MGM Resorts International (MGM) 10-Q 2007 Q3 Quarterly report

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

OR

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

For the transition period from                    to                    

Commission File No. 0-16760

MGM MIRAGE

(Exact name of registrant as specified in its charter)

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: Yesþ      Noo

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 filerþ      Accelerated filero      Non-accelerated filero

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act):

     Yeso      Noþ

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

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)

	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.

1

MGM MIRAGE AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

(Unaudited)

	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.

2

MGM MIRAGE AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	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.

3

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.

4

     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.

5

     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.

6

     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.

7

     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.

8

     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

9

     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.

10

     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.

11

     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

12

     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.

13

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

14

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

15

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION

	For the Nine Months Ended September 30, 2007
				Guarantor			Non-Guarantor
	Parent			Subsidiaries			Subsidiaries			Elimination			Consolidated
							(In thousands)
Net revenues	$	—		$	5,425,872		$	337,049		$	—		$	5,762,921
Equity in subsidiaries’ earnings		1,500,421			47,662			—			(1,548,083	)		—
Expenses:
Casino and hotel operations		10,714			2,881,598			190,663			—			3,082,975
General and administrative		8,792			817,946			47,001			—			873,739
Corporate expense		23,383			117,290			—			—			140,673
Preopening and start-up expenses		505			22,494			31,276			—			54,275
Restructuring costs		—			—			—			—			—
Property transactions, net		—			(81,799	)		—			—			(81,799	)
Depreciation and amortization		1,347			487,383			17,836			—			506,566
		44,741			4,244,912			286,776			—			4,576,429
Income from unconsolidated affiliates		—			192,227			—			—			192,227
Operating income		1,455,680			1,420,849			50,273			(1,548,083	)		1,378,719
Interest income (expense), net		(466,975	)		(67,953	)		391			—			(534,537	)
Other, net		1,166			(20,270	)		1			—			(19,103	)
Income from continuing operations before income taxes		989,871			1,332,626			50,665			(1,548,083	)		825,079
Provision for income taxes		(273,864	)		(18,441	)		(3,003	)		—			(295,308	)
Income from continuing operations		716,007			1,314,185			47,662			(1,548,083	)		529,771
Discontinued operations		(3,799	)		186,236			—			—			182,437
Net income	$	712,208		$	1,500,421		$	47,662		$	(1,548,083	)	$	712,208

	For the Nine Months Ended September 30, 2006
				Guarantor			Non-Guarantor
	Parent			Subsidiaries			Subsidiaries			Elimination			Consolidated
							(In thousands)
Net revenues	$	—		$	4,984,776		$	345,142		$	—		$	5,329,918
Equity in subsidiaries’ earnings		1,254,256			97,566			—			(1,351,822	)		—
Expenses:
Casino and hotel operations		16,138			2,612,542			187,770			—			2,816,450
General and administrative		16,249			727,674			41,427			—			785,350
Corporate expense		31,306			79,109			—			—			110,415
Preopening and start-up expenses		392			22,013			4,903			—			27,308
Restructuring costs		—			1,035			—			—			1,035
Property transactions, net		3,454			33,000			1			—			36,455
Depreciation and amortization		1,949			448,847			10,710			—			461,506
		69,488			3,924,220			244,811			—			4,238,519
Income from unconsolidated affiliates		—			158,773			—			—			158,773
Operating income		1,184,768			1,316,895			100,331			(1,351,822	)		1,250,172
Interest income (expense), net		(520,460	)		(44,239	)		128			—			(564,571	)
Other, net		2,185			(20,648	)		23			—			(18,440	)
Income from continuing operations before income taxes		666,493			1,252,008			100,482			(1,351,822	)		667,161
Provision for income taxes		(210,937	)		(16,440	)		(2,916	)		—			(230,293	)
Income from continuing operations		455,556			1,235,568			97,566			(1,351,822	)		436,868
Discontinued operations		(8,863	)		18,688			—			—			9,825
Net income	$	446,693		$	1,254,256		$	97,566		$	(1,351,822	)	$	446,693

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION

	For the Nine Months Ended September 30, 2007
				Guarantor			Non-Guarantor
	Parent			Subsidiaries			Subsidiaries			Elimination			Consolidated
							(In thousands)
Net cash provided by (used in) operating activities	$	(900,115	)	$	1,536,364		$	61,139		$	—		$	697,388
Net cash used in investing activities		—			(1,622,537	)		(332,222	)		(3,557	)		(1,958,316	)
Net cash provided by (used in) financing activities		906,383			(59,772	)		272,578			3,557			1,122,746

	For the Nine Months Ended September 30, 2006
				Guarantor			Non-Guarantor
	Parent			Subsidiaries			Subsidiaries			Elimination			Consolidated
							(In thousands)
Net cash provided by (used in) operating activities	$	(734,557	)	$	1,399,247		$	111,606		$	—		$	776,296
Net cash provided by (used in) investing activities		5,300			(1,024,485	)		(192,571	)		(3,434	)		(1,215,190	)
Net cash provided by (used in) financing activities		713,981			(365,782	)		53,044			3,434			404,677

16

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

     Overview

     At September 30, 2007, our primary operations consisted of 17 wholly-owned casino resorts and 50% investments in three other casino resorts, including:

Las Vegas, Nevada:	Bellagio, MGM Grand Las Vegas (including The Signature at MGM Grand) Mandalay Bay, Mirage, Luxor, TI, New York-New York, Excalibur, Monte Carlo, Circus Circus Las Vegas and Slots-A-Fun.
Other domestic:	Circus Circus Reno and Silver Legacy (50% owned) in Reno, Nevada; Gold Strike in Jean, Nevada; Railroad Pass in Henderson, Nevada; MGM Grand Detroit; Beau Rivage in Biloxi, Mississippi and Gold Strike Tunica in Tunica, Mississippi; Borgata (50% owned) in Atlantic City, New Jersey; and Grand Victoria (50% owned) in Elgin, Illinois.

     Other operations include the Shadow Creek golf course in North Las Vegas; two golf courses south of Primm, Nevada at the California state line; Fallen Oak golf course in Saucier, Mississippi; and a 50% investment in MGM Grand Paradise Limited, which is constructing a casino resort in Macau.

     In April 2007, we closed the sale of the Primm Valley Resorts (Whiskey Pete’s, Buffalo Bill’s and Primm Valley Resort in Primm, Nevada), not including the two golf courses. In June 2007, we closed the sale of the Laughlin Properties (Colorado Belle and Edgewater). See “Results of Operations – Discontinued Operations.” In February 2007, we entered into an agreement to contribute Gold Strike and Nevada Landing (the “Jean Properties”) and surrounding land to a joint venture, and we closed Nevada Landing in March 2007. See “Liquidity and Capital Resources – Other Factors Affecting Liquidity.”

     We operate primarily in one segment, the operation of casino resorts, which includes offering gaming, hotel, dining, entertainment, retail and other resort amenities. Over half of our net revenue is derived from non-gaming activities, a higher percentage than many of our competitors, as our operating philosophy is to provide a complete resort experience for our guests, including non-gaming amenities which command a premium price based on their quality. We believe that we own several of the premier casino resorts in the world, and a main focus of our strategy is to continually reinvest in these resorts to maintain that competitive advantage.

     As a resort-based company, our operating results are highly dependent on the volume of customers at our resorts, which in turn impacts the price we can charge for our hotel rooms and other amenities. We also generate a significant portion of our operating income from high-end gaming customers, which can cause variability in our results. Key performance indicators related to revenue are:

• Gaming revenue indicators – table games drop and slots handle (volume indicators); “win” or “hold” percentage, which is not fully controllable by us. Our normal table games win percentage is in the range of 18% to 22% of table games drop and our normal slots win percentage is in the range of 6.5% to 7.5% of slots handle;

• Hotel revenue indicators – hotel occupancy (volume indicator); average daily rate (“ADR,” price indicator); revenue per available room (“REVPAR”), a summary measure of hotel results combining ADR and occupancy rate.

     Most of our revenue is essentially cash-based, through customers wagering with cash or paying for non-gaming services with cash or credit cards. Our resorts generate significant operating cash flow. Our industry is capital intensive and we rely heavily on the ability of our resorts to generate operating cash flow to repay debt financing, fund maintenance capital expenditures and provide excess cash for future development.

     We generate a majority of our net revenues and operating income from our resorts in Las Vegas, Nevada, which exposes us to certain risks outside of our control, such as competition from other recently opened or expanded Las Vegas resorts, and the impact from expansion of gaming in California. We are also exposed to risks related to tourism and the general economy, including national and global economic conditions and terrorist attacks or other global events.

17

     Our results of operations do not tend to be seasonal in nature, though a variety of factors may affect the results of any interim period, including the timing of major Las Vegas conventions, the amount and timing of marketing and special events for our high-end customers, and the level of play during major holidays, including New Year and Chinese New Year. We market to different customer segments to manage our hotel occupancy, such as targeting large conventions to ensure mid-week occupancy. Our results do not depend on key individual customers, though our success in marketing to customer groups, such as convention customers, or the financial health of customer segments, such as business travelers or high-end gaming customers from a particular country or region, can impact our results.

     Outlook

     In October 2007 we reached final agreements with the remaining insurance carriers related to Hurricane Katrina. Our total insurance recoveries will be $635 million. We expect to recognize the remaining income of approximately $150 million in the fourth quarter of 2007, of which approximately $110 million will be recognized as property transactions and $40 million will be recorded as a credit to general and administrative expenses.

     The all-new MGM Grand Detroit hotel and casino complex opened on October 2, 2007. The new casino has 4,500 slot machines, 90 table games, 400 hotel rooms, and a variety of food and beverage offerings. The interim facility closed on September 30, 2007 and had significantly fewer gaming positions and no hotel. Based on the increased gaming capacity and extent of resort amenities, we expect the operating results for MGM Grand Detroit to increase significantly. In addition, now that the permanent casino is open the gaming tax rate will decrease, retroactive to October 2, from 26% to 21% when the Michigan Gaming Control Board certifies that the terms of the related development agreement have been satisfied.

     In August 2007, we entered a new five-year collective bargaining agreement covering approximately 21,000 of our Las Vegas Strip employees. This does not include the collective bargaining agreement covering employees at MGM Grand Las Vegas, which expires in 2008. The new agreement is retroactive to May 31, 2007 and provides for increases in wages and benefits of approximately 4% annually.

     In July 2007, Michigan enacted into law a new Michigan Business Tax (“MBT”) that will replace the Michigan “Single Business Tax” effective January 1, 2008.  Under the new law, Michigan will tax an apportioned amount of income from our combined operations, whereas under the existing law only income generated by entities operating in Michigan is subject to tax in the state.  Consequently, an apportioned amount of our deferred tax liabilities will be subject to tax in Michigan when they are realized. The new law was amended on September 30, 2007 to provide for a deduction from the tax beginning in the 2015 tax year. This deduction is based upon the amount of book-tax differences upon which the deferred tax liabilities are determined as of the first fiscal period ending after July 12, 2007 and is intended to offset any financial statement expense that would otherwise result from the enactment of the MBT. As a result, we recorded a deferred tax liability and corresponding deferred tax asset which are recorded net within long-term deferred taxes in the accompanying consolidated balance sheet.

     Financial Results

     The following discussion is based on our consolidated financial statements for the three and nine months ended September 30, 2007 and 2006. On a consolidated basis, the most important factors and trends contributing to our operating performance for the periods were:

• Continued year-over-year increases in room pricing and strong occupancy at our resorts, leading to increases in hotel revenues.

• Ongoing investments in new restaurants, lounges, entertainment venues and other resort amenities, leading to strong non-gaming revenues.

• The closure of Beau Rivage in August 2005 as a result of Hurricane Katrina and the reopening of the property in August 2006. For the three and nine months ended September 30, 2007, Beau Rivage earned operating income of $145 million and $172 million, respectively. In the third quarter of 2007, Beau Rivage recognized $135 million of income for insurance recoveries, $107 million of which was recorded as property transactions and $28 million of which was recorded as a reduction of general and administrative expenses. Beau Rivage earned operating income of $10 million for the 33 days it was open in the third quarter of 2006.

• Recognition of our share of profits from the sale of units of The Signature at MGM Grand. The venture records revenue and cost of sales as units close. For the three and nine months ended September 30, 2007, we recognized income of $12 million and $84 million, respectively related to units closed and the recognition of deferred profit on land contributed to the venture. For the three and nine months ended September 30, 2006, we recognized income of $26 million and $52 million, respectively. Such income is classified in “Income from unconsolidated affiliates” in the accompanying consolidated statements of income.

18

     Net revenue increased 6%, 2% excluding Beau Rivage, in the third quarter of 2007 over the third quarter of 2006. Net revenue for the year-to-date period increased 8%, 3% excluding Beau Rivage. Net revenue continued to benefit from strong year-over-year room pricing and increased revenues from our restaurants, nightclubs and entertainment amenities, particularly at our Las Vegas Strip resorts due to strong demand and customer volumes.

     Operating income increased 11% for the quarter to $465 million, largely as a result of income from insurance recoveries at Beau Rivage. In addition, operating income for the quarter was impacted by lower profits recognized on sales of units at The Signature at MGM Grand and higher preopening and start-up expenses, charges related to write-offs, and demolition costs as discussed further below in “Operating Results — Details of Certain Charges.” Excluding the impact from Beau Rivage and the other items discussed above, operating income decreased 10%, primarily as a result of higher corporate expense, which led to a decrease in operating margin compared to the third quarter of 2006.

     Corporate expense increased to $63 million in the third quarter of 2007 compared to $35 million in 2006. The increase in corporate expense is partially due to severance costs, costs associated with our CityCenter joint venture transaction, and development costs associated with our planned MGM Grand Atlantic City project and a potential second project in Macau.

     On a year-to-date basis, operating income increased 10% to $1.4 billion and was impacted by the items noted above. Income from continuing operations increased 20% over the 2006 quarter and 21% for the year-to-date period also as a result of the above factors, as well as higher capitalized interest as a result of ongoing construction of CityCenter and MGM Grand Detroit.

     Operating Results – Detailed Revenue Information

     The following table presents details of our net revenues:

	Three Months Ended September 30,									Nine Months Ended September 30,
	Percentage									Percentage
	2007			Change			2006			2007			Change			2006
							(Dollars in thousands)
Casino revenue, net:
Table games	$	300,092			0	%	$	299,570		$	904,195			(3	)%	$	931,848
Slots		478,560			4	%		460,295			1,403,274			9	%		1,288,768
Other		25,182			14	%		22,182			82,235			8	%		76,383
Casino revenue, net		803,834			3	%		782,047			2,389,704			4	%		2,296,999
Non-casino revenue:
Rooms		510,795			7	%		479,107			1,614,906			8	%		1,498,366
Food and beverage		406,620			10	%		369,383			1,248,786			13	%		1,108,161
Entertainment, retail and other		348,762			10	%		317,082			1,030,399			18	%		872,309
Non-casino revenue		1,266,177			9	%		1,165,572			3,894,091			12	%		3,478,836
		2,070,011			6	%		1,947,619			6,283,795			9	%		5,775,835
Less: Promotional allowances		(172,941	)		13	%		(152,577	)		(520,874	)		17	%		(445,917	)
	$	1,897,070			6	%	$	1,795,042		$	5,762,921			8	%	$	5,329,918

     Excluding Beau Rivage, slots revenue decreased 2% in the quarter. Slots revenue was strong at many of the our Las Vegas Strip Resorts, including Bellagio, MGM Grand Las Vegas, Mirage – each up 8% – and Mandalay Bay – up 9%. MGM Grand Detroit experienced an 8% decrease in slots revenue in the quarter, partially due to the winding down of operations at the interim facility.

     Table games revenue decreased 5% excluding Beau Rivage, primarily due to a decrease in hold percentage as volumes were consistent with the third quarter of 2006. The table games hold percentage was within our normal range in both periods, but was down approximately 70 basis points compared to the prior year quarter at our Las Vegas Strip resorts.

     For the nine-month period, casino revenue increased 4%, but decreased 4% excluding Beau Rivage. For the year-to-date periods, the overall table games hold percentage was within our normal range, although lower in the current year-to-date period by 60 basis points. Table games volume, including baccarat, decreased 2% in the nine month period excluding Beau Rivage.

19

     Rooms revenue increased 4% in the third quarter, excluding Beau Rivage, despite having 55,000 less available room nights in the current quarter, mainly due to room and suite remodel activity at Mandalay Bay and Bellagio and the closing of Nevada Landing in March 2007. Average rates increased 5% for the quarter at our Las Vegas Strip resorts; Las Vegas Strip REVPAR increased 6% – these results continue trends experienced in the first half of the year.

     For the nine month periods, REVPAR was up 7% and average room rates were up 6%. The following table shows key hotel statistics for our Las Vegas Strip resorts:

	Three Months						Nine Months
For the periods ended September 30,	2007			2006			2007			2006
Occupancy		97	%		96	%		97	%		96	%
Average Daily Rate (ADR)	$	147		$	140		$	159		$	150
Revenue per Available Room (REVPAR)		143			135			154			144

     For the third quarter of 2007, food and beverage revenue increased 10%, 6% excluding Beau Rivage. This increase is attributable to capital investments in new restaurants, nightclubs and lounges. Entertainment revenues increased 13% for the third quarter due to strong attendance at the Company’s portfolio of Cirque du Soleil productions. The year-to-date period also benefited from the addition ofLove,the Cirque du Soleil show located at The Mirage, which opened in July 2006.

     Operating Results – Details of Certain Charges

     Preopening and start-up expenses consist of the following:

	Three Months				Nine Months
For the periods ended September 30,	2007		2006		2007		2006
			(In thousands)
CityCenter	$	4,653	$	3,000	$	18,801	$	6,207
MGM Grand Detroit		13,555		647		19,138		1,924
MGM Grand Macau (50% owned)		6,274		906		12,138		2,979
Other		1,369		1,530		4,198		16,198
	$	25,851	$	6,083	$	54,275	$	27,308

     MGM Grand Detroit opened October 2, 2007 and MGM Grand Macau is expected to open later this year. In 2006, the nine month period includes preopening related to The Signature at MGM Grand and theLoveshow at the Mirage.

     Property transactions, net 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 Nevada Landing building assets due to its closure in March 2007. The 2007 periods also include demolition costs related to ongoing projects at our 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.

20

Non-operating Results

     Net interest expense decreased to $180 million in the 2007 third quarter from $189 million in the 2006 period. For the nine months, net interest expense decreased to $547 million from $573 million. Gross interest was higher due to larger average balances outstanding, but was offset by increased capitalized interest due to ongoing construction of CityCenter and the MGM Grand Detroit permanent casino.

Discontinued Operations

     We completed the sale of Primm Valley Resorts in April 2007, and the sale of the Laughlin Properties in June 2007. Our combined pre-tax gain on disposal of these resorts was $264 million.

Liquidity and Capital Resources

     Cash Flows – Operating Activities

     Cash flow provided by operating activities was $697 million for the nine months ended September 30, 2007, a decrease from $776 million in the prior year period. During 2007 we spent $306 million on construction of the CityCenter residential components and received deposits on residential sales of $208 million. Also during 2007 we received $42 million of Hurricane Katrina insurance recoveries related to the business interruption portion of our claim. At September 30, 2007, we held cash and cash equivalents of $312 million.

     Cash Flows – Investing Activities

     Capital expenditures consisted of the following:

	Nine Months Ended
	September 30,
	2007		2006
	(in millions)
Development and expansion projects:
CityCenter	$	869	$	342
MGM Grand Detroit		287		185
Beau Rivage		63		349
Las Vegas Strip land		580		—
Capitalized interest on development and expansion projects		140		66
		1,939		942
Other
Room remodel projects		180		20
Corporate aircraft		81		45
Other		283		229
		544		294
	$	2,483	$	1,236

     Also in 2007, we 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.

     In 2006, capital expenditures were $1.2 billion, and included expenditures for the Mirage theatre, CityCenter, the permanent casino in Detroit, and rebuilding at Beau Rivage. Investments in unconsolidated affiliates in the 2006 period primarily represented partial funding of a required loan to MGM Grand Macau.

     Cash Flows – Financing Activities

     In the nine months ended September 30, 2007, we borrowed net debt of $1.2 billion. The increase in net debt was due primarily to the level of capital expenditures and share repurchases. At September 30, 2007, our senior credit facility had an outstanding balance of $6.2 billion, with available borrowings of $727 million.

     We repurchased 2.5 million shares of our common stock in the nine months ended September 30, 2007 at a cost of $175 million, leaving 5.5 million shares available under our current share repurchase authorization. We received proceeds of $76 million from the exercise of stock options in the nine months ended September 30, 2007, and realized $73 million of related excess tax benefits.

21

     Other Factors Affecting Liquidity

     Macau. We own 50% of MGM Grand Paradise Limited, an entity which is developing, and will operate, MGM Grand Macau, a hotel-casino resort in Macau S.A.R. Pansy Ho Chiu-king owns the other 50% of MGM Grand Paradise Limited. MGM Grand Macau is located on a prime site and will feature at least 375 table games and 900 slots with room for significant expansion. Other features will include approximately 600 rooms, suites and villas, a luxurious spa, convention space, a variety of dining destinations, and other attractions. MGM Grand Macau is estimated to cost approximately $880 million, excluding preopening, land rights and license costs. Preopening costs 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. Construction of MGM Grand Macau began in the second quarter of 2005 and the resort is anticipated to open in late 2007. We have invested $266 million in the venture and are committed to lending the venture up to an additional $4 million. The venture has obtained a $700 million bank credit facility. MGM Grand Macau is currently seeking to expand this facility to fund the revised budget as well as future expansion and development activities.

     MGM Grand Paradise Limited recently announced that it has been engaged in discussions with the Government of Macau S.A.R concerning the development of its second major resort project in Macau to be located in Cotai. The site, scope, and financing related to this project are still being evaluated.

     CityCenter. We are building a multi-billion dollar urban metropolis, 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 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.

     We believe CityCenter will cost approximately $7.8 billion, excluding preopening and land costs. Preopening costs 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, we believe the net construction cost will be approximately $5.1 billion. We expect the project to open in late 2009. These estimates of net project costs do not reflect the joint venture transaction discussed below.

     In August 2007, we 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. We 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, we 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. We 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. We expect the joint venture transaction to close in the fourth quarter of 2007.

     Stock sale. On October 18, 2007, we 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.

     Atlantic City Development.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.

22

     Kerzner/Istithmar Joint Venture. In September 2007, we 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. We 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.

     Mashantucket Pequot Tribal Nation. We have 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. Under the strategic alliance, we are consulting with MPTN in the development of a new $700 million casino resort currently under construction adjacent to the existing Foxwoods casino resort. The new resort will utilize the “MGM Grand” brand name and is scheduled to open in Spring 2008. We have also formed a jointly owned company with MPTN – Unity Gaming, LLC – to acquire or develop future gaming and non-gaming enterprises. We will provide a loan of up to $200 million to finance a portion of MPTN’s investment in joint projects.

     Jean Properties. We have entered into an operating agreement to form a 50/50 joint venture with Jeanco Realty Development, LLC. The venture will master plan and develop a mixed-use community in Jean, Nevada. We will contribute the Jean Properties and surrounding land to the joint venture. The value of this contribution per the operating agreement will be $150 million. We expect to receive a distribution of $55 million upon transfer of the Jean Properties and surrounding land to the venture, which is subject to the venture obtaining necessary regulatory and other approvals, and $20 million no later than August 2008. Nevada Landing closed in March 2007.

     New York Racing Association.In 2005, we 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. We were not able to come to an agreement with NYRA and the state of New York and announced in April 2007 that we have decided not to pursue this project further.

Critical Accounting Policies

     Management’s discussion and analysis of our results of operations and liquidity and capital resources are based on our consolidated financial statements. To prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, we must make estimates and assumptions that affect the amounts reported in the consolidated financial statements. We regularly evaluate these estimates and assumptions, particularly in areas we consider to be critical accounting estimates, where changes in the estimates and assumptions could have a material impact on our results of operations, financial position and, generally to a lesser extent, cash flows. Senior management and the Audit Committee of the Board of Directors have reviewed the disclosures included herein about our critical accounting estimates, and have reviewed the processes to determine those estimates.

     A complete description of our critical accounting policies and estimates can be found in our Annual Report on Form 10-K for the year ended December 31, 2006. We present below a discussion of our policies related to income taxes, which has been updated from the discussion included in our Annual Report.

     Income Taxes

     We account for income taxes in accordance with Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes” (“SFAS 109”). SFAS 109 requires the recognition of deferred tax assets, net of applicable reserves, related to net operating loss carryforwards and certain temporary differences. The standard requires recognition of a future tax benefit to the extent that realization of such benefit is more likely than not. Otherwise, a valuation allowance is applied. Except for certain New Jersey state net operating losses, certain other New Jersey state deferred tax assets, a foreign tax credit carryforward and certain foreign deferred tax assets, we believe that it is more likely than not that our deferred tax assets are fully realizable because of the future reversal of existing taxable temporary differences and future projected taxable income.

     Our income tax returns are subject to examination by the Internal Revenue Service (“IRS”) and other tax authorities. While positions taken in tax returns are sometimes subject to uncertainty in the tax laws, we do not take such positions unless we have “substantial authority” to do so under the Internal Revenue Code and applicable regulations. We may take positions on our tax returns based on substantial authority that are not ultimately accepted by the IRS.

23

     Effective January 1, 2007, we 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. As required by the standard, we review uncertain tax positions at each balance sheet date. Liabilities we record as a result of this analysis are 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. Additionally, we recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense, a policy that did not change as a result of the adoption of FIN 48.

     We file 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. We are no longer subject to examination of our 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 us to complete the appeals process for issues that were not agreed upon at the closure of the examination. The IRS is currently examining the federal income tax returns for the 2003 and 2004 tax years. The tax returns for subsequent years are also subject to examination.

     With few exceptions, we are no longer subject to examination of our 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.

Market Risk

     Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates and foreign currency exchange rates. Our primary exposure to market risk is interest rate risk associated with our variable rate long-term debt. We attempt to limit our exposure to interest rate risk by managing the mix of our long-term fixed rate borrowings and short-term borrowings under our bank credit facilities.

     As of September 30, 2007, long-term variable rate borrowings represented approximately 44% of our total borrowings. Assuming a 100 basis-point change in LIBOR at September 30, 2007, our annual interest cost would change by approximately $62 million.

Forward-looking Statements

(Cautionary Statements Under the Private Securities Litigation Reform Act of 1995)

     This Form 10-Q contains some forward-looking statements. Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. They contain words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “may,” “could,” “might” and other words or phrases of similar meaning in connection with any discussion of future operating or financial performance. In particular, these include statements relating to future actions, new projects, future performance, the outcome of contingencies such as legal proceedings, and future financial results. From time to time, we also provide oral or written forward-looking statements in our Forms 10-K, Annual Reports to Stockholders, Forms 8-K, press releases and other materials we release to the public. Any or all of our forward-looking statements in this Form 10-Q and in any other public statements we make may turn out to be wrong. They can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties. Many factors mentioned in this Form 10-Q — for example, government regulation and the competitive environment — will be important in determining our future results. Consequently, no forward-looking statement can be guaranteed. Our actual future results may differ materially.

     We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to consult any further disclosures we make on related subjects in our Forms 10-K, 10-Q and 8-K reports to the Securities and Exchange Commission. This discussion is provided as permitted by the Private Securities Litigation Reform Act of 1995.

24

     You should also be aware that while we from time to time communicate with securities analysts, we do not disclose to them any material non-public information, internal forecasts or other confidential business information. Therefore, you should not assume that we agree with any statement or report issued by any analyst, irrespective of the content of the statement or report. To the extent that reports issued by securities analysts contain projections, forecasts or opinions, those reports are not our responsibility.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     We incorporate by reference the information appearing under “Market Risk” in Part I, Item 2 of this Form 10-Q.

Item 4. Controls and Procedures

     Our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer) have concluded that the design and operation of our disclosure controls and procedures are effective as of September 30, 2007. This conclusion is based on an evaluation conducted under the supervision and with the participation of Company management. Disclosure controls and procedures are those controls and procedures which ensure that information required to be disclosed in this filing is accumulated and communicated to management and is recorded, processed, summarized and reported in a timely manner and in accordance with Securities and Exchange Commission rules and regulations.

     During the quarter ended September 30, 2007, there were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to affect, our internal control over financial reporting.

Part II. OTHER INFORMATION

Item 1. Legal Proceedings

     For a complete description of the facts and circumstances surrounding material litigation we are a party to, see our Annual Report on Form 10-K for the year ended December 31, 2006. There have been no significant developments in any of the cases disclosed in our Form 10-K in the nine months ended September 30, 2007 or any new cases during that time, other than the matter described below.

       Fair and Accurate Credit Transaction Act Litigation

     On June 22, 2007, the Company was served with a purported nationwide class action lawsuit filed in federal district court in Nevada (Lety Ramirez v. MGM MIRAGE, Inc., et al.) for alleged willful violations of the Fair and Accurate Credit Transactions Act (“FACTA”). The lawsuit asserts that the Company failed to comply timely with FACTA’s directive that merchants who accept credit and/or debit cards not display more than the last 5 digits of the card number or the card expiration date on electronically-generated receipts provided to customers at the point of sale. FACTA’s compliance deadline for electronic machines that were first put into service before January 1, 2005 was December 4, 2006, while electronic machines put into use on or after January 1, 2005 required immediate compliance.

     Although the complaint does not assert that the plaintiff sustained any actual damage, the plaintiff seeks on behalf of herself and all similarly situated putative class members throughout the United States statutory damages of $100 (minimum) to $1,000 (maximum) for each transaction violation, attorneys’ fees, costs, punitive damages and a permanent injunction. We believe that the plaintiff’s claims for class certification and other relief are unjustified, and we will vigorously defend our position in this case.

25

Item 1A. Risk Factors

     A complete description of certain factors that may affect our future results and risk factors is set forth in our Annual Report on Form 10-K for the year ended December 31, 2006. The following is an additional risk factor noted during the nine months ended September 30, 2007:

•

A significant portion of our labor force is covered by collective bargaining agreements. Approximately 30,000 of the Company’s 64,000 employees are covered by collective bargaining agreements. A prolonged dispute with the covered employees could have an adverse impact on our operations. In addition, wage and or benefit increases resulting from new labor agreements may be significant and could also have an adverse impact on our results of operations.

Approximately 21,000 of our Las Vegas Strip employees were subject to a collective bargaining agreement that expired May 31, 2007. In August 2007, we entered a new five-year collective bargaining agreement covering these employees. The new agreement is retroactive to May 31, 2007 and provides for increases in wages and benefits of approximately 4% annually. This does not include the collective bargaining agreement covering employees at MGM Grand Las Vegas, which expires in 2008.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

     Our share repurchases are only conducted under repurchase programs approved by our Board of Directors and publicly announced. We did not repurchase shares during the quarter ended September 30, 2007. The maximum number of shares still available for repurchase under our July 2004 repurchase program was 5.5 million as of September 30, 2007.

Item 6. Exhibits

10.1	Limited Liability Company Agreement of CityCenter Holdings, LLC, dated August 21, 2007 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated August 21, 2007).
10.2	Company Stock Purchase and Support Agreement, dated August 21, 2007, by and between MGM MIRAGE and INFINITY WORLD INVESTMENTS, LLC (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated August 21, 2007).
10.3	Limited Liability Company Operating Agreement of IKM JV, LLC, dated September 10, 2007 (incorporated by reference to Exhibit 10 to the Company’s Current Report on Form 8-K dated September 10, 2007).
10.4	Amendment No. 1, dated October 17, 2007, to the Company Stock Purchase and Support Agreement by and between MGM MIRAGE and Infinity World Investments, LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated October 17, 2007).
31.1	Certification of Chief Executive Officer of Periodic Report Pursuant to Rule 13a-14(a) and Rule 15d-14(a).
31.2	Certification of Chief Financial Officer of Periodic Report Pursuant to Rule 13a-14(a) and Rule 15d-14(a).
32.1	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350.
32.2	Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350.

26

SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	MGM MIRAGE
Date: November 9, 2007	By:	/s/ J. TERRENCE LANNI
		J. Terrence Lanni
		Chairman and Chief Executive Officer (Principal Executive Officer)
Date: November 9, 2007		/s/ DANIEL J. D’ARRIGO
		Daniel J. D’Arrigo
		Executive Vice President and Chief Financial Officer (Principal Financial Officer)

27

INDEX TO EXHIBITS

10.1	Limited Liability Company Agreement of CityCenter Holdings, LLC, dated August 21, 2007 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated August 21, 2007).
10.2	Company Stock Purchase and Support Agreement, dated August 21, 2007, by and between MGM MIRAGE and INFINITY WORLD INVESTMENTS, LLC (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated August 21, 2007).
10.3	Limited Liability Company Operating Agreement of IKM JV, LLC, dated September 10, 2007 (incorporated by reference to Exhibit 10 to the Company’s Current Report on Form 8-K dated September 10, 2007).
10.4	Amendment No. 1, dated October 17, 2007, to the Company Stock Purchase and Support Agreement by and between MGM MIRAGE and Infinity World Investments, LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated October 17, 2007).
31.1	Certification of Chief Executive Officer of Periodic Report Pursuant to Rule 13a-14(a) and Rule 15d-14(a).
31.2	Certification of Chief Financial Officer of Periodic Report Pursuant to Rule 13a-14(a) and Rule 15d-14(a).
32.1	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350.
32.2	Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350.

28