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, 2007

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

 

 

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, 2007
Common Stock, $.01 par value		299,380,038 shares

 

 

MGM MIRAGE AND SUBSIDIARIES

FORM 10-Q

I N D E X

		Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets at September 30, 2007 and December 31, 2006			1
Consolidated Statements of Income for the Three Months and Nine Months Ended September 30, 2007 and September 30, 2006			2
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2007 and September 30, 2006			3
Condensed Notes to Consolidated Financial Statements			4-16
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			17-25
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,
		2007				2006
ASSETS
Current assets
Cash and cash equivalents		$	311,605			$	452,944
Accounts receivable, net			378,697				362,921
Inventories			124,562				118,459
Income tax receivable			50,652				18,619
Deferred income taxes			65,105				68,046
Prepaid expenses and other			148,801				124,414
Assets held for sale			55,077				369,348
Total current assets			1,134,499				1,514,751
Real estate under development			478,318				188,433
Property and equipment, net			19,302,533				17,241,860
Other assets
Investments in unconsolidated affiliates			1,107,179				1,092,257
Goodwill			1,269,591				1,300,747
Other intangible assets, net			360,553				367,200
Deposits and other assets, net			654,538				440,990
Total other assets			3,391,861				3,201,194
		$	24,307,211			$	22,146,238
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable		$	186,870			$	182,154
Construction payable			371,293				234,486
Accrued interest on long-term debt			179,724				232,957
Other accrued liabilities			964,462				958,244
Liabilities related to assets held for sale			3,396				40,259
Total current liabilities			1,705,745				1,648,100
Deferred income taxes			3,373,770				3,441,157
Long-term debt			14,131,377				12,994,869
Other long-term obligations			514,567				212,563
Commitments and contingencies (Note 5)
Stockholders’ equity
Common stock, $.01 par value: authorized 600,000,000 shares; issued 367,114,815 and 362,886,027 shares; outstanding 285,637,788 and 283,909,000 shares			3,671				3,629
Capital in excess of par value			3,000,476				2,806,636
Treasury stock, at cost: 81,477,027 and 78,997,027 shares			(1,771,707	)			(1,597,120	)
Retained earnings			3,348,197				2,635,989
Accumulated other comprehensive income			1,115				415
Total stockholders’ equity			4,581,752				3,849,549
		$	24,307,211			$	22,146,238

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,
		2007				2006				2007				2006
Revenues
Casino		$	803,834			$	782,047			$	2,389,704			$	2,296,999
Rooms			510,795				479,107				1,614,906				1,498,366
Food and beverage			406,620				369,383				1,248,786				1,108,161
Entertainment			141,093				125,290				418,578				329,123
Retail			75,608				73,027				222,930				207,535
Other			132,061				118,765				388,891				335,651
			2,070,011				1,947,619				6,283,795				5,775,835
Less: Promotional allowances			(172,941	)			(152,577	)			(520,874	)			(445,917	)
			1,897,070				1,795,042				5,762,921				5,329,918
Expenses
Casino			412,165				395,253				1,240,441				1,187,794
Rooms			142,722				136,118				428,476				404,032
Food and beverage			242,034				228,799				736,115				667,418
Entertainment			101,164				91,056				303,558				240,052
Retail			47,917				46,359				141,807				135,941
Other			83,812				67,818				232,578				181,213
General and administrative			286,447				278,551				873,739				785,350
Corporate expense			63,050				35,184				140,673				110,415
Preopening and start-up expenses			25,851				6,083				54,275				27,308
Restructuring costs			—				—				—				1,035
Property transactions, net			(89,225	)			282				(81,799	)			36,455
Depreciation and amortization			170,780				156,280				506,566				461,506
			1,486,717				1,441,783				4,576,429				4,238,519
Income from unconsolidated affiliates			54,260				66,138				192,227				158,773
Operating income			464,613				419,397				1,378,719				1,250,172
Non-operating income (expense)
Interest income			4,770				2,650				12,936				8,422
Interest expense, net			(180,033	)			(189,368	)			(547,473	)			(572,993	)
Non-operating items from unconsolidated affiliates			(4,599	)			(4,627	)			(14,419	)			(11,563	)
Other, net			(1,152	)			(1,659	)			(4,684	)			(6,877	)
			(181,014	)			(193,004	)			(553,640	)			(583,011	)
Income before income taxes and discontinued operations			283,599				226,393				825,079				667,161
Provision for income taxes			(99,736	)			(72,628	)			(295,308	)			(230,293	)
Income from continuing operations			183,863				153,765				529,771				436,868
Discontinued operations
Income from discontinued operations			—				3,744				10,461				14,815
Gain on disposal of discontinued operations			—				—				263,881				—
Provision for income taxes			—				(1,247	)			(91,905	)			(4,990	)
			—				2,497				182,437				9,825
Net income		$	183,863			$	156,262			$	712,208			$	446,693
Basic earnings per share of common stock
Income from continuing operations		$	0.65			$	0.55			$	1.86			$	1.54
Discontinued operations			—				—				0.65				0.04
Net income per share		$	0.65			$	0.55			$	2.51			$	1.58
Diluted earnings per share of common stock
Income from continuing operations		$	0.62			$	0.53			$	1.79			$	1.50
Discontinued operations			—				0.01				0.62				0.03
Net income per share		$	0.62			$	0.54			$	2.41			$	1.53

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

MGM MIRAGE AND SUBSIDIARIES

		Nine Months Ended
		September 30,
		2007				2006
Cash flows from operating activities
Net income		$	712,208			$	446,693
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			506,566				483,793
Amortization of debt discounts, premiums and issuance costs			(3,128	)			(1,577	)
Provision for doubtful accounts			25,020				38,328
Stock-based compensation			34,487				58,281
Property transactions, net			(81,799	)			36,455
Gain on disposal of discontinued operations			(263,881	)			—
Income from unconsolidated affiliates			(164,376	)			(140,743	)
Distributions from unconsolidated affiliates			152,451				139,418
Deferred income taxes			(19,855	)			656
Change in operating assets and liabilities:
Accounts receivable			(26,449	)			(33,211	)
Inventories			(6,737	)			(6,112	)
Income taxes receivable and payable			(22,467	)			(93,303	)
Prepaid expenses and other			(24,482	)			(23,664	)
Accounts payable and accrued liabilities			(18,259	)			(28,662	)
Real estate under development			(306,319	)			(29,408	)
Residential sales deposits, net			208,006				—
Hurricane Katrina insurance recoveries			42,233				4,802
Change in Hurricane Katrina insurance receivable			(4,394	)			(43,649	)
Other			(41,437	)			(31,801	)
Net cash provided by operating activities			697,388				776,296
Cash flows from investing activities
Purchases of property and equipment			(2,482,909	)			(1,236,147	)
Dispositions of property and equipment			15,332				11,002
Investments in joint ventures			—				(86,000	)
Proceeds from disposal of discontinued operations, net			578,873				—
Purchase of convertible note			(160,000	)			—
Hurricane Katrina insurance recoveries			124,917				113,947
Other			(34,529	)			(17,992	)
Net cash used in investing activities			(1,958,316	)			(1,215,190	)
Cash flows from financing activities
Net borrowings under bank credit facilities — maturities of 90 days or less			556,800				466,750
Borrowings under bank credit facilities — maturities longer than 90 days			5,750,000				4,000,000
Repayments under bank credit facilities — maturities longer than 90 days			(4,500,000	)			(4,400,000	)
Issuance of long-term debt			750,000				750,000
Retirement of senior notes			(1,402,233	)			(200,000	)
Debt issuance costs			(5,199	)			(5,828	)
Issuances of common stock			76,026				33,402
Purchases of common stock			(174,586	)			(246,892	)
Excess tax benefits from stock-based compensation			73,131				20,147
Other			(1,193	)			(12,902	)
Net cash provided by financing activities			1,122,746				404,677
Cash and cash equivalents
Net decrease for the period			(138,182	)			(34,217	)
Cash related to assets held for sale			(3,157	)			—
Balance, beginning of period			452,944				377,933
Balance, end of period		$	311,605			$	343,716
Supplemental cash flow disclosures
Interest paid, net of amounts capitalized		$	609,678			$	622,115
Federal, state and foreign income taxes paid, net of refunds			349,908				307,893
Non-cash investing and financing activities
Increase in construction payable			136,806				148,317

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

MGM MIRAGE AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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, 2007, approximately 54% of the outstanding shares of the Company’s common stock were owned by Tracinda Corporation, a Nevada corporation which is wholly owned by Kirk Kerkorian. MGM MIRAGE acts largely as a holding company and, through wholly-owned subsidiaries, owns and/or operates casino resorts.

     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. Operations at MGM Grand Las Vegas include management of The Signature at MGM Grand Las Vegas, a condominium-hotel consisting of three towers. Other Nevada operations include Circus Circus Reno, Gold Strike 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. The Company also owns Shadow Creek, an exclusive world-class golf course located approximately ten miles north of its Las Vegas Strip resorts, and Primm Valley Golf Club at the California/Nevada state line.

     In April 2007, the Company completed the sale of Buffalo Bill’s, Primm Valley, and Whiskey Pete’s casino resorts (the “Primm Valley Resorts”), not including the Primm Valley Golf Club, with net proceeds to the Company of approximately $398 million. In June 2007, the Company completed the sale of the Colorado Belle and Edgewater in Laughlin (the “Laughlin Properties”), with net proceeds to the Company of approximately $199 million. In February 2007, the Company entered into an agreement to contribute Gold Strike, Nevada Landing and surrounding land (the “Jean Properties”) to a joint venture. The joint venture’s purpose is to develop a mixed-use community on the site. See Note 2 for further discussion of these transactions.

     The Company and its local partners own and operate MGM Grand Detroit, which recently opened a new permanent hotel and casino complex in downtown Detroit, Michigan. The interim facility closed on September 30, 2007 and the new casino resort opened on October 2, 2007. Final construction cost of the new MGM Grand Detroit is estimated to be approximately $725 million, excluding preopening, land, and license costs. Preopening and start-up expenses are estimated to be approximately $30 million. The permanent casino is located on a 25-acre site with a carrying value of approximately $50 million. In addition, the Company recorded license rights with a carrying value of $100 million as a result of MGM Grand Detroit’s obligations to the City of Detroit in connection with the permanent casino development agreement.

     The Company also owns and operates two resorts in Mississippi — Beau Rivage in Biloxi and Gold Strike Tunica. Beau Rivage reopened in August 2006, after having been closed due to damage sustained as a result of Hurricane Katrina in August 2005.

     The Company has 50% interests in two resorts outside of Nevada — Grand Victoria and Borgata. 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. Borgata is a casino resort located on Renaissance Pointe 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 planned for a wholly-owned development, MGM Grand Atlantic City. The new resort is preliminarily estimated to cost approximately $4.5 — $5.0 billion, not including land and associated costs. The proposed resort includes three towers with more than 3,000 rooms and suites, approximately 5,000 slot machines, 200 table games, 500,000 square-feet of retail, an extensive convention center, and other typical resort amenities.

     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. Construction of MGM Grand Macau is estimated to cost approximately $880 million, excluding preopening, land rights and license costs. Preopening and start-up expenses are estimated to be $110 million. The land rights are estimated to cost approximately $60 million. The subconcession agreement, which allows MGM Grand Paradise Limited to operate casinos in Macau, cost $200 million. 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 development cost of CityCenter is estimated at approximately $7.8 billion, excluding preopening and land costs. Preopening and start-up expenses are estimated to be $200 million. CityCenter is located on a 67-acre site with a carrying value of approximately $1 billion. After estimated net proceeds of $2.7 billion from the sale of residential units, net construction cost is estimated at approximately $5.1 billion. CityCenter is expected to open in late 2009. These estimates of net project costs do not reflect the joint venture transaction discussed below.

     In August 2007, the Company entered into an agreement with Dubai World to form a 50/50 joint venture for the CityCenter development. The joint venture, CityCenter Holdings LLC, will be owned equally by the Company and Infinity World Development Corp., a wholly-owned subsidiary of Dubai World. The Company will contribute the CityCenter assets which the parties have valued at $5.4 billion, subject to adjustment based on actual construction spending and actual residential proceeds through the closing date. Dubai World will initially contribute $2.7 billion, subject to adjustment based on a) the potential adjustment to the initial valuation of $5.4 billion, and b) the need for interim additional funding until the joint venture obtains project-specific financing. At the close of the transaction, the Company will receive a cash distribution of $2.7 billion, subject to these same adjustments. The joint venture intends to obtain project-specific financing to fund remaining project costs. The Company will continue to serve as developer of CityCenter and will receive additional consideration of up to $100 million if the project is completed on time and actual development costs, net of residential proceeds, are within specified parameters. Upon completion of construction, the Company will manage CityCenter for a fee. The Company expects the joint venture transaction to close in the fourth quarter of 2007.

     Financial statement impact of Hurricane Katrina. The Company maintained insurance covering both property damage and business interruption as a result of wind and flood damage sustained at Beau Rivage. Business interruption coverage covered lost profits and other costs incurred during the construction period and up to six months following the re-opening of the facility.

     Non-refundable insurance recoveries received in excess of the net book value of damaged assets, clean-up and demolition costs, and post-storm costs have been recognized as income in the period received or committed based on the Company’s estimate of the total claim for property damage and business interruption compared to the recoveries received at that time.

     As of September 30, 2007, the Company had received insurance recoveries of $522 million and had executed a settlement agreement with one of its carriers for an additional $15 million. These amounts exceed the $263 million total of net book value of damaged assets, clean-up and demolition costs, and post-storm operating costs by $274 million; therefore, no write-down or demolition expense was recorded and post storm operating costs were offset by expected recoveries within “General and administrative” expenses. Depreciation of non-damaged assets was classified as “Depreciation and amortization.” Of the $274 million excess, $221 million was received on a non-refundable basis and has been reported as income. The remaining $53 million has been deferred because the related payments were submitted to the Company under reservation of rights on behalf of the insurance carriers; such amounts are included in “Other accrued liabilities” in the accompanying consolidated balance sheet as of September 30, 2007. During the three and nine months ended September 30, 2007 the Company recognized $135 million of insurance recoveries in income, of which $107 million was recorded within “Property transactions, net” and $28 million related to the business interruption portion of the Company’s claim was recorded within “General and administrative expenses.” The remaining $86 million previously recognized in income was recorded within “Property transactions, net” in the fourth quarter of 2006.

     Insurance recoveries are classified in the statement of cash flows based on the coverage to which they relate. Recoveries related to business interruption are classified as operating cash flows and recoveries related to property damage are classified as investing cash flows. However, the Company’s insurance policy includes undifferentiated coverage for both property damage and business interruption. Therefore, the Company classified insurance recoveries as being related to property damage until the full $160 million of damaged assets and demolition costs were recovered and classified additional recoveries up to the amount of the post-storm costs incurred as being related to business interruption. Insurance recoveries beyond that amount have been classified as operating or financing based on the total proceeds received to date compared to the total expected recoveries to be received upon final settlement of our insurance claims. During the nine months ended September 30, 2007 and 2006, insurance recoveries of $42 million and $5 million, respectively, have been classified as operating cash flows. During the nine months ended September 30, 2007 and 2006, insurance recoveries of $125 million and $114 million, respectively, have been classified as investing activities.

     Investment in The M Resort LLC convertible note. In June 2007, the Company purchased a $160 million convertible note issued by The M Resort LLC, which is developing a casino resort on Las Vegas Boulevard, 10 miles south of Bellagio. The convertible note matures in June 2015, contains certain optional and mandatory redemption provisions, and is convertible into a 50% equity interest in The M Resort LLC beginning in December 2008. The convertible note earns interest at 6% which may be paid in cash or accrued “in kind” for the first five years; thereafter interest must be paid in cash. There are no scheduled principal payments before maturity.

     The convertible note is accounted for as a hybrid financial instrument consisting of a host debt instrument and an embedded call option on The M Resort LLC’s equity. The debt component is accounted for separately as an available-for-sale marketable security, with changes in value recorded in other comprehensive income. The call option is treated as a derivative with changes in value recorded in earnings. The initial value of the call option was $0 and the initial value of the debt was $155 million, with the discount accreted to earnings over the term of the note. The entire carrying value of the convertible note is included in “Deposits and other assets, net” in the accompanying consolidated balance sheets, as the security is not marketable.

     Adoption of FIN 48. Effective January 1, 2007, the Company adopted Financial Accounting Standards Board Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 requires that tax positions be assessed using a two-step process. A tax position is recognized if it meets a “more likely than not” threshold, and is measured at the largest amount of benefit that is greater than 50 percent likely of being realized. Uncertain tax positions must be reviewed at each balance sheet date. Liabilities recorded as a result of this analysis must generally be recorded separately from any current or deferred income tax accounts, and are classified as current (“Other accrued liabilities”) or long-term (“Other long-term liabilities”) based on the time until expected payment. A cumulative effect adjustment to retained earnings was not required as a result of the implementation of FIN 48.

     As of January 1, 2007, the Company had a total of $97 million of unrecognized tax benefits. The total amount of these unrecognized tax benefits that, if recognized, would affect the effective tax rate is $20 million.

     As of September 30, 2007, the Company had a total of $68 million of unrecognized tax benefits. The total amount of these unrecognized tax benefits that, if recognized, would affect the effective tax rate is $23 million. The net decrease in the amount of unrecognized tax benefits from the date of adoption resulted primarily from the closure during the first quarter of 2007 of an Internal Revenue Service (IRS) examination of federal income tax returns for the years ended December 31, 2001 and 2002. The Company agreed to an additional assessment of taxes and associated interest of $2 million and is protesting at IRS Appeals certain issues that were not agreed upon at the closure of the examination. The Company reduced unrecognized tax benefits in the amount of $33 million and recorded corresponding reductions in goodwill related to the acquisition of Mirage Resorts, Incorporated and income tax expense of $29 million and $4 million, respectively. We do not expect a significant increase or decrease in unrecognized tax benefits over the next twelve months.

     The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense. This policy did not change as a result of the adoption of FIN 48. The Company had $3 million in interest, net of federal benefit, related to unrecognized tax benefits accrued as of January 1, 2007 and no amounts were accrued for penalties as of such date.

     The Company files income tax returns in the U.S. federal jurisdiction, various state and local jurisdictions, and foreign jurisdictions, although the taxes paid in foreign jurisdictions are not material. As of January 1, 2007, the Company was no longer subject to examination of its U.S. federal income tax returns filed for years ended prior to 2001. While the IRS examination of the 2001 and 2002 tax years closed during the first quarter of 2007, the statute of limitations for assessing tax for such years has been extended in order for the Company to complete the appeals process for issues that were not agreed upon at the closure of the examination. The IRS is currently examining the Company’s federal income tax returns for the 2003 and 2004 tax years. The tax returns for subsequent years are also subject to examination.

     As of January 1, 2007, with few exceptions, the Company was no longer subject to examination of its various state and local tax returns filed for years ended prior to 2003. During the first quarter of 2007, the City of Detroit initiated an examination of a Mandalay Resort Group subsidiary return for the pre-acquisition year ended April 25, 2005. During the fourth quarter of 2007, the state of Mississippi initiated an examination of returns filed by subsidiaries of MGM MIRAGE and Mandalay Resort Group for the 2004 through 2006 tax years. No other state or local income tax returns are under examination.

     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 2006 annual consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006.

     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, 2007, the results of its operations for the three and nine month periods ended September 30, 2007 and 2006, and its cash flows for the nine month periods ended September 30, 2007 and 2006. 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 2006 financial statements to conform to the 2007 presentation.

NOTE 2 — ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS

     The sale of the Primm Valley Resorts in April 2007 resulted in a pre-tax gain of $201 million. The sale of the Laughlin Properties in June 2007 resulted in a pre-tax gain of $63 million.

