**UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549**

** **

**FORM 10-K/A**

**Amendment No. 1**

 
| **(Mark  One)**                               |
|-----------------------------------------------|
|                                          |   |
| **ý**                                    | **ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934** |
|                                          |
| For the fiscal year ended**January 31, 2003** |
|                                          |
| **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 Number 1-8570**

 

| **MANDALAY  RESORT GROUP**                                      |
|-----------------------------------------------------------------|
| (Exact name of registrant as specified in its  charter)         |
|                                                            |
| **Nevada**                                                      |   | **88-0121916** |
| State (or other jurisdiction of  incorporation or organization) |   | (I.R.S. Employer Identification No.) |
|                                                            |   |   |
| **3950 Las Vegas Boulevard South, Las  Vegas, Nevada**          |   | **89119** |
| (Address of principal executive offices)                        |   | (Zip Code) |

 

Registrant’stelephone number, including area code:    **(702) 632-6700**

 

Securitiesregistered pursuant to Section 12(b) of the Act:

 

| **Title of  Each Class**          |   | **Name of  Each Exchange on which Registered** |   |
|-----------------------------------|--------|------------------------------------------------|--------|
| Common Stock,  $.01-2/3 Par Value |   | New York Stock  Exchange and Pacific Exchange  |   |
| Common Stock  Purchase Rights     |   | New York Stock  Exchange and Pacific Exchange  |   |

 

Securitiesregistered pursuant to Section 12(g) of the Act:  **None**

 

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.  Yes ý  No o

 

Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-Kis not contained herein, and will not be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment to this Form 10-K. ý

 

Indicate by checkmark whether the registrant is an accelerated filer (as defined in Rule 12b-2of the Act).   Yes ý  No o

 

The aggregatemarket value of the voting and non-voting common equity held by persons otherthan the registrant’s directors and executive officers as of July 31, 2002 (thelast business day of the registrant’s most recently completed second fiscalquarter), based upon the last reported sale price on the New York StockExchange on such date, was $1,652,908,035.

 

The number ofshares of registrant’s Common Stock, $.01-2/3 par value, outstanding at April28, 2003: 59,342,260.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

PART III -Portions of the Registrant’s definitive proxy statement relating to the annualmeeting of stockholders to be held on June 26, 2003, are incorporated byreference into Items 10 through 13, inclusive.

 

 

----

 

**ITEM8.****                                                     FINANCIALSTATEMENTS AND SUPPLEMENTARY DATA.**

 
| EXPLANATION: |  Item 8 is amended herein  solely for the purpose of including the audit report of Arthur Andersen LLP  on the financial statements of Victoria Partners as of December 31, 2001 and  for the years ended December 31, 2001 and 2000. |
|--------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 
| MANDALAY  RESORT GROUP                                                                               |
|------------------------------------------------------------------------------------------------------|
| Consolidated Balance Sheets  as of January 31, 2003 and 2002                                    |
| Consolidated  Statements of Income for the three years ended January 31, 2003                        |
| Consolidated  Statements of Cash Flows for the three years ended January 31, 2003                    |
| Consolidated  Statements of Stockholders’ Equity for the three years ended January 31, 2003     |
| Notes to  Consolidated Financial Statements                                                          |
| Independent Auditors’  Report                                                                   |
| Management’s  Report on Financial Statements                                                    |
| Selected  Quarterly Financial Information (Unaudited)                                                |
|                                                                                                 |
| ELGIN  RIVERBOAT RESORT - RIVERBOAT CASINO                                                           |
| Balance Sheets as of December 31, 2002  and 2001                                                     |
| Statements  of Operations for each of the three years ended December 31, 2002                        |
| Statements of Partners’  Equity for each of the three years ended December 31, 2002             |
| Statements  of Cash Flows for each of the three years ended December 31, 2002                        |
| Notes to Financial  Statements                                                                       |
| Report of Independent  Accountants                                                                   |
|                                                                                                 |
| VICTORIA PARTNERS                                                                                    |
| Balance Sheets as of December 31, 2002  and 2001                                                     |
| Statements  of Income for each of the three years ended December 31, 2002                            |
| Statements of  Changes in Partners’ Equity for each of the three years ended December 31,  2002 |
| Statements  of Cash Flows for each of the three years ended December 31, 2002                        |
| Notes to Financial  Statements                                                                       |
| Independent Auditors’  Report                                                                   |
| Report of Independent Public  Accountants                                                            |

 

2

----

 

MANDALAY RESORT GROUP ANDSUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 
|                                                                                                 |   | **January  31,** |      |
|------------------------------------------------------------------------------------------------------|--------|------------------|-----------|
| **(in thousands, except share data)**                                                                |   | **2003**         |      | **2002** |   |
| ASSETS                                                                                               |   |             |      |   |   |
| Current assets                                                                                       |   |             |      |   |   |
| Cash and cash equivalents                                                                            |   | $                | 148,442   |   | $ | 105,905 |   |
| Accounts receivable, net of allowance                                                                |   | 55,303           |      | 58,372 |   |
| Income tax receivable                                                                                |   | 13,107           |      | 13,531 |   |
| Inventories                                                                                          |   | 30,625           |      | 30,555 |   |
| Prepaid expenses                                                                                     |   | 47,404           |      | 40,848 |   |
| Deferred income tax                                                                                  |   | 16,523           |      | 13,220 |   |
| Total current assets                                                                                 |   | 311,404          |      | 262,431 |   |
|                                                                                                 |   |             |      |   |   |
| Property, equipment and leasehold interests, at cost, net                                            |   | 3,201,635        |      | 3,049,812 |   |
|                                                                                                 |   |             |      |   |   |
| Other assets                                                                                         |   |             |      |   |   |
| Excess of purchase price over fair market value of net assets  acquired, net                         |   | 38,330           |      | 45,445 |   |
| Investments in unconsolidated affiliates                                                             |   | 573,345          |      | 554,086 |   |
| Other investments                                                                                    |   | 43,625           |      | 35,751 |   |
| Intangible development costs                                                                         |   | 93,360           |      | — |   |
| Deferred charges and other assets                                                                    |   | 92,965           |      | 84,953 |   |
| Total other assets                                                                                   |   | 841,625          |      | 720,235 |   |
|                                                                                                 |   |             |      |   |   |
| Total assets                                                                                         |   | $                | 4,354,664 |   | $ | 4,032,478 |   |
|                                                                                                 |   |             |      |   |   |
| LIABILITIES AND STOCKHOLDERS’ EQUITY                                                            |   |             |      |   |   |
| Current liabilities                                                                                  |   |             |      |   |   |
| Current portion of long term debt                                                                    |   | $                | 20,284    |   | $ | 39,251 |   |
| Accounts and contracts payable                                                                       |   |             |      |   |   |
| Trade                                                                                                |   | 36,952           |      | 33,473 |   |
| Construction                                                                                         |   | 10,031           |      | 8,284 |   |
| Accrued liabilities                                                                                  |   |             |      |   |   |
| Salaries, wages, vacations and bonuses                                                               |   | 56,427           |      | 52,680 |   |
| Progressive jackpots                                                                                 |   | 13,267           |      | 11,556 |   |
| Advance room deposits                                                                                |   | 14,384           |      | 13,242 |   |
| Interest                                                                                             |   | 67,731           |      | 58,592 |   |
| Other                                                                                                |   | 98,301           |      | 92,163 |   |
| Total current liabilities                                                                            |   | 317,377          |      | 309,241 |   |
|                                                                                                 |   |             |      |   |   |
| Long-term debt, net of current portion                                                               |   | 2,763,593        |      | 2,482,087 |   |
|                                                                                                 |   |             |      |   |   |
| Other liabilities                                                                                    |   |             |      |   |   |
| Deferred income tax                                                                                  |   | 227,652          |      | 194,922 |   |
| Accrued intangible development costs                                                                 |   | 55,027           |      | — |   |
| Deferred gain                                                                                        |   | 10,339           |      | 28,339 |   |
| Other long-term liabilities                                                                          |   | 79,160           |      | 80,919 |   |
| Total other liabilities                                                                              |   | 372,178          |      | 304,180 |   |
|                                                                                                 |   |             |      |   |   |
| Total liabilities                                                                                    |   | 3,453,148        |      | 3,095,508 |   |
|                                                                                                 |   |             |      |   |   |
| Commitments and contingent liabilities                                                               |   |             |      |   |   |
|                                                                                                 |   |             |      |   |   |
| Minority interest                                                                                    |   | 18,587           |      | (3,639 | ) |
|                                                                                                 |   |             |      |   |   |
| Stockholders’ equity                                                                            |   |             |      |   |   |
| Common stock $.01-2/3 par value  Authorized—450,000,000 shares  Issued —113,634,013 shares |   | 1,894            |      | 1,894 |   |
| Preferred stock $.01 par value  Authorized — 75,000,000 shares                                  |   | —           |      | — |   |
| Additional paid-in capital                                                                           |   | 581,166          |      | 572,992 |   |
| Retained earnings                                                                                    |   | 1,489,979        |      | 1,374,376 |   |
| Accumulated other comprehensive loss                                                                 |   | (16,920          | )         | (21,902 | ) |
| Treasury stock (51,061,847 and 45,278,193 shares), at cost                                           |   | (1,173,190       | )         | (986,751 | ) |
| Total stockholders’ equity                                                                      |   | 882,929          |      | 940,609 |   |
|                                                                                                 |   |             |      |   |   |
| Total liabilities and stockholders’ equity                                                      |   | $                | 4,354,664 |   | $ | 4,032,478 |   |

 

Theaccompanying notes are an integral part of these consolidated financialstatements.

