UNITED STATES

SECURITIES & EXCHANGE COMMISSION

FORM 10-Q

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

For the quarterly period ended March 31, 2004

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

3600 Las Vegas Boulevard South, Las Vegas, Nevada 89109

(702) 693-7120

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

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act): x Yes o No

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

MGM MIRAGE AND SUBSIDIARIES

FORM 10-Q

I N D E X

Part I. FINANCIAL INFORMATION

MGM MIRAGE AND SUBSIDIARIES

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

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MGM MIRAGE AND SUBSIDIARIES

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

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MGM MIRAGE AND SUBSIDIARIES

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

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MGM MIRAGE AND SUBSIDIARIES

NOTE 1 — ORGANIZATION AND BASIS OF PRESENTATION

     MGM MIRAGE (the “Company”), formerly MGM Grand, Inc., is a Delaware corporation, incorporated on January 29, 1986. As of March 31, 2004, approximately 57% of the outstanding shares of the Company’s common stock were owned by Tracinda Corporation, a Nevada corporation wholly owned by Kirk Kerkorian. MGM MIRAGE acts largely as a holding company and, through wholly-owned subsidiaries, operates and invests in casino resorts, which typically include casinos, hotels, restaurants and other resort amenities.

     The Company owns and operates the following casino resorts on the Las Vegas Strip in Las Vegas, Nevada: Bellagio, MGM Grand Las Vegas, The Mirage, Treasure Island (“TI”), New York-New York and the Boardwalk Hotel and Casino. The Company also owns a 50% interest in the joint venture that owns and operates the Monte Carlo Resort & Casino, located on the Las Vegas Strip.

     The Company owns three resorts in Primm, Nevada at the California/Nevada state line – Whiskey Pete’s, Buffalo Bill’s and the Primm Valley Resort – as well as two championship golf courses located near the resorts. The Company also owns Shadow Creek, an exclusive world-class golf course located approximately ten miles north of its Las Vegas Strip resorts. Until January 2004, the Company owned and operated the Golden Nugget Las Vegas in downtown Las Vegas and the Golden Nugget Laughlin in Laughlin, Nevada (the “Golden Nugget Subsidiaries”). See Note 2 for information regarding the sale of these resorts.

     The Company, through its wholly owned subsidiary, MGM Grand Detroit, Inc., and its local partners formed MGM Grand Detroit, LLC, to develop a hotel, casino and entertainment complex in Detroit, Michigan. MGM Grand Detroit, LLC operates a casino in an interim facility located in downtown Detroit. See Note 9 for discussion of the revised development agreement with the City of Detroit. The Company owns and operates Beau Rivage, a beachfront resort located in Biloxi, Mississippi, and MGM Grand Australia in Darwin, Australia – see Note 2 for information regarding the proposed sale of this resort. The Company also owns a 50% interest in a limited liability company that owns Borgata, a casino resort at Renaissance Pointe, located in the Marina area of Atlantic City, New Jersey. Boyd Gaming Corporation owns the other 50% of Borgata and also operates the resort. Borgata opened in July 2003. The Company owns approximately 95 developable acres adjacent to Borgata, a portion of which consists of common roads, landscaping and master plan improvements which the Company designed and developed as required under the agreement with Boyd.

     Until June 30, 2003, the Company operated PLAYMGMMIRAGE.com, the Company’s online gaming website based in the Isle of Man. PLAYMGMMIRAGE.com became operational on September 26, 2002. It initially was not actively marketed, and was in the start-up phase through January 31, 2003. The Company ceased operations of the website as of June 30, 2003. See Note 2 for further information.

     The Company is actively seeking future development opportunities in the United Kingdom, as more fully described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003. In January 2004, the Company contributed approximately $9 million to its joint venture with Newcastle United PLC, which is refundable if certain conditions are not met by January 2008. In addition, the Company has entered into agreements related to possible future developments in the United Kingdom which are subject to implementation of proposed gaming law reforms and a tax structure acceptable to the Company.

     In January 2004, the Company reached agreement with the Board of Directors of Wembley plc (“Wembley”) on the terms of a proposed cash acquisition by the Company of Wembley. Wembley received a higher competing offer and in May 2004 the Company announced that it would make no further bids for Wembley.

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     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 consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003.

     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 March 31, 2004, and the results of its operations and cash flows for the three month periods ended March 31, 2004 and 2003. The results of operations for such periods are not necessarily indicative of the results to be expected for the full year. Certain reclassifications have been made to the 2003 financial statements to conform to the 2004 presentation, which have no effect on previously reported net income.

NOTE 2 — DISCONTINUED OPERATIONS

     In June 2003, the Company entered into an agreement to sell the Golden Nugget Subsidiaries, including substantially all of the assets and liabilities of those resorts, for approximately $215 million, subject to certain working capital adjustments. This transaction closed in January 2004, with net proceeds to the Company of $210 million. Also in June 2003, the Company ceased operations of PLAYMGMMIRAGE.com, its online gaming website (“Online”). In February 2004, the Company entered into an agreement to sell the subsidiaries that own and operate MGM Grand Australia for A$195 million (approximately $147 million based on exchange rates at March 31, 2004), subject to certain working capital adjustments. This transaction is expected to be completed by the third quarter of 2004, subject to customary sales conditions and regulatory approval.

     The results of the Golden Nugget Subsidiaries, Online and MGM Grand Australia are classified as discontinued operations in the accompanying consolidated statements of income for all periods presented. Net revenues of discontinued operations were $27 million and $70 million, respectively, for the three months ended March 31, 2004 and 2003. Included in the income from discontinued operations is an allocation of interest expense based on the ratio of the net assets of the discontinued operations to the total consolidated net assets and debt of the Company. Interest allocated to discontinued operations was $1 million for the three months ended March 31, 2004 and $3 million for the three months ended March 31, 2003. Included in discontinued operations for the three months ended March 31, 2004 is a gain on the sale of the Golden Nugget Subsidiaries of $8 million.

     The following table summarizes the assets and liabilities of discontinued operations as of March 31, 2004 (MGM Grand Australia), and December 31, 2003 (the Golden Nugget Subsidiaries and Online) included as assets and liabilities held for sale in the accompanying consolidated balance sheets:

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NOTE 3 — INVESTMENTS IN UNCONSOLIDATED AFFILIATES

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

NOTE 4 — LONG-TERM DEBT

     Long-term debt consisted of the following:

     Total interest incurred for the three month periods ended March 31, 2004 and 2003 was $93 million and $89 million, respectively, of which $3 million and $6 million, respectively, was capitalized.

     The Senior Credit Facility consists of (1) a $1.5 billion senior revolving credit facility which matures on November 24, 2008; and (2) a $1.0 billion term loan, which matures on November 24, 2008. The $1.0 billion term loan reduces by 20% over the final three years of the loan.

     During the first quarter of 2004, the Company issued $525 million of 5.875% senior notes due 2014. Of this amount, $225 million of the senior notes were issued pursuant to the Company’s shelf registration statement, which completed the available securities issuances under that registration statement, and $300 million of the senior notes were issued through a Rule 144A offering. These notes have not been registered under the Securities Act; however, the indenture governing the notes requires that the Company file a registration statement related to these notes within 135 days of issuance. The proceeds of these offerings were used to reduce the amount outstanding under the Company’s $1.5 billion revolving credit facility.

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     In August 2003, the Company’s Board of Directors authorized the repurchase of up to $100 million of the Company’s public debt securities and the Company repurchased $25 million of its senior notes. During March 2004, the Company repurchased $49 million of its senior notes for $52 million, leaving $26 million available for repurchase under the current authorization. The March 2004 repurchases resulted in a loss on early retirement of debt of $6 million, including the write-off of unamortized original issue discount, classified as “Other, net” in the accompanying consolidated statement of income.

     The Company attempts to limit its exposure to interest rate risk by managing the mix of its long-term fixed rate borrowings and short-term borrowings under its bank credit facilities. In August 2003, the Company entered into interest rate swap agreements, designated as fair value hedges, which effectively converted $400 million of the Company’s fixed rate debt to floating rate debt. In March 2004, the Company terminated interest rate swap agreements with total notional amounts of $200 million and entered into additional interest rate swap agreements, designated as fair value hedges, with total notional amounts of $100 million, leaving interest rate swap agreements with total notional amounts of $300 million remaining as of March 31, 2004. At March 31, 2004, the fair value of the interest rate swap agreements was $6 million.

     Under the terms of the interest rate swap agreements, the Company makes payments based on specified spreads over six-month LIBOR, and receives payments equal to the interest payments due on the fixed rate debt. The interest rate swap agreements qualify for the “shortcut method” allowed under Statement of Financial Accounting Standards No. 133, which allows an assumption of no ineffectiveness in the hedging relationship. As such, there is no income statement impact from changes in the fair value of the hedging instruments. Instead, the fair value of the instruments is recorded as an asset or liability on the Company’s balance sheet, with an offsetting adjustment to the carrying value of the related debt. The Company received $3 million upon termination of swap agreements in March 2004, which has been added to the carrying value of the related debt obligations and is being amortized and recorded as a reduction of interest expense over the remaining life of that debt.

     The Company’s long-term debt obligations contain certain customary covenants. The Company’s Senior Credit Facility contains covenants that require the Company to maintain certain financial ratios. At March 31, 2004, the Company was required to maintain a maximum leverage ratio (average debt to EBITDA, as defined) of 5.5:1, which decreases periodically to 4.75:1 by December 2007. The Company must also maintain a minimum coverage ratio (EBITDA to interest charges, as defined) of 2.75:1. As of March 31, 2004, the Company’s leverage and interest coverage ratios were 4.4:1 and 3.7:1, respectively.

NOTE 5 — SHARE REPURCHASES

     During the three months ended March 31, 2004, the Company repurchased 2.9 million shares of its common stock for $121 million, leaving 5.1 million shares authorized for future purchase as of March 31, 2004 under the November 2003 authorization by the Board of Directors.

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:

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NOTE 7 — COMPREHENSIVE INCOME

     Comprehensive income consisted of the following:

NOTE 8 — STOCK OPTION PLANS AND STOCK-BASED COMPENSATION

     A summary of the status of the Company’s stock option plans is presented below:

     As of March 31, 2004, the aggregate number of shares subject to options available for grant under the Company’s stock option plans was 2.3 million.

     The Company accounts for stock-based compensation, including employee stock option plans, in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” and the Financial Accounting Standards Board’s Interpretation No. 44, “Accounting for Certain Transactions involving Stock Compensation, an interpretation of APB Opinion No. 25”. Had the Company accounted for these plans under the fair value method allowed by Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”), as amended by Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure” (“SFAS 148”), the Company’s net income and earnings per share would have been reduced to recognize the fair value of employee stock options.

     The following are required disclosures under SFAS 123 and SFAS 148:

     The stock-based compensation included in the table above represents the after-tax amount of pro forma compensation related to stock option plans. Reported net income includes $1 million, net of tax, of amortization of restricted stock compensation for each of the three month periods ended March 31, 2004 and 2003.

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NOTE 9 – COMMITMENTS AND CONTINGENCIES

     Detroit Development Agreement. MGM Grand Detroit, LLC has operated an interim casino facility in downtown Detroit since July 1999, and is planning a permanent casino facility under a revised development agreement with the City of Detroit entered into in August 2002.

     The Company recorded an intangible asset (development rights, deemed to have an indefinite life) of approximately $115 million in connection with its payment obligations under the revised development agreement. Payments of $41 million were made through March 31, 2004, assets of $3 million will be transferred to the City, and the remaining obligations have been classified as either accrued liabilities ($21 million) or other long-term liabilities ($50 million), depending on the payment date. The long-term liability represents the Company’s obligation for repayment of bonds issued by the Economic Development Corporation of the City of Detroit. In addition to the above payments, the Company will pay the City 1% of gaming revenues (2% if annual revenues exceed $400 million) beginning January 1, 2006.

     The Company is currently in the process of obtaining land and developing plans for the permanent casino facility, and currently expects the project to cost approximately $575 million (including land, capitalized interest and preopening expenses, but excluding the $115 million of payments to the City discussed above). The design, budget and schedule of the permanent facility are at an early stage, and the ultimate timing, cost and scope of the project is subject to risks attendant to large-scale projects.

     The ability to construct the permanent casino facility is currently subject to resolution of certain litigation. See Part II, Item 1, “Legal Proceedings”, for further information on the status of this litigation.

     New York Racing Association. The Company has an understanding with the New York Racing Association (“NYRA”) to manage video lottery terminals (“VLT”) at NYRA’s Aqueduct horseracing facility in metropolitan New York. The Company would assist in the development of the facility, including providing project financing, and would manage the facility for a fee. The project is anticipated to cost $135 million. Work was halted on the VLT facility in August 2003 pending the outcome of an investigation of certain aspects of NYRA’s operations by Federal prosecutors. In December 2003, NYRA reached an agreement with the Justice Department whereby NYRA was indicted with prosecution deferred. NYRA agreed to pay a fine and the indictment will be dismissed with prejudice upon NYRA implementing certain reforms and otherwise complying with the terms of the agreement. The Company’s participation is subject to a definitive agreement, regulatory approvals and certain legislative changes by the State of New York.

NOTE 10 — PROPERTY TRANSACTIONS, NET

     Net property transactions consists of the following:

     During 2004, demolition costs relate primarily to the Bellagio expansion and standard room remodel projects. During 2003, approximately $3 million of the write downs and substantially all of the demolition costs relate to preparation for the new Cirque du Soleil show at MGM Grand Las Vegas. The remaining demolition costs relate to the Bellagio expansion and room remodel. Substantially all of the remaining write downs and impairments relate to other assets disposed of in connection with remodeling or expansion projects at MGM Grand Las Vegas.

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NOTE 11 — CONSOLIDATING CONDENSED FINANCIAL INFORMATION

     The Company’s subsidiaries (excluding MGM Grand Detroit, LLC and certain minor subsidiaries) have fully and unconditionally guaranteed, on a joint and several basis, payment of the Senior Credit Facility, the senior notes and the senior subordinated notes. Separate condensed financial statement information for the subsidiary guarantors and non-guarantors as of March 31, 2004 and December 31, 2003 and for the three month periods ended March 31, 2004 and 2003 is as follows:

CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION

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CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION

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

Results of Operations

     Overview

     Our operations consist of 12 wholly-owned casino resorts and 50% investments in two other casino resorts, including:

     We operate in one segment, the operation of casino resorts, which includes offering gaming, hotel, dining, entertainment, retail and other resort amenities. Slightly over half of our net revenues are derived from gaming activities, a lower 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 generate a majority of our net revenues and operating income from our Las Vegas Strip resorts. In 2003, over 75% of our net revenues and operating income was generated by wholly-owned Las Vegas Strip resorts. We believe that we own the premier casino resorts on the Las Vegas Strip, and a main focus of our strategy is to continually reinvest in these resorts to maintain that competitive advantage. Our concentration on the Las Vegas Strip exposes us to certain risks outside of our control, such as competition from other Las Vegas Strip resorts, including a major new competitor expected to open in 2005, and the impact from potential expansion of gaming in California. This concentration also exposes us to risks related to tourism and the general economy, including national and global economic conditions and terrorist attacks or other global events.

     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 the high-end gaming segment, which can cause variability in our results. Key performance indicators related to revenue are:

•

Gaming revenue indicators – table games drop and slot 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 slot win percentage is in the range of 6% to 7% of slot 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.

     A full description of our operations, key performance indicators and outlook can be found in our Annual Report on Form 10-K for the year ended December 31, 2003.

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     Financial Results

     The following discussion is based on our consolidated financial statements for the three months ended March 31, 2004 and 2003. On a consolidated basis, the most important factors and trends contributing to our operating performance for the quarter were:

•

Strong visitation levels in Las Vegas. According to the Clark County Aviation Department, traffic at McCarran International Airport was up 12% in the first quarter of 2004 from the same period in 2003.

•

Excellent visitation and spending from premium gaming customers during the key Chinese New Year and Super Bowl events.

•

Continued positive economic recovery in the United States, leading to increased spending by guests in all segments and increased pricing power for our hotel rooms and non-gaming amenities.

•

A strong city-wide convention calendar in the first quarter of 2004.

•

The addition of Borgata, of which we own 50%. Borgata opened on July 3, 2003.

     As a result of the above factors and trends, our net revenues increased 12% in the 2004 quarter. Our operating income in 2004 increased 60%, due to the strong revenue trends and the operating leverage obtained from the increased rooms prices. Several of our resorts set records for net revenues and operating income performance in a single quarter, driven by new amenities and significant increases in room rates earned during the quarter.

     Income from continuing operations increased 99% over the 2003 quarter due to the above factors. On a per share basis, income from continuing operations increased 106%, as we had a lower weighted average number of shares outstanding resulting from share repurchases throughout 2003 and the first quarter of 2004.

     Operating Results – Detailed Revenue Information

     The following table presents detail of our net revenues:

     Table games revenues increased 16% in the 2004 quarter, with a 12% increase in volume and a slightly higher hold percentage – the hold percentage for both periods was within a normal range. Slot revenues continued to show strong year-over-year gains, a trend that started in 2003. This is the result of strong visitation and the impact of our Players Club rewards program, which was implemented in our major resorts over 2002 and 2003, and the implementation of cashless gaming technology in 2003.

     Non-casino revenue increased in 2004 primarily due to increased spending by guests, strong conference and group business, and higher room rates in all segments. For the quarter ended March 31, 2004, REVPAR was $124 compared to $114 in the 2003 period, an increase of 9%. At our Las Vegas Strip resorts, REVPAR was $146, an increase of 11% over prior year. These REVPAR increases were driven almost entirely by higher rates, as occupancy was roughly flat compared to prior year.

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     Operating Results – Details of Certain Charges

     Preopening and start-up expenses consisted of the following:

     Property transactions, net consisted of the following:

     During 2004, demolition costs relate primarily to the Bellagio expansion and standard room remodel projects. During 2003, approximately $3 million of the write downs and substantially all of the demolition costs relate to preparation for the new Cirque du Soleil show at MGM Grand Las Vegas. The remaining demolition costs relate to the Bellagio expansion and room remodel. Substantially all of the remaining write downs and impairments relate to other assets disposed of in connection with remodeling or expansion projects at MGM Grand Las Vegas.

     Non-operating Results

     Net interest expense increased to $90 million in the 2004 quarter from $83 million in the 2003 quarter, due to higher debt levels and lower capitalized interest. In 2003, we were capitalizing interest related to our investment in Borgata.

     The effective income tax rate was 36% in 2004, lower than the 38% rate in 2003, due to higher income levels and stable amounts of non-deductible items.

     Discontinued Operations

     Income from discontinued operations increased to $9 million in the first quarter of 2004 from $2 million in the year-ago period, due to the 2004 after-tax gain on sale of the Golden Nugget Subsidiaries of $5 million, prior period losses of Online, and lower allocated interest in 2004, offset by not having a full period of results of the Golden Nugget Subsidiaries in 2004.

Liquidity and Capital Resources

     Cash Flows – Operating Activities

     Trends in our operating cash flows tend to follow trends in our operating income, excluding non-cash charges, since our business is primarily cash-based. Cash flow from operations in the first quarter of 2004 increased from 2003, resulting from the increase in operating income. At March 31, 2004, we held cash and cash equivalents of $196 million.

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     Cash Flows – Investing Activities

     Capital expenditures of $177 million in the first quarter of 2004 were significantly higher than the $86 million spent in 2003, due largely to major projects at our existing resorts. These projects included:

•

The theatre at MGM Grand Las Vegas for a new show by Cirque du Soleil, started in 2003 and expected to be completed in 2004;

•

The Bellagio standard room remodel and upgrade, started in 2003 and completed in February 2004;

•

The New York-New York standard room remodel, started in January 2004 and expected to be completed by the third quarter of 2004; and

•

The Bellagio expansion, started in 2003 and expected to be completed in late 2004. The Bellagio expansion consists of a new 928-room tower, along with expanded retail, convention, spa and food and beverage facilities. The project budget is approximately $375 million. The project is designed to complement the existing, newly remodeled standard rooms, and cause minimal business interruption during construction.

     Remaining 2004 capital expenditures were for general property improvements. Capital expenditures in the prior year quarter primarily consisted of construction of the new theatre at New York-New York and implementation of new slot technology, along with general property improvements.

     Investments in unconsolidated affiliates for the 2004 quarter primarily represent our contribution to our joint venture with Newcastle United PLC, which is refundable if certain conditions are not met by January 2008.

     We received net proceeds of $210 million upon the closing of the sale of the Golden Nugget Subsidiaries in January 2004. The proceeds were used to reduce outstanding borrowings under our bank credit facility.

     Cash Flows – Financing Activities

     In the first quarter of 2004, we issued $525 million of 5.875% Senior Notes, due 2014. We repaid a net $615 million on our bank credit facilities and repurchased $49 million of our existing senior notes for $52 million, resulting in a loss on early retirement of debt of $6 million (including the write-off of unamortized original issue discount), which is classified as “Other, net” in the accompanying consolidated statement of income.

     We repurchased 2.9 million shares of our common stock during the first quarter of 2004 at a total cost of $121 million. Our share repurchases are only conducted under repurchase programs approved by our Board of Directors and publicly announced. At March 31, 2004, we had 5.1 million shares available for repurchase under the November 2003 authorization.

     We received $71 million of proceeds from the exercise of employee stock options in the first quarter of 2004.

     As of March 31, 2004, we had approximately $1.5 billion of available liquidity under our bank credit facilities, and our next maturity of public debt is $476 million due in February 2005.

     Other Factors Affecting Liquidity

     In February 2004, we entered into an agreement to sell our subsidiaries that own and operate MGM Grand Australia for A$195 (approximately $147 million based on exchange rates at March 31, 2004), subject to certain working capital adjustments. We expect this transaction to be completed by the third quarter of 2004, subject to customary sales conditions and regulatory approvals.

     In January 2004, we reached agreement with the Board of Directors of Wembley plc (“Wembley”) on the terms of a proposed cash acquisition by us of Wembley. Wembley received a higher competing offer and in May 2004 we announced that we would make no further bids for Wembley.

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Critical Accounting Policies and Estimates

     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, 2003. We present below a discussion of our policies related to income taxes, which has been updated from the discussion included in our Annual Report for additional information.

     Income taxes

     We are subject to income taxes in the United States, and in several states and foreign jurisdictions in which we operate. 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, tax credits 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.

     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. We assess such potential unfavorable outcomes based on the criteria of Statement of Financial Accounting Standards No. 5, “Accounting for Contingencies” (“SFAS 5”). We establish a tax reserve if an unfavorable outcome is probable and the amount of the unfavorable outcome can be reasonably estimated. We assess the potential outcomes of tax uncertainties on a quarterly basis. In determining whether the probable criterion of SFAS 5 is met, we presume that the taxing authority will focus on the exposure and we assess the probable outcome of a particular issue based upon the relevant legal and technical merits. We also apply our judgment regarding the potential actions by the tax authorities and resolution through the settlement process.

     We maintain required tax reserves until such time as the underlying issue is resolved. When actual results differ from reserve estimates, we adjust the income tax provision and our tax reserves in the period resolved. For tax years that are examined by taxing authorities, we adjust tax reserves in the year the tax examinations are settled. For tax years that are not examined by taxing authorities, we adjust tax reserves in the year that the statute of limitations expires. Our estimate of the potential outcome for any uncertain tax issue is highly judgmental, and we believe we have adequately provided for any reasonable and foreseeable outcomes related to uncertain tax matters.

     We classify reserves for tax uncertainties within “other accrued liabilities” in the accompanying consolidated balance sheets, separate from any related income tax payable or deferred income taxes. Reserve amounts may relate to the deductibility of an item, as well as potential interest associated with those items.

Recently Issued Accounting Standards

     There are no accounting standards issued before March 31, 2004 but effective after March 31, 2004 which are expected to have a material impact on our financial reporting.

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Market Risk

     Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates and commodity prices. Our primary exposure to market risk is interest rate risk associated with our 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.

     In the third quarter of 2003, we entered into interest rate swap agreements, designated as fair value hedges, which effectively convert $400 million of our fixed rate debt to floating rate debt. In March 2004, the Company terminated interest rate swap agreements with total notional amounts of $200 million and entered into additional interest rate swap agreements, designated as fair value hedges, with total notional amounts of $100 million, leaving interest rate swap agreements with total notional amounts of $300 million remaining as of March 31, 2004. Under the terms of these agreements, we make payments based on specified spreads over six-month LIBOR, and receive payments equal to the interest payments due on the fixed rate debt. The interest rate swap agreements qualify for the “shortcut method” allowed under Statement of Financial Accounting Standards No. 133, which allows an assumption of no ineffectiveness in the hedging relationship. As such, there is no income statement impact from changes in the fair value of the hedging instruments.

     The following table provides information about our interest rate swaps as of March 31, 2004:

* Interest rates are determined in arrears. These rates have been estimated based on implied forward rates in the yield curve.

     As of March 31, 2004, after giving effect to the interest rate swaps discussed above, long-term fixed rate borrowings represented approximately 76% of our total borrowings. Assuming a 100 basis-point change in LIBOR, our annual interest cost would change by approximately $13 million.

Safe Harbor Provision

     The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. Certain information included in this report contains statements that are forward-looking, such as statements relating to plans for future expansion and other business development activities, as well as other capital spending, financing sources, the effects of regulation (including gaming and tax regulations) and competition. Such forward-looking information involves important risks and uncertainties that could significantly affect anticipated results in the future and, accordingly, such results may differ from those expressed in any forward-looking statements made by or on behalf of the Company. These risks and uncertainties include, but are not limited to, those relating to competition, development and construction activities, dependence on existing management, leverage and debt service (including sensitivity to fluctuations in interest rates), domestic or international economic conditions (including sensitivity to fluctuations in foreign currencies), pending or future legal proceedings, changes in federal or state tax laws or the administration of such laws, changes in gaming laws or regulations (including the legalization of gaming in certain jurisdictions) and application for licenses and approvals under applicable jurisdictional laws and regulations (including gaming laws and regulations).

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.

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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 March 31, 2004. 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 March 31, 2004, 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

     Detroit Slot Machine Litigation

     On July 18, 2001, an individual, Mary Kraft, filed a complaint in the Wayne County Circuit Court in Detroit, Michigan, against International Game Technology, Anchor Gaming, Inc. and the three operators of casinos in Detroit, Michigan, including a subsidiary of the Company. The plaintiff claims the bonus wheel feature of the Wheel of Fortune® and I Dream of Jeannie™ slot machines, which are manufactured, designed and programmed by International Game Technology and/or Anchor Gaming, Inc., are deceptive and misleading. Specifically, plaintiff alleges that the bonus wheels on these games do not randomly land on a given dollar amount but are programmed to provide a predetermined frequency of pay-outs. The complaint alleges violations of the Michigan Consumer Protection Act, common law fraud and unjust enrichment and asks for unspecified compensatory and punitive damages, disgorgement of profits, injunctive and other equitable relief, and costs and attorney’s fees. The plaintiff seeks to certify a class of any individual in Michigan who has played either of these games since June of 1999. The machines and their programs were approved for use by the Michigan Gaming Control Board, the administrative agency responsible for policing the Detroit casinos.

     We, along with the other casino operators, filed a motion for summary disposition arguing that the plaintiff’s complaint fails to state a claim as a matter of law. Additionally, we, along with the other casino operators, filed motions for summary disposition arguing that the plaintiff’s common law claims are preempted by the Michigan Gaming Control and Revenue Act (the “Act”), that the court has no jurisdiction to decide this matter and that all the allegations in the complaint regarding the alleged deceptive nature of the machines are directed to the manufacturers of the machines and are not the casinos’ responsibility. In April 2002, the Wayne County Circuit Court granted the motion for summary disposition. The plaintiff appealed and, after a full briefing of the case, oral argument was held in November 2003.

     In April 2004, the Michigan Court of Appeals, an intermediate appellate court, affirmed the trial court’s dismissal of the plaintiff’s claims. The Michigan Court of Appeals held that the plaintiff’s claims are exempt from the Michigan Consumer Protection Act because the operation of the slot machines was specifically authorized by the Michigan Gaming Control Board, and that the plaintiff’s common law claims are pre-empted by the Michigan Act.

     Lac Vieux Litigation

     In January 2002, the 6^th Circuit Court of Appeals ruled, in the case of Lac Vieux Desert Band of Lake Superior Chippewa Indians v. Michigan Gaming Control Board, et. al., that a preference contained in the Detroit Casino Selection Process Ordinance, in Detroit, Michigan, violated the First Amendment to the United States Constitution. The 6^th Circuit Court remanded the case to the Federal District Court to determine what relief was appropriate. The Company’s operating subsidiary had not been granted a preference by the City of Detroit, and was not originally a party to the Lac Vieux litigation. In April 2002, such subsidiary intervened in the Lac Vieux litigation in order to protect its interest.

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     In July 2002, the District Court denied the Lac Vieux Tribe’s request for a new casino development selection process in the City of Detroit, finding that the magnitude of such relief was not warranted and that the harm to the casino licensees and the City would be manifestly worse than any benefit the Tribe might receive. The District Court declared that our subsidiary did not receive a preference and, in fact, was injured by the preference. The Federal District Court determined that the only relief that it could equitably grant to the Tribe was declaring the ordinance unconstitutional. Our subsidiary had previously petitioned the Court for a ruling that its selection was valid in that it did not receive any preferences in the selection process. In light of the ruling that no further relief would be granted to the Tribe, the Court denied this motion on the ground of mootness. The Tribe appealed the District Court’s ruling, and the Tribe requested that the District Court enjoin the City from approving new development agreements with the three casino developers until resolution of the appeal by the 6^th Circuit Court. The District Court denied the request for the injunction, and the appeal is pending. Our subsidiary filed a cross appeal of the District Court’s denial of the subsidiary’s motion.

     In September 2002, the 6^th Circuit Court issued an injunction, pending appeal, prohibiting the City from issuing construction permits to the developers and prohibiting the developers from commencing construction pending further action of the 6^th Circuit Court. The parties completed briefings of the case in August 2003. We argued, among other things, that the preference provisions of the ordinance found unconstitutional are severable from the valid provisions of the ordinance, and that our subsidiary was not eligible for and did not seek or receive a preference in the selection process. The 6^th Circuit Court has not set a schedule for argument of the appeal.

     In December 2003, the Tribe and the owners of the two other casinos filed a joint motion with the 6^th Circuit Court requesting approval of the terms of a partial settlement, asserted to have resolved the case among the filing parties. The settlement calls for exemption of those developers from a reselection process and other related relief, in exchange for cash payments to the Tribe, but purports to continue the Tribe’s appeal as it relates to our subsidiary. In a subsequent filing, the settling parties requested that issues pertaining to this partial settlement be remanded to the District Court for consideration. We filed a responsive motion with the 6^th Circuit Court requesting dismissal of the appeal as moot, or, upon denial of such relief, expedited decision of our cross appeal and a full briefing on the issues surrounding the proposed partial settlement.

     In February 2004 the 6^th Circuit Court remanded the proposed settlement to the District Court for review and approval. In remanding the case, the 6^th Circuit Court directed that the non-settling parties should not be prejudiced by the actions of the settling parties.

     In April 2004, the District Court issued a ruling approving the proposed settlement among Lac Vieux, Greektown Casino and Detroit Entertainment/Atwater. As to the position of the Company’s subsidiary in the case, the District Court’s settlement opinion observed that Lac Vieux’s proposed relief of rebidding of the subsidiary’s casino development would be inequitable to our subsidiary, since our subsidiary was not eligible for, did not seek and did not receive any preferential treatment in the casino selection process. The District Court also stated that Lac Vieux’s agreement in the settlement not to pursue rebidding of the developments of the two parties who did receive preferences strengthens our subsidiary’s legal position that a rebidding of only one casino development would make the rebidding process even more inequitable as to the subsidiary.

     The case will return to the 6^th Circuit Court for further proceedings. Aside from review of the District Court’s approval of the settlement, several other matters in the litigation remain pending before the 6^th Circuit, including our subsidiary’s motion to dismiss Lac Vieux’s appeal on the grounds that the settlement makes the appeal moot; Lac Vieux’s continuing appeal and request for a rebid as to our subsidiary’s Detroit casino development; our subsidiary’s cross-appeal of the District Court’s denial of the subsidiary’s request for declaratory ruling that it should not be subject to rebid because it never received a preference in the developer selection process; and the injunction prohibiting construction of the permanent casino complexes pending further action by the 6^th Circuit Court. The timetable for the 6^th Circuit’s further review of this case is uncertain.

     Other

     For information on other material legal proceedings to which the Company and its subsidiaries are a party, see the Company’s Annual Report on Form 10-K for the year ended December 31, 2003.

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Item 2. Changes in Securities and Use of Proceeds

     Our share repurchases are only conducted under repurchase programs approved by our Board of Directors and publicly announced. The following table includes information about our share repurchases for the quarter ended March 31, 2004:

Item 6. Exhibits and Reports on Form 8-K

(a)

Exhibits

4.1		Indenture dated as of February 27, 2004, among the Company, as issuer, the Subsidiary Guarantors, as guarantors, and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K dated February 27, 2004).
4.2		Indenture dated as of March 23, 2004, among the Company, as issuer, and U.S. Bank National Association, as trustee.
10.1		Agreement for Sale of Shares and Units, by and among MGM Grand Australia Pty Ltd and SKYCITY Australia Pty Ltd, as purchaser, and SKYCITY Entertainment Group Limited, as guarantor, dated February 11, 2004.
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.

(b)		Reports on Form 8-K.
		The Company filed the following Current Reports on Form 8-K during the quarter ended March 31, 2004:
		Current Report on Form 8-K, filed by the Company on January 26, 2004, for the purpose of filing the press release announcing the closing of the sale of the Golden Nugget subsidiaries.
		Current Report on Form 8-K, filed by the Company on January 28, 2004, for the purpose of furnishing the earnings press release for the quarter and year ended December 31, 2003.
		Current Report on Form 8-K, filed by the Company on January 28, 2004, for the purpose of filing the press release announcing the recommended cash acquisition of Wembley plc.
		Current Report on Form 8-K, filed by the Company on February 27, 2004, for the purpose of filing the Underwriting Agreement and Indenture related to the issuance of $225 million of Senior Notes due 2014.
		Current Report on Form 8-K, filed by the Company on March 25, 2004, for the purpose of announcing the sale of $300 million of Senior Notes due 2014 through a Rule 144A offering.