     The assets and liabilities of the Jean Properties have not been contributed to the planned joint venture and therefore are classified as held for sale at September 30, 2007. The assets and liabilities of Primm Valley Resorts and the Laughlin Properties were classified as held for sale at December 31, 2006 in the accompanying consolidated balance sheets. Nevada Landing closed in March 2007 and the carrying value of its building assets were written-off. These amounts are included in “Property transactions, net” in the accompanying consolidated statements of income for the nine month period ended September 30, 2007 — see Note 10 for further discussion.

     The following table summarizes the assets held for sale and liabilities related to assets held for sale in the accompanying consolidated balance sheets:

		September 30,				December 31,
		2007				2006
		(In thousands)
Cash		$	3,157			$	24,538
Accounts receivable, net			709				3,203
Inventories			605				3,196
Prepaid expenses and other			1,101				8,141
Total current assets			5,572				39,078
Property and equipment, net			47,127				316,332
Goodwill			—				5,000
Other assets, net			2,378				8,938
Total assets			55,077				369,348
Accounts payable			674				6,622
Other current liabilities			2,722				29,142
Total current liabilities			3,396				35,764
Other long-term obligations			—				4,495
Total liabilities			3,396				40,259
Net assets		$	51,681			$	329,089

     The results of the Laughlin Properties and Primm Valley Resorts are classified as discontinued operations in the accompanying consolidated statements of income for all periods presented. Due to our continuing involvement in the Jean Properties, the results of these operations have not been classified as discontinued operations in the accompanying consolidated statements of income. The cash flows of discontinued operations are included with the cash flows of continuing operations in the accompanying consolidated statements of cash flows.

     Other information related to discontinued operations is as follows:

		Three Months								Nine Months
For the periods ended September 30,		2007				2006				2007				2006
		(In thousands)
Net revenues of discontinued operations		$		—		$	106,933			$	128,619			$	317,773
Interest allocated to discontinued operations (based on the ratio of net assets of discontinued operations to total consolidated net assets and debt)				—			4,531				5,844				13,637

NOTE 3 — INVESTMENTS IN UNCONSOLIDATED AFFILIATES

     Investments in unconsolidated affiliates consisted of the following:

		September 30,				December 31,
		2007				2006
		(In thousands)
Marina District Development Company — Borgata (50%)		$	462,725			$	454,354
Elgin Riverboat Resort—Riverboat Casino — Grand Victoria (50%)			297,413				300,151
MGM Grand Paradise Limited — MGM Grand Macau (50%)			286,211				285,038
Circus and Eldorado Joint Venture — Silver Legacy (50%)			36,242				31,258
Turnberry/MGM Grand Towers — The Signature at MGM Grand (50%)			13,117				11,661
Other			11,471				9,795
		$	1,107,179			$	1,092,257

     The Company’s investment in MGM Grand Paradise Limited consists of equity and subordinated debt. The Company is committed to lending the venture up to an additional $4 million.

     The Company recognized the following related to its share of profit from condominium sales at The Signature at MGM Grand, based on when sales were closed:

		Three Months								Nine Months
For the periods ended September 30,		2007				2006				2007				2006
		(In thousands)
Income from joint venture		$	10,487			$	21,963			$	75,244			$	44,301
Gain on land previously deferred			1,538				3,757				7,983				7,756
Other income (loss)			144				(136	)			742				(282	)
		$	12,169			$	25,584			$	83,969			$	51,775

     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,		2007				2006				2007				2006
		(In thousands)
Income from unconsolidated affiliates		$	54,260			$	66,138			$	192,227			$	158,773
Preopening and start-up expenses			(6,559	)			(1,324	)			(13,432	)			(6,467	)
Non-operating items from unconsolidated affiliates			(4,599	)			(4,627	)			(14,419	)			(11,563	)
		$	43,102			$	60,187			$	164,376			$	140,743

NOTE 4 — LONG-TERM DEBT

     Long-term debt consisted of the following:

		September 30,				December 31,
		2007				2006
		(In thousands)
Senior credit facility		$	6,188,650			$	4,381,850
$710 million 9.75% senior subordinated notes, due 2007, net			—				709,477
$200 million 6.75% senior notes, due 2007, net			—				197,279
$492.2 million 10.25% senior subordinated notes, due 2007, net			—				505,704
$180.4 million 6.75% senior notes, due 2008, net			179,015				175,951
$196.2 million 9.5% senior notes, due 2008, net			201,867				206,733
$226.3 million 6.5% senior notes, due 2009, net			227,509				227,955
$1.05 billion 6% senior notes, due 2009, net			1,052,927				1,053,942
$297.6 million 9.375% senior subordinated notes, due 2010, net			314,469				319,277
$825 million 8.5% senior notes, due 2010, net			823,566				823,197
$400 million 8.375% senior subordinated notes, due 2011			400,000				400,000
$132.4 million 6.375% senior notes, due 2011, net			133,373				133,529
$550 million 6.75% senior notes, due 2012			550,000				550,000
$150 million 7.625% senior subordinated debentures, due 2013, net			154,851				155,351
$500 million 6.75% senior notes, due 2013			500,000				500,000
$525 million 5.875% senior notes, due 2014, net			523,025				522,839
$875 million 6.625% senior notes, due 2015, net			879,280				879,592
$250 million 6.875% senior notes, due 2016			250,000				250,000
$750 million 7.5% senior notes, due 2016			750,000				—
$100 million 7.25% senior debentures, due 2017, net			84,256				83,556
$750 million 7.625% senior notes due 2017			750,000				750,000
Floating rate convertible senior debentures due 2033			8,472				8,472
$150 million 7% debentures due 2036, net			155,852				155,900
$4.3 million 6.7% debentures, due 2096			4,265				4,265
		$	14,131,377			$	12,994,869

     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.

     Interest expense, net consisted of the following:

		Three Months								Nine Months
For the periods ended September 30,		2007				2006				2007				2006
						(In thousands)
Total interest incurred		$	242,808			$	230,479			$	713,868			$	668,847
Interest capitalized			(62,775	)			(36,580	)			(160,551	)			(82,217	)
Interest allocated to discontinued operations			—				(4,531	)			(5,844	)			(13,637	)
		$	180,033			$	189,368			$	547,473			$	572,993

     The senior credit facility has a total capacity of $7 billion, which matures in 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 include a term loan facility of $2.5 billion and a revolving credit facility of $4.5 billion. At September 30, 2007, the Company had approximately $727 million of available borrowing capacity under the senior credit facility.

     In May 2007, the Company issued $750 million of 7.5% senior notes due 2016. In June 2007, the Company repaid the $710 million of 9.75% senior subordinated notes at maturity. In August 2007, the Company repaid the $200 million of 6.75% senior notes and the $492.2 million of 10.25% senior subordinated notes at maturity using borrowings under the senior credit facility.

     The Company’s long-term debt obligations contain customary covenants requiring the Company to maintain certain financial ratios. At September 30, 2007, 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, 2007, the Company’s leverage and interest coverage ratios were 5.2:1 and 2.9:1, respectively.

NOTE 5 — COMMITMENTS AND CONTINGENCIES

     The Signature at MGM Grand. The Company provided guarantees for the debt financing on Towers 1, 2 and 3 of The Signature at MGM Grand. The loan amounts for all towers have been completely repaid, relieving the Company’s guaranty obligations related to The Signature at MGM Grand.

     New York Racing Association. In 2005, the Company 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 which was subject to receipt of requisite New York State approvals. The Company was to provide project financing up to $190 million. Subsequently, the Company was not able to come to an agreement with NYRA and the state of New York and announced in April 2007 that it decided not to pursue this project further.

     Mashantucket Pequot Tribal Nation. The Company entered into a series of agreements to implement a strategic alliance with the Mashantucket Pequot Tribal Nation (“MPTN”), which owns and operates Foxwoods Casino Resort in Ledyard, Connecticut. The Company and MPTN have formed a jointly owned company – Unity Gaming, LLC – to acquire or develop future gaming and non-gaming enterprises. The Company will provide a loan of up to $200 million to finance a portion of MPTN’s investment in joint projects.

     Kerzner/Istithmar Joint Venture. In September 2007, the Company entered into a definitive agreement with Kerzner International and Istithmar Hotels FZE forming a joint venture to develop a multi-billion dollar integrated resort to be located on the southwest corner of Las Vegas Boulevard and Sahara Avenue. The Company will contribute 40 acres of land, which is being valued at $20 million per acre, for fifty percent of the equity in the joint venture. Kerzner International and Istithmar Hotels FZE will contribute cash and each will obtain twenty-five percent of the equity in the joint venture.

NOTE 6 — 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,		2007				2006				2007				2006
						(In thousands)
Weighted-average common shares outstanding (used in the calculation of basic earnings per share)			284,730				281,836				284,201				283,423
Potential dilution from stock options, stock appreciation rights and restricted stock			11,518				7,422				11,486				8,321
Weighted-average common and common equivalent shares (used in the calculation of diluted earnings per share)			296,248				289,258				295,687				291,744

NOTE 7 — COMPREHENSIVE INCOME

     Comprehensive income consisted of the following:

		Three Months								Nine Months
For the periods ended September 30,		2007				2006				2007				2006
						(In thousands)
Net income		$	183,863			$	156,262			$	712,208			$	446,693
Currency translation adjustment			197				286				700				771
Other			—				—				—				3
		$	184,060			$	156,548			$	712,908			$	447,467

NOTE 8 — STOCKHOLDERS’ EQUITY

     Stock repurchases. In the nine months ended September 30, 2007, the Company repurchased 2.5 million shares of common stock at a total cost of $175 million, leaving 5.5 million shares available for repurchase under a July 2004 authorization. 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.

NOTE 9 — STOCK-BASED COMPENSATION

     The Company adopted an omnibus incentive plan in 2005 which allows it to grant stock options, stock appreciation rights, restricted stock, and other stock-based awards to eligible directors, officers and employees. The plan is administered by the Compensation 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 lapsed 50% on the third anniversary date after the grant and 50% on the fourth anniversary date after the grant.

     As of September 30, 2007, the aggregate number of share-based awards available for grant under the omnibus plan was 3.9 million. A summary of activity under the Company’s share-based payment plans for the nine months ended September 30, 2007 is presented below:

Stock options and stock appreciation rights

						Weighted
						Average
		Shares				Exercise
		(000’s)				Price
Outstanding at January 1, 2007			30,532			$	25.37
Granted			1,759				73.02
Exercised			(4,277	)			18.49
Forfeited or expired			(889	)			33.48
Outstanding at September 30, 2007			27,125				29.32
Exercisable at September 30, 2007			12,453				21.36

     Other information about share-based compensation is as follows:

     The total intrinsic value of stock options and stock appreciation rights exercised during the nine month periods ended September 30, 2007 and 2006 was $244 million and $62 million, respectively. The total income tax benefit from stock option exercises during the nine month periods ended September 30, 2007 and 2006 was $81 million and $21 million, respectively. As of September 30, 2007, there was a total of $90 million of unamortized compensation related to stock options and stock appreciation rights, which is expected to be recognized over a weighted-average period of 2.2 years.

     The Company adopted Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123(R)”) on January 1, 2006 using the modified prospective method. The Company recognizes the fair value of awards granted under the Company’s omnibus plan in the income statement based on the fair value of these awards measured at the date of grant using the Black-Scholes model. For awards granted prior to adoption, the unamortized expense is being recognized on an accelerated basis, since this was the method used for disclosure purposes prior to the adoption of SFAS 123(R). For awards granted after adoption, 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 following table shows information about compensation cost recognized (including discontinued operations):

		Three Months								Nine Months
For the periods ended September 30,		2007				2006				2007				2006
						(In thousands)
Compensation cost:
Stock options and stock appreciation rights		$	11,623			$	17,697			$	35,953			$	56,119
Restricted stock			—				26				—				3,038
Total compensation cost			11,623				17,723				35,953				59,157
Less: Compensation cost capitalized			(911	)			(260	)			(1,466	)			(876	)
Compensation cost recognized as expense			10,712				17,463				34,487				58,281
Less: Related tax benefit			(3,654	)			(6,094	)			(11,885	)			(19,710	)
Compensation expense, net of tax benefit		$	7,058			$	11,369			$	22,602			$	38,571

     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:

		Three Months								Nine Months
For the periods ended September 30,		2007				2006				2007				2006
Expected volatility			33%				33%				30%				33%
Expected term		4.1 years				4.1 years				4.1 years				4.1 years
Expected dividend yield			0%				0%				0%				0%
Risk-free interest rate			4.4%				5.1%				4.6%				4.9%
Forfeiture rate			4.6%				4.6%				4.6%				4.6%
Weighted-average fair value of options granted		$	27.64			$	12.75			$	23.24			$	14.08

NOTE 10 — PROPERTY TRANSACTIONS, NET

     Net property transactions consisted of the following:

		Three Months								Nine Months
For the periods ended September 30,		2007				2006				2007				2006
						(In thousands)
Hurricane Katrina insurance recoveries		$	(107,035	)		$	—			$	(107,035	)		$	—
Write downs and impairments			11,439				—				19,252				33,645
Demolition costs			5,435				118				5,435				316
Net losses on sale or disposal of fixed assets			936				164				549				2,494
		$	(89,225	)		$	282			$	(81,799	)		$	36,455

     Write-downs and impairments in 2007 include write-offs related to discontinued construction projects and a write-off of the carrying value of the building assets of Nevada Landing which closed in March 2007. The 2007 periods also include demolition costs related to ongoing projects at the Company’s resorts.

     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.

NOTE 11 — SUBSEQUENT EVENTS

     Stock sale. On October 18, 2007, the Company completed the sale of 14.2 million shares of common stock to Infinity World Investments, a wholly-owned subsidiary of Dubai World, at a price of $84 per share for total proceeds of approximately $1.2 billion. These shares were previously held by the Company as treasury stock. Proceeds from the sale were used to reduce amounts outstanding under the senior credit facility. After giving effect to the issuance of these shares, Tracinda owned approximately 51% of the Company’s outstanding shares.

     Insurance Recoveries. During October 2007, the Company reached final settlement agreements with the remaining insurance carriers for its claim related to Hurricane Katrina. The Company’s insurance recovery proceeds will total $635 million.

NOTE 12 — CONSOLIDATING CONDENSED FINANCIAL INFORMATION

     The Company’s subsidiaries (excluding MGM Grand Detroit, LLC, foreign subsidiaries, 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, 2007 and December 31, 2006 and for the three and nine month periods ended September 30, 2007 and 2006 is as follows:

CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION

		As of September 30, 2007
						Guarantor				Non-Guarantor
		Parent				Subsidiaries				Subsidiaries				Elimination				Consolidated
										(In thousands)
Current assets		$	131,932			$	941,204			$	61,363			$	—			$	1,134,499
Real estate under development			—				478,318				—				—				478,318
Property and equipment, net			—				18,541,243				773,262				(11,972	)			19,302,533
Investments in subsidiaries			17,672,041				510,628				—				(18,182,669	)			—
Investments in unconsolidated affiliates			—				820,968				286,211				—				1,107,179
Other non-current assets			246,812				1,936,458				101,412				—				2,284,682
		$	18,050,785			$	23,228,819			$	1,222,248			$	(18,194,641	)		$	24,307,211
Current liabilities		$	159,597			$	1,468,801			$	77,347			$	—			$	1,705,745
Intercompany accounts			(2,482,585	)			2,228,044				254,541				—				—
Deferred income taxes			3,373,770				—				—				—				3,373,770
Long-term debt			12,340,298				1,463,929				327,150				—				14,131,377
Other non-current liabilities			77,953				386,686				49,928				—				514,567
Stockholders’ equity			4,581,752				17,681,359				513,282				(18,194,641	)			4,581,752
		$	18,050,785			$	23,228,819			$	1,222,248			$	(18,194,641	)		$	24,307,211

		As of December 31, 2006
						Guarantor				Non-Guarantor
		Parent				Subsidiaries				Subsidiaries				Elimination				Consolidated
										(In thousands)
Current assets		$	95,361			$	1,369,711			$	49,679			$	—			$	1,514,751
Real estate under development			—				188,433				—				—				188,433
Property and equipment, net			—				16,797,263				456,569				(11,972	)			17,241,860
Investments in subsidiaries			16,563,917				480,822				—				(17,044,739	)			—
Investments in unconsolidated affiliates			—				807,219				285,038				—				1,092,257
Other non-current assets			94,188				1,911,362				103,387				—				2,108,937
		$	16,753,466			$	21,554,810			$	894,673			$	(17,056,711	)		$	22,146,238
Current liabilities		$	227,743			$	1,364,472			$	55,885			$	—			$	1,648,100
Intercompany accounts			(1,478,207	)			1,281,499				196,708				—				—
Deferred income taxes			3,441,157				—				—				—				3,441,157
Long-term debt			10,712,047				2,173,972				108,850				—				12,994,869
Other non-current liabilities			1,177				161,458				49,928				—				212,563
Stockholders’ equity			3,849,549				16,573,409				483,302				(17,056,711	)			3,849,549
		$	16,753,466			$	21,554,810			$	894,673			$	(17,056,711	)		$	22,146,238

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION

		For the Three Months Ended September 30, 2007
						Guarantor				Non-Guarantor
		Parent				Subsidiaries				Subsidiaries				Elimination				Consolidated
										(In thousands)
Net revenues		$	—			$	1,786,625			$	110,445			$	—			$	1,897,070
Equity in subsidiaries’ earnings			448,290				4,501				—				(452,791	)			—
Expenses:
Casino and hotel operations			3,607				963,538				62,669				—				1,029,814
General and administrative			2,498				267,033				16,916				—				286,447
Corporate expense			11,345				51,705				—				—				63,050
Preopening and start-up expenses			141				5,882				19,828				—				25,851
Restructuring costs			—				—				—				—				—
Property transactions, net			—				(89,225	)			—				—				(89,225	)
Depreciation and amortization			449				164,369				5,962				—				170,780
			18,040				1,363,302				105,375				—				1,486,717
Income from unconsolidated affiliates			—				54,260				—				—				54,260
Operating income			430,250				482,084				5,070				(452,791	)			464,613
Interest income (expense), net			(155,619	)			(20,017	)			373				—				(175,263	)
Other, net			444				(6,205	)			10				—				(5,751	)
Income from continuing operations before income taxes			275,075				455,862				5,453				(452,791	)			283,599
Provision for income taxes			(91,212	)			(7,572	)			(952	)			—				(99,736	)
Income from continuing operations			183,863				448,290				4,501				(452,791	)			183,863
Discontinued operations			—				—				—				—				—
Net income		$	183,863			$	448,290			$	4,501			$	(452,791	)		$	183,863

		For the Three Months Ended September 30, 2006
						Guarantor				Non-Guarantor
		Parent				Subsidiaries				Subsidiaries				Elimination				Consolidated
										(In thousands)
Net revenues		$	—			$	1,678,900			$	116,142			$	—			$	1,795,042
Equity in subsidiaries’ earnings			420,871				32,094				—				(452,965	)			—
Expenses:
Casino and hotel operations			5,433				897,149				62,821				—				965,403
General and administrative			4,836				259,463				14,252				—				278,551
Corporate expense			7,863				27,321				—				—				35,184
Preopening and start-up expenses			115				4,415				1,553				—				6,083
Restructuring costs			—				—				—				—				—
Property transactions, net			60				222				—				—				282
Depreciation and amortization			450				151,274				4,556				—				156,280
			18,757				1,339,844				83,182				—				1,441,783
Income from unconsolidated affiliates			—				66,138				—				—				66,138
Operating income			402,114				437,288				32,960				(452,965	)			419,397
Interest income (expense), net			(192,663	)			5,953				(8	)			—				(186,718	)
Other, net			1,343				(7,628	)			(1	)			—				(6,286	)
Income from continuing operations before income taxes			210,794				435,613				32,951				(452,965	)			226,393
Provision for income taxes			(51,588	)			(20,183	)			(857	)			—				(72,628	)
Income from continuing operations			159,206				415,430				32,094				(452,965	)			153,765
Discontinued operations			(2,944	)			5,441				—				—				2,497
Net income		$	156,262			$	420,871			$	32,094			$	(452,965	)		$	156,262