 

3

----

 

MANDALAY RESORT GROUP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OFINCOME

 
|                                                                |   | **Year ended  January 31,** |      |
|---------------------------------------------------------------------|--------|-----------------------------|-----------|
| **(in thousands, except share data)**                               |   | **2003**                    |      | **2002** |   | **2001** |   |
| Revenues                                                            |   |                        |      |   |   |   |   |
| Casino                                                              |   | $                           | 1,205,163 |   | $ | 1,201,707 |   | $ | 1,221,595 |   |
| Rooms                                                               |   | 570,236                     |      | 581,551 |   | 611,352 |   |
| Food and beverage                                                   |   | 414,051                     |      | 410,276 |   | 418,081 |   |
| Other                                                               |   | 333,979                     |      | 332,253 |   | 299,753 |   |
|                                                                |   | 2,523,429                   |      | 2,525,787 |   | 2,550,781 |   |
| Less - complimentary allowances                                     |   | (169,311                    | )         | (177,275 | ) | (169,642 | ) |
|                                                                |   | 2,354,118                   |      | 2,348,512 |   | 2,381,139 |   |
| Costs and expenses                                                  |   |                        |      |   |   |   |   |
| Casino                                                              |   | 647,195                     |      | 669,719 |   | 670,243 |   |
| Rooms                                                               |   | 201,630                     |      | 197,300 |   | 203,352 |   |
| Food and beverage                                                   |   | 285,153                     |      | 283,864 |   | 299,726 |   |
| Other                                                               |   | 212,075                     |      | 219,358 |   | 200,236 |   |
| General and administrative                                          |   | 409,166                     |      | 417,149 |   | 409,603 |   |
| Corporate general and administrative                                |   | 27,439                      |      | 20,981 |   | 21,153 |   |
| Depreciation and amortization                                       |   | 144,995                     |      | 216,001 |   | 217,984 |   |
| Operating lease rent                                                |   | 49,073                      |      | 32,185 |   | 40,121 |   |
| Preopening expenses                                                 |   | 4,614                       |      | 2,155 |   | 1,832 |   |
| Impairment loss                                                     |   | 5,422                       |      | 52,027 |   | — |   |
| Write-off of intangible asset                                       |   | 13,000                      |      | — |   | — |   |
|                                                                |   | 1,999,762                   |      | 2,110,739 |   | 2,064,250 |   |
|                                                                |   |                        |      |   |   |   |   |
| Equity in earnings of unconsolidated   affiliates              |   | 97,950                      |      | 113,287 |   | 114,645 |   |
|                                                                |   |                        |      |   |   |   |   |
| Income from operations                                              |   | 452,306                     |      | 351,060 |   | 431,534 |   |
|                                                                |   |                        |      |   |   |   |   |
| Other income (expense)                                              |   |                        |      |   |   |   |   |
| Interest, dividends and other income                                |   | (2,229                      | )         | (2,113 | ) | 6,934 |   |
| Guarantee fees from unconsolidated affiliate                        |   | 193                         |      | 2,264 |   | 2,498 |   |
| Interest expense                                                    |   | (207,114                    | )         | (221,352 | ) | (219,940 | ) |
| Net interest from unconsolidated affiliates                         |   | (7,172                      | )         | (7,501 | ) | (9,888 | ) |
|                                                                |   | (216,322                    | )         | (228,702 | ) | (220,396 | ) |
|                                                                |   |                        |      |   |   |   |   |
| Minority interest                                                   |   | (40,650                     | )         | (29,352 | ) | (16,746 | ) |
|                                                                |   |                        |      |   |   |   |   |
| Income before provision for income taxes                            |   | 195,334                     |      | 93,006 |   | 194,392 |   |
| Provision for income taxes                                          |   | (77,869                     | )         | (39,962 | ) | (74,692 | ) |
|                                                                |   |                        |      |   |   |   |   |
| Income before cumulative effect of a change in accounting principle |   | 117,465                     |      | 53,044 |   | 119,700 |   |
|                                                                |   |                        |      |   |   |   |   |
| Cumulative effect of a change in accounting for goodwill            |   | (1,862                      | )         | — |   | — |   |
|                                                                |   |                        |      |   |   |   |   |
| Net income                                                          |   | $                           | 115,603   |   | $ | 53,044 |   | $ | 119,700 |   |
|                                                                |   |                        |      |   |   |   |   |
| Basic earnings per share:                                           |   |                        |      |   |   |   |   |
| Income before cumulative effect of a change in accounting principle |   | $                           | 1.74      |   | $ | .73 |   | $ | 1.53 |   |
| Cumulative effect of a change in accounting principle               |   | (.03                        | )         | — |   | — |   |
|                                                                |   |                        |      |   |   |   |   |
| Net income                                                          |   | $                           | 1.71      |   | $ | .73 |   | $ | 1.53 |   |
|                                                                |   |                        |      |   |   |   |   |
| Diluted earnings per share:                                         |   |                        |      |   |   |   |   |
| Income before cumulative effect of a change in accounting principle |   | $                           | 1.68      |   | $ | .71 |   | $ | 1.50 |   |
| Cumulative effect of a change in accounting principle               |   | (.03                        | )         | — |   | — |   |
|                                                                |   |                        |      |   |   |   |   |
| Net income                                                          |   | $                           | 1.65      |   | $ | .71 |   | $ | 1.50 |   |
|                                                                |   |                        |      |   |   |   |   |
| Average shares outstanding (basic)                                  |   | 67,555,934                  |      | 72,798,916 |   | 78,334,735 |   |
|                                                                |   |                        |      |   |   |   |   |
| Average shares outstanding (diluted)                                |   | 70,158,204                  |      | 74,459,831 |   | 79,700,614 |   |

 

Theaccompanying notes are an integral part of these consolidated financialstatements.

 

4

----

 

MANDALAY RESORT GROUP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OFCASH FLOWS

 
|                                                                                                       |   | **Year ended  January 31,** |    |
|------------------------------------------------------------------------------------------------------------|--------|-----------------------------|---------|
| **(in thousands)**                                                                                         |   | **2003**                    |    | **2002** |   | **2001** |   |
| Increase (decrease) in cash and cash  equivalents                                                          |   |                        |    |   |   |   |   |
| Cash flows from operating activities                                                                       |   |                        |    |   |   |   |   |
| Net income                                                                                                 |   | $                           | 115,603 |   | $ | 53,044 |   | $ | 119,700 |   |
| Adjustments to reconcile net income to net cash provided by operating  activities                          |   |                        |    |   |   |   |   |
| Depreciation and amortization                                                                              |   | 144,995                     |    | 216,001 |   | 217,984 |   |
| Provision for bad debts                                                                                    |   | 7,165                       |    | 20,381 |   | 21,329 |   |
| Increase (decrease) in deferred income tax                                                                 |   | 26,744                      |    | (16,420 | ) | 25,023 |   |
| Increase in interest payable                                                                               |   | 9,139                       |    | 5,470 |   | 33,727 |   |
| Increase in accrued pension cost                                                                           |   | 8,420                       |    | 7,536 |   | 4,363 |   |
| Loss on disposition of fixed assets                                                                        |   | 1,747                       |    | 1,973 |   | 290 |   |
| Impairment loss                                                                                            |   | 5,422                       |    | 52,027 |   | — |   |
| Write-off of intangible asset                                                                              |   | 13,000                      |    | — |   | — |   |
| Cumulative effect of accounting change                                                                     |   | 1,862                       |    | — |   | — |   |
| Increase in other current assets                                                                           |   | (10,298                     | )       | (13,164 | ) | (33,381 | ) |
| (Decrease) increase in other current liabilities                                                           |   | (2,616                      | )       | 5,743 |   | 18,584 |   |
| (Increase) decrease in other noncurrent assets                                                             |   | (20,294                     | )       | 13,404 |   | (551 | ) |
| Unconsolidated affiliates’ distributions in excess of earnings  (earnings in excess of distributions) |   | 23,827                      |    | (2,783 | ) | 22,077 |   |
| Minority interest in earnings, net of distributions                                                        |   | 22,226                      |    | 15,036 |   | 6,421 |   |
| Other                                                                                                      |   | 2,981                       |    | — |   | — |   |
|                                                                                                       |   |                        |    |   |   |   |   |
| Total adjustments                                                                                          |   | 234,320                     |    | 305,204 |   | 315,866 |   |
|                                                                                                       |   |                        |    |   |   |   |   |
| Net cash provided by operating activities                                                                  |   | 349,923                     |    | 358,248 |   | 435,566 |   |
|                                                                                                       |   |                        |    |   |   |   |   |
| Cash flows from investing activities                                                                       |   |                        |    |   |   |   |   |
| Capital expenditures                                                                                       |   | (300,532                    | )       | (156,742  | ) | (110,220 | ) |
| Increase (decrease) in construction payable                                                                |   | 1,747                       |    | 4,364 |   | (29,495 | ) |
| Increase in other investments                                                                              |   | (10,793                     | )       | (10,802 | ) | (16,755 | ) |
| Increase in investments in unconsolidated affiliates                                                       |   | (43,500                     | )       | — |   | — |   |
| Development agreement costs                                                                                |   | (19,500                     | )       | — |   | — |   |
| Other                                                                                                      |   | 2,295                       |    | 3,275 |   | 2,633 |   |
|                                                                                                       |   |                        |    |   |   |   |   |
| Net cash used in investing activities                                                                      |   | (370,283               | )       | (159,905  | ) | (153,837 | ) |
|                                                                                                       |   |                        |    |   |   |   |   |
| Cash flows from financing activities                                                                       |   |                        |    |   |   |   |   |
| Proceeds from issuance of senior and senior subordinated notes                                             |   | —                      |    | 297,836 |   | 700,000 |   |
| Proceeds from sale-leaseback transactions                                                                  |   | —                      |    | 130,500 |   | — |   |
| Net effect on cash of issuances and payments of debt with initial  maturities of three months or less      |   | 280,000                     |    | (380,000 | ) | (715,576 | ) |
| Principal payments of debt with initial maturities in excess of three  months                              |   | (44,478                     | )       | (62,498 | ) | (23,000 | ) |
| Debt premium on reverse interest swap termination                                                          |   | 28,892                      |    | — |   | — |   |
| Debt issuance costs                                                                                        |   | (1,574                      | )       | (16,233 | ) | (16,325 | ) |
| Exercise of stock options                                                                                  |   | 44,286                      |    | 5,054 |   | 17,797 |   |
| Purchases of treasury stock                                                                                |   | (220,866                    | )       | (125,910 | ) | (247,128 | ) |
| Interim settlements and interest under equity forward agreements                                           |   | (1,656                      | )       | (45,517 | ) | (2,405 | ) |
| Reversal of deferred gain                                                                                  |   | (16,414                     | )       | — |   | — |   |
| Other                                                                                                      |   | (5,293                      | )       | (1,611 | ) | (5,768 | ) |
| Net cash provided by (used in) financing activities                                                        |   | 62,897                      |    | (198,379 | ) | (292,405 | ) |
| Net increase (decrease) in cash and cash equivalents                                                       |   | 42,537                      |    | (36 | ) | (10,676 | ) |
| Cash and cash equivalents at beginning of year                                                             |   | 105,905                     |    | 105,941 |   | 116,617 |   |
| Cash and cash equivalents at end of year                                                                   |   | $                           | 148,442 |   | $ | 105,905 |   | $ | 105,941 |   |
| Supplemental cash flow disclosures                                                                         |   |                        |    |   |   |   |   |
| Cash paid for interest (net of amounts capitalized)                                                        |   | $                           | 190,395 |   | $ | 209,418 |   | $ | 183,638 |   |
| Cash paid for income taxes                                                                                 |   | $                           | 33,265  |   | $ | 58,132 |   | $ | 38,731 |   |
| Noncash items                                                                                              |   |                        |    |   |   |   |   |
| (Increase) decrease in market value of interest rate swaps                                                 |   | $                           | (16,494 | ) | $ | 24,119 |   | $ | — |   |
| Decrease in market value of investment in insurance contracts                                              |   | $                           | 2,919   |   | $ | 2,073 |   | $ | — |   |
| Minimum pension liability adjustment                                                                       |   | $                           | 7,412   |   | $ | 8,735 |   | $ | 23,179 |   |
| Accrual of development agreement costs                                                                     |   | $                           | 73,860  |   | $ | — |   | $ | — |   |

 

Theaccompanying notes are an integral part of these consolidated financialstatements.

 

5

----

 

MANDALAY RESORT GROUP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OFSTOCKHOLDERS’ EQUITY

 
| **(in thousands)**                                               |   |       |   |   |   | **Additional  Paid-in  Capital** |   | **Retained  Earnings** |   | **Accumulated  Other Comp-  rehensive  Loss** |      | **Treasury  Stock** |   | **Total  Stock-  holders’  Equity** |   |
|------------------------------------------------------------------|--------|------------|--------|--------|--------|----------------------------------|--------|------------------------|--------|-----------------------------------------------|-----------|---------------------|--------|------------------------------------------|--------|
|                                                             |   |       |
| **Common  Stock Issued**                                         |
| **Shares**                                                       |   | **Amount** |
|                                                             |   |       |   |   |   |                             |   |                   |   |                                          |      |                |   |                                     |   |
| Balance, January 31, 2000                                        |   | 113,634    |   | $      | 1,894  |                             | $      | 565,925                |   | $                                             | 1,201,632 |                | $      | —                                   |   | $ | (581,671  | ) | $ | 1,187,780 |   |
|                                                             |   |       |   |   |   |                             |   |                   |   |                                          |      |                |   |                                     |   |
| Net income                                                       |   | —     |   | — |   | —                           |   | 119,700                |   | —                                        |      | —              |   | 119,700                                  |   |
| Minimum pension liability adjustment                             |   | —     |   | — |   | —                           |   | —                 |   | (6,804                                        | )         | —              |   | (6,804                                   | )      |
| Total comprehensive income                                       |   |       |   |   |   |                             |   |                   |   |                                          |      |                |   | 112,896                                  |   |
|                                                             |   |       |   |   |   |                             |   |                   |   |                                          |      |                |   |                                     |   |
| Exercise of stock options                                        |   | —     |   | — |   | 6,282                            |   | —                 |   | —                                        |      | 11,515              |   | 17,797                                   |   |
| Treasury stock acquired (14,534 shares), at cost                 |   | —     |   | — |   | —                           |   | —                 |   | —                                        |      | (247,128            | )      | (247,128                                 | )      |
| Interest under equity forward agreements                         |   |       |   |   |   | —                           |   | —                 |   | —                                        |      | (2,405              | )      | (2,405                                   | )      |
|                                                             |   |       |   |   |   |                             |   |                   |   |                                          |      |                |   |                                     |   |
| Balance, January 31, 2001                                        |   | 113,634    |   | 1,894  |   | 572,207                          |   | 1,321,332              |   | (6,804                                        | )         | (819,689       | )      | 1,068,940                                |   |
|                                                             |   |       |   |   |   |                             |   |                   |   |                                          |      |                |   |                                     |   |
| Net income                                                       |   | —     |   | — |   | —                           |   | 53,044                 |   | —                                        |      | —              |   | 53,044                                   |   |
| Minimum pension liability adjustment                             |   | —     |   | — |   | —                           |   | —                 |   | 1,005                                         |      | —              |   | 1,005                                    |   |
| Interest rate swap market adjustment                             |   | —     |   | — |   | —                           |   | —                 |   | (16,103                                       | )         | —              |   | (16,103                                  | )      |
| Total comprehensive income                                       |   |       |   |   |   |                             |   |                   |   |                                          |      |                |   | 37,946                                   |   |
|                                                             |   |       |   |   |   |                             |   |                   |   |                                          |      |                |   |                                     |   |
| Exercise of stock options                                        |   | —     |   | — |   | 689                              |   | —                 |   | —                                        |      | 4,365               |   | 5,054                                    |   |
| Treasury stock acquired (5,186 shares), at cost                  |   | —     |   | — |   | —                           |   | —                 |   | —                                        |      | (125,910            | )      | (125,910                                 | )      |
| Interim settlements and interest under equity                    |   |       |   |   |   |                             |   |                   |   |                                          |      |                |   |                                     |   |
| forward agreements                                               |   | —     |   | — |   | —                           |   | —                 |   | —                                        |      | (45,517             | )      | (45,517                                  | )      |
| Other                                                            |   | —     |   | — |   | 96                               |   | —                 |   | —                                        |      | —              |   | 96                                       |   |
|                                                             |   |       |   |   |   |                             |   |                   |   |                                          |      |                |   |                                     |   |
| Balance, January 31, 2002                                        |   | 113,634    |   | 1,894  |   | 572,992                          |   | 1,374,376              |   | (21,902                                       | )         | (986,751            | )      | 940,609                                  |   |
|                                                             |   |       |   |   |   |                             |   |                   |   |                                          |      |                |   |                                     |   |
| Net income                                                       |   | —     |   | — |   | —                           |   | 115,603                |   | —                                        |      | —              |   | 115,603                                  |   |
| Minimum pension liability adjustment                             |   | —     |   | — |   | —                           |   | —                 |   | (5,571                                        | )         | —              |   | (5,571                                   | )      |
| Interest rate swap market adjustment                             |   | —     |   | — |   | —                           |   | —                 |   | 10,553                                        |      | —              |   | 10,553                                   |   |
| Total comprehensive income                                       |   |       |   |   |   |                             |   |                   |   |                                          |      |                |   | 120,585                                  |   |
|                                                             |   |       |   |   |   |                             |   |                   |   |                                          |      |                |   |                                     |   |
| Exercise of stock options                                        |   | —     |   | — |   | 8,203                            |   | —                 |   | —                                        |      | 36,083              |   | 44,286                                   |   |
| Treasury stock acquired (7,470 shares), at cost                  |   | —     |   | — |   | —                           |   | —                 |   | —                                        |      | (220,866            | )      | (220,866                                 | )      |
| Interim settlements and interest under equity forward agreements |   | —     |   | — |   | —                           |   | —                 |   | —                                        |      | (1,656              | )      | (1,656                                   | )      |
| Other                                                            |   |       |   |   |   | (29                              | )      |                   |   | —                                        |      | —              |   | (29                                      | )      |
|                                                             |   |       |   |   |   |                             |   |                   |   |                                          |      |                |   |                                     |   |
| Balance, January 31, 2003                                        |   | 113,634    |   | $      | 1,894  |                             | $      | 581,166                |   | $                                             | 1,489,979 |                | $      | (16,920                             | )      | $ | (1,173,190 | ) | $ | 882,929 |   |

 

Theaccompanying notes are an integral part of these consolidated financialstatements.

 

6

----

 

MANDALAYRESORT GROUP AND SUBSIDIARIES

 

NOTESTO CONSOLIDATED FINANCIAL STATEMENTS

 

Note 1.                   Summary of SignificantAccounting Policies

 

PRINCIPLES OF CONSOLIDATION AND BASIS OFPRESENTATION

Mandalay Resort Group (the “Company”), whichchanged its name from Circus Circus Enterprises, Inc. effective June 18, 1999,was incorporated February 27, 1974 in Nevada. The Company owns and operates hotel and casino facilities in Las Vegas,Reno, Laughlin, Jean and Henderson, Nevada and a hotel and dockside casino inTunica County, Mississippi.  In Detroit,Michigan, the Company is the majority investor in a casino. It is also aninvestor in several unconsolidated affiliates, with operations that include ariverboat casino in Elgin, Illinois, a hotel/casino in Reno, Nevada and ahotel/casino on the Las Vegas Strip. (See Note 5 - Investments inUnconsolidated Affiliates.)

 

The consolidated financial statements includethe accounts of the Company, its wholly owned subsidiaries and the Detroitjoint venture (53.5% owned), which is required to be consolidated. Materialintercompany accounts and transactions have been eliminated.  Investments in 50% or less owned affiliatedcompanies are accounted for under the equity method.

 

USE OF ESTIMATES

The preparation of financial statements inconformity with accounting principles generally accepted in the United Statesrequires management to make estimates and assumptions that affect the reportedamounts of assets and liabilities and affect the disclosure of contingentassets and liabilities at the date of the financial statements.  These estimates and assumptions also affectthe reported amounts of revenue and expenses during the reporting period.  On a regular basis, management evaluates itsestimates, including those related to bad debts, intangible assets,self-insurance liabilities, income taxes, contingencies and litigation.  Actual results could differ from thoseestimates.

 

CASH EQUIVALENTS

At January 31, 2003 and 2002, cashequivalents (consisting principally of money market funds and instruments withmaturities at date of purchase of three months or less) had a costapproximately equal to market value.

 

INVENTORIES

Inventories (consisting primarily of food,beverage and retail inventories) are stated at the lower of cost ormarket.  Cost is determined using thefirst-in, first-out and the average cost methods.

 

7

----

 

PROPERTY AND EQUIPMENT

Property and equipment are stated atcost.  Maintenance and repairs thatneither materially add to the value of the property nor appreciably prolong itslife are charged to expense as incurred. Gains or losses on dispositions of property and equipment are includedin the determination of income.

 

Depreciation and amortization of property,equipment and leasehold interests are provided using the straight-line methodover the following estimated useful lives: 

 
| Buildings and improvements           |   | 15  - 45 years |   |
|--------------------------------------|--------|----------------|--------|
| Equipment, furniture and fixtures    |   | 3  - 15 years  |   |
| Leasehold interests and improvements |   | 5  - 16 years  |   |

 

CAPITALIZED INTEREST

The Company capitalizes interest costsassociated with debt incurred in connection with major construction projects.When debt is not specifically identified as being incurred in connection with aconstruction project, the Company capitalizes interest on amounts expended onthe project at the Company’s average cost of borrowed money. Capitalization ofinterest ceases when a project is substantially complete or constructionactivities are no longer underway.  Theamounts capitalized during the years ended January 31, 2003, 2002 and 2001,were $13.2 million, $1.0 million and $1.6 million, respectively.

 

LONG-LIVED ASSETS

Long-lived assets are comprised of goodwill,indefinite-life intangible assets, property and equipment and otherassets.  Accounting for goodwill andindefinite-life intangible assets is discussed in Note 4 and Note 7,respectively. Property and equipment and other assets are reviewed forimpairment, on a property by property basis (the lowest level for which thereare identifiable cash flows), whenever events or changes in circumstancesindicate that the carrying amount of the asset may not be recoverable. Pursuantto applicable accounting rules, an estimate of undiscounted future cash flowsproduced by the asset, or the appropriate grouping of assets, is compared tothe carrying value to determine whether an impairment exists.  If an asset is determined to be impairedbased on expected future cash flows, a loss, measured by the amount by whichthe carrying amount of the asset exceeds the fair value of the asset, isrecognized in the consolidated statements of income.  Assets to be disposed of are reported at the lower of thecarrying amount or their estimated net realizable value.

 

In August 2001, the Financial AccountingStandards Board (“FASB”) issued Statement of Financial Accounting Standards No.144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS144”).  SFAS 144, which was adopted bythe Company in fiscal 2003, supercedes Statement of Accounting Standards No.121, “Accounting for the Impairment of Long-Lived Assets and for Long-LivedAssets to be Disposed Of” (“SFAS 121”), and portions of other accountingstatements.  The provisions applicableto the Company under SFAS 144 are substantially the same as those under SFAS121.

 

8

----

 

Pursuant to SFAS 121, the Company determinedthat the carrying values of its two Jean properties, Gold Strike and NevadaLanding, exceeded their fair values and, accordingly, recognized an impairmentloss of $52.0 million in fiscal 2002. The properties’ fair values were determined based upon several valuationapproaches, including discounted future cash flows and cash flow multiples. Thewrite-down was attributable to a downturn in operating results at theseproperties over the past few years due to the continued expansion of NativeAmerican casinos in California. Of the $52.0 million write-down, $17.9 millionrepresented goodwill.

 

SELF-INSURANCE

The Company is self-insured up to certainlimits for workers’ compensation and employee medical claims.  Self-insurance reserves are estimated basedon the Company’s claims experience and are included in accrued liabilities onthe consolidated balance sheets.

 

TREASURY STOCK

Shares purchased and placed in treasury arevalued at cost.  Shares are removed fromtreasury using the first-in, first-out method. Interest charges and other fees related to the Company’s equity forwardagreements are included in treasury stock, net of the related tax benefit. (SeeNote 16 - Equity Forward Agreements.)

 

REVENUE RECOGNITION

Casino revenue is derived primarily frompatrons wagering on slot machines, table games and other gamingactivities.  Table games typicallyinclude Blackjack or Twenty One, Craps, Baccarat and Roulette.  Other gaming activities include Keno, Pokerand Race and Sports.  Casino revenuesrepresent the net difference between the sums received as winnings and the sumspaid as losses.  Incentives, such asdiscounts to induce casino play and player club points (discussed more fullybelow), are deducted from gross casino revenues.

 

9

----

 

Hotel, food and beverage, entertainment andother operating revenues are recognized as services are performed.  Advance deposits on rooms and advance ticketsales are recorded as accrued liabilities until services are provided to thecustomer.  The retail value ofaccommodations, food and beverage, and other services furnished to hotel-casinoguests without charge is included in gross revenue and then deducted ascomplimentary allowances.

 

The estimated cost of providing suchcomplimentary allowances, as they relate to the casino department, was includedin casino expenses as follows:
|               |   | **Year ended  January 31,** |    |
|--------------------|--------|-----------------------------|---------|
| **(in thousands)** |   | **2003**                    |    | **2002** |   | **2001** |   |
|               |   |                        |    |   |   |   |   |   |   |   |
| Rooms              |   | $                           | 17,368  |   | $ | 19,341 |   | $ | 18,580 |   |
| Food and beverage  |   | 89,218                      |    | 93,405 |   | 94,440 |   |
| Other              |   | 10,972                      |    | 13,405 |   | 11,042 |   |
|               |   | $                           | 117,558 |   | $ | 126,151 |   | $ | 124,062 |   |

 

PLAYERS’ CLUB POINTS

The Company’s players’ club allows customersto earn “points” based on the volume of their gaming activity.  These points are redeemable for cash rebatesand/or certain complimentary services. Points are accrued based upon their historicalredemption rate multiplied by the cash value or the cost of providing theapplicable complimentary services. Casino revenues were reduced by the value of player club points earnedof $30.0 million, $28.3 million and $28.4 million in the years ended January31, 2003, 2002 and 2001, respectively.

 

PREOPENING EXPENSES

Preopening expenses consist principally ofdirect incremental personnel costs and advertising and marketing expenses.  In accordance with the American Institute ofCertified Public Accountants’ Statement of Position 98-5, preopening expensesare expensed as incurred.

 

For the year ended January 31, 2003,preopening expenses of $4.6 million related primarily to the new conventioncenter at Mandalay Bay that opened in January 2003. For the year ended January31, 2002, preopening expenses of $2.2 million also related primarily to the newconvention center.  For the year endedJanuary 31, 2001, preopening expenses of $1.8 million related to the Shark Reefat Mandalay Bay, which opened June 2000.

 

INCOME TAXES

Income taxes are accounted for under theasset and liability method. Deferred tax assets and liabilities are recognizedfor the estimated future tax consequences attributable to differences betweenthe financial statement carrying amounts of existing assets and liabilities andtheir respective tax bases, and for operating loss and tax creditcarryforwards.  Deferred tax assets andliabilities are measured using enacted tax rates in effect for the year inwhich those temporary differences are expected to be recovered or settled.  The effect of a change in tax rates on theincome tax provision and deferred tax assets and liabilities is recognized inthe results of operations in the period that includes the enactment date.

 

 

10

----

 

EARNINGS PER SHARE

Basic earnings per share is computed bydividing net income by the weighted average number of common shares outstandingduring the period, while diluted earnings per share reflects the impact ofadditional dilution for all potentially dilutive securities, such as stockoptions.

 

The table below reconciles weighted averageshares outstanding used to calculate basic earnings per share with the weightedaverage shares outstanding used to calculate diluted earnings per share.  There were no reconciling items for netincome.

 
|                                                               |   | **Year ended  January 31,** |    |
|--------------------------------------------------------------------|--------|-----------------------------|---------|
| **(in thousands, except per share data)**                          |   | **2003**                    |    | **2002** |   | **2001** |   |
| Net income                                                         |   | $                           | 115,603 |   | $ | 53,044 |   | $ | 119,700 |   |
| Weighted average shares outstanding   (basic earnings per share)   |   | 67,556                      |    | 72,799 |   | 78,335 |   |
| Stock options                                                      |   | 2,524                       |    | 1,661 |   | 1,366 |   |
| Equity forward contract                                            |   | 78                          |    | — |   | — |   |
| Weighted average shares outstanding   (diluted earnings per share) |   | 70,158                      |    | 74,460 |   | 79,701 |   |
|                                                               |   |                        |    |   |   |   |   |
| Basic earnings per share                                           |   | $                           | 1.71    |   | $ | .73 |   | $ | 1.53 |   |
|                                                               |   |                        |    |   |   |   |   |
| Diluted earnings per share                                         |   | $                           | 1.65    |   | $ | .71 |   | $ | 1.50 |   |

 

STOCK-BASED COMPENSATION

The Company has various employee stock optionplans as more fully described in Note 14 - Stock Options.  Statement of Financial Accounting StandardsNo. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”) provides thatcompanies may elect to account for employee stock options using a fair valuemethod or continue to apply the intrinsic value method prescribed by AccountingPrinciples Board Opinion No. 25, “Accounting for Stock Issued to Employees”(“APB 25”).  The Company has elected tocontinue to apply APB 25 and related interpretations in accounting for itsstock option plans using the intrinsic value method.  Intrinsic value represents the excess, if any, of the marketprice of the underlying common stock at the grant date over the exercise priceof the stock option.  Since all stockoptions granted had an exercise price equal to the market value of theunderlying common stock on the date of grant, no compensation expense relatedto stock options was reflected in net income. Had compensation expense related to stock options been determined inaccordance with the fair value recognition provisions of SFAS 123, the effecton the Company’s net income and basic and diluted earnings per share would havebeen as follows:

 

11

----

 
|                                                                                                     |   | **Year ended  January 31,** |    |
|----------------------------------------------------------------------------------------------------------|--------|-----------------------------|---------|
| **(in thousands, except share data)**                                                                    |   | **2003**                    |    | **2002** |   | **2001** |   |
| Net income as reported                                                                                   |   | $                           | 115,603 |   | $ | 53,044 |   | $ | 119,700 |   |
| Less total stock-based employee compensation expense determined under  the fair value method, net of tax |   | (8,224                      | )       | (10,415 | ) | (5,296 | ) |
| Pro forma net income                                                                                     |   | $                           | 107,379 |   | $ | 42,629 |   | $ | 114,404 |   |
|                                                                                                     |   |                        |    |   |   |   |   |
| Net income per share (basic)                                                                             |   |                        |    |   |   |   |   |
| As reported                                                                                              |   | $                           | 1.71    |   | $ | .73 |   | $ | 1.53 |   |
| Pro forma                                                                                                |   | 1.59                        |    | .59 |   | 1.46 |   |
|                                                                                                     |   |                        |    |   |   |   |   |
| Net income per share (diluted)                                                                           |   |                        |    |   |   |   |   |
| As reported                                                                                              |   | $                           | 1.65    |   | $ | .71 |   | $ | 1.50 |   |
| Pro forma                                                                                                |   | 1.53                        |    | .57 |   | 1.44 |   |

 

The fair value of each option grant wasestimated on the date of grant using the Black-Scholes option-pricing modelbased on the following weighted average assumptions:

 
|                                                |   | **Year ended  January 31,** |   |
|-----------------------------------------------------|--------|-----------------------------|--------|
|                                                |   | **2003**                    |   | **2002** |   | **2001** |   |
| Expected stock price volatility                     |   | 40.7                        | %      | 41.9 | % | 45.1 | % |
| Risk-free interest rate                             |   | 2.3                         | %      | 4.2 | % | 4.6 | % |
| Expected option lives (years)                       |   | 4.1                         |   | 2.9 |   | 3.4 |   |
| Dividend yield                                      |   | 0.0                         | %      | 0.0 | % | 0.0 | % |
|                                                |   |                        |   |   |   |   |   |
| Estimated fair value of options granted (per share) |   | $                           | 9.58   |   | $ | 6.10 |   | $ | 6.25 |   |
|                                                     |        |                             |        |  |  |  |  |  |  |  |

 

COMPREHENSIVE INCOME

Comprehensive income is a broad concept of anenterprise’s financial performance that includes all changes in equity during aperiod that arise from transactions and economic events from nonownersources.  Comprehensive income is netincome plus “other comprehensive income,” which consists of revenues, expenses,gains and losses that do not affect net income under accounting principlesgenerally accepted in the United States. Other comprehensive income for the Company includes adjustments forminimum pension liability and adjustments to interest rate swaps, net of tax.

 

The accumulated other comprehensive lossreflected on the balance sheet consisted of the following:

 
|                                 |   | **January  31,** |   |
|--------------------------------------|--------|------------------|--------|
| **(in thousands)**                   |   | **2003**         |   | **2002** |   |
| Minimum pension liability adjustment |   | $                | 11,370 |   | $ | 5,799 |   |
| Adjustment to interest rate swaps    |   | 5,550            |   | 16,103 |   |
|                                 |   |             |   |   |   |
| Accumulated other comprehensive loss |   | $                | 16,920 |   | $ | 21,902 |   |

 

12

----

 

RECLASSIFICATIONS

During fiscal 2003, the Company changed itspresentation of equity in earnings of unconsolidated affiliates, which waspreviously reported as a component of revenues.  The Company now reports equity in earnings of unconsolidatedaffiliates as a separate component of income from operations on the consolidatedstatements of income under a separate caption titled “Equity in Earnings ofUnconsolidated Affiliates.”  Prior yearshave been reclassified to conform with the new presentation.  This reclassification had no effect onpreviously reported income from operations or net income.

 

The consolidated financial statements forprior years reflect certain other reclassifications to conform toclassifications adopted in the current year. These reclassifications had no effect on previously reported net income.

 

RECENTLY ISSUED ACCOUNTING STANDARDS

In June 2002, the FASB issued Statement ofFinancial Accounting Standards No. 146, “Accounting for Costs Associated withExit or Disposal Activities” (“SFAS 146”). SFAS 146 requires companies to recognize costs associated with exit ordisposal activities when they are incurred rather than at the date of acommitment to an exit or disposal plan, as previously required under EmergingIssues Task Force Issue 94-3. The provisions of this statement are effectivefor exit or disposal activities that are initiated after December 31,2002.  The Company believes that SFAS146 will not have a significant impact on its results of operations orfinancial position.

 

In November 2002, the FASB issuedInterpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements forGuarantees, Including Indirect Guarantees of Indebtedness of Others, aninterpretation of SFAS Nos. 5, 57 and 107 and a rescission of FASBInterpretation No. 34” (“Interpretation 45”). Interpretation 45 elaborates on the disclosures to be made by a guarantorin its interim and annual financial statements about its obligations undercertain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at theinception of a guarantee, a liability for the fair value of the obligationundertaken in issuing the guarantee. The provisions of Interpretation 45 are applicable on a prospectivebasis to guarantees issued or modified after December 31, 2002, and thedisclosure requirements are generally effective for financial statements ofinterim or annual periods ending after December 15, 2002.  The Company believes that Interpretation 45will not have a significant impact on its results of operations or financialposition.

 

13

----

 

In December 2002, the FASB issued Statementof Financial Accounting Standards No. 148, “Accounting for Stock-BasedCompensation - Transition and Disclosure, an amendment of SFAS No. 123” (“SFAS148”).  SFAS 148 provides alternativemethods of transition for a voluntary change to the fair value based method ofaccounting for stock-based employee compensation.  In addition, SFAS 148 amends the disclosure requirements of SFAS123 to require prominent disclosures in both annual and interim financialstatements about the method of accounting for stock-based employee compensationand the effect of the method used on reported results.  The Company has elected to continue toaccount for stock-based employee compensation using the intrinsic value methodunder APB Opinion 25 (see Stock-Based Compensation above).

 

In January 2003, the FASB issuedInterpretation No. 46, “Consolidation of Variable Interest Entities”(“Interpretation 46”).  Interpretation46 addresses consolidation by business enterprises where equity investors do notbear the residual economic risks and rewards. These entities are commonly referred to as “special purposeentities.”  The provisions ofInterpretation 46 are required to be applied prospectively for all variableinterest entities created after January 31, 2003.  The Company believes that Interpretation 46 will not have asignificant impact on its results of operations or financial position.

 

Note 2.                                                          Accounts Receivable

 

The Company extends credit to approved casinocustomers. These receivables are the principal financial instruments thatpotentially subject the Company to concentration of credit risk.  The Company maintains an allowance fordoubtful accounts to reduce the receivables to their estimated collectibleamount, which approximates fair value.  As of January 31, 2003, management believes that there are noconcentrations of credit risk for which an allowance has not been establishedand recorded. The collectibility of foreign and domestic receivables could beaffected by future business or economic conditions or other significant eventsin the United States or in the countries in which foreign customersreside.  Bad debt expense was $7.2million, $20.4 million and $21.3 million for the years ended January 31, 2003,2002 and 2001, respectively.

 

Accounts receivable consisted of thefollowing:

 
|                                 |   | **January  31,** |   |
|--------------------------------------|--------|------------------|--------|
| **(in thousands)**                   |   | **2003**         |   | **2002** |   |
| Casino                               |   | $                | 47,307 |   | $ | 64,036 |   |
| Hotel                                |   | 28,129           |   | 20,601 |   |
| Other                                |   | 7,137            |   | 9,139 |   |
|                                 |   | 82,573           |   | 93,776 |   |
| Less-allowance for doubtful accounts |   | (27,270          | )      | (35,404 | ) |
|                                 |   |             |   |   |   |
|                                 |   | $                | 55,303 |   | $ | 58,372 |   |

 

The above allowance for doubtful accountsincludes $25.7 million and $32.8 million related to casino receivables atJanuary 31, 2003 and 2002, respectively.

 

14

----

 

Note3.                                                          Property, Equipment and Leasehold Interests

 

Property, equipment and leasehold interestsconsisted of the following:

 
|                                             |   | **January  31,** |      |
|--------------------------------------------------|--------|------------------|-----------|
| **(in thousands)**                               |   | **2003**         |      | **2002** |   |
| Land and land leases                             |   | $                | 396,794   |   | $ | 395,805 |   |
| Buildings and improvements                       |   | 3,263,074        |      | 3,037,800 |   |
| Equipment, furniture and fixtures                |   | 737,566          |      | 674,830 |   |
| Leasehold interests and improvements             |   | 8,646            |      | 8,664 |   |
|                                             |   | 4,406,080        |      | 4,117,099 |   |
| Less - accumulated depreciation and amortization |   | (1,266,465       | )         | (1,162,203 | ) |
|                                             |   | 3,139,615        |      | 2,954,896 |   |
| Construction in progress                         |   | 62,020           |      | 94,916 |   |
|                                             |   |             |      |   |   |
|                                             |   | $                | 3,201,635 |   | $ | 3,049,812 |   |

 

Note 4.                                                          Goodwill

 

In June 2001, the FASB issued Statement ofFinancial Accounting Standards No. 142, “Goodwill and Other Intangible Assets”(“SFAS 142”).  SFAS 142 provides thatgoodwill will no longer be amortized, but will instead be reviewed forimpairment at least annually.   SFAS 142was adopted by the Company on February 1, 2002.

 

As of February 1, 2002, the Company hadapproximately $45.4 million of unamortized goodwill. Most of this total relatedto the fiscal 2000 purchase of an additional ownership interest in the jointventure which operates MotorCity Casino. In accordance with SFAS 142, each property with assigned goodwill is tobe valued as an operating entity. If the fair value of the operating entity isgreater than the book value, including assigned goodwill, no further testing isrequired.  However, if the book value,including goodwill, is greater than the fair value of the operating entity, theassets and liabilities of the operating entity need to be valued. Thedifference between the fair value of the operating entity and the fair value ofthe assets represents the implied fair value of goodwill. To the extent thatthe implied fair value of goodwill is less than the book value of goodwill, animpairment charge must be recognized as a cumulative effect of a change inaccounting principle upon adoption.

 

15

----

 

The Company previously completed itsimplementation analysis of the goodwill arising from its prioracquisitions.  For purposes of thisanalysis, the fair value of the operating entities was determined using acombination of a discounted cash flow model and a valuation multiple or, incertain instances, an independent appraisal. Based upon this analysis, the Company recorded an impairment charge of$1.9 million, representing the unamortized goodwill associated with the June 1,1995 acquisition of the Railroad Pass Hotel and Casino.  This charge was reflected as a cumulativeeffect of a change in accounting principle in the first quarter of fiscal 2003.

 

The Company has also completed its annualreview of impairment for fiscal 2003, pursuant to which it recorded animpairment loss of $5.4 million, representing the unamortized goodwillassociated with the February 1, 1983 acquisition of the Edgewater Hotel andCasino in Laughlin, Nevada.  A declinein income from operations at that property, along with lowered expectations forthe Laughlin market, indicated impairment.

 

On December 14, 1999, the Company purchasedan additional ownership interest in a joint venture which operates MotorCityCasino, a casino in Detroit, Michigan, bringing its total ownership interest inthe joint venture to 53.5%.  The excessof the purchase price over the fair market value of the net assets acquiredamounted to $38.4 million.

 

On June 1, 1995, the Company completed itsacquisition of a group of properties (collectively, the “Gold StrikeProperties”) consisting of (i) two hotel/casino facilities in Jean, Nevada (seeNote 1 regarding an impairment loss at these properties); (ii) a hotel/casinoin Henderson, Nevada; (iii) a 50% interest in a joint venture which owns GrandVictoria, a riverboat casino and land-based entertainment complex in Elgin, Illinois;and (iv) a 50% interest in a joint venture which owns Monte Carlo, a majorhotel/casino on the Las Vegas Strip. The excess of the purchase price over the fair market value of the netassets acquired amounted to $394.5 million.

 

When the Gold Strike acquisition wasconsummated, the Company recorded the entire excess of the purchase price overthe fair market value of net assets acquired as goodwill.  However, the majority of the excess relatedto the value of the investments in Grand Victoria and Monte Carlo.  Since the amount was not assigned to thespecific assets (e.g., property and equipment) of the joint ventures, it wasproperly treated as goodwill.  With theadoption of SFAS 142, it was determined that goodwill related to investments inunconsolidated affiliates should be reviewed differently for impairment thanother goodwill.  Therefore, unamortizedgoodwill of $309.2 million at January 31, 2002 was reclassified to investmentin unconsolidated affiliates.  Thisreclassification had no impact on the Company’s reported net income.

 

On November 1, 1979, the Company purchasedthe Slots-A-Fun Casino in Las Vegas. The excess of the purchase price over the fair market value of the netassets acquired amounted to $4.2 million.

 

The Company recorded goodwill amortization of$11.8 million in each of the years ended January 31, 2002 and 2001. Had SFAS142 been in effect for these prior periods, the Company would have reported thefollowing:

 

16

----

 
|                                    |   | **Year ended  January 31,** |   |
|-----------------------------------------|--------|-----------------------------|--------|
| **(in  thousands)**                     |   | **2002**                    |   | **2001** |   |
|                                    |   |                        |   |   |   |
| Net income as reported                  |   | $                           | 53,044 |   | $ | 119,700 |   |
| Goodwill amortization                   |   | 11,801                      |   | 11,801 |   |
|                                    |   |                        |   |   |   |
| Adjusted net income                     |   | $                           | 64,845 |   | $ | 131,501 |   |
|                                    |   |                        |   |   |   |
| Adjusted net income per share - basic   |   | $                           | .89    |   | $ | 1.68 |   |
|                                    |   |                        |   |   |   |
| Adjusted net income per share - diluted |   | $                           | .87    |   | $ | 1.65 |   |

 

Note5.                                                          Investments in Unconsolidated Affiliates

 

The Company has investments in unconsolidatedaffiliates that are accounted for under the equity method.  Under the equity method, originalinvestments are recorded at cost and adjusted by the Company’s share ofearnings, losses and distributions of these companies. The investment balancealso includes interest capitalized during construction.   Investments in unconsolidated affiliatesconsisted of the following:

 
|                                                                   |   | **January  31,** |    |
|------------------------------------------------------------------------|--------|------------------|---------|
| **(in  thousands)**                                                    |   | **2003**         |    | **2002** |   |
| Circus and Eldorado Joint Venture (50%)  (Silver Legacy, Reno, Nevada) |   | $                | 57,615  |   | $ | 77,029 |   |
| Elgin Riverboat Resort (50%)  (Grand Victoria, Elgin, Illinois)        |   | 249,040          |    | 251,022 |   |
| Victoria Partners (50%)  (Monte Carlo, Las Vegas, Nevada)              |   | 266,690          |    | 226,035 |   |
|                                                                   |   | $                | 573,345 |   | $ | 554,086 |   |

 

The investment balances for Grand Victoriaand Monte Carlo are greater than the carrying values of the net assets of therespective unconsolidated affiliates due primarily to goodwill recognized whenthe Company acquired the investments. (See Note 4 - Goodwill.) In July 2002, the Company made an additionalequity contribution of $43.5 million to Victoria Partners.  These funds, along with an identical equitycontribution by the Company’s partner, were used to payoff the remainingbalance on Monte Carlo’s credit facility.

 

The Company’s unconsolidated affiliatesoperate with fiscal years ending on December 31.  Summarized balance sheet information of the unconsolidatedaffiliates as of December 31, 2002 and 2001 is as follows:

 

17

----

** **
| **(in  thousands)**                  |   | **2002** |    | **2001** |   |
|--------------------------------------|--------|----------|---------|----------|--------|
| Current assets                       |   | $        | 118,791 |     | $      | 116,709 |   |
| Property and other assets, net       |   | 643,854  |    | 655,147  |   |
| Current liabilities                  |   | 86,876   |    | 182,193  |   |
| Long-term debt and other liabilities |   | 170,285  |    | 135,000  |   |
| Equity                               |   | 505,484  |    | 454,663  |   |
|                                      |        |          |         |          |        |  |  |

 

Selected results of operations for each ofthe unconsolidated affiliates for the years ended December 31, 2002, 2001 and2000 are as follows:

 
| **December 31, 2002  (in thousands)** |   | **Silver  Legacy** |    | **Grand  Victoria** |   | **Monte  Carlo** |   | **Total** |    |
|---------------------------------------|--------|--------------------|---------|---------------------|--------|------------------|--------|-----------|---------|
| Revenues                              |   | $                  | 159,432 |                | $      | 402,869          |   | $         | 250,317 |   | $ | 812,618 |   |
| Expenses                              |   | 129,124            |    | 300,803             |   | 184,268          |   | 614,195   |    |
| Operating income                      |   | 30,308             |    | 102,066             |   | 66,049           |   | 198,423   |    |
| Net income                            |   | 16,766             |    | 102,683             |   | 64,979           |   | 184,428   |    |
|                                       |        |                    |         |                     |        |                  |        |           |         |  |  |  |  |

 
| **December 31, 2001  (in thousands)** |   | **Silver  Legacy** |    | **Grand  Victoria** |   | **Monte  Carlo** |   | **Total** |    |
|---------------------------------------|--------|--------------------|---------|---------------------|--------|------------------|--------|-----------|---------|
| Revenues                              |   | $                  | 164,677 |                | $      | 410,248          |   | $         | 256,586 |   | $ | 831,511 |   |
| Expenses                              |   | 130,595            |    | 284,101             |   | 189,737          |   | 604,433   |    |
| Operating income                      |   | 34,082             |    | 126,147             |   | 66,849           |   | 227,078   |    |
| Net income                            |   | 21,120             |    | 127,594             |   | 62,575           |   | 211,289   |    |
|                                       |        |                    |         |                     |        |                  |        |           |         |  |  |  |  |

 
| **December 31, 2000  (in thousands)** |   | **Silver  Legacy** |    | **Grand  Victoria** |   | **Monte  Carlo** |   | **Total** |    |
|---------------------------------------|--------|--------------------|---------|---------------------|--------|------------------|--------|-----------|---------|
| Revenues                              |   | $                  | 177,489 |                | $      | 394,438          |   | $         | 276,558 |   | $ | 848,485 |   |
| Expenses                              |   | 140,246            |    | 278,571             |   | 198,002          |   | 616,819   |    |
| Operating income                      |   | 37,243             |    | 115,867             |   | 78,556           |   | 231,666   |    |
| Net income                            |   | 21,770             |    | 117,594             |   | 72,348           |   | 211,712   |    |
|                                       |        |                    |         |                     |        |                  |        |           |         |  |  |  |  |

 

Note6.                                                          Other Investments

 

The Company has adopted a SupplementalExecutive Retirement Plan (“SERP”), a defined benefit plan pursuant to whichthe Company pays supplemental pension benefits to certain key employees uponretirement.  The SERP is an unfundedplan.  However, the Company isinformally funding the plan through life insurance contracts on theparticipants.  These life insurancecontracts had cash surrender values of $35.2 million and $28.6 million atJanuary 31, 2003 and 2002, respectively. (See Note 13 - Employee Retirement Plans for additional informationregarding the SERP.)

 

Note7.                                                          Intangible Development Costs

 

On August 2, 2002, the Detroit City Councilapproved a revised development agreement pursuant to which MotorCity Casinowill expand its current facility by December 31, 2005.  Under the revised development agreement,MotorCity Casino paid the City of Detroit $17 million in October 2002.

 

18

----

 

MotorCity is required to pay another $10million in four equal installments before June 2003, and an additional $17million in 12 equal monthly installments beginning June 1, 2003.  MotorCity is further obligated, throughletters of credit issued by the Company, to fund approximately $49.4 million torepay bonds issued by the Economic Development Corporation of the City ofDetroit.  The Company recorded anintangible asset of $93.4 million, representing the total of the aboveobligations.  As of January 31, 2003,the remaining unpaid obligation is $73.9 million ($18.9 million currentportion).  These intangible developmentcosts have an indefinite life.  (SeeNote 17 - Commitments and Contingent Liabilities for additional detailsregarding the Company’s Detroit joint venture.)

 

Note8.                                                          Deferred Charges and Other Assets

 

Deferred charges and other assets consistedof the following:

 
|                             |   | **January  31,** |   |
|----------------------------------|--------|------------------|--------|
| **(in  thousands)**              |   | **2003**         |   | **2002** |   |
| Debt issuance costs, net         |   | $                | 31,877 |   | $ | 38,893 |   |
| Intangible asset related to SERP |   | 21,833           |   | 22,992 |   |
| Other                            |   | 39,255           |   | 23,068 |   |
|                             |   | $                | 92,965 |   | $ | 84,953 |   |

 

The Company incurs discounts, structuringfees and other costs in connection with its issuance of debt and in connectionwith its credit facilities.  Debtissuance costs are capitalized when incurred and amortized to interest expensebased on the anticipated debt maturities using the straight-line method, whichapproximates the effective interest method. The amortization of debt issuance costs included in interest expense was$7.6 million, $6.5 million and $4.9 million for the years ended January 31,2003, 2002 and 2001, respectively.

 

The Company accounts for its SERP accordingto Statement of Financial Accounting Standards No. 87, “Employers’ Accountingfor Pensions” (“SFAS 87”). SFAS 87 requires the recognition of an intangibleasset in an amount equal to the additional minimum liability, provided thatsuch intangible asset may not exceed the amount of unrecognized prior servicecost and unrecognized net obligation. The amount by which the additional minimum liability exceedsunrecognized prior service cost and unrecognized net obligation is recorded asa negative component of stockholders’ equity through comprehensive income (netof related tax benefits).  (See Note 13- Employee Retirement Plans for additional information regarding the SERP.)

 

Note9.                                                          Long-term Debt

 

Long-term debt consisted of the following:

 
|                                                                                                                                    |   | **January  31,** |      |
|-----------------------------------------------------------------------------------------------------------------------------------------|--------|------------------|-----------|
| **(in  thousands)**                                                                                                                     |   | **2003**         |      | **2002** |   |
| Amounts due under bank credit agreements at floating interest rates,  weighted average of 3.2% and 3.6%                                 |   | $                | 660,000   |   | $ | 380,000 |   |
| Amounts due under majority-owned joint venture revolving credit  facility at floating interest rates, weighted average of 2.8% and 3.3% |   | 20,000           |      | 64,000 |   |
| 6-3/4% Senior Subordinated Notes due 2003 (net of unamortized  discount of $7 and $23)                                                  |   | 149,993          |      | 149,977 |   |
| 9-1/4% Senior Subordinated Notes due 2005                                                                                               |   | 275,000          |      | 275,000 |   |
| 6.45% Senior Notes due 2006 (net of unamortized discount of $132 and  $176)                                                             |   | 199,868          |      | 199,824 |   |
| 10-1/4% Senior Subordinated Notes due 2007                                                                                              |   | 500,000          |      | 500,000 |   |
| 9-1/2% Senior Notes due 2008                                                                                                            |   | 200,000          |      | 200,000 |   |
| 9-3/8% Senior Subordinated Notes due 2010 (net of unamortized discount  of $1,877 and $2,142)                                           |   | 298,123          |      | 297,858 |   |
| 7-5/8% Senior Subordinated Debentures due 2013                                                                                          |   | 150,000          |      | 150,000 |   |
| 7.0% Debentures due 2036 (net of unamortized discount of $79 and $92)                                                                   |   | 149,921          |      | 149,908 |   |
| 6.70% Debentures due 2096 (net of unamortized discount of $40 and  $88)                                                                 |   | 149,960          |      | 149,912 |   |
| Other notes                                                                                                                             |   | 4,381            |      | 4,859 |   |
|                                                                                                                                    |   | 2,757,246        |      | 2,521,338 |   |
| Current portion of long-term debt                                                                                                       |   | (20,284          | )         | (39,251 | ) |
| Debt premium from termination of reverse interest rate swaps (see  Note 10)                                                             |   | 26,631           |      | — |   |
|                                                                                                                                    |   | $                | 2,763,593 |   | $ | 2,482,087 |   |

 

19

----

 

In August 2001, the Company replaced its $1.8billion unsecured credit facility, dated May 23, 1997, with three separatefacilities that totaled $1.25 billion. These credit facilities included a $150million capital markets term loan facility which was paid in full using aportion of the net proceeds received from the issuance of $300 million ofSenior Subordinated Notes in December 2001 (discussed more fully below), thusreducing the borrowing capacity to $1.1 billion under the two remainingfacilities.  The remaining creditfacilities, which are for general corporate purposes, include a $250 millionterm loan facility, the entire amount of which was outstanding at January 31,2003, and an $850 million revolving facility, $410 million of which wasoutstanding at January 31, 2003.  Eachof the credit facilities is unsecured and provides for the payment of interest,at the Company’s option, either at a rate equal to or an increment above thehigher of the Bank of America, N.A. “prime rate” and the Federal Reserve Board“Federal Funds Rate” plus 50 basis points or, alternatively, at aEurodollar-based rate.   The entireprincipal amount outstanding under the credit facilities becomes due andpayable on August 21, 2006, unless the maturity date is extended with theconsent of the lenders.  While the debtinstruments issued under the above credit facilities are short term in tenor,they are classified as long-term debt because it is management’s intention tocontinue to replace such borrowings on a rolling basis as various instrumentscome due and to have such borrowings outstanding for longer than one year.  The fair value of the debt issued under thecredit facilities approximates the carrying value of the debt.

 

Each of the credit facilities includesfinancial covenants regarding total debt and interest coverage and containscovenants that limit the Company’s ability, among other things, to dispose ofassets, make distributions on its capital stock, engage in a merger, incurliens and engage in transactions with its affiliates. In December 2001, theCompany amended the covenants under each of its credit 

 

20

----

 

facilities to provide for more liberal testsfor total debt and interest coverage. These amendments were obtained to addressthe impact of the terrorist attacks that occurred on September 11, 2001.  In February 2003, the Company again amendedthe covenants under each of its credit facilities.  These amendments modify the definition of “Adjusted EBITDA” withrespect to the Company’s 53.5% ownership in MotorCity Casino in Detroit,Michigan.  As previously defined in thecredit facilities, Adjusted EBITDA included only the cash distributions theCompany actually received from MotorCity Casino.  Under the amended definition, Adjusted EBITDA will include theCompany’s 53.5% share of the Adjusted EBITDA of MotorCity Casino, whether ornot distributed.  These amendments alsoprovide for a more liberal test for total debt coverage during the fiscal yearending January 31, 2004. At January 31, 2003, the Company was in compliancewith all of the covenants in its credit facilities and, under the mostrestrictive loan covenant, was restricted from issuing additional debt inexcess of approximately $273.1 million.

 

On December 14, 1999, the Company acquired anadditional 8.5% ownership interest in the joint venture that owns and operatesMotorCity Casino in Detroit, Michigan, bringing the total ownership interest to53.5%.  Therefore, long-term debt ofthat joint venture is reflected as an obligation of the Company.  In June 1999, the joint venture entered intoa $150 million reducing revolving credit facility which matures on June 30,2003.  The credit facility reduces byfixed amounts quarterly and contains financial covenants regarding total debt,capital expenditures and investments. At January 31, 2003, the joint venture was in compliance with all ofthese covenants.  The credit facility,which is guaranteed by the Company, was used primarily to develop and constructthe current casino facility.  The fairvalue of the debt issued under the credit facility approximates the carryingamount of the debt.

 

On December 20, 2001, the Company issued $300million principal amount of 9-3/8% Senior Subordinated Notes due February 2010(the “9-3/8% Notes”), with interest payable each February and August.  The 9-3/8% Notes are redeemable prior tomaturity at the option of the Company, in whole, at 100% of the principalamount plus a make-whole premium. The 9-3/8% Notes, which were discounted to$297.8 million, are not subject to any sinking fund requirements.  The net proceeds from this issuance wereused to repay borrowings under the Company’s credit facilities.  As of January 31, 2003, the estimated fairvalue of the 9-3/8% Notes was $318.0 million, based on their trading price.

 

On August 16, 2000, the Company issued $200million principal amount of 9-1/2% Senior Notes due August 2008 (the “9-1/2%Notes”), with interest payable each February and August.  The 9-1/2% Notes are redeemable prior tomaturity at the option of the Company, in whole, at 100% of the principalamount plus a make-whole premium.  The9-1/2% Notes are not subject to any sinking fund requirements.  The net proceeds from this issuance wereused to repay borrowings under the Company’s credit facility.  As of January 31, 2003, the estimated fairvalue of the 9-1/2% Notes was $222.0 million, based on their trading price.

 

21

----

 

On July 24, 2000, the Company issued $500million principal amount of 10-1/4% Senior Subordinated Notes due August 2007(the “10-1/4% Notes”), with interest payable each February and August.  The 10-1/4% Notes are redeemable prior tomaturity at the option of the Company, in whole, at 100% of the principalamount plus a make-whole premium.  Aportion of the 10-1/4% Notes are also redeemable at the option of the Companyprior to August 1, 2003 with the proceeds of a public offering of equitysecurities.  The 10-1/4% Notes are notsubject to any sinking fund requirements. The net proceeds from this issuance were used to repay borrowings underthe Company’s credit facility. As of January 31, 2003, the estimated fair valueof the 10-1/4% Notes was $540.0 million, based on their trading price.

 

In November 1998, the Company issued $275million principal amount of 9-1/4% Senior Subordinated Notes due December 2005(the “9-1/4% Notes”), with interest payable each June and December. The 9-1/4%Notes are redeemable at the option of the Company, in whole or in part,beginning December 1, 2002 at prices declining annually to 100% on or afterDecember 1, 2004.  The 9-1/4% Notes arenot subject to any sinking fund requirements. As of January 31, 2003, theestimated fair value of the 9-1/4% Notes was $283.3 million, based on theirtrading price.

 

In November 1996, the Company issued $150million principal amount of 7.0% Debentures due November 2036 (the “7.0%Debentures”).  The 7.0% Debentures maybe redeemed at the option of the holder in November 2008.  Also in November 1996, the Company issued$150 million principal amount of 6.70% Debentures due November 2096 (the “6.70%Debentures”).  The 6.70% Debentures maybe redeemed at the option of the holder in November 2003.  Both the 7.0% Debentures, which werediscounted to $149.8 million, and the 6.70% Debentures, which were discountedto $149.7 million, have interest payable each May and November, are not redeemableby the Company prior to maturity and are not subject to any sinking fundrequirements.  As of January 31, 2003,the estimated fair value of the 7.0% Debentures was $147.8 million and theestimated fair value of the 6.70% Debentures was $150.8 million, based on theirtrading prices.

 

In February 1996, the Company issued $200million principal amount of 6.45% Senior Notes due February 1, 2006 (the “6.45%Notes”), with interest payable each February and August.  The 6.45% Notes, which were discounted to $199.6million, are not redeemable prior to maturity and are not subject to anysinking fund requirements.  As ofJanuary 31, 2003, the estimated fair value of the 6.45% Notes was $200.0million, based on their trading price.

 

22

----

 

In July 1993, the Company issued $150 millionprincipal amount of 6-3/4% Senior Subordinated Notes (the “6-3/4% Notes”) dueJuly 2003 and $150 million principal amount of 7-5/8% Senior SubordinatedDebentures (the “7-5/8% Debentures”) due July 2013, with interest payable eachJuly and January.  The 6-3/4% Notes,which were discounted to $149.8 million, and the 7-5/8% Debentures are notredeemable prior to maturity and are not subject to any sinking fundrequirements.  As of January 31, 2003,the estimated fair value of the 6-3/4% Notes was $151.5 million and theestimated fair value of the 7-5/8% Debentures was $145.5 million, based ontheir trading prices.

 

Required annual principal payments as ofJanuary 31, 2003 are as follows:

 
| **Year ending January 31, (in thousands)** |   |
|--------------------------------------------|--------|
| 2004                                       |   | $ | 20,284 |   |
| 2005                                       |   | 284 |   |
| 2006                                       |   | 275,284 |   |
| 2007                                       |   | 1,160,105 |   |
| 2008                                       |   | 500,284 |   |
| Thereafter                                 |   | 801,005 |   |
|                                       |   | $ | 2,757,246 |   |

 

Note10.                                                    Interest Rate Swaps

 

The Company has a policy aimed at managinginterest rate risk associated with its current and anticipated futureborrowings.  Under this policy, theCompany may use any combination of interest rate swaps, futures, options, capsand similar instruments. To the extent the Company employs such financialinstruments pursuant to this policy, and the instruments qualify for hedgeaccounting, they are accounted for as hedging instruments.  In order to qualify for hedge accounting,the underlying hedged item must expose the Company to risks associated withmarket fluctuations and the financial instrument used must be designated as ahedge and must reduce the Company’s exposure to market fluctuation throughoutthe hedge period.  If these criteria arenot met, a change in the market value of the financial instrument is recognizedas a gain or loss in the period of change. Otherwise, gains and losses are not recognized except to the extent thatthe financial instrument is disposed of prior to maturity.  Net interest paid or received pursuant tothe financial instrument is included as interest expense in the period.

 

The Company has entered into various interestrate swaps, principally with its bank group, to manage interest expense, whichis subject to fluctuation due to the variable-rate nature of the debt under theCompany’s credit facilities. The Company has an interest rate swap agreementunder which it pays a fixed interest rate of 6.4% and receives a variableinterest rate of 1.4% at January 31, 2003 on $200 million notional amount,which terminates in fiscal 2004. Three swaps with a combined notional amount of$350 million terminated in fiscal 2003.

 

In June 2002, the Company entered into two“reverse” interest rate swap agreements (“fair value hedges”) with a member ofits bank group.  Pursuant to theseagreements, the Company received a fixed interest rate of 9.25% and paid avariable interest rate (based on LIBOR plus 4.31%) on $275 million notionalamount, and received a fixed rate of 6.45% and paid a variable interest rate(based on 

 

23

----

 

LIBOR plus 1.63%) on $200 million notionalamount.  The $275 million swap wasscheduled to terminate in December 2005 and the $200 million swap was scheduledto terminate in February 2006.

 

In August 2002, the Company entered into twoadditional “reverse” interest rate swap agreements (“fair value hedges”) withmembers of its bank group.  Pursuant tothese agreements, the Company received a fixed interest rate of 10.25% and paida variable interest rate (based on LIBOR plus 5.97%) on $250 million notionalamount, and received a fixed rate of 10.25% and paid a variable interest rate(based on LIBOR plus 5.86%) on $250 million notional amount. Both of theseswaps were scheduled to terminate in August 2007.

 

In October 2002, the Company elected toterminate the four “reverse” swaps.  TheCompany received $28.9 million, in cash, representing the fair market value ofthe swaps and recorded corresponding debt premiums which will be amortized tointerest expense, using an effective interest rate method, over the remaininglives of the related debt instruments. The amortization of the debt premium for the fiscal year ended January31, 2003 was $2.3 million.  Thisamortization is estimated to be $7.1 million in the fiscal year ending January31, 2004.

 

The net effect of all the above swaps resultedin additional interest expense of $12.9 million for the year ended January 31,2003.

 

The Company is exposed to credit loss in theevent of nonperformance by the counterparties to the interest rate swapagreements.  However, the Companyconsiders the risk of nonperformance by the counterparties to be minimalbecause the parties to the swaps are predominantly members of the Company’sbank group.  If the Company hadterminated all swaps as of January 31, 2003, the Company would have had to paya net amount of $7.6 million based on quoted market values from the variousfinancial institutions holding the swaps.

 

The above swaps meet the criteria for hedgeaccounting established by Statement of Financial Accounting Standards No. 133,“Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”),which the Company adopted in fiscal 2002. The Company reports its swap related assets and liabilities on a netbasis in “Other Long-term Liabilities”. The fair market value of the swaps designated as cash flow hedgesincreased by $16.5 million ($10.6 million, net of tax) during the year endedJanuary 31, 2003, which decreased the net liability, with the correspondingincome included as other comprehensive income. The above increase in the fair market value included $12.7 millionrepresenting the effect of the swaps that terminated during fiscal 2003.  With respect to swaps designated as fairvalue hedges, because these swaps were terminated, the corresponding fairvalues of $9.4 million recorded in the second quarter have been removed fromthe net liability and long-term debt. The fair value received from the early termination was recorded as adebt premium and will be amortized to interest expense, as discussed previously.

 

Note11.                                                    Leasing Arrangements

 

In October 1998, the Company entered into a$200 million operating lease agreement with a group of financial institutionsