended September 30, 2009, reflect a $4.1 million impairment charge related to the Company’s prior investment in RMCAL (see Note 5). The Company no longer has an ownership interest in this venture.

~~Table~~ Racing ~~of Contents~~Operations

~~Three~~ Industry ~~Months~~Overview ~~Ended June~~and ~~30, Six~~Selected ~~Months~~Operational ~~Ended~~Data June 30, 2009 2008 2009 2008 (In millions of dollars) Number of live racing days: Sam Houston Race Park 28 6 28 47 Valley Race Park 5 5 70 71 Handle: Sam Houston Race Park: On-track handle $ 29.5 $ 32.0 $ 55.4 $ 63.0 Off-track handle 3.4 6.0 3.4 72.7 Total $ 32.9 $ 38.0 $ 58.8 $ 135.7 Valley Race Park: On-track handle $ 4.2 $ 4.0 $ 10.0 $ 9.8 Off-track handle 0.2 0.3 2.7 3.0 Total $ 4.4 $ 4.3 $ 12.7 $ 12.8 Sales: Sam Houston Race Park: Gross pari-mutuel commissions $ 6.6 $ 7.1 $ 12.3 $ 15.9 Concert revenues 1.0 0.8 1.1 0.8 Other revenues 2.6 1.7 3.1 3.8 Total 10.2 9.6 16.5 20.5 Valley Race Park: Gross pari-mutuel commissions 0.9 0.9 2.4 2.4 Other revenues 0.1 0.2 0.6 0.6 Total 1.0 1.1 3.0 3.0 Total sales $ 11.2 $ 10.7 $ 19.5 $ 23.5 Operating income (loss): Sam Houston Race Park $ 0.7 (1) $ (2.5 ) $ 0.1 (1) $ (3.1 ) Valley Race Park (0.2 ) (0.2 ) (0.2 ) (0.3 ) Other - - (0.1 ) (0.1 ) Total operating income (loss) $ 0.5 $ (2.7 ) $ (0.2 ) $ (3.5 ) Income (loss) before income taxes $ 0.5 $ (2.7 ) $ (0.2 ) $ (3.5 )

~~___________________________________________~~ The Company owns SHRP, which owns and operates Sam Houston Race Park, a Class 1 horse racing facility in Houston, Texas, and Valley Race Park, a greyhound racing facility located in Harlingen, Texas. Quarterly results for each of these facilities are generally not comparable due to the timing, varying lengths and types of racing meets held. Accordingly, the results for any one quarter are not necessarily indicative of the results to be expected for any other quarter or for the full year. Historically, Sam Houston Race Park and Valley Race Park have derived a significant amount of their annual pari-mutuel commissions from live racing and simulcasting. Pari-mutuel commissions have typically been highest during the first and fourth quarters of the year, the time during which Sam Houston Race Park and Valley Race Park have historically conducted live thoroughbred and greyhound racing, respectively.

~~(1)~~ On ~~Includes~~September 13, ~~recoveries~~2008, ~~from~~SHRP’s ~~insurance~~racing offacility ~~$3.1~~in ~~million~~Houston, ~~and~~Texas $4was damaged by Hurricane Ike.5 As ~~million~~a ~~for~~result, the ~~three~~live ~~months~~racing ~~and~~meets ~~six~~scheduled ~~months~~for ~~ended~~November 2008 ~~June~~through ~~30,~~ April 2009 were cancelled, although ~~respectively~~indoor simulcasting continued while the facility was being repaired. The planned repairs to the Sam Houston Race Park grandstand are substantially complete and live racing resumed in May 2009.

~~Sales~~ As part of an overall effort to stabilize greyhound racing efforts in Texas, the Texas Racing Commission has approved, and ~~Operating~~Valley ~~Loss~~Race Park has agreed to voluntarily eliminate a 15-day meet scheduled to open in November 2009, refrain from holding live racing events in 2010, and return to live racing in the summer of 2011. The facility will continue simulcast operations. Accordingly, there will be a decline in Valley Race Park’s revenues in 2009 and continuing until live racing resumes at this facility.

Total sales for racing operations for the second quarter of 2009 improved $0.5 million, as compared to the prior year period. The improvement was the result of additional live racing and increased sponsorship revenues, offset by lower overall wagering levels. Total sales28 for the first six months of 2009 declined $4.0 million due the absence of live racing in early 2009 and lower overall wagering revenues. Operating results for the segment include recoveries from insurers for property damages and business interruption losses of $3.1 million and $4.5 million for the three months and six months ended June 30, 2009, respectively.

26Table of Contents

~~Table~~ The offollowing ~~Contents~~table presents selected operational and financial information for the three months and nine months ended September 30, 2009 and 2008, for the Company’s racing operations.

Other Items Not Directly Related to Industry Segments


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2009			2008			2009			2008
				(In millions of dollars)
Number of live racing days:
Sam Houston Race Park		26			30			54			77
Valley Race Park		—			—			70			71

Handle:
Sam Houston Race Park:
On-track handle	$	26.3		$	27.9		$	81.7		$	90.9
Off-track handle		6.1			6.4			9.5			79.1

Total	$	32.4		$	34.3		$	91.2		$	170.0


Valley Race Park:
On-track handle	$	3.2		$	3.4		$	13.2		$	13.2
Off-track handle		—			—			2.7			3.0

Total	$	3.2		$	3.4		$	15.9		$	16.2


Sales:
Sam Houston Race Park:
Gross pari-mutuel commissions	$	6.0		$	6.3		$	18.3		$	22.2
Concert revenues		1.1			3.3			2.2			4.1
Other revenues		2.8			2.6			5.9			6.4

Total		9.9			12.2			26.4			32.7

Valley Race Park:
Gross pari-mutuel commissions		0.8			0.7			3.2			3.1
Other revenues		0.1			0.1			0.7			0.7

Total		0.9			0.8			3.9			3.8

Total sales	$	10.8		$	13.0		$	30.3		$	36.5


Operating loss:
Sam Houston Race Park	$	(1.9	)	$	(3.5	)⁽¹⁾	$	(1.8	)⁽²⁾	$	(6.6	)⁽¹⁾
Valley Race Park		(0.2	)		(0.2	)		(0.4	)		(0.5	)
Other		(0.1	)		(0.2	)		(0.2	)		(0.3	)

Total operating loss	$	(2.2	)	$	(3.9	)	$	(2.4	)	$	(7.4	)


Loss before income taxes	$	(2.2	)	$	(4.2	)	$	(2.4	)	$	(7.7	)

Corporate


⁽¹⁾		Includes a write-off of $1.3 million during the three months and nine months ended September 30, 2008 representing the estimated net book value of the property damaged or destroyed by Hurricane Ike (see Notes 3 and 14).

⁽²⁾		Includes an aggregate of $4.5 million of insurance recoveries during the nine months ended September 30, 2009 related to the damage at Sam Houston Race Park caused by Hurricane Ike (see Note 14).

	Three Months Ended June 30,						Six Months Ended June 30,
	2009			2008			2009			2008
	(In millions of dollars)
Revenue	$	-		$	2.9		$	-		$	2.9
Cost of goods sold		-			(4.1	)		-			(4.1	)
Loss on lumber sale		-			(1.2	)		-			(1.2	)
Corporate expenses, including legal fees		(2.2	)		(2.4	)		(6.6	)		(5.2	)
Settlement of Wilson actions		-			-			(4.0	)		-
Stock-based compensation		(0.5	)		3.4			0.3			1.6
Operating loss		(2.7	)		(0.2	)		(10.3	)		(4.8	)
Investment, interest and other income (expense)		(0.1	)		(2.0	)		(0.3	)		(4.8	)
Loss before income taxes	$	(2.8	)	$	(2.2	)	$	(10.6	)	$	(9.6	)

Sales and Operating Loss

~~Revenue~~ Total sales for racing operations for the third quarter of 2009 declined $2.2 million, as compared to the prior year period. The decline was primarily the result of a substantial reduction in the number of concerts held at Sam Houston Race Park, as compared to prior year. Total sales for the first nine months of 2009 declined $6.2 million due the absence of live racing in early 2009, lower overall wagering revenues and ~~Cost~~a reduction in the number of ~~Goods~~concerts ~~Sold~~held at Sam Houston Race Park. Operating results for the segment include recoveries from insurers for property damages and business interruption losses of $4.5 million for the nine months ended September 30, 2009.

Corporate revenue and cost of goods sold in 2008 resulted from the lumber sales to a third party described in Note 10. A $1.2 million loss was recognized on the transaction, representing the purchase price of $3.9 million less the cost of $5.1 million. There were no29 ~~Corporate revenues in 2009.~~

OperatingTable Lossof Contents

~~Corporate operating losses represent general and administrative expenses that are not specifically attributable to the Company’s industry segments and include stock-based compensation expense.~~ InOther ~~April~~Items ~~2009,~~Not ~~the~~Directly ~~Company~~Related ~~agreed~~ to ~~settle~~Industry ~~the Wilson~~Segments ~~actions. The Corporate segment’s operating losses for the six months ended June 30, 2009 include $6.2 million of additional defense and settlement costs related to these matters (see Note 9).~~

~~MGI~~ Corporate

	Three Months Ended June 30,								Six Months Ended June 30,
		Three Months Ended								Nine Months Ended
	2009				2008				2009				2008
		September 30,								September 30,
	(In millions of dollars)
		2009				2008				2009				2008
Operating loss		$	-			$	(0.5)			$	-			$	(1.0)
						(In millions of dollars)
Loss before income taxes			-				(0.5)				-				(1.0)
Revenue		$	—			$	2.4			$	—			$	5.3
Cost of goods sold			—				(1.0	)			—				(5.1	)
Income from lumber sale			—				1.4				—				0.2
Corporate expenses, excluding costs related to Wilson actions			(2.8	)			(1.2	)			(5.7	)			(6.4	)
Costs related to Wilson actions and related matters			(0.1	)			(8.1	)			(7.8	)			(8.1	)
Stock-based compensation			0.1				4.4				0.4				6.0
Operating loss			(2.8	)			(3.5	)			(13.1	)			(8.3	)
Investment, interest and other income (expense)			0.4				(0.1	)			0.1				(4.9	)
Loss before income taxes		$	(2.4	)		$	(3.6	)		$	(13.0	)		$	(13.2	)
Revenue and Cost of Goods Sold
Corporate revenue and cost of goods sold in 2008 resulted from a non-recurring lumber sale to a third party described in Note 10. A $0.2 million gain was recognized on the transaction, representing the purchase price of $5.3 million less the cost of $5.1 million.
Operating Loss
Corporate operating losses represent general and administrative expenses that are not specifically attributable to the Company’s industry segments and include stock-based compensation expense. In April 2009, the Company agreed to settle the Wilson actions. The Corporate segment’s operating losses for the nine months ended September 30, 2009 include $6.2 million of additional defense and settlement costs related to these matters (see Note 9).
MGI
		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2009				2008				2009				2008
						(In millions of dollars)
Operating loss		$	—			$	(0.4	)		$	—			$	(1.4	)
Loss before income taxes			—				(0.4	)			—				(1.4	)

Operating Loss

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

Financial Condition and Investing and Financing Activities

This section contains statements which constitute “forward-looking statements” within the meaning of the PSLRA. See the second paragraph of this Item 2 for cautionary information with respect to such forward-looking statements.

Overview

The Company conducts its operations primarily through its subsidiaries. Certain of the Company’s subsidiaries have secured creditors and those creditors have priority with respect to certain assets and the earnings of such subsidiaries over the claims of general unsecured ~~creditors~~ creditors of the Company and future claimants.

~~Cash~~ Significant ~~Flow~~amounts of cash have been required in recent periods to support the operating and capital needs of the Company’s subsidiaries and to defend the Company against two lawsuits related to the Company’s former forest

~~The following table summarizes certain data related to the financial condition, investing activities and financing activities of the Company, for the periods presented.~~30

27Table of Contents

~~Table~~products subsidiaries (which were settled in the first half of 2009). ~~Contents~~The Company’s unrestricted cash, cash equivalents and marketable securities balance declined from $63.6 million at December 31, 2008 to $29.8 million at September 30, 2009. The Company anticipates that it will continue to experience negative cash flows and declining liquidity in future periods. In addition, the Company has material uncertainties as a result of the Bankruptcy Cases (see Note 10). The unaudited condensed consolidated financial statements do not include any adjustments that may result from the outcome of these uncertainties.

	Real Estate			Racing			MGI		Corporate			Total
	(In millions of dollars)
Debt and credit facilities (excluding intercompany notes)
Short-term borrowings and current maturities of long-term debt:
June 30, 2009	$	6.1		$	0.2		$	-	$	-		$	6.3
December 31, 2008		5.9			0.2			-		-			6.1
Long-term debt, excluding current maturities and discounts:
June 30, 2009	$	203.0		$	0.6		$	-	$	-		$	203.6
December 31, 2008		205.0			0.7			-		-			205.7
Cash, cash equivalents, marketable securities and other investments
June 30, 2009
Current restricted amounts	$	-		$	0.4		$	-	$	1.0		$	1.4
Other current amounts		3.6			3.7			-		25.7			33.0
		3.6			4.1			-		26.7			34.4
Long-term unrestricted investments		-			-			-		1.9			1.9
Long-term restricted amounts		2.0			-			-		2.1			4.1
	$	5.6		$	4.1		$	-	$	30.7		$	40.4
Changes in cash and cash equivalents
Capital expenditures for the six months ended:
June 30, 2009	$	0.1		$	3.5		$	-	$	-		$	3.6
June 30, 2008		0.5			1.6			-		-			2.1
Net proceeds from dispositions of property and investments for the six months ended:
June 30, 2009	$	-		$	-		$	-	$	-		$	-
June 30, 2008		-			-			-		-			-
Borrowings (repayments) of debt and credit facilities, net of financing costs, for the six months ended:
June 30, 2009	$	(1.8	)	$	(0.1	)	$	-	$	-		$	(1.9	)
June 30, 2008		(2.5	)		-			-		-			(2.5	)
Dividends, advances (including interest paid) and tax sharing payments received (paid) for the six months ended:
June 30, 2009	$	4.0		$	-		$	-	$	(4.0	)	$	-
June 30, 2008		6.6			4.0			-		(10.6	)		-

The Company believes that its cash and other resources will be sufficient to fund its working capital requirements for the next twelve months. However, due to existing market conditions, there are uncertainties with respect to future liquidity. The Company has implemented cost reduction initiatives and is continuing efforts to reduce overhead and discretionary spending, as appropriate. As part of these overall cost reduction efforts, the Company is seeking to eliminate over $1.5 million per year of cash expenses, currently incurred on a recurring basis in complying with SEC reporting and related requirements, by reducing the number of record holders of our Common Stock to below 300 through the Reverse Stock Split (see “–MAXXAM Parent” below). The Company has also explored alternative ways to increase cash, such as marketing its commercial lease properties and seeking capital partners for some of its projects. To date, these efforts have not been successful.

2831

~~Operating~~ Cash ~~Activities~~Flow

The ~~Company~~following ~~used~~table ~~$23.8~~summarizes ~~million~~certain ofdata ~~cash for operations during the six months ended June 30, 2009, primarily reflecting continued weak real estate markets and $13.6 million in cash payments~~ related to the ~~Wilson~~financial ~~actions. In April 2009~~condition, ~~the~~investing activities ~~Company~~and ~~agreed~~financing toactivities ~~settle the Wilson actions (see Note 9). For the first six months~~ of ~~2009, there were no sales of real estate;~~ the Company, ~~expects~~for the ~~limited~~periods ~~demand for real estate to continue for some time~~presented. ~~The Company is continuing efforts to reduce overhead and discretionary spending as appropriate.~~

Cash used for operating activities of $17.1 million for the six months ended June 30, 2008 primarily reflected limited demand for real estate in Puerto Rico and Arizona and cash used to purchase lumber and logs from Palco. These purchases provided Palco with financing in 2008.


	Real Estate			Racing			MGI		Corporate			Total
				(In millions of dollars)
Debt and credit facilities (excluding intercompany notes)
Short-term borrowings and current maturities of long-term debt:
September 30, 2009	$	6.2		$	0.1		$	—	$	—		$	6.3
December 31, 2008		5.9			0.2			—		—			6.1

Long-term debt, excluding current maturities and discounts:
September 30, 2009	$	202.0		$	0.6		$	—	$	—		$	202.6
December 31, 2008		205.0			0.7			—		—			205.7

Cash, cash equivalents, marketable securities and other investments
September 30, 2009
Current restricted amounts	$	0.1		$	0.4		$	—	$	1.0		$	1.5
Other current amounts		2.9			2.1			—		22.9			27.9

		3.0			2.5			—		23.9			29.4


Long-term unrestricted investments		—			—			—		1.9			1.9
Long-term restricted amounts		1.2			—			—		2.1			3.3

	$	4.2		$	2.5		$	—	$	27.9		$	34.6


Changes in cash and cash equivalents

Capital expenditures for the nine months ended:
September 30, 2009	$	0.2		$	3.6		$	—	$	—		$	3.8
September 30, 2008		0.7			1.7			—		—			2.4

Net proceeds from dispositions of property and investments for the nine months ended:
September 30, 2009	$	—		$	—		$	—	$	—		$	—
September 30, 2008		—			—			—		—			—

Borrowings (repayments) of debt and credit facilities, net of financing costs, for the nine months ended:
September 30, 2009	$	(2.7	)	$	(0.1	)	$	—	$	—		$	(2.8	)
September 30, 2008		(3.7	)		(0.1	)		—		—			(3.8	)
Dividends, advances (including interest paid) and tax sharing payments received (paid) for the nine months ended:
September 30, 2009	$	4.8		$	—		$	—	$	(4.8	)	$	—
September 30, 2008		8.6			6.0			—		(14.6	)		—

~~Investing Activities~~32

NetTable cash of $15.6 million used for investing activities for the six months ended June 30, 2009, reflects continued capital expenditures at Sam Houston Race Park to repair the damage caused by Hurricane Ike, investments in marketable securities and the purchase of a certificate of deposit that secures a letter of credit required in connection with the Company’s liability insurance policies (see Note 6). Net cash of $27.5 million provided by investing activities for the six months ended June 30, 2008, primarily reflects net sales of short-term investments.Contents

~~Financing~~ Operating Activities

~~Net~~ The ~~cash~~Company ofused $129.8 2 million ~~used~~of cash for ~~financing~~operations ~~activities~~during in the ~~six~~nine months ended ~~June~~ September 30, 2009, ~~reflects~~reflecting ~~scheduled~~$13.6 million in cash payments onrelated ~~long~~to ~~term~~the ~~debt~~Wilson actions and ~~additional~~continued operating ~~borrowings~~losses ~~under~~at the ENCompany’s ~~Facility~~subsidiaries. ~~for~~ For the ~~construction~~first nine months of ~~two~~2009, ~~homes~~there ~~(see~~were ~~Note~~no sales 6)of real estate lots or parcels; the Company expects the limited demand for real estate to continue for some time. ~~Net~~ ~~cash~~The ofCompany ~~$22~~is continuing efforts to reduce overhead and discretionary spending, as appropriate.2 ~~million~~The real estate segment used ~~for financing~~cash ~~activities~~of in$7.5 million, the ~~six~~racing ~~months~~segment used ~~ended~~cash ~~June~~of 30$3.4 million, ~~2008,~~and ~~reflects~~Corporate ~~scheduled~~used ~~payments~~cash onof ~~long~~$18.3 million ~~term~~during ~~debt~~the ~~and~~first ~~treasury~~nine ~~stock~~months ~~purchases~~of 2009.

~~MAXXAM~~ During ~~Parent~~the nine months ended September 30, 2008, the Company’s operations used cash of $23.9 million. Operating cash flows during 2008 were negatively impacted by weak real estate markets and a decline in investments resulting from overall weak financial market conditions. The real estate segment used cash of $9.8 million, the racing segment used cash of $5.2 million and Corporate used cash of $8.9 million during the first nine months of 2008.

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

At Net ~~June 30, 2009, MAXXAM Parent had no external debt and had unrestricted~~ cash, ~~cash equivalents and marketable securities~~ of $2717.6 2 million~~. MAXXAM~~ ~~Parent~~used ~~believes~~for ~~that~~investing ~~its~~activities ~~cash and other resources will be sufficient to fund its currently estimated working capital requirements~~ for the ~~next~~nine ~~twelve~~ months~~. With~~ ~~respect~~ended toSeptember 30, ~~long-term liquidity~~2009, ~~MAXXAM~~reflects ~~Parent~~continued ~~believes~~capital ~~that~~expenditures ~~its~~at ~~existing~~Sam ~~cash~~Houston ~~and~~Race ~~other~~Park ~~resources~~to ~~will~~repair bethe ~~sufficient~~damage caused toby ~~meet~~Hurricane ~~its~~Ike, ~~long-term~~investments ~~working~~in ~~capital~~marketable ~~requirements. However,~~securities and the ~~Company~~purchase ~~has~~of ~~material~~a ~~uncertainties~~certificate asof deposit that secures a ~~result~~letter of ~~the~~credit ~~Bankruptcy~~required ~~Cases~~in ~~(see~~connection ~~Note~~with ~~10). Additionally,~~ the Company’s ~~subsidiaries~~liability insurance ~~continue~~policies to(see ~~incur~~Note ~~operating~~6). ~~losses~~Net ascash aof ~~result~~$32.0 million ofprovided ~~current~~by ~~economic~~investing ~~conditions. The~~activities for ~~Company~~the isnine ~~continuing~~months ~~efforts~~ended toSeptember 30, ~~reduce~~2008, ~~overhead~~primarily ~~and~~reflects ~~discretionary~~sales ~~spending~~of asthe ~~appropriate~~Company’s short-term investments.

~~Although~~ Financing there are no restrictions on the Company’s ability to pay dividends on its capital stock, the Company has not paid any dividends for a number of years and has no present intention to do so. In March 2008, MAXXAM Parent purchased 687,480 shares of its CommonActivities Stock from two institutional holders in a privately negotiated transaction for an aggregate price of $20.1 million. The Company may from time to time purchase additional shares of its Common Stock on national exchanges or in privately negotiated transactions.

~~Real~~ Net ~~Estate~~cash ~~Operations~~of $2.7 million used for financing activities in the nine months ended September 30, 2009, reflects scheduled payments on long term debt and additional borrowings under the EN Facility for the construction of two homes (see Note 6). Net cash of $23.5 million used for financing activities in the nine months ended September 30, 2008, reflects scheduled payments on long term debt and treasury stock purchases.

~~At June 30, 2009, the real estate segment had unrestricted cash, cash equivalents and marketable securities and other investments of $3.6 million.~~ ~~As a result of a continued weak real estate market, during the second quarter of 2009, its Fountain Hills development borrowed $1.5 million from~~ MAXXAM Parent to improve its working capital position. Management of the Company’s real estate operations believes that additional advances from MAXXAM Parent will be required at the Fountain Hills and Mirada developments over the next year. In addition, PDMPI and its subsidiaries have previously required substantial advances from MAXXAM Parent to help fund their operations, and PDMPI and its subsidiaries are expected to again require advances over the next year. With respect to the segment’s long-term liquidity, real estate management believes that the ability to generate cash from the sale of existing assets, together with the ability to obtain external financing and joint venture partners, should provide sufficient funds to meet its long-term working capital and capital expenditure requirements.

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

~~Table~~ At September 30, 2009, MAXXAM Parent had no external debt and had unrestricted cash, cash equivalents and marketable securities of ~~Contents~~$24.8 million. MAXXAM Parent believes that its cash and other resources will be sufficient to fund its currently estimated working capital requirements for the next twelve months. With respect to long-term liquidity, there can be no assurance that MAXXAM Parent’s existing cash and other resources will be sufficient to meet its long-term working capital requirements. The Company has material uncertainties as a result of the Bankruptcy Cases (see Note 10). Additionally, the Company’s subsidiaries continue to incur operating losses as a result of current economic conditions. The Company is continuing its efforts to reduce overhead and discretionary spending as appropriate. The Company has also explored alternative ways to increase cash, such as marketing its commercial lease properties and seeking capital partners for some of its projects. To date, these efforts have not been successful.

~~Capital~~ Although ~~expenditures~~there ~~and~~are ~~real~~no ~~estate~~restrictions ~~improvement~~on ~~and~~the ~~development~~Company’s ~~costs~~ability ~~for~~to ~~current~~pay ~~projects~~dividends ~~were~~on ~~$2.4~~its ~~million~~capital stock, ~~for~~ the ~~first~~Company ~~six~~has ~~months~~not ofpaid ~~2009~~any ~~and~~dividends ~~are~~for ~~expected~~a tonumber beof ~~between~~years ~~approximately~~and ~~$1.0~~has ~~million~~no ~~and~~present $1intention to do so.5 ~~million~~In ~~for~~March 2008, ~~the~~MAXXAM ~~remainder~~Parent ofpurchased ~~2009~~687,480 ~~related~~shares ~~primarily~~of toits ~~continued~~Common ~~development and~~Stock ~~construction~~from ~~costs~~two institutional holders in ~~the~~a ~~Company’s~~privately ~~Eagles~~negotiated ~~Nest~~transaction ~~development~~for inan ~~Fountain~~aggregate ~~Hills. Subject~~price toof ~~available~~$20.1 million. ~~resources,~~The ~~the~~ Company’s ~~real~~may ~~estate~~from ~~segment~~time ~~may~~to time purchase additional ~~properties~~shares ~~and/or~~of ~~seek~~its ~~other~~Common ~~investment~~Stock ~~opportunities~~on national ~~from~~exchanges ~~time~~or toin ~~time~~privately asnegotiated ~~appropriate opportunities arise~~transactions.

~~Racing~~ As ~~Operations~~part of its cost reduction efforts, the Company is seeking to complete the Reverse Stock Split, a proposed 1-for-250 reverse stock split of the Company’s Common Stock and Class A Preferred Stock. If the Reverse Stock Split is consummated, the Company would purchase an estimated 160,000 shares (approximately 3.5%) of its outstanding Common Stock and an estimated 2,100 shares (approximately 0.3%) of its outstanding Class A

At June 30, 2009, the racing segment had unrestricted cash, cash equivalents and other investments of $3.7 million. Capital expenditures for racing operations were $3.5 million for the first six months of 2009. Additional capital expenditures are planned, but the33 amount cannot be determined until the insurance claim is resolved (see Note 14). SHRP has previously required advances from MAXXAM Parent to help fund the operations and capital expenditures of Sam Houston Race Park and Valley Race Park. SHRP’s management expects that it will require additional advances from MAXXAM Parent to help fund its operations and capital expenditures in the future. SHRP is experiencing strong competition from Internet wagering and racinos in surrounding states. Absent favorable gaming legislation, SHRP management expects these factors to continue to adversely affect SHRP’s liquidity.

SubjectTable toof available resources, the Company’s racing segment may purchase additional properties and/or seek to expand its operations as appropriate opportunities arise.Contents

~~MGI~~Preferred Stock. The Company estimates the total funds required to consummate the Reverse Stock Split, including expenses, will be $2.4 million (excluding any costs arising from litigation related to the Reverse Stock Split – see “Shareholder Litigation” in Note 9). The Company intends to fund the Reverse Stock Split using cash and cash equivalents on hand. The final costs may be higher or lower than this estimate.

AtReal ~~June~~Estate 30, 2009, MGI had minimal cash and cash resources. See Note 10 regarding potential adverse impacts of the Bankruptcy Cases. No assurance can be given that MGI will have sufficient cash resources toOperations ~~satisfy its obligations, including any arising out of the Bankruptcy Cases.~~

~~Off~~ At September 30, 2009, the real estate segment had unrestricted cash, cash equivalents and marketable securities and other investments of $2.9 million and real estate management is continuing to reduce overhead and discretionary spending as appropriate. The Company has also explored alternative ways to increase cash, such as marketing its commercial lease properties and seeking capital partners for some of its projects. To date, these efforts have not been successful. MAXXAM Parent provided advances totaling $4.8 million and $8.6 million to its real estate subsidiaries during the nine months ended September 30, 2009 and 2008, respectively. Management of the Company’s real estate operations believes that additional advances from MAXXAM Parent will be required to operate over the next year if market conditions do not improve. With respect to the segment’s long-~~Balance~~term ~~Sheet~~liquidity, ~~Arrangements~~real estate management believes that the ability to generate cash from the sale of existing assets, together with the ability to obtain external financing and joint venture partners, should provide sufficient funds to meet its long-term working capital and capital expenditure requirements.

~~The~~ As ~~Company~~discussed ~~does~~further in Note 6, PCCI continues to experience operational cash flow shortfalls and anticipates it will not have ~~any~~sufficient ~~off-balance~~operational ~~sheet~~cash ~~financing,~~flows ~~other~~to ~~than~~pay ~~operating~~its ~~leases~~debt ~~entered~~obligations. PCCI ~~into~~is engaged in ~~the~~discussions ~~normal~~with ~~course~~TDF ofin ~~business. The~~an ~~Company~~effort ~~does~~to ~~not~~obtain ~~use~~additional ~~derivatives~~financing ~~for~~to ~~any~~enable ofPCCI to ~~its~~continue ~~treasury~~as ora ~~risk~~going ~~management~~concern. ~~activities~~There can be no assurance PCCI will be successful in these efforts.

~~Trends~~ Racing Operations

~~Real~~ At ~~Estate~~September 30, ~~Operations~~2009, the racing segment had unrestricted cash, cash equivalents and other investments of $2.1 million. Capital expenditures for racing operations of $3.6 million for the first nine months of 2009 relate primarily to repairs to the Sam Houston Race Park facility due to Hurricane Ike. SHRP’s management expects that its cash flows from operations will be sufficient to fund its operations and capital expenditures in the future, but has previously required advances from MAXXAM Parent to help fund its operations. SHRP is experiencing strong competition from Internet wagering and racinos in surrounding states. Absent favorable gaming legislation, SHRP management expects these factors to continue to adversely affect SHRP’s liquidity.

~~The~~ Subject to available resources, the Company’s ~~real~~racing ~~estate~~ segment ismay ~~engaged~~purchase ~~in marketing and sales programs of varying magnitudes at its real estate developments and investment~~ additional properties~~. The~~ ~~Company intends to continue selling undeveloped acreage~~ and/or ~~semi-developed~~seek ~~parcels, generally~~ to ~~builders and~~expand ~~developers,~~its ~~and~~operations ~~fully~~as ~~developed~~appropriate ~~lots~~opportunities ~~to individuals and builders~~arise.

In 2005 and 2006, the Company’s real estate operations realized substantial revenues related to sales at the Company’s Fountain Hills (located near Phoenix, Arizona), Mirada (located in California) and Palmas (located in Puerto Rico) real estate developments. Commencing inMGI 2007 and continuing through 2008 and into 2009, there have been significant declines in real estate demand in areas where the Company operates, due primarily to general economic recessions in Puerto Rico and in the United States. The economic recession has particularly affected the Company’s real estate business as its real estate developments are predominately second home or seasonal home communities and it will likely take longer for these markets to recover. The Company has had no real estate sales since June 2008 and the Company anticipates demand for its real estate will continue to be adversely affected for some time.

~~There~~ At ~~has~~September 30, ~~also~~2009, ~~been~~MGI ahad ~~steady~~minimal ~~decline~~cash inand ~~resort~~cash ~~revenues~~resources. atSee ~~the~~Note ~~Company’s~~10 ~~Palmas~~regarding potential ~~development~~adverse ~~(located~~impacts inof ~~Puerto~~the ~~Rico)~~Bankruptcy ~~attributable~~Cases. toNo ~~lower~~assurance ~~member~~can ~~spending~~be ~~and~~given athat ~~high~~MGI ~~member~~will ~~attrition~~have sufficient ~~rate,~~cash ~~reflecting~~resources ~~the~~to ~~impact~~satisfy ofits ~~the~~obligations, ~~economic~~including ~~recession~~any inarising ~~Puerto~~out ~~Rico~~of the Bankruptcy Cases.

~~The~~Off-Balance ~~real~~Sheet ~~estate segment may, subject to available resources, purchase additional properties and/or seek other investment ventures as appropriate opportunities arise.~~Arrangements

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

~~Table of Contents~~Trends

~~Racing~~ Real Estate Operations

The Company’s ~~has~~real inestate ~~the~~segment ~~past~~is ~~and~~engaged ~~intends to continue to vigorously pursue Texas gaming legislation favorable to it. The regular session of the Texas Legislature that ended~~ in ~~May~~marketing ~~2009~~and ~~did~~sales ~~not~~programs ~~result in legislation that enhances state revenues through additional forms~~ of ~~gaming. Nor~~varying ~~was~~magnitudes ~~any~~at ~~such~~its ~~legislation~~real ~~introduced~~estate indevelopments aand ~~later~~investment ~~special legislative session~~properties. The ~~next~~Company ~~opportunity~~intends ~~for~~to continue ~~approval~~its ofefforts ~~such legislation will be during the regular session of the Texas Legislature that begins in January 2011 or any special legislative session that might be held prior~~ to ~~January~~sell ~~2011. As~~undeveloped ~~some~~acreage ~~legislation~~and ~~may require the approval of two~~semi-~~thirds~~developed ofparcels, ~~each~~generally ~~legislative~~to ~~house~~ builders and ~~a majority of the Texas voters~~developers, noand ~~assurance~~fully ~~can~~developed belots ~~given that any such legislation will be enacted or become effective. Moreover, it is impossible~~ to ~~determine~~individuals ~~what~~and ~~the provisions of any such legislation would be or whether the Company would be advantaged or disadvantaged by any such legislation~~builders.

A subsidiary of the Company, Laredo LLC, has been awarded a license to construct and operate a Class 2 horse racing facility in Laredo, Texas. As a condition of the award, Laredo LLC was required to comply with certain requirements, including to host simulcast racing no later34 than July 15, 2009 and to host live racing on a date to be determined by the Racing Commission, which will be no earlier than July 1, 2009. If these conditions are not met, Laredo LLC may be subject to daily fines. Although Laredo LLC has not yet begun hosting simulcast racing, no fines have been assessed to date.

SubjectTable toof available resources, the Company’s racing segment may purchase additional properties and/or seek to expand its operations as appropriate opportunities arise.Contents

~~Critical~~ The ~~Accounting~~real ~~Policies~~estate segment may also, subject to available resources, purchase additional properties and/or ~~Estimates~~seek other investment ventures as appropriate opportunities arise. Additionally, the Company is seeking capital partners for some of its projects.

~~See~~ Sales ~~Item~~by 7the Company’s real estate subsidiaries have fallen off dramatically since 2005. ~~“Management~~ In 2005 and 2006, the Company’s ~~Discussion~~real estate operations realized substantial revenues related to sales at the Company’s Fountain Hills (located near Phoenix, Arizona), Mirada (located in California) and Palmas ~~Analysis~~(located ofin ~~Financial~~Puerto ~~Condition~~Rico) real estate developments. Commencing in 2007 and ~~Results~~continuing ofthrough 2008 ~~Operations–Critical~~and ~~Accounting~~into ~~Policies~~2009, there have been significant declines in real estate demand in areas where the Company operates, due primarily to general economic recessions in Puerto Rico and ~~Estimates”~~in ofthe United States. Property sales revenues fell from $147.6 million for the ~~Form~~year ~~10-K~~ended December 31, 2005 to $6.0 million for athe ~~discussion~~year ofended December 31, 2008, and the Company’s ~~critical~~has ~~accounting~~had ~~policies~~no property sales since June of 2008. There ~~have~~ has also been noa ~~material~~steady ~~changes~~decline toin resort revenues at the Company’s ~~critical~~Palmas development ~~accounting~~attributable to lower member spending and ~~estimation~~a ~~policies~~high ~~addressed~~member inattrition ~~Item~~rate, 7reflecting the impact of the ~~Form~~economic ~~10-K~~recession in Puerto Rico. Moreover, the Company does not foresee any near term recovery for that business, particularly since the Company’s real estate developments are primarily second home or seasonal home communities in Phoenix, Arizona and Puerto Rico and those markets are expected to be slow to recover.

~~New~~ Racing ~~Accounting Pronouncements~~Operations

~~Effective~~ The ~~Date~~Company has in the past and intends to continue to vigorously pursue Texas gaming legislation favorable to it. The regular session of ~~FASB~~the ~~Statement~~Texas NoLegislature that ended in May 2009 did not result in such gaming legislation. ~~157~~Nor was any such legislation introduced in a later special legislative session. The next opportunity for approval of such legislation will be during the regular session of the Texas Legislature that begins in January 2011 or any special legislative session that might be held prior to January 2011. There is no way for the Company to predict if favorable Texas gaming legislation will ever be enacted.

In A ~~February~~subsidiary ~~2008,~~of the ~~FASB~~Company, ~~issued~~Laredo ~~FSP~~LLC, ~~No.~~has ~~SFAS~~been ~~157-~~awarded a license to construct and operate a Class 2, ~~Effective~~horse ~~Date~~racing offacility ~~FASB~~in ~~Statement~~Laredo, NoTexas. ~~157,~~As ~~which~~a ~~delays~~condition of the ~~effective~~award, ~~date~~Laredo ofLLC ~~SFAS~~was required ~~No.~~to ~~157~~comply towith ~~January~~certain 1requirements, ~~2009,~~including ~~for~~to ~~all~~host ~~nonfinancial~~simulcast ~~assets~~racing ~~and~~no ~~nonfinancial~~later ~~liabilities,~~than ~~except~~July ~~for~~15, ~~items~~2009 ~~that~~and ~~are~~to ~~recognized~~host orlive ~~disclosed~~racing aton ~~fair~~a ~~value~~date into be determined by the ~~financial~~Racing ~~statements~~Commission, onwhich awill ~~recurring~~be no ~~basis~~earlier ~~(at~~than ~~least~~July 1, ~~annually)~~2009. ~~The~~ ~~adoption~~If ofthese ~~the~~conditions ~~delayed~~are ~~items~~not ofmet, ~~SFAS~~Laredo NoLLC may be subject to daily fines. ~~157~~Although ~~did~~Laredo LLC has not ~~have~~yet abegun ~~material~~hosting ~~impact~~simulcast onracing, ~~the~~no ~~Company’s~~fines ~~consolidated~~have ~~financial~~been ~~statements~~assessed to date.

~~Determining~~ Subject to available resources, the ~~Fair~~Company’s ~~Value~~racing ofsegment amay ~~Financial~~purchase ~~Asset~~additional properties ~~When~~and/or seek to expand its operations as appropriate opportunities arise. Additionally, the ~~Market~~Company ~~for~~is ~~That~~seeking ~~Asset~~capital Ispartners ~~Not~~for ~~Active~~some of its projects.

InCritical ~~October~~Accounting ~~2008,~~Policies the FASB issued FSP SFAS No. 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active. This position clarifies the application of SFAS No. 157, Fair Value Measurements, in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. It also reaffirms the notion of fair value as an exit price as of the measurement date. This position was effective upon issuance, including prior periods for which financial statements had not yet been issued. The Company’s adoption of FSP SFAS No. 157-3 had no impact on the Company’sEstimates ~~consolidated financial statements.~~

~~Determining~~ See ~~Fair~~Item 7. ~~Value~~“Management’s ~~When~~Discussion ~~the~~and ~~Volume~~Analysis of Financial Condition and ~~Level~~Results of Operations–Critical ~~Activity~~Accounting Policies and Estimates” of the Form 10-K for a discussion of the Company’s ~~Asset~~critical oraccounting ~~Liability~~policies. ~~Have~~There ~~Significantly~~have ~~Decreased~~been no material changes to the Company’s critical accounting and ~~Identifying~~estimation ~~Transactions~~policies ~~That~~addressed ~~Are~~in ~~Not~~Item 7 ~~Orderly~~of the Form 10-K.

InNew ~~April~~Accounting 2009, the FASB issued FSP SFAS No. 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly. ThisPronouncements position clarifies the application of SFAS No. 157, Fair Value Measurements, in a market where transactions are not orderly and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not orderly. This position was effective upon issuance, including prior periods for which financial statements had not yet been issued. The Company’s adoption of FSP SFAS No. 157-4 had no impact on the Company’s consolidated financial statements.

31 In February 2008, the FASB delayed until January 1, 2009 the effective date of amended guidance regarding determination of the fair value of all nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The adoption of these delayed items did not have a material impact on the Company’s consolidated financial statements.

~~Table~~ In October 2008, the FASB issued guidance clarifying the application of ~~Contents~~fair value in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. It also reaffirms the notion of fair value as an exit price as of the measurement date. This guidance was effective upon issuance, including prior periods for which financial statements had not yet been issued. The Company’s adoption of this guidance had no impact on the Company’s consolidated financial statements.

~~Recognition and Presentation of Other-Than-Temporary Impairments~~35

InTable April 2009, the FASB issued FSP No. SFAS 115-2 and SFAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments, which provides new guidance on the recognition of other-than-temporary impairments of investments in debt securities and provides new presentation and disclosure requirements for other-than-temporary impairments of investments in debt and equity securities. FSP SFAS No. 115-2 is effective for the three months ending June 30, 2009. The Company’s adoption of FSP SFAS No. 115-2 had no impact on the Company’s consolidated financial statements.Contents

~~Interim~~ In ~~Disclosures~~April 2009, ~~about~~the ~~Fair~~FASB ~~Value~~issued guidance on determining fair value when the volume and level of activity ~~Financial~~for ~~Instruments~~an asset or liability has significantly decreased, and in identifying transactions that are not orderly. Based on the guidance, if an entity determines that the level of activity for an asset or liability has significantly decreased and that a transaction is not orderly, further analysis of transactions or quoted prices is needed, and a significant adjustment to the transaction or quoted prices may be necessary to estimate fair value. This guidance was effective upon issuance, including prior periods for which financial statements had not yet been issued. The Company’s adoption of this guidance during the second quarter of 2009 had no impact on the Company’s consolidated financial statements.

In April 2009, the FASB issued ~~FSP~~new ~~No. SFAS~~guidance ~~107-1~~on ~~and~~the ~~APB~~recognition ~~28-1, Interim Disclosures about Fair Value~~ of ~~Financial Instruments. FSP SFAS No. 107~~other-~~1 amends SFAS No. 107, Disclosures~~than-temporary ~~about~~impairments ~~Fair Value~~ of ~~Financial~~investments ~~Instruments,~~in todebt ~~require~~securities ~~disclosures~~and ~~about~~provides ~~fair~~new ~~value~~presentation ofand ~~financial~~disclosure requirements ~~instruments~~for inother-than-temporary ~~interim~~impairments ~~reporting~~of ~~periods. Such~~investments ~~disclosures were previously required only~~ in ~~annual~~debt ~~financial~~and ~~statements. FSP~~equity ~~SFAS No~~securities. This ~~107-1~~guidance iswas effective for the three months ending June 30, 2009~~. Because~~ ~~FSP~~and ~~SFAS~~had ~~No.~~no ~~107-1~~impact ~~applies only to financial statement disclosures, adoption did not have a material effect~~ on the Company’s consolidated financial statements.

~~Business~~ In ~~Combinations~~April 2009, the FASB issued guidance to require disclosures about fair value of financial instruments in interim reporting periods. Such disclosures were previously required only in annual financial statements. This guidance was effective for the three months ending June 30, 2009 and because this guidance applies only to financial statement disclosures, adoption did not have an impact on the Company’s consolidated financial statements.

In December 2007, the FASB issued ~~SFAS~~amended ~~No. 141(R)~~guidance ~~(revised~~regarding ~~2007)~~business combinations, ~~Business~~which ~~Combinations. SFAS~~was required ~~No.~~to ~~141(R)~~be ~~replaces~~applied ~~FASB~~to ~~Statement~~business ~~No. 141,~~combinations ~~Business~~on ~~Combinations~~a prospective basis. ~~SFAS No.~~ ~~141(R)~~The ~~retains~~revised guidance requires that the ~~purchase~~acquisition method of accounting ~~used~~be inapplied ~~business~~to ~~combinations,~~a ~~but~~broader ~~replaces~~set ~~SFAS~~of ~~No.~~business combinations, ~~141~~amends bythe ~~establishing~~definition ~~principles~~of ~~and~~a ~~requirements~~business ~~for~~combination, ~~the~~provides ~~recognition~~a ~~and~~definition ~~measurement~~ of ~~assets~~a business, requires ~~liabilities~~an ~~and~~acquirer ~~goodwill,~~to ~~including~~recognize ~~the~~an ~~requirement~~acquired ~~that~~business ~~most~~at ~~transaction~~its ~~costs~~fair ~~and~~value ~~restructuring~~at ~~costs~~the beacquisition ~~expensed. In~~date and ~~addition,~~requires the ~~Statement~~assets ~~requires~~and ~~disclosures~~liabilities toassumed ~~enable~~in ~~users~~a tobusiness ~~evaluate~~combination ~~the~~to ~~nature~~be measured and recognized ~~financial~~at ~~effects~~their fair values as of the ~~business~~acquisition ~~combination. SFAS~~date ~~No. 141~~(Rwith limited exceptions). This guidance is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. ~~The~~ The Company adopted ~~SFAS~~this ~~No.~~guidance ~~141(R)~~ on January 1, 2009 for any acquisitions on or after such date.

~~Accounting~~ In April 2009, the FASB issued an amendment to the revised business combination guidance regarding the accounting for ~~Assets~~assets ~~Acquired~~acquired and ~~Liabilities~~liabilities ~~Assumed~~assumed in a ~~Business~~business ~~Combination~~combination ~~That~~that arise ~~Arise~~from contingencies. The requirements of this amended guidance carry forward without significant revision the guidance on contingencies which existed prior to January 1, 2009. Assets acquired and liabilities assumed in a business combination that arise from ~~Contingencies~~contingencies are recognized at fair value if fair value can be reasonably estimated. If fair value cannot be reasonably estimated, the asset or liability would generally be recognized in accordance with the Accounting Standards Codification (ASC) Topic 450 on contingencies. This guidance is effective beginning July 1, 2009, and will apply prospectively to business combinations completed on or after that date. The impact of the adoption of this guidance will depend on the nature of any acquisitions completed after the date of adoption.

In ~~April 2009~~December 2008, the FASB issued ~~FSP~~guidance ~~No.~~on ~~SFAS~~an ~~141(R)-1,~~employer’s ~~Accounting~~disclosures ~~for~~about ~~Assets~~plan ~~Acquired~~assets ~~and~~of ~~Liabilities Assumed in~~ a defined ~~Business~~benefit ~~Combination~~pension ~~That~~or ~~Arise~~other ~~from~~postretirement ~~Contingencies, which amends SFAS No~~plan. ~~141(R)~~This byguidance ~~establishing~~requires athe ~~model~~disclosure ~~to account for~~of ~~certain~~investment ~~pre-acquisition~~policies ~~contingencies. Under~~and ~~FSP No. SFAS 141(R)-1~~strategies, anmajor ~~acquirer~~categories isof ~~required~~plan toassets, ~~recognize at~~ fair value anmeasurement ~~asset acquired or a liability assumed in a business combination that arises from a contingency if the acquisition-date fair value~~ of that asset or liability can be determined during the measurement period. If the acquisition-date fair value cannot be determined, then the acquirer should follow the recognition criteria in SFAS No. 5, Accountingplan ~~for~~assets ~~Contingencies,~~ and ~~FASB~~significant ~~Interpretation~~concentration ~~No. 14, Reasonable Estimation~~ of ~~the~~credit ~~Amount of a Loss – an interpretation of FASB Statement No~~risks. ~~5. FSP~~This ~~SFAS~~guidance ~~No. 141(R)-1~~ is effective ~~beginning~~for ~~July~~fiscal 1years ending after December 15, 2009, and ~~will apply prospectively to business combinations completed on or after that date. The impact of~~ the ~~adoption~~Company ~~of and FSP SFAS 141(R)-1~~ will ~~depend~~adopt on the ~~nature~~new ofdisclosure ~~any~~requirements ~~acquisitions~~required by ~~completed~~this ~~after~~guidance in the ~~date~~fourth quarter of ~~adoption~~2009.

~~Employers’~~ In ~~Disclosures~~May 2009, ~~about~~the ~~Postretirement~~FASB ~~Benefit~~issued ~~Plan~~guidelines ~~Assets~~on subsequent event accounting which establishes general standards of accounting for, and disclosures of, events that occur after the balance sheet date but before the financial statements are issued or are available to be issued. It requires the disclosure of the date through which an entity has evaluated subsequent events. These guidelines were effective for interim and annual periods ending after June 15, 2009, and the Company adopted them in the second quarter of 2009. There was no impact on the Company’s consolidated financial statements.

In ~~December~~June ~~2008~~2009, the FASB issued ~~FSP~~guidance ~~SFAS~~making ~~No.~~the ~~132(R)-1,~~FASB ~~Employers’~~Accounting ~~Disclosures~~Standards ~~about~~Codification ~~Postretirement~~the single ~~Benefit~~source ~~Plan~~of ~~Assets. FSP~~authoritative ~~SFAS~~nongovernmental NoU.S. ~~132(R)-1~~GAAP. ~~amends~~The ~~FASB~~Codification ~~Statement~~is ~~No. 132~~not ~~(revised~~intended ~~2003), Employers’~~to ~~Disclosures~~change ~~about~~GAAP, ~~Pensions and Other Postretirement Benefits~~however, toit ~~provide~~will ~~guidance~~represent ~~on an employer’s disclosures about plan assets of~~ a ~~defined~~significant ~~benefit~~change ~~pension~~in orresearching ~~other~~issues ~~postretirement~~and ~~plan~~referencing U. ~~FSP SFAS No~~S. ~~132(R)-1~~GAAP ~~requires~~in ~~the~~financial ~~disclosures~~statements ~~of investment policies~~ and accounting ~~strategies, major categories of plan assets, fair value measurement of plan assets and significant concentration of credit risks~~policies. ~~FSP~~ ~~SFAS~~This ~~No.~~statement ~~132(R)-1~~was is effective for ~~fiscal~~financial ~~years~~statements ~~ending~~issued ~~after~~for ~~December 15,~~interim ~~2009. The~~and ~~Company~~annual ~~will adopt the new disclosure requirements of FSP SFAS No. 132(R)-1 in the fourth quarter of 2009.~~periods

3236

~~Subsequent~~ending ~~Events~~after September 15, 2009. The adoption of this guidance did not have an impact on the Company’s consolidated financial statements.

~~During~~ITEM ~~the second quarter of 2009, the Company adopted SFAS No~~3. ~~165,~~QUANTITATIVE ~~Subsequent~~AND ~~Events,~~QUALITATIVE ~~which~~DISCLOSURES ~~establishes~~ABOUT ~~general~~MARKET ~~standards of accounting for, and disclosures of, events that occur after the balance sheet date but before the financial~~RISK ~~statements are issued or are available to be issued. It requires the disclosure of the date through which an entity has evaluated subsequent events.~~

~~The~~ Not ~~FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles (“GAAP”) (as amended)~~required.

InITEM ~~June 2009, the FASB issued SFAS No~~4. ~~168,~~CONTROLS ~~The~~AND FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles (“GAAP”) (as amended). SFAS No. 168 makes the FASB Accounting Standards Codification the single source of authoritative nongovernmental U.S.PROCEDURES GAAP. The Codification is not intended to change GAAP, however, it will represent a significant change in researching issues and referencing U.S. GAAP in financial statements and accounting policies. This statement is effective for financial statements issued for interim and annual periods ending after September 15, 2009.

~~ITEM~~Disclosure ~~3. QUANTITATIVE~~Controls ~~AND~~and ~~QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~Procedures

~~Not~~ As ~~required~~of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

~~ITEM~~Changes ~~4. CONTROLS~~in ~~AND~~Internal ~~PROCEDURES~~Control Over Financial Reporting

~~Disclosure~~ There ~~Controls~~were ~~and~~no ~~Procedures~~material changes in the Company’s internal control over financial reporting during the quarter ended September 30, 2009 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures37 (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

ChangesTable inof Internal Control Over Financial ReportingContents

~~There~~PART ~~were~~II. noOTHER material changes in the Company’s internal control over financial reporting during the quarter ended June 30, 2009 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.INFORMATION

~~PART~~ITEM II1. ~~OTHER~~ ~~INFORMATION~~LEGAL PROCEEDINGS

~~ITEM~~ The 1information set forth in Note 9 is incorporated herein by reference. ~~LEGAL~~ ~~PROCEEDINGS~~Also see Note 10 for the status of the Debtors’ reorganization proceedings.

~~The~~ITEM ~~information set forth in Note 9 is incorporated herein by reference~~1A. ~~Also~~ ~~see~~RISK ~~Note 10 for the status of the Debtors’ reorganization proceedings.~~FACTORS

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

~~Part~~ The I,information ~~Item~~presented 1Abelow ofupdates, ~~the~~and ~~Form~~should ~~10-K~~be ~~contains~~read ~~important~~in ~~risk~~conjunction ~~factors~~with, ~~that could cause~~ the ~~Company’s~~other risk ~~actual~~factor ~~results~~information todisclosed ~~differ materially from those projected~~ in ~~any forward-looking statement. Additional risks and uncertainties not currently known or that are currently deemed immaterial may materially adversely impact our business~~Part I, ~~financial~~Item 1A ~~condition~~of orthe ~~operating~~Form ~~results~~10-K.

The ~~information~~Company ~~presented~~has ~~below~~revised ~~updates, and should be in read in conjunction with,~~ the ~~other~~second risk ~~factor~~under ~~information~~“Risks ~~disclosed~~Related into ~~Part~~Our I,Racing ~~Item~~Operations” 1Ato ofread as ~~the Form 10-K.~~follows:

Our two racing facilities would be able to increase their revenues, likely to a substantial degree, were additional forms of gaming to be allowed and implemented at our horse and dog racing tracks. The Company ~~has~~and ~~revised~~other industry participants have during prior regular and special sessions of the ~~second~~Texas ~~risk~~Legislature ~~under~~pursued ~~“Risks~~legislation ~~Related~~that would permit video lottery terminals at Texas tracks. None of these prior sessions resulted in the passage of such legislation. The regular session of the Texas Legislature that ended in May 2009 did not result in legislation that enhances state revenues through additional forms of gaming. Nor was any such legislation introduced in a later special legislative session. The next opportunity for approval of such legislation will be during the regular session of the Texas Legislature that begins in January 2011 or any special legislative session that might be held prior to ~~Our~~January 2011. ~~Racing~~As ~~Operations”~~some legislation may require the approval of two-thirds of each legislative house and a majority of the Texas voters, no assurance can be given that any such legislation will be enacted or become effective. Moreover, it is impossible to ~~read~~determine aswhat ~~follows:~~the provisions of any such legislation would be or what impact it would have on the Company.

~~Our two racing facilities would be able to increase their revenues, likely to a substantial degree, were additional forms of gaming to be allowed at our horse and dog racing tracks.~~ The Company ~~and~~has ~~other~~removed ~~industry participants have during prior regular and special sessions of~~ the ~~Texas~~first ~~Legislature~~risk ~~pursued~~under ~~legislation~~“Other ~~that~~Risk ~~would~~Factors” ~~permit~~as ~~video~~it ~~lottery~~related terminals at Texas tracks. None of these prior sessions resulted in the passage of such legislation. The regular session of the Texas Legislature that ended in May 2009 did not result in legislation that enhances state revenues through additional forms of gaming. Nor was any such legislation introduced in a later special legislative session. The next opportunity for approval of such legislation will be during the regular session of the Texas Legislature that begins in January 2011 or any special legislative session that might be held prior to ~~January 2011. As some legislation may require~~ the ~~approval of two-thirds of each legislative house and a majority of the Texas voters~~Wilson actions, nowhich ~~assurance can be given that any such legislation will be enacted or become effective. Moreover, it is impossible to determine what~~ the ~~provisions of any such legislation would be or whether the~~ Company ~~would be~~has ~~advantaged~~settled. orSee ~~disadvantaged~~Note ~~by any such legislation~~9.

33ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

~~Table~~ The ofCompany ~~Contents~~has not sold any securities during the past three years.

The Company ~~has~~did ~~removed~~not purchase any shares of its Common Stock during the ~~first~~three ~~risk~~months ~~under~~ended September 30, ~~“Other~~2009. ~~Risk~~The ~~Factors”~~Company asmay itfrom ~~related~~time to ~~the~~time ~~Wilson~~purchase ~~actions,~~additional ~~which~~shares ~~the~~of ~~Company~~its ~~agreed~~Common Stock toon ~~settle. See~~national ~~Note~~exchanges 9or in privately negotiated transactions.

~~ITEM~~ If the Reverse Stock Split is consummated, the Company would purchase an estimated 160,000 shares (approximately 3.5%) of its outstanding Common Stock and an estimated 2,100 shares (approximately 0. ~~UNREGISTERED~~3%) ~~SALES~~of OFits ~~EQUITY~~outstanding ~~SECURITIES~~Class A ~~AND~~Preferred ~~USE~~Stock. OFThe ~~PROCEEDS~~Company estimates the total funds required to consummate the Reverse Stock Split, including expenses, will be $2.4 million (excluding any costs arising from litigation related to the Reverse Stock Split – see “Shareholder Litigation” in Note 9). The Company intends to fund the Reverse Stock Split using cash and cash equivalents on hand. The final costs may be higher or lower than this estimate.

~~The Company has not sold any securities during the past three years.~~38

TheTable Company did not purchase any shares of its Common Stock during the three months ended June 30, 2009. The Company may from time to time purchase additional shares of its Common Stock on national exchanges or in privately negotiated transactions.Contents

ITEM 36. ~~DEFAULTS~~ ~~UPON SENIOR SECURITIES~~EXHIBITS

~~None~~ a. Exhibits:

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


* 31.1		Section 302 Certification of Chief Executive Officer

* 31.2		Section 302 Certification of Chief Financial Officer

* 32		Section 906 Certification of Chief Executive Officer and Chief Financial Officer

~~The~~* ~~annual~~Included ~~meeting~~with ofthis stockholders of the Company was held on May 27, 2009. At the meeting, the stockholders reelected Messrs. Cruikshank, Rosenberg, Rosenthal, Friedman and Levin as directors of the Company and approved amendments to the Company’s Executive Bonus Plan and its 2002 Omnibus Employee Incentive Plan. The results of the voting are shown below.filing

~~Nominees for Director~~39

TheTable nominees for election as directors of the Company are listed below, together with voting information for each nominee. Messrs. Charles E. Hurwitz and Shawn M. Hurwitz continued as directors of the Company.Contents

~~Nominees for Election by the Holders of Common Stock~~SIGNATURES

~~Robert~~ Pursuant J.to ~~Cruikshank~~the –requirements ~~4,258,757~~of ~~votes~~the ~~for~~Securities Exchange Act of 1934, 42the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized,~~456~~ ~~votes~~who ~~withheld~~has signed this report on behalf of the Registrant and ~~-0-~~as ~~broker~~the ~~non-votes~~principal financial and accounting officer of the Registrant, respectively.

Stanley D. Rosenberg – 4,258,876 votes for, 42,337 votes withheld and -0- broker non-votes.


	MAXXAM INC.
Date: November 16, 2009	By:	/S/ M. EMILY MADISON
		M. Emily Madison
		Vice President, Finance (Principal Accounting Officer and Principal Financial Officer)

~~Michael J. Rosenthal – 4,239,748 votes for, 61,465 votes withheld and -0- broker non-votes.~~40

NomineesTable for Election by the Holders of Common Stock and Class A Preferred StockContents

J.APPENDIX ~~Kent Friedman – 10,281,315 votes for, 693,078 votes withheld and -0- broker non-votes.~~A

~~Ezra~~Glossary G.of ~~Levin~~Defined ~~– 10,261,715 votes for, 712,678 votes withheld and -0- broker non-votes.~~Terms

~~Other~~Bankruptcy ~~Items~~Cases: The Chapter 11 proceedings of the Debtors

~~Proposal~~Bankruptcy toCode: ~~approve~~The anUnited ~~amendment~~States toBankruptcy ~~the Company’s Executive Bonus Plan~~Code

~~Proposal~~Bankruptcy –Court: ~~9,394,578~~The ~~votes~~United States Bankruptcy Court for, ~~258,467~~the ~~votes~~Southern ~~against~~District ~~and~~of 4Texas,~~027~~ ~~broker~~Corpus Christi ~~non-votes.~~Division

~~Proposal~~Beltway toAssets: ~~approve~~Beltway anAssets ~~amendment~~LLC, toan ~~the~~indirect ~~Company’s~~wholly ~~2002~~owned ~~Omnibus~~subsidiary ~~Employee~~of ~~Incentive~~the ~~Plan~~Company

~~Proposal~~Beltway –Notes: ~~9,343,938~~The ~~votes~~6.08% ~~for,~~notes ~~309,084~~of ~~votes~~Beltway ~~against~~Assets ~~and~~due ~~4,050~~in ~~broker non-votes.~~November 2024

~~ITEM~~Cave 6action: An action entitled Steve Cave, et al. ~~EXHIBITS~~ v. Gary Clark, et al. (No. DR020719) filed in the Superior Court of Humboldt County, California

~~a. Exhibits~~Class A Preferred Stock: The Company’s Class A $.05 Non-Cumulative Participating Convertible Preferred Stock

~~10.1~~Common ~~Amendment,~~Stock: ~~dated~~The ~~March 31, 2009, to the~~ Company’s ~~Executive Bonus Plan (incorporated herein by reference to Exhibit 10~~$0.150 topar ~~the~~value ~~Company’s~~common ~~Current Report on Form 8-K filed on April 3, 2009)~~stock

~~10.2~~Company: ~~2009 Bonus Criteria adopted on March 31, 2009 for the~~ MAXXAM ~~Chief Executive Officer under the Company’s Executive Bonus Plan~~ Inc., ~~(incorporated~~including ~~herein~~its ~~by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on April 7, 2009)~~subsidiaries

34Confirmation Order: The Bankruptcy Court order entered on July 8, 2008 that, among other things, confirmed the MRC/Marathon Plan and denied confirmation of the Noteholder Plan

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

~~10.3~~Debtors: ~~2009~~Palco, ~~Bonus Criteria adopted on March 31~~Scopac, ~~2009~~and ~~for the MAXXAM President under the Company~~Palco’s ~~Executive~~other ~~Bonus~~subsidiaries, ~~Plan~~which ~~(incorporated~~filed ~~herein~~for byreorganization ~~reference~~under ~~to Exhibit 10.3 to~~ the Bankruptcy ~~Company’s~~Code ~~Current~~in ~~Report on Form 8-K filed on April 7, 2009)~~January 2007

~~10.4~~EN ~~Amendment,~~Facility: ~~dated~~The ~~April~~$4.2 million ~~30,~~facility ~~2009,~~entered tointo ~~the~~by ~~Company’s~~two ~~2002~~subsidiaries ~~Omnibus~~of ~~Employee~~the ~~Incentive~~Company ~~Plan~~for ~~(incorporated~~the purpose ~~herein~~of byconstructing ~~reference~~two tohomes ~~Appendix~~in ~~B-1 to~~ the Company’s ~~Schedule~~Fountain ~~14A~~Hills ~~filed on April 24, 2009)~~development

*ERISA: ~~10.5~~The ~~Form of Rights Agreement under the Company’s 1994 Omnibus~~ Employee ~~Incentive~~Retirement ~~Plan~~Income ~~(relating~~Security toAct ~~the grant~~ of ~~stock~~1974, ~~options~~as ~~with~~amended ~~tandem~~from ~~stock~~time ~~appreciation~~to ~~rights)~~time

*FASB: ~~31.1 Section~~Financial ~~302~~Accounting ~~Certification~~Standards ~~of Chief Executive Officer~~Board

*Fifth ~~31.2 Section~~Circuit: ~~302~~The ~~Certification~~U.S. ofFifth ~~Chief~~Circuit ~~Financial~~Court ~~Officer~~of Appeals

*Filing ~~32 Section~~Date: ~~906~~January 18, ~~Certification~~2007, ofthe ~~Chief~~date ~~Executive~~the ~~Officer~~Debtors ~~and~~filed ~~Chief~~separate ~~Financial~~voluntary ~~Officer~~petitions with the Bankruptcy Court under Chapter 11 of the Bankruptcy Code

* IncludedFireRock, ~~with~~LLC: ~~this~~A ~~filing~~50% owned joint venture which manages a golf course and country club project in Arizona

35Fountain Hills: Fountain Hills, a master-planned residential community located in Fountain Hills, Arizona

~~Table~~Indenture ofTrustee: ~~Contents~~The trustee under the indenture governing the Scopac Timber Notes

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

~~Pursuant~~Joint toPlan: ~~the~~Debtors’ ~~requirements~~joint ofplan ~~the Securities Exchange Act~~ of ~~1934,~~reorganization ~~the~~filed ~~Registrant~~with ~~has duly caused this report to be signed on its behalf by~~ the ~~undersigned~~Bankruptcy ~~thereunto~~Court ~~duly authorized, who have signed this report~~ on ~~behalf of the Registrant and as the principal financial and accounting officers of the Registrant~~January 30, ~~respectively.~~ 2008

		MAXXAM INC.
Date: August 11, 2009	By:	/S/ M. EMILY MADISON
		M. Emily Madison Vice President, Finance (Principal Accounting Officer and Principal Financial Officer)

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

3641

~~APPENDIX~~Lakepointe ANotes: The 7.56% notes of Lakepointe Assets and its subsidiaries due June 8, 2021

~~Glossary~~Laredo LLC: Laredo Race Park LLC, a wholly owned subsidiary of ~~Defined~~the ~~Terms~~Company

~~Bankruptcy Cases~~Marathon: ~~The~~Marathon ~~Chapter~~Structured 11Finance ~~proceedings~~Fund ~~of the Debtors~~L.P.

~~Bankruptcy Code~~MAXXAM: ~~The~~MAXXAM ~~United~~Inc., ~~States~~including ~~Bankruptcy~~its ~~Code~~subsidiaries

~~Bankruptcy~~MAXXAM ~~Court~~Entities: ~~The~~MAXXAM ~~United~~Parent, ~~States~~MGHI ~~Bankruptcy~~and ~~Court~~MGI, ~~for~~as ~~the~~parties ~~Southern~~to ~~District~~the ofSettlement ~~Texas, Corpus Christi Division~~Agreement

~~Beltway~~MAXXAM ~~Assets~~Parent: ~~Beltway~~MAXXAM ~~Assets LLC~~Inc., anexcluding ~~indirect~~its ~~wholly owned subsidiary of the Company~~subsidiaries

~~Beltway Notes~~MGHI: ~~The~~MAXXAM ~~6.08%~~Group ~~notes~~Holdings ofInc., ~~Beltway~~a ~~Assets~~wholly ~~due~~owned insubsidiary ~~November~~of ~~2024~~the Company

~~Cave action~~MGI: AnMAXXAM ~~action~~Group ~~entitled Steve Cave, et al~~Inc. ~~v. Gary Clark~~, ~~et al. (No. DR020719) filed in~~ the ~~Superior~~wholly ~~Court~~owned subsidiary of ~~Humboldt County, California~~MGHI

~~Class A Preferred Stock~~Mirada: The Company’s ~~Class~~luxury Aresort-residential ~~$.05~~project ~~Non-Cumulative~~located ~~Participating~~in ~~Convertible~~Rancho ~~Preferred~~Mirage, ~~Stock~~California

~~Common~~Motel ~~Stock~~Assets: ~~The~~Motel ~~Company’s~~Assets ~~$0.50~~Holdings ~~par~~LLC, ~~value~~an ~~common~~indirect ~~stock~~wholly owned subsidiary of the Company

~~Company~~Motel Notes: ~~MAXXAM~~The ~~Inc~~7.,03% ~~including~~notes of Motel Assets and its subsidiaries due May 1, 2018

~~Confirmation Order~~MRC: ~~The~~Mendocino ~~Bankruptcy~~Redwood ~~Court order entered on July 8~~Company, ~~2008 that, among other things, confirmed the MRC/Marathon Plan and denied confirmation of the Noteholder Plan~~LLC

~~Cook~~MRC/Marathon ~~action~~Plan: AnThe ~~action~~plan ~~entitled~~of ~~Alan~~reorganization ~~Cook,~~of etMRC ~~al.~~and v.Marathon ~~Gary Clark, et al. (No. DR020718)~~ filed inwith the ~~Superior~~Bankruptcy Court on ~~of Humboldt County~~January 30, ~~California~~2008

~~Debtors~~Newco: ~~Palco,~~The ~~Scopac,~~company ~~and~~that ~~Palco’s~~succeeded ~~other~~to ~~subsidiaries,~~the ~~which~~Debtors ~~filed for reorganization~~ under the ~~Bankruptcy~~MRC/Marathon ~~Code~~Plan

ENNoteholder ~~Facility~~Plan: The ~~$4.2~~plan ~~million~~of ~~facility~~reorganization ~~entered~~filed ~~into~~with bythe ~~two~~Bankruptcy ~~subsidiaries~~Court ofon ~~the~~January 30, ~~Company~~2008 ~~for~~ by the ~~purpose~~Indenture ofTrustee ~~constructing~~on ~~two~~behalf ~~homes~~of in the ~~Company’s~~Timber ~~Fountain Hills development~~Noteholders

~~ERISA~~Palco: The ~~Employee~~Pacific ~~Retirement~~Lumber ~~Income Security Act of 1974~~Company, asa ~~amended~~former ~~from~~wholly ~~time~~owned tosubsidiary ~~time~~of MGI

~~FASB~~Palco Debtors: ~~Financial~~Palco ~~Accounting~~and ~~Standards~~its ~~Board~~former subsidiaries other than Scopac

~~Fifth~~Palco ~~Circuit~~Pension Plan: The ~~U.S.~~Palco ~~Fifth~~Retirement ~~Circuit~~Plan, ~~Court~~a defined benefit plan, which was assumed by Newco upon consummation of ~~Appeals~~the MRC/Marathon Plan

~~Filing Date~~Palmas: ~~January~~Palmas ~~18,~~del ~~2007~~Mar, ~~the~~a ~~date~~master-planned ~~the~~residential ~~Debtors~~community ~~filed~~and ~~separate~~resort ~~voluntary~~located ~~petitions~~on ~~with~~ the southeastern ~~Bankruptcy~~coast ~~Court under Chapter 11~~ of ~~the~~Puerto ~~Bankruptcy~~Rico ~~Code~~near Humacao

~~FireRock, LLC~~PBGC: AThe ~~50%~~Pension ~~owned~~Benefit ~~joint~~Guaranty ~~venture which manages a golf course and country club project in Arizona~~Corporation

~~Fountain~~PBGC ~~Hills~~Agreement: ~~Fountain~~The ~~Hills~~July 10, a2008 ~~master-planned~~agreement ~~residential~~between ~~community~~the ~~located~~Company inand ~~Fountain~~the ~~Hills,~~PBGC ~~Arizona~~regarding the Palco Pension Plan

~~FSP SFAS No. 107-1~~PCCI: ~~FSP~~Palmas ~~SFAS~~Country NoClub, Inc., ~~107-1~~a ~~“Interim~~wholly ~~Disclosures~~owned ~~about~~subsidiary ~~Fair Value~~ of ~~Financial Instruments”~~PDMPI

~~FSP~~PCCI ~~SFAS No. 115-2~~Notes: ~~FSP~~The ~~SFAS No~~7.12% ~~115-2~~notes ~~“Recognition~~of ~~and~~PCCI ~~Presentation~~due ofDecember 20, ~~Other-Than-Temporary Impairments”~~2030

~~FSP~~PDMPI: ~~SFAS~~Palmas ~~No.~~del ~~132(R)-1:~~Mar ~~FSP~~Properties, ~~SFAS No~~Inc., ~~132(R)-1~~a ~~“Employers’~~wholly ~~Disclosures~~owned ~~about~~subsidiary ~~Postretirement~~of ~~Benefit~~the ~~Plan Assets”~~Company

~~FSP SFAS No. 141(R)-1~~PSLRA: ~~FSP~~Private ~~SFAS~~Securities ~~No.~~Litigation ~~141(R)-1~~Reform ~~“Accounting~~Act ~~for~~of ~~Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies”~~1995

~~FSP~~Racing ~~SFAS No. 157-2~~Commission: ~~FSP~~The ~~SFAS~~Texas ~~No.~~Racing ~~157-2 “Effective Date of FASB Statement No. 157”~~Commission

~~FSP SFAS No. 157-3: FSP SFAS No. 157-3 “Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active”~~42

37Table of Contents

~~Table~~Reverse Stock Split: A proposed 1-for-250 reverse stock split of ~~Contents~~the Company’s Common Stock and Class A Preferred Stock

~~FSP SFAS No. 157-4~~RMCAL: ~~FSP~~A ~~SFAS~~50% ~~No.~~owned ~~157-4~~joint ~~“Determining~~venture ~~Fair~~formed ~~Value~~to ~~When~~construct ~~the Volume~~ and ~~Level~~sell of47 ~~Activity~~villas ~~for~~on ~~the~~a ~~Asset~~parcel orin ~~Liability~~the Company’s ~~Have~~Mirada ~~Significantly Decreased and Identifying Transactions That Are Not Orderly”~~development

~~Indenture~~Sam ~~Trustee~~Houston Race Park: The ~~trustee~~Company’s ~~under~~Texas ~~the~~Class 1 ~~indenture~~horse ~~governing~~racing ~~the~~facility ~~Scopac~~in ~~Timber~~Houston, ~~Notes~~Texas and operated by SHRP

~~Johnson action~~Scopac: AnScotia ~~action~~Pacific ~~entitled~~Company ~~Edyth Johnson~~LLC, eta ~~al.~~former v.wholly ~~Charles~~owned E.subsidiary ~~Hurwitz, an individual, MAXXAM Inc., et al. (No. DR040720) filed in the Superior Court~~ of ~~Humboldt County, California~~Palco

~~Joint~~Scopac ~~Plan~~Timber Notes: ~~Debtors~~Scopac’s ~~joint~~6.55% ~~plan~~Series B ofClass A-1 ~~reorganization~~Timber ~~filed~~Collateralized ~~with~~Notes, ~~the~~7.11% ~~Bankruptcy~~Series B Class A-2 ~~Court~~Timber onCollateralized ~~January~~Notes 30and 7.71% Series B Class A-3 Timber Collateralized Notes that were due July 20, ~~2008~~2028

~~Lakepointe Assets~~SEC: ~~Lakepointe~~The ~~Assets~~Securities ~~Holdings~~and ~~LLC,~~Exchange ~~an indirect wholly owned subsidiary of the Company~~Commission

~~Lakepointe~~Settlement ~~Notes~~Agreement: ~~The~~Term ~~7.56%~~Sheet ~~notes~~Regarding ofGlobal ~~Lakepointe~~Settlement ~~Assets~~ and ~~its~~Plan ~~subsidiaries~~Support ~~due~~dated ~~June~~May 1, 82008 among MRC, ~~2021~~Marathon, the MAXXAM Entities and the Palco Debtors

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

~~Marathon~~TDF: ~~Marathon~~The ~~Structured~~Puerto ~~Finance~~Rico Tourism Development Fund ~~L.P.~~and guarantor of the PCCI Notes

~~MAXXAM~~Timber Noteholders: ~~MAXXAM~~The ~~Inc.,~~holders ~~including~~of ~~its~~the ~~subsidiaries~~Scopac Timber Notes

~~MAXXAM~~Valley ~~Entities~~Race Park: ~~MAXXAM~~The ~~Parent,~~Company’s ~~MGHI~~greyhound ~~and~~racing ~~MGI,~~facility aslocated ~~parties~~in toHarlingen, ~~the Settlement Agreement~~Texas

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

~~MGHI~~Wilson state action: ~~MAXXAM~~ ~~Group~~An ~~Holdings~~action entitled State of California ex rel. Richard Wilson and Chris Maranto v. MAXXAM Inc., aet ~~wholly~~al. ~~owned~~(No. CGC ~~subsidiary~~06 of458528) filed in the ~~Company~~Superior Court of San Francisco County, California

~~MGI~~Wilson actions: ~~MAXXAM~~ ~~Group~~The ~~Inc.,~~Wilson ~~the~~federal ~~wholly~~action ~~owned~~and ~~subsidiary~~Wilson ofstate ~~MGHI~~action, collectively

~~Mirada: The Company’s luxury resort-residential project located in Rancho Mirage, California~~43

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

Motel Notes: The 7.03% notes of Motel Assets and its subsidiaries due May 1, 2018

MRC: Mendocino Redwood Company, LLC

MRC/Marathon Plan: The plan of reorganization of MRC and Marathon filed with the Bankruptcy Court on January 30, 2008

Newco: The company that succeeded to the Debtors under the MRC/Marathon Plan

Noteholder Plan: The plan of reorganization filed with the Bankruptcy Court on January 30, 2008 by the Indenture Trustee on behalf of the Timber Noteholders

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

Palco Debtors: Palco and its former subsidiaries other than Scopac

Palco Pension Plan: The Palco Retirement Plan, a defined benefit plan, which was assumed by Newco upon consummation of the MRC/Marathon Plan

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

PBGC: The Pension Benefit Guaranty Corporation

PBGC Agreement: The July 10, 2008 agreement between the Company and the PBGC regarding the Palco Pension Plan

Table of Contents

PCCI: Palmas Country Club, Inc., a wholly owned subsidiary of PDMPI

PCCI Notes: The 7.12% notes of PCCI due December 20, 2030

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

PSLRA: Private Securities Litigation Reform Act of 1995

Racing Act: The Texas Racing Act and related regulations

Racing Commission: The Texas Racing Commission

RMCAL: A 50% owned joint venture formed to construct and sell 47 villas on a parcel in the Company’s Mirada development

Sam Houston Race Park: The Company’s Texas Class 1 horse racing facility in Houston, Texas and operated by SHRP

Scopac: Scotia Pacific Company LLC, a formerly wholly owned subsidiary of Palco

Scopac Timber Notes: Scopac’s 6.55% Series B Class A-1 Timber Collateralized Notes, 7.11% Series B Class A-2 Timber Collateralized Notes and 7.71% Series B Class A-3 Timber Collateralized Notes that were due July 20, 2028

SEC: The Securities and Exchange Commission

Settlement Agreement: Term Sheet Regarding Global Settlement and Plan Support dated May 1, 2008 among MRC, Marathon, the MAXXAM Entities and the Palco Debtors

SFAS No. 123(R): SFAS No. 123 (revised 2004), “Share-Based Payments”

SFAS No.141R: SFAS No. 141R, “Business Combinations”

SFAS No. 157: SFAS No. 157, “Fair Value Measurements”

SFAS No. 165: SFAS No. 165, “Subsequent Events”

SFAS No. 168: SFAS No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles (“GAAP”) (as amended)”

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

TDF: The Puerto Rico Tourism Development Fund

Timber Noteholders: The holders of the Scopac Timber Notes

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

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

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

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

Filing Compare · MAXXAM INC