UNITED STATES
SECURITIES & EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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.  ý  Yes  o  No

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act):   ý  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

Item 1.           Financial Statements

MGM MIRAGE AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

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

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MGM MIRAGE AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

(Unaudited)

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

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MGM MIRAGE AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

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

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MGM MIRAGE AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

NOTE 1 — ORGANIZATION AND BASIS OF PRESENTATION

MGM MIRAGE (the “Company”) is a Delaware corporation, incorporated on January 29, 1986. As of September 30, 2003, approximately 55% 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 hotels, restaurants and other resort amenities, along with gaming facilities.

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, 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 the following casino resorts in other areas of Nevada: Golden Nugget Las Vegas, in downtown Las Vegas; Golden Nugget Laughlin, in Laughlin, Nevada; and 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 10 miles north of its Las Vegas Strip resorts.  In addition, the Company owns and operates Beau Rivage, a beachfront resort located in Biloxi, Mississippi, and MGM Grand Hotel and Casino in Darwin, Australia.  See Note 2 for information regarding the anticipated sale of the Golden Nugget Las Vegas and Golden Nugget Laughlin 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.

A limited liability company owned 50-50 with Boyd Gaming Corporation owns and operates Borgata, a casino resort at Renaissance Pointe in Atlantic City, New Jersey.  Borgata opened on July 3, 2003.  The Company owns approximately 95 developable acres adjacent to Borgata, of which 75 acres are available for future development and 20 acres are for common landscaping and roadways at Renaissance Pointe.

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.  In May 2003, the Company acquired a 25% interest in Metro Casinos Limited, a United Kingdom gaming company which is developing a new casino in Bristol.  In November 2003, the Company received regulatory approval for this investment.  In October 2003, the Company entered into an agreement with Earls Court and Olympia Group, which operates large convention facilities in London, to form a jointly owned company.  Subject to certain regulatory changes occurring, the entity would develop a large entertainment and gaming facility to complement the existing convention facilities.  The Company would hold 82.5% of the entity.  The Company’s participation in this opportunity will be subject to regulatory approval.

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, 2002.

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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, 2003, and the results of its operations for the three and nine month periods ended September 30, 2003 and 2002.  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 2002 financial statements to conform to the 2003 presentation, which have no effect on previously reported net income.  “Property transactions, net” in the accompanying consolidated statements of income includes write downs and impairments of long-lived assets, demolition costs, and gains and losses on the sale or other disposal of property and equipment.  Prior to 2003, the Company classified gains and losses on asset disposals as a non-operating item at some of its resorts.  Management believes that the preferable presentation of these items is as an element of operating income.  Prior period statements have not been reclassified, as such transactions were not material in the prior periods.

NOTE 2 — DISCONTINUED OPERATIONS

In June 2003, the Company entered into an agreement to sell its subsidiaries operating Golden Nugget Las Vegas and Golden Nugget Laughlin (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 is expected to be completed by the first quarter of 2004, subject to customary sales conditions and regulatory approval. Also in June 2003, the Company ceased operations of PLAYMGMMIRAGE.com, its online gaming website (“Online”).

The results of the Golden Nugget Subsidiaries and Online are classified as discontinued operations in the accompanying consolidated statements of income for all periods presented.  Net revenues of discontinued operations were $174 million and $165 million, respectively, for the nine months ended September 30, 2003 and 2002.  Included in the income (loss) 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 $7 million for each of the nine months ended September 30, 2003 and 2002, and $2 million for each of the three month periods ended September 30, 2003 and 2002.  Also included in discontinued operations for the nine months ended September 30, 2003 is a loss on disposal of Online of $7 million relating primarily to unrecoverable costs of computer hardware and software.  The estimated fair value less costs to sell the Golden Nugget Subsidiaries exceeds the carrying value, therefore no gain or loss has been recognized as of September 30, 2003.  Included in the tax benefit from discontinued operations for the nine months ended September 30, 2003 is $2 million of previously unrecognized tax benefits relating to prior year operating losses of Online.

The following table summarizes the assets and liabilities of the Golden Nugget Subsidiaries and Online as of September 30, 2003, included as assets and liabilities held for sale in the accompanying consolidated balance sheet:

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In addition, in the quarter ended September 30, 2003, management approved a plan to sell 315 acres of land in North Las Vegas, Nevada near Shadow Creek.  In October 2003, the land was sold for approximately $55 million.  The Company will record a pretax gain of approximately $37 million in the fourth quarter of 2003.  The carrying value of the land is included in assets held for sale in the accompanying September 30, 2003 consolidated balance sheet.

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 September 30, 2003 and 2002 was $87 million and $88 million, respectively, of which $1 million and $19 million, respectively, was capitalized. Total interest incurred for the nine month periods ended September 30, 2003 and 2002 was $264 million and $260 million, respectively, of which $13 million and $54 million, respectively, was capitalized.

On April 4, 2003, the Company entered into an amendment to its $600 million revolving credit facility whereby the maturity date was extended to April 2, 2004 and the lending commitment was reduced to $525 million.  Concurrently, the Company entered into an amendment for the $2.0 billion revolving credit facility to adjust certain covenants to match the covenants required in the $525 million revolving credit facility.  The effect of the amendment was to increase the maximum leverage ratio and decrease the minimum coverage ratio.

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Under the amended facilities, the Company must maintain a maximum leverage ratio (average debt to EBITDA, as defined) of 5.5:1, decreasing periodically to 5.0:1 by December 2004. The Company must also maintain a minimum coverage ratio (EBITDA to interest charges, as defined) of 2.5:1, increasing to 2.75:1 by March 2004.  As of September 30, 2003, the Company’s leverage and interest coverage ratios were 4.8 and 3.4, respectively.

In 2001 and 2002, the Company entered into several interest rate swap agreements, designated as fair value hedges, which effectively converted a portion of the Company’s fixed rate debt to floating rate debt. By the second quarter of 2002, the Company had terminated all such interest rate swap agreements.  Net payments totaling $11 million were received during 2001 and 2002 upon the termination of interest rate swap agreements.  These amounts have been added to the carrying value of the related debt obligations and are being amortized and recorded as a reduction of interest expense over the remaining life of that debt.

In the third quarter of 2003, the Company issued $600 million of 6.00% Senior Notes due 2009.  The proceeds were used to reduce the amount outstanding under the Company’s $2.0 billion revolving credit facility.

Also in the third quarter of 2003, the Company entered into three interest rate swap agreements, designated as fair value hedges, which effectively convert $400 million of the Company’s fixed rate debt to floating rate debt.  Under the terms of these 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.  Other long-term assets in the accompanying September 30, 2003 consolidated balance sheet includes $6 million representing the fair value of the interest rate swap agreements at that date, with a corresponding aggregate increase in the carrying value of the Company’s long-term debt.

In August 2003, the Company’s Board of Directors authorized the repurchase of up to $100 million of the Company’s public debt securities. Subsequently, the Company repurchased $25 million of the Company’s $850 Million 8.50% Senior Notes, due 2010.

In October 2003, the Company obtained commitments from its lending group to fund a new $2.5 billion senior credit facility, consisting of a five year revolving credit facility for $1.5 billion and a five year $1.0 billion term loan that reduces by 20% over the final three years of the term loan.  Upon consummation, the new senior credit facilities will amend and restate the existing $2.0 billion facility and the $525 million revolving credit facility will be terminated. It is anticipated the new senior credit facilities will contain similar terms, including covenants, as the existing senior credit facilities.

NOTE 5 — STOCKHOLDERS’ EQUITY

During the nine months ended September 30, 2003, the Company repurchased 7.4 million shares of its common stock for $229 million.  The Company repurchased 1.3 million shares under the Company’s previous 10 million share repurchase program, which completed that program. In February 2003, the Board of Directors authorized a new 10 million share repurchase program (the “2003 program”).  The Company repurchased 6.1 million shares under the 2003 program through September 30, 2003, leaving authorization for the repurchase of 3.9 million shares as of September 30, 2003.

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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:

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 September 30, 2003, the aggregate number of shares subject to options available for grant under the Company’s stock option plans was 2.1 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.

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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 and $4 million, net of tax, of amortization of restricted stock compensation for the three and nine months ended September 30, 2003, respectively, and $1 million and $2 million, net of tax, of such amortization for the three and nine months ended September 30, 2002, respectively.

NOTE 9 – COMMITMENTS AND CONTINGENCIES

Detroit Development Agreement.  MGM Grand Detroit, LLC has operated an interim casino facility in downtown Detroit since 1999, and is planning a permanent casino facility under a revised development agreement with the City of Detroit entered into on August 2, 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 $36 million were made through September 30, 2003, assets of $3 million will be transferred to the City, and the remaining obligations have been classified as either accrued liabilities ($26 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 approximately $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.  In January 2002, the 6^thCircuit Court of Appeals ruled that the ordinance governing the casino developer selection process in Detroit violated the First Amendment to the United States Constitution, because of preference given to certain bidders.  The Company’s operating subsidiary did not receive preference in the selection process.  The 6^th Circuit Court remanded the case to the Federal District Court, which rejected the plaintiff’s request for a re-bidding process and determined that the only suitable remedy to the plaintiff was declaring the ordinance unconstitutional.  The plaintiff has appealed, and the 6^th Circuit Court of Appeals has issued an injunction, pending appeal, prohibiting the City and the developers from commencing construction pending further action of the 6^thCircuit Court of Appeals.

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Borgata.  The Company contributed 27 acres of land for its ownership interest in Borgata.  Boyd Gaming Corporation contributed $90 million of cash.  Borgata obtained a $630 million secured bank credit facility, which is non-recourse to the Company.  Each party is required to contribute an additional $136 million in cash to the venture to fund the project.  As of September 30, 2003, each party had made $116 million of such contributions.

New York Racing Association.  The Company has an understanding with the New York Racing Association (“NYRA”) to manage a casino facility at NYRA’s Aqueduct horseracing facility in metropolitan New York.  Under the agreement, the Company would assist in the development of the facility, including possibly providing financing or a guarantee of third-party financing, and would manage the facility for a fee.  The project is anticipated to cost $135 million and was originally expected to be completed by December 2003.  Work was halted on the casino facility in August 2003 pending the outcome of an investigation of certain aspects of NYRA’s operations by Federal prosecutors.  The Company currently has a $4 million receivable from NYRA for reimbursable development costs paid by the Company, and as of September 30, 2003 was committed to purchase approximately $9 million of equipment originally intended to be utilized at the Aqueduct casino, but which could be used elsewhere.

NOTE 10 — PROPERTY TRANSACTIONS, NET

Net property transactions consists of the following:

During 2003, approximately $3 million of the write downs and impairments and approximately $4 million of the demolition costs relate to assets disposed of in connection with the January 2003 closure of the EFX! Theatre and 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.

During 2002, approximately $8 million of the write down and impairments related to damage sustained during Tropical Storm Isidore at Beau Rivage and approximately $5 million related to the revised Detroit Development Agreement (see Note 9).

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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 $2.0 billion and $525 million revolving credit facilities, the senior notes and debentures and the senior subordinated notes. Separate condensed financial statement information for the subsidiary guarantors and non-guarantors as of September 30, 2003 and December 31, 2002 and for the three and nine month periods ended September 30, 2003 and 2002 is as follows:

CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION

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CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION

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CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION