UNITED STATES SECURITIES & EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2006

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

For the transition period from                      to                     

MGM MIRAGE

Delaware		88-0215232
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

3600 Las Vegas Boulevard South, Las Vegas, Nevada 89109

(Address of principal executive offices — Zip Code)

(702) 693-7120

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

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

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act (Check one):

Large accelerated filer þ      Accelerated filer o     Non-accelerated filer o

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act): Yes o No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class		Outstanding at November 7, 2006
Common Stock, $.01 par value		281,170,867 shares

 

 

MGM MIRAGE AND SUBSIDIARIES

FORM 10-Q

INDEX

				Page
PART I. FINANCIAL INFORMATION
Item 1.		Financial Statements (Unaudited)
		Consolidated Balance Sheets at September 30, 2006 and December 31, 2005			1
		Consolidated Statements of Income for the Three Months and Nine Months Ended September 30, 2006 and September 30, 2005			2
		Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2006 and September 30, 2005			3
		Condensed Notes to Consolidated Financial Statements			4-16
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			17-24
Item 3.		Quantitative and Qualitative Disclosures About Market Risk			25
Item 4.		Controls and Procedures			25
PART II. OTHER INFORMATION
Item 1.		Legal Proceedings			25
Item 1A.		Risk Factors			26
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			26
Item 6.		Exhibits			26
SIGNATURES					27
EX-31.1
EX-31.2
EX-32.1
EX-32.2

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

MGM MIRAGE AND SUBSIDIARIES

		September 30,				December 31,
		2006				2005
ASSETS
Current assets
Cash and cash equivalents		$	343,716			$	377,933
Accounts receivable, net			343,491				352,673
Inventories			117,335				111,825
Deferred income taxes			63,693				65,518
Prepaid expenses and other			134,298				110,634
Total current assets			1,002,533				1,018,583
Real estate under development			128,116				—
Property and equipment, net			17,227,810				16,541,651
Other assets
Investments in unconsolidated affiliates			1,082,664				931,154
Goodwill			1,307,118				1,314,561
Other intangible assets, net			375,115				377,479
Deposits and other assets, net			521,244				515,992
Total other assets			3,286,141				3,139,186
		$	21,644,600			$	20,699,420
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable		$	439,782			$	265,601
Income taxes payable			25,503				125,503
Current portion of long-term debt			—				14
Accrued interest on long-term debt			196,022				229,930
Other accrued liabilities			892,849				913,520
Total current liabilities			1,554,156				1,534,568
Deferred income taxes			3,377,594				3,378,371
Long-term debt			12,955,822				12,355,433
Other long-term obligations			215,617				195,976
Commitments and contingencies (Note 9)
Stockholders’ equity
Common stock, $.01 par value: authorized 600,000,000 shares; issued 359,554,443 and 357,262,405 shares; outstanding 280,580,590 and 285,069,516 shares			3,596				3,573
Capital in excess of par value			2,700,768				2,586,587
Deferred compensation			(360	)			(3,618	)
Treasury stock, at cost 78,973,853 and 72,192,889 shares			(1,596,984	)			(1,338,394	)
Retained earnings			2,434,418				1,987,725
Accumulated other comprehensive loss			(27	)			(801	)
Total stockholders’ equity			3,541,411				3,235,072
		$	21,644,600			$	20,699,420

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

MGM MIRAGE AND SUBSIDIARIES

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2006				2005				2006				2005
Revenues
Casino		$	844,644			$	805,277			$	2,487,982			$	2,184,468
Rooms			491,511				478,462				1,535,808				1,208,277
Food and beverage			387,029				368,186				1,161,295				963,848
Entertainment			125,702				114,904				330,812				318,762
Retail			75,384				75,248				214,287				189,590
Other			142,110				127,291				398,983				295,099
			2,066,380				1,969,368				6,129,167				5,160,044
Less: Promotional allowances			(164,405	)			(161,125	)			(481,476	)			(431,710	)
			1,901,975				1,808,243				5,647,691				4,728,334
Expenses
Casino			426,194				415,236				1,283,983				1,115,792
Rooms			141,537				143,065				420,148				337,949
Food and beverage			239,078				239,581				699,459				594,358
Entertainment			91,450				82,839				241,720				227,705
Retail			48,001				48,475				140,888				123,292
Other			86,671				76,853				232,575				180,835
General and administrative			302,430				288,728				849,036				696,805
Corporate expense			35,184				32,112				110,415				90,554
Preopening and start-up expenses			6,083				6,147				27,308				12,568
Restructuring costs (credit)			—				11				1,035				(59	)
Property transactions, net			282				22,637				36,326				28,633
Depreciation and amortization			163,536				161,566				483,793				423,734
			1,540,446				1,517,250				4,526,686				3,832,166
Income from unconsolidated affiliates			66,138				49,006				158,773				114,936
Operating income			427,667				339,999				1,279,778				1,011,104
Non-operating income (expense)
Interest income			2,650				3,156				8,422				10,172
Interest expense, net			(193,899	)			(193,150	)			(586,630	)			(461,966	)
Non-operating items from unconsolidated affiliates			(4,627	)			(4,344	)			(11,563	)			(11,535	)
Other, net			(1,654	)			1,894				(8,031	)			(15,578	)
			(197,530	)			(192,444	)			(597,802	)			(478,907	)
Income before income taxes			230,137				147,555				681,976				532,197
Provision for income taxes			(73,875	)			(54,345	)			(235,283	)			(186,740	)
Net income		$	156,262			$	93,210			$	446,693			$	345,457
Basic earnings per share of common stock
Net income per share		$	0.55			$	0.33			$	1.58			$	1.21
Diluted earnings per share of common stock
Net income per share		$	0.54			$	0.31			$	1.53			$	1.16

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

MGM MIRAGE AND SUBSIDIARIES

		Nine Months Ended
		September 30,
		2006				2005
Cash flows from operating activities
Net income		$	446,693			$	345,457
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			483,793				423,734
Amortization of debt discounts, premiums and issuance costs			(1,577	)			6,967
Provision for doubtful accounts			38,328				21,695
Stock-based compensation			58,281				5,439
Property transactions, net			36,326				28,633
Loss on early extinguishment of debt			—				18,139
Income from unconsolidated affiliates			(140,743	)			(102,424	)
Distributions from unconsolidated affiliates			139,418				67,397
Deferred income taxes			656				59,822
Tax benefit from stock-based compensation			—				85,011
Change in assets and liabilities:
Accounts receivable			(33,211	)			(10,164	)
Inventories			(6,112	)			(1,396	)
Prepaid expenses and other			(23,664	)			(9,243	)
Real estate under development			(29,408	)			—
Accounts payable and accrued liabilities			(28,662	)			(67,547	)
Income taxes payable			(93,303	)			(49,316	)
Hurricane Katrina insurance proceeds			4,802				—
Change in Hurricane Katrina insurance receivable			(43,649	)			—
Other			(31,672	)			(24,036	)
Net cash provided by operating activities			776,296				798,168
Cash flows from investing activities
Capital expenditures			(1,384,464	)			(428,288	)
Acquisition of Mandalay Resort Group, net of cash acquired			—				(4,427,085	)
Hurricane Katrina insurance proceeds			113,947				20,000
Dispositions of property and equipment			11,002				7,660
Investments in unconsolidated affiliates			(86,000	)			(177,000	)
Change in construction payable			148,317				(24,079	)
Other			(17,992	)			(31,558	)
Net cash used in investing activities			(1,215,190	)			(5,060,350	)
Cash flows from financing activities
Net borrowings under bank credit facilities – maturities of 90 days or less			466,750				1,135,000
Borrowings under bank credit facilities – maturities longer than 90 days			4,000,000				3,500,000
Repayments under bank credit facilities – maturities longer than 90 days			(4,400,000	)			—
Issuance of long-term debt			750,000				880,156
Repayment of long-term debt			(200,000	)			(1,408,992	)
Debt issuance costs			(5,828	)			(50,171	)
Issuance of common stock			33,402				132,548
Purchases of treasury stock			(246,892	)			(84,966	)
Excess tax benefits from stock-based compensation			20,147				—
Other			(12,902	)			(11,079	)
Net cash provided by financing activities			404,677				4,092,496
Cash and cash equivalents
Net decrease for the period			(34,217	)			(169,686	)
Balance, beginning of period			377,933				435,128
Balance, end of period		$	343,716			$	265,442
Supplemental cash flow disclosures
Interest paid, net of amounts capitalized		$	622,115			$	451,095
Federal, state and foreign income taxes paid, net of refunds			307,893				85,889

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

MGM MIRAGE AND SUBSIDIARIES

NOTE 1 — ORGANIZATION AND BASIS OF PRESENTATION

     Organization. MGM MIRAGE (the “Company”) is a Delaware corporation, incorporated on January 29, 1986. As of September 30, 2006, approximately 56% of the outstanding shares of the Company’s common stock were owned by Tracinda Corporation, a Nevada corporation wholly owned by Kirk Kerkorian. MGM MIRAGE acts largely as a holding company and, through wholly-owned subsidiaries, owns and/or operates casino resorts. On April 25, 2005, the Company completed its merger with Mandalay Resort Group (“Mandalay”) – see Note 2.

     The Company owns and operates the following casino resorts in Las Vegas, Nevada: Bellagio, MGM Grand Las Vegas, Mandalay Bay, Mirage, Luxor, Treasure Island (“TI”), New York-New York, Excalibur, Monte Carlo, Circus Circus Las Vegas and Slots-A-Fun. The Company owns three resorts in Primm, Nevada, at the California/Nevada state line – Whiskey Pete’s, Buffalo Bill’s and the Primm Valley Resort (the “Primm Valley Resorts”) – as well as two championship golf courses located near the resorts. Other Nevada operations include Circus Circus Reno, Colorado Belle and Edgewater in Laughlin, Gold Strike and Nevada Landing in Jean, and Railroad Pass in Henderson. The Company has a 50% investment in Silver Legacy in Reno, which is adjacent to Circus Circus Reno. In addition, the Company owns a 50% interest in the entity developing The Signature at MGM Grand, which is adjacent to MGM Grand Las Vegas. The Signature is a condominium-hotel development, with one tower open, one tower completed and in the closing process, and a final tower currently under construction. The Company also owns Shadow Creek, an exclusive world-class golf course located approximately ten miles north of its Las Vegas Strip resorts.

     In October 2006, the Company entered into an agreement to sell Colorado Belle and Edgewater for $200 million, and an agreement to sell the Primm Valley Resorts, not including the two golf courses, for $400 million. Both agreements are subject to regulatory approval and other customary closing conditions. These resorts had a combined carrying value of approximately $325 million, including assigned goodwill, at September 30, 2006. The results of operations of these resorts will be reported as discontinued operations beginning in the fourth quarter of 2006.

     The Company and its local partners own MGM Grand Detroit, LLC, which operates a casino in an interim facility located in downtown Detroit, Michigan. MGM Grand Detroit, LLC is currently developing a permanent casino facility, expected to open in late 2007 at a cost of approximately $765 million, including land and preopening costs. The Company also owns and operates two resorts in Mississippi – Beau Rivage in Biloxi and Gold Strike Tunica. Beau Rivage recently reopened in August 2006, after having been closed due to damage sustained as a result of Hurricane Katrina in 2005. The Company has 50% interests in two resorts outside of Nevada – Borgata and Grand Victoria. Borgata is a casino resort located on Renaissance Point in the Marina area of Atlantic City, New Jersey. Boyd Gaming Corporation owns the other 50% of Borgata and also operates the resort. The Company owns additional land adjacent to Borgata, a portion of which consists of common roads, landscaping and master plan improvements, a portion of which is being utilized for an expansion of Borgata, and a portion of which is available for future development. Grand Victoria is a riverboat in Elgin, Illinois – an affiliate of Hyatt Gaming owns the other 50% of Grand Victoria and also operates the resort.

     The Company owns 50% of MGM Grand Paradise Limited, a joint venture with Pansy Ho Chiu-king that is constructing and will operate a hotel-casino resort, MGM Grand Macau, in Macau S.A.R. MGM Grand Macau is estimated to cost approximately $1.1 billion, including land and license rights and preopening costs, and the resort is anticipated to open in late 2007.

     The Company is developing CityCenter on the Las Vegas Strip, between Bellagio and Monte Carlo. CityCenter will feature a 4,000-room casino resort designed by world-famous architect Cesar Pelli; two 400-room non-gaming boutique hotels, one of which will be managed by luxury hotelier Mandarin Oriental; approximately 470,000 square feet of retail shops, dining and entertainment venues; and approximately 2.3 million square feet of residential space in approximately 2,700 luxury condominium and condominium-hotel units in multiple towers. The overall cost of CityCenter is estimated at approximately $7 billion, excluding preopening and land costs. After estimated proceeds of $2.5 billion from the sale of residential units, net project cost is estimated at approximately $4.5 billion. CityCenter is expected to open in late 2009.

     Basis of presentation. As permitted by the rules and regulations of the Securities and Exchange Commission, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These consolidated financial statements should be read in conjunction with the Company’s 2005 annual consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2005.

     In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments – which include only normal recurring adjustments – necessary to present fairly the Company’s financial position as of September 30, 2006, the results of its operations for the three and nine month periods ended September 30, 2006 and 2005, and cash flows for the nine month periods ended September 30, 2006 and 2005. The results of operations for such periods are not necessarily indicative of the results to be expected for the full year. Certain reclassifications, which have no effect on previously reported net income, have been made to the 2005 financial statements to conform to the 2006 presentation.

     Point-loyalty programs. The Company operates two primary point-loyalty programs — Players Club and One Club. One Club is the point-loyalty program at Mandalay resorts, and that program will be phased out in 2006 and 2007, with customers transferred into Players Club.

     In Players Club, customers earn points based on their slots play, which can be redeemed for cash. The Company records a liability based on the points earned times the redemption value and records a corresponding reduction in casino revenue since the awards earned are cash. The expiration of unused points results in a reduction of the liability. Customers’ overall level of table games and slots play is also tracked and used by management in awarding discretionary complimentaries – free rooms, food and beverage and other services – for which no accrual is recorded.

     In One Club, customers earned points based on both their slots and table games play through July 2006, with slots play contributing to a points balance which can be redeemed for cash and both table games and slots play contributing to a points balance which can be redeemed for complimentaries. After July 2006, customers stopped earning points which can be redeemed for complimentaries, as all Mandalay resorts are being converted to Players Club. The Company records a liability based on the points earned times the redemption value. For cash points, the redemption value is the cash value, and the offsetting entry is a reduction in casino revenue. For complimentaries points, the redemption value is based on the average departmental cost of the free rooms, food and beverage and other services and estimated redemption patterns, and the offsetting entry is a casino operating expense. The expiration of unused points results in a reduction of the liability.

     Financial statement impact of Hurricane Katrina. The Company maintains insurance covering both property damage and business interruption as a result of wind and flood damage sustained at Beau Rivage. The deductible under this coverage is $15 million, based on the amount of damage incurred. Insurance proceeds received to date exceeded the $126 million net book value of damaged assets and the $34 million of clean-up and demolition costs; therefore, the Company has not recorded an impairment charge related to the storm and upon ultimate settlement of the claim will record a gain.

     Business interruption coverage covers lost profits and other costs incurred during the construction period and up to six months following the re-opening of the facility. Expected costs during the interruption period are less than the anticipated business interruption proceeds; therefore, post-storm costs of $95 million through September 30, 2006 are being offset by the expected recoveries and a corresponding insurance receivable has been recorded. Post-storm costs and expected recoveries are recorded net within “General and administrative” expenses in the accompanying consolidated statements of income, except for depreciation of non-damaged assets, which is classified as “Depreciation and amortization.”

     The insurance receivable is recorded within “Deposits and other assets, net” in the accompanying consolidated balance sheets. Cumulatively through September 30, 2006, the Company has received $165 million from its insurers, leaving a net receivable of $90 million at September 30, 2006. Insurance proceeds are classified in the statement of cash flows based on the coverage the proceeds relate to; however, the Company’s insurance policy includes undifferentiated coverage for both property damage and business interruption. The Company treated proceeds as being related to property damage, and therefore classified the proceeds as an investing cash flow, until the full $160 million of damaged assets and demolition costs were recovered. The Company is treating subsequent proceeds up to the amount of the recorded receivable as being related to business interruption, and therefore classifying these proceeds as an operating cash flow. Proceeds in excess of the recorded receivable will be segregated between property damage and business interruption based on the ultimate negotiation and resolution of the claim.

     Real estate under development. Real estate under development represents capitalized costs of wholly-owned real estate projects to be sold, which consist entirely of condominium and condominium-hotel developments. Real estate under development includes land, direct construction and development costs, property taxes, interest and direct selling costs. Indirect selling costs are expensed as incurred. Approximately $100 million of the balance in real estate under development at September 30, 2006 represents the cost balance of land upon which development of condominium or condominium-hotel towers began in the first quarter of 2006.

NOTE 2 — ACQUISITION

     On April 25, 2005, the Company closed its merger with Mandalay under which the Company acquired 100% of the outstanding common stock of Mandalay for $71 in cash for each share of Mandalay’s common stock. The acquisition expanded the Company’s portfolio of resorts on the Las Vegas Strip, provided additional sites for future development and expanded the Company’s employee and customer bases significantly. These factors resulted in the recognition of certain intangible assets, discussed below, and significant goodwill. The total merger consideration included (in thousands):

Cash consideration for Mandalay’s outstanding shares and stock options		$	4,831,944
Estimated fair value of Mandalay’s long-term debt			2,849,225
Transaction costs and expenses and other			111,944
			7,793,113
Less: Net proceeds from the sale of Mandalay’s interest in MotorCity Casino			(526,597	)
		$	7,266,516

     Cash paid, net of cash acquired, was $4.4 billion. The transaction was accounted for as a purchase and, accordingly, the purchase price was allocated to the underlying assets acquired and liabilities assumed based upon their estimated fair values.

     The following table sets forth the allocation of purchase price (in thousands):

Current assets (including cash of $134,245)		$	413,502
Property and equipment			7,130,376
Goodwill			1,225,373
Other intangible assets			245,940
Other assets			340,930
Assumed liabilities, excluding long-term debt			(602,127	)
Deferred taxes			(1,487,478	)
		$	7,266,516

     The amount allocated to intangible assets includes existing Mandalay intangible assets and the recognition of customer relationships with a value of $12 million and an estimated useful life of five years and trade names and trademarks with a value of $234 million and an indefinite life. Goodwill and indefinite-lived intangible assets are not amortized. Approximately $5 million of goodwill and $7 million of other intangible assets was assigned to Colorado Belle and Edgewater, and is included in the carrying value of these assets to be sold – see Note 1.

     The operating results for Mandalay are included in the accompanying consolidated statements of income from the date of the acquisition. The following unaudited pro forma consolidated financial information for the Company has been prepared assuming the Mandalay acquisition had occurred on January 1, 2005.

For the nine months ended September 30,		2005
		(In thousands, except
		per share amounts)
Net revenues		$	5,630,993
Operating income			1,172,841
Net income			366,926
Basic earning per share:
Net income		$	1.29
Diluted earning per share:
Net income		$	1.24

NOTE 3 — INVESTMENTS IN UNCONSOLIDATED AFFILIATES

     Investments in unconsolidated affiliates consisted of the following:

		September 30,				December 31,
		2006				2005
		(In thousands)
Marina District Development Company – Borgata (50%)		$	462,586			$	461,211
Elgin Riverboat Resort–Riverboat Casino – Grand Victoria (50%)			297,190				241,279
MGM Grand Paradise Limited – Macau (50%)			282,442				187,568
Circus and Eldorado Joint Venture – Silver Legacy (50%)			31,083				26,492
Other			9,363				14,604
			1,082,664				931,154
Turnberry/MGM Grand Towers — The Signature at MGM Grand (50%)			(4,143	)			(7,400	)
		$	1,078,521			$	923,754

     The Company’s investment in MGM Grand Paradise Limited consists of equity and subordinated debt. The Company is committed to loaning the venture up to an additional $14 million, which will be treated as an additional investment in the venture.

     The negative investment balance in The Signature at MGM Grand represents cumulative distributions in excess of the Company’s share of profits or losses, and is classified as “Other long-term obligations” in the accompanying consolidated balance sheets. The Company also classifies $16 million of deferred income related to the Company’s contribution of land to the venture as “Other long-term obligations.” Closings of all units in Tower 1 have been completed as of September 30, 2006, resulting in cumulative profit recognition – the Company’s 50% share of venture profits – of approximately $46 million, plus an $8 million gain on land contributed to the venture for Tower 1.

     The Company recorded its share of the results of operations of unconsolidated affiliates as follows:

		Three Months								Nine Months
For the periods ended September 30,		2006				2005				2006				2005
						(In thousands)
Income from unconsolidated affiliates		$	66,138			$	49,006			$	158,773			$	114,936
Preopening and start-up expenses			(1,324	)			1,430				(6,467	)			(977	)
Non-operating items from unconsolidated affiliates			(4,627	)			(4,344	)			(11,563	)			(11,535	)
		$	60,187			$	46,092			$	140,743			$	102,424

NOTE 4 — LONG-TERM DEBT

     Long-term debt consisted of the following:

		September 30,				December 31,
		2006				2005
		(In thousands)
Senior credit facility		$	4,841,750			$	4,775,000
$200 million 6.45% senior notes, repaid at maturity in 2006			—				200,223
$244.5 million 7.25% senior notes, due 2006, net			244,278				240,353
$710 million 9.75% senior subordinated notes, due 2007, net			709,164				708,223
$200 million 6.75% senior notes, due 2007, net			196,165				192,977
$492.2 million 10.25% senior subordinated notes, due 2007, net			511,347				527,879
$180.4 million 6.75% senior notes, due 2008, net			174,989				172,238
$196.2 million 9.5% senior notes, due 2008, net			208,304				212,895
$226.3 million 6.5% senior notes, due 2009, net			228,098				228,518
$1.05 billion 6% senior notes, due 2009, net			1,054,273				1,055,232
$297.6 million 9.375% senior subordinated notes, due 2010, net			320,832				325,332
$825 million 8.5% senior notes, due 2010, net			823,074				822,705
$400 million 8.375% senior subordinated notes, due 2011			400,000				400,000
$132.4 million 6.375% senior notes, due 2011, net			133,578				133,725
$550 million 6.75% senior notes, due 2012			550,000				550,000
$150 million 7.625% senior subordinated debentures, due 2013, net			155,511				155,978
$500 million 6.75% senior notes, due 2013			500,000				—
$525 million 5.875% senior notes, due 2014, net			522,779				522,604
$875 million 6.625% senior notes, due 2015, net			879,692				879,989
$250 million 6.875% senior notes, due 2016			250,000				—
$100 million 7.25% senior debentures, due 2017, net			83,335				82,699
Floating rate convertible senior debentures due 2033			8,472				8,472
$150 million 7% debentures due 2036, net			155,916				155,961
$4.3 million 6.7% debentures, due 2096			4,265				4,265
Other notes			—				179
			12,955,822				12,355,447
Less: Current portion			—				(14	)
		$	12,955,822				$12,355,433

     Amounts due within one year of the balance sheet date are classified as long-term in the accompanying consolidated balance sheets because the Company has both the intent and ability to repay these amounts with available borrowings under the senior credit facility.

     Total interest incurred for the three month periods ended September 30, 2006 and 2005 was $231 million and $202 million, respectively, of which $37 million and $9 million, respectively, was capitalized. Total interest incurred for the nine month periods ended September 30, 2006 and 2005 was $669 million and $480 million, respectively, of which $82 million and $18 million, respectively, was capitalized.

     At September 30, 2006, the senior credit facility had total capacity of $7 billion, was scheduled to mature in 2010, and consisted of a $5.5 billion revolving credit facility and $1.5 billion term loan facility. Subsequent to September 30, 2006, the Company entered into an amended and restated senior credit facility. The initial total capacity of the senior credit facility remains at $7 billion, with the maturity extended to 2011. The Company has the ability to solicit additional lender commitments to increase the capacity to $8 billion. The components of the senior credit facility also changed, with the term loan facility increasing to $2.5 billion and the revolving credit facility decreasing to $4.5 billion. At September 30, 2006, the Company had approximately $2.1 billion of available borrowing capacity under the senior credit facility.

     In February 2006, the Company repaid the $200 million 6.45% senior notes at their maturity with borrowings under the senior credit facility. In April 2006, the Company issued $500 million of 6.75% senior notes due 2013 and $250 million of 6.875% senior notes due 2016. The proceeds were used to repay outstanding borrowings under the senior credit facility.

     In the 2005 nine month period, the Company recorded a net $19 million loss on early retirement of debt, classified as “Other, net” in the accompanying consolidated statements of income. The February 2005 redemption of the Company’s 6.875% senior notes due February 2008 resulted in a loss of $20 million. The May 2005 tender offer for several issuances of Mandalay’s senior notes resulted in a net gain of $1 million.

     The Company’s long-term debt obligations contain customary covenants requiring the Company to maintain certain financial ratios. At September 30, 2006, the Company was required to maintain a maximum leverage ratio (debt to EBITDA, as defined) of 6.5:1 and a minimum coverage ratio (EBITDA to interest charges, as defined) of 2.0:1. At September 30, 2006, the Company’s leverage and interest coverage ratios were 5.4:1 and 2.7:1, respectively.

NOTE 5 — INCOME PER SHARE OF COMMON STOCK

     The weighted-average number of common and common equivalent shares used in the calculation of basic and diluted earnings per share consisted of the following:

		Three Months								Nine Months
For the periods ended September 30,		2006				2005				2006				2005
						(In thousands)
Weighted-average common shares outstanding (used in the calculation of basic earnings per share)			281,836				286,752				283,423				284,938
Potential dilution from stock options and restricted stock			7,422				12,133				8,321				11,815
Weighted-average common and common equivalent shares (used in the calculation of diluted earnings per share)			289,258				298,885				291,744				296,753

NOTE 6 — COMPREHENSIVE INCOME

     Comprehensive income consisted of the following:

		Three Months								Nine Months
For the periods ended September 30,		2006				2005				2006				2005
						(In thousands)
Net income		$	156,262			$	93,210			$	446,693			$	345,457
Currency translation adjustment			286				(270	)			771				(1,422	)
Derivative income from unconsolidated affiliate, net of tax			—				377				3				1,382
		$	156,548			$	93,317			$	447,467			$	345,417

NOTE 7 — STOCKHOLDERS’ EQUITY

     Stock repurchases. In the nine months ended September 30, 2006, the Company repurchased 6.5 million shares of common stock at a total cost of $247 million, leaving 8 million shares available under a July 2004 authorization. In the nine months ended September 30, 2005, the Company repurchased 2 million shares of common stock at a total cost of $85 million.

NOTE 8 — STOCK-BASED COMPENSATION

     Adoption of SFAS 123(R). Effective January 1, 2006, the Company accounts for stock-based compensation in accordance with Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123(R)”). The Company previously accounted for stock-based compensation in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” and the Financial Accounting Standards Board’s Interpretation No. 44, “Accounting for Certain Transactions involving Stock Compensation, an interpretation of APB Opinion No. 25,” and disclosed supplemental information in accordance with Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”). Under these standards, the Company did not incur compensation expense for employee stock options when the exercise price was at least 100% of the market value of the Company’s common stock on the date of grant. SFAS 123(R) requires that all stock-based compensation, including shares and share-based awards to employees, be valued at fair value. The Company measures fair value of share-based awards using the Black-Scholes model.

     Under SFAS 123(R), compensation is attributed to the periods of associated service. For awards granted prior to January 1, 2006, such expense is being recognized on an accelerated basis since that is the method the Company previously applied in its supplemental disclosures. Beginning with awards granted on January 1, 2006, such expense is being recognized on a straight-line basis over the vesting period of the awards. Forfeitures are estimated at the time of grant, with such estimate updated periodically and with actual forfeitures recognized currently to the extent they differ from the estimate.

     The Company adopted SFAS 123(R) by applying the modified-prospective transition method. Under this method, the Company began applying the valuation and other criteria of SFAS 123(R) on January 1, 2006, and began recognizing expense for the unvested portion of previously issued grants at the same time, based on the valuation and attribution methods originally used to calculate the disclosures.

     The impact of adopting SFAS 123(R) was as follows, due to the incremental compensation cost recognized for employee stock options and stock appreciation rights:

		Three Months				Nine Months
For the periods ended September 30,		2006				2006
		(In thousand, except per share amounts)
Incremental stock-based compensation under SFAS123(R)		$	17,647			$	55,969
Less: Amounts capitalized			(260	)			(876	)
Reduction of income before income taxes		$	17,387			$	55,093
Reduction in net income		$	11,302			$	35,810
Reduction in basic earning per share		$	0.04			$	0.13
Reduction in diluted earnings per share		$	0.04			$	0.12

     In addition, SFAS 123(R) requires the excess tax benefits from stock option exercises – tax deductions in excess of compensation cost recognized – to be classified as a financing activity. Previously, all tax benefits from stock option exercises were classified as operating activities. Had the Company not adopted SFAS 123(R), the $20 million of excess tax benefits classified as a financing cash inflow would have been classified as an operating cash inflow.

     Information about the Company’s share-based awards. The Company adopted an omnibus incentive plan in 2005 which allows for the granting of stock options, stock appreciation rights, restricted stock, and other stock-based awards to eligible directors, officers and employees. The plans are administered by the Compensation and Stock Option Committee (the “Committee”) of the Board of Directors. Salaried officers, directors and other key employees of the Company and its subsidiaries are eligible to receive awards. The Committee has discretion under the omnibus plan regarding which type of awards to grant, the vesting and service requirements, exercise price and other conditions, in all cases subject to certain limits, including:

	•		The omnibus plan allowed for the issuance of up to 20 million shares or share-based awards;
	•		For stock options and stock appreciation rights, the exercise price of the award must equal the fair market value of the stock on the date of grant and the maximum term of such an award is ten years.

     To date, the Committee has only awarded stock options and stock appreciation rights under the omnibus plan. The Company’s practice has been to issue new shares upon the exercise of stock options. Under the Company’s previous plans, the Committee had issued stock options and restricted stock. Stock options and stock appreciation rights granted under all plans generally have either 7-year or 10-year terms, and in most cases are exercisable in either four or five equal annual installments. Restrictions on restricted shares granted under a previous plan lapse 50% on the third anniversary date after the grant and 50% on the fourth anniversary date after the grant.

     As of September 30, 2006, the aggregate number of share-based awards available for grant under the omnibus plan was 4.7 million. A summary of activity under the Company’s share-based payment plans for the nine months ended September 30, 2006 is presented below:

Stock options and stock appreciation rights

										Weighted
						Weighted				Average				Aggregate
						Average				Remaining				Intrinsic
		Shares				Exercise				Contractual				Value
		(000’s)				Price				Term				($000’s)
Outstanding at January 1, 2006			34,825			$	22.93
Granted			1,894				42.89
Exercised			(2,292	)			14.54
Forfeited or expired			(456	)			28.29
Outstanding at September 30, 2006			33,971				24.54				5.8			$	519,180
Exercisable at September 30, 2006			13,495				18.35				5.4			$	285,669

     The total intrinsic value of stock options and stock appreciation rights exercised during the nine month periods ended September 30, 2006 and 2005 was $62 million and $231 million, respectively. The total income tax benefits from stock option exercises during the nine month periods ended September 30, 2006 and 2005 were $21 million and $81 million, respectively. As of September 30, 2006, there was a total of $106 million of unamortized compensation related to stock options and stock appreciation rights, which cost is expected to be recognized over a weighted-average period of 2.4 years.

Restricted stock

						Weighted
						Average
		Shares				Grant-Date
		(000’s)				Fair Value
Nonvested at January 1, 2006			834			$	17.59
Granted			—				—
Vested			(818	)			17.59
Forfeited			(4	)			17.62
Nonvested at September 30, 2006			12				17.45

     During the nine months ended September 30, 2006, restrictions lapsed with respect to 818,000 shares with a total fair value of $34 million. During the nine months ended September 30, 2005, restrictions lapsed with respect to 840,000 shares with a total fair value of $33 million. In the nine month periods ended September 30, 2006 and 2005, certain recipients of restricted shares elected to use a portion of the shares in which restrictions lapsed to pay required withholding taxes. Approximately 277,000 and 266,000 shares, respectively, were surrendered in the nine month periods ended September 30, 2006 and 2005. As of September 30, 2006, there was less than $1 million of unamortized compensation related to restricted stock, all of which will be recognized in 2006.

     Recognition of compensation cost. The following table shows information about compensation cost recognized:

		Three Months								Nine Months
For the periods ended September 30,		2006				2005				2006				2005
						(In thousands)
Compensation cost:
Stock options and stock appreciation rights		$	17,697			$	50			$	56,119			$	89
Restricted stock			26				1,590				3,038				5,350
Total compensation cost			17,723				1,640				59,157				5,439
Less: Compensation cost capitalized			(260	)			—				(876	)			—
Compensation cost recognized as expense			17,463				1,640				58,281				5,439
Less: Related tax benefit			(6,094	)			(267	)			(19,710	)			(851	)
Compensation expense, net of tax benefit		$	11,369			$	1,373			$	38,571			$	4,588

     Compensation cost for stock options and stock appreciation rights was based on the fair value of each award, measured by applying the Black-Scholes model on the date of grant, using the following weighted-average assumptions (assumptions in 2005 were used to compute the pro forma compensation for disclosure purposes only):

		Three Months								Nine Months
For the periods ended September 30,		2006				2005				2006				2005
Expected volatility			33	%			37	%			33	%			37	%
Expected term		4.1years				4.3years				4.1years				4.3years
Expected dividend yield			0	%			0	%			0	%			0	%
Risk-free interest rate			5.1	%			3.9	%			4.9	%			3.8	%
Forfeiture rate			4.6	%			0	%			4.6	%			0	%
Weighted-average fair value of options granted		$	12.75			$	15.71			$	14.08			$	12.72

     Expected volatility is based in part on historical volatility and in part on implied volatility based on traded options on the Company’s stock. The expected term considers the contractual term of the option as well as historical exercise and forfeiture behavior. The risk-free interest rate is based on the rates in effect on the grant date for US Treasury instruments with maturities matching the relevant expected term of the award.

     Pro forma disclosures. Had the Company accounted for these plans during 2005 under the fair value method allowed by SFAS 123, the Company’s net income and earnings per share would have been reduced to recognize the fair value of employee stock options, as follows:

		Three Months				Nine Months
For the periods ended September 30,		2005				2005
		(In thousand, except per share amounts)
Net income
As reported		$	93,210			$	345,457
Incremental stock-based compensation under SFAS 123, net of tax benefit			(15,017	)			(31,367	)
Pro forma		$	78,193			$	314,090
Basic earnings per share
As reported		$	0.33			$	1.21
Pro forma		$	0.27			$	1.10
Diluted earning per share
As reported		$	0.31			$	1.16
Pro forma		$	0.26			$	1.06

NOTE 9 – COMMITMENTS AND CONTINGENCIES

     New York Racing Association. The Company has entered into a definitive agreement with the New York Racing Association (“NYRA”) to manage video lottery terminals (“VLTs”) at NYRA’s Aqueduct horseracing facility in metropolitan New York. Subject to receipt of requisite New York State approvals, the Company will assist in the development of the facility, including providing project financing up to $190 million, and will manage the facility for a term of five years (extended automatically if the financing provided by the Company is not fully repaid) for a fee. The Company believes, based on recent legislative changes, that its agreement with respect to installation of VLTs at Aqueduct would extend past the expiration of NYRA’s current racing franchise and would be binding on any successor to NYRA in the event NYRA is not granted a new racing franchise. NYRA’s recent filing for reorganization under Chapter 11 has introduced additional uncertainties, but the Company remains committed to the development once these uncertainties are resolved.

     United Kingdom. In November 2003, the Company entered into an agreement with Newcastle United PLC to create a 50-50 joint venture which would build a major new mixed-use development, including a regional casino, on a site adjacent to Newcastle United’s football stadium. The Company made an equity investment of £5 million ($9 million based on exchange rates at September 30, 2006). The agreement is cancelable, and the equity investment refundable, if certain conditions are not met within specified time frames, including obtaining a regional casino license and regulatory approvals, and the implementation of an acceptable tax regime.

     The Signature at MGM Grand. The Company has provided guarantees for the debt financing on Towers 1, 2 and 3 of The Signature at MGM Grand. Tower 1 has been completed and fully sold, relieving the Company’s guaranty obligation for Tower 1. The Company’s obligations on each of Towers 2 and 3 generally provide for a guaranty of 50% of the principal and interest, with the guaranty decreasing by 50% relative to the principal when construction is 50% complete. The remaining 50% of interest and principal obligations is guaranteed by affiliates of the venture’s other investor. The Company and the affiliates have also jointly and severally provided a completion guaranty. The maximum borrowings allowed for Towers 2 and 3 are $230 million and $186 million, respectively.

     At September 30, 2006, the Company had recorded a guaranty obligation liability of $2 million for Towers 2 and 3, classified in “Other long-term obligations” in the accompanying consolidated balance sheets.

     Mashantucket Pequot Tribal Nation. The Company has agreed to enter a strategic alliance, subject to definitive agreements, with the Mashantucket Pequot Tribal Nation (“MPTN”). The strategic alliance has several elements, one of which calls for the creation of a 50/50 joint venture to seek future development opportunities. The Company has agreed to provide a development subsidiary of MPTN with a loan of up to $200 million intended to fund a portion of that subsidiary’s matching investment in any future joint development projects.

NOTE 10 — PROPERTY TRANSACTIONS, NET

     Net property transactions consisted of the following:

		Three Months								Nine Months
For the periods ended September 30,		2006				2005				2006				2005
						(In thousands)
Write-downs and impairments		$	—			$	20,575			$	33,645			$	20,575
Demolition costs			118				1,304				316				5,569
Net losses on sale or disposal of fixed assets			164				758				2,365				2,489
		$	282			$	22,637			$	36,326			$	28,633

     Write-downs and impairments in 2006 included $22 million related to the write-off of the tram connecting Bellagio and Monte Carlo, including the stations at both resorts, in preparation for construction of CityCenter. CityCenter will feature a state-of-the-art people mover system that will reconnect Bellagio with Monte Carlo, with the stations at each resort completely redesigned as well. Other write-downs related to assets being replaced in connection with several smaller capital projects, primarily at MGM Grand Las Vegas, Mandalay Bay and Mirage, as well as the $4 million write-off of Luxor’s investment in the Hairspray show.

     Write-downs and impairments in 2005 consisted of assets replaced or disposed of in connection with expansion and remodeling activity at Bellagio, Mirage and TI. Demolition costs in 2005 related primarily to room remodel activity at MGM Grand Las Vegas and construction of the new showroom at Mirage.

NOTE 11 — CONSOLIDATING CONDENSED FINANCIAL INFORMATION

     The Company’s subsidiaries (excluding MGM Grand Detroit, LLC and certain minor subsidiaries) have fully and unconditionally guaranteed, on a joint and several basis, payment of the senior credit facility, the senior notes and the senior subordinated notes. Separate condensed financial statement information for the subsidiary guarantors and non-guarantors as of September 30, 2006 and December 31, 2005 and for the three and nine month periods ended September 30, 2006 and 2005 is as follows:

CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION

		As of September 30, 2006
						Guarantor				Non-Guarantor
		Parent				Subsidiaries				Subsidiaries				Elimination				Consolidated
										(In thousands)
Current assets		$	72,323			$	909,398			$	20,812			$	—			$	1,002,533
Real estate under development			—				128,116				—				—				128,116
Property and equipment, net			—				16,852,947				386,835				(11,972	)			17,227,810
Investments in subsidiaries			15,725,777				276,550				—				(16,002,327	)			—
Investments in unconsolidated affiliates			342,165				785,474				297,190				(342,165	)			1,082,664
Other non-current assets			83,219				2,016,861				103,397				—				2,203,477
		$	16,223,484			$	20,969,346			$	808,234			$	(16,356,464	)		$	21,644,600
Current liabilities		$	241,616			$	1,247,765			$	64,775			$	—			$	1,554,156
Intercompany accounts			(1,432,714	)			1,297,504				135,210				—				—
Deferred income taxes			3,377,594				—				—				—				3,377,594
Long-term debt			10,493,981				2,425,091				36,750				—				12,955,822
Other non-current liabilities			1,596				164,093				49,928				—				215,617
Stockholders’ equity			3,541,411				15,834,893				521,571				(16,356,464	)			3,541,411
		$	16,223,484			$	20,969,346			$	808,234			$	(16,356,464	)		$	21,644,600

		As of December 31, 2005
						Guarantor				Non-Guarantor
		Parent				Subsidiaries				Subsidiaries				Elimination				Consolidated
										(In thousands)
Current assets		$	89,153			$	885,991			$	43,439			$	—			$	1,018,583
Property and equipment, net			7,113				16,373,113				173,397				(11,972	)			16,541,651
Investments in subsidiaries			14,569,623				183,208				—				(14,752,831	)			—
Investments in unconsolidated affiliates			127,902				904,138				241,279				(342,165	)			931,154
Other non-current assets			86,011				2,018,809				103,212				—				2,208,032
		$	14,879,802			$	20,365,259			$	561,327			$	(15,106,968	)		$	20,699,420
Current liabilities		$	345,195			$	1,148,306			$	41,067			$	—			$	1,534,568
Intercompany accounts			(1,794,833	)			1,726,415				68,418				—				—
Deferred income taxes			3,378,371				—				—				—				3,378,371
Long-term debt			9,713,754				2,641,679				—				—				12,355,433
Other non-current liabilities			2,243				143,733				50,000				—				195,976
Stockholders’ equity			3,235,072				14,705,126				401,842				(15,106,968	)			3,235,072
		$	14,879,802			$	20,365,259			$	561,327			$	(15,106,968	)		$	20,699,420

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION

		For the Three Months Ended September 30, 2006
						Guarantor				Non-Guarantor
		Parent				Subsidiaries				Subsidiaries				Elimination				Consolidated
										(In thousands)
Net revenues		$	—			$	1,785,833			$	116,142			$	—			$	1,901,975
Equity in subsidiaries’ earnings			410,876				33,162				—				(444,038	)			—
Expenses:
Casino and hotel operations			5,433				964,677				62,821				—				1,032,931
General and administrative			4,836				283,342				14,252				—				302,430
Corporate expense			7,863				27,321				—				—				35,184
Preopening and start-up expenses			115				5,321				647				—				6,083
Restructuring costs			—				—				—				—				—
Property transactions, net			60				222				—				—				282
Depreciation and amortization			450				158,530				4,556				—				163,536
			18,757				1,439,413				82,276				—				1,540,446
Income from unconsolidated affiliates			—				66,138				—				—				66,138
Operating income			392,119				445,720				33,866				(444,038	)			427,667
Interest income (expense), net			(185,613	)			(5,628	)			(8	)			—				(191,249	)
Other, net			1,343				(7,785	)			161				—				(6,281	)
Income before income taxes			207,849				432,307				34,019				(444,038	)			230,137
Provision for income taxes			(51,587	)			(21,431	)			(857	)			—				(73,875	)
Net income		$	156,262			$	410,876			$	33,162			$	(444,038	)		$	156,262

		For the Three Months Ended September 30, 2005
						Guarantor				Non-Guarantor
		Parent				Subsidiaries				Subsidiaries				Elimination				Consolidated
										(In thousands)
Net revenues		$	—			$	1,700,591			$	107,652			$	—			$	1,808,243
Equity in subsidiaries’ earnings			299,894				29,410				—				(329,304	)			—
Expenses:
Casino and hotel operations			—				948,585				57,464				—				1,006,049
General and administrative			—				275,357				13,371				—				288,728
Corporate expense			1,950				30,162				—				—				32,112
Preopening and start-up expenses			—				6,147				—				—				6,147
Restructuring costs			—				11				—				—				11
Property transactions, net			—				22,637				—				—				22,637
Depreciation and amortization			603				154,476				6,487				—				161,566
			2,553				1,437,375				77,322				—				1,517,250
Income from unconsolidated affiliates			—				35,185				13,821				—				49,006
Operating income			297,341				327,811				44,151				(329,304	)			339,999
Interest income (expense), net			(155,948	)			(34,072	)			26				—				(189,994	)
Other, net			5,207				(7,826	)			169				—				(2,450	)
Income before income taxes			146,600				285,913				44,346				(329,304	)			147,555
Provision for income taxes			(53,390	)			—				(955	)			—				(54,345	)
Net income		$	93,210			$	285,913			$	43,391			$	(329,304	)		$	93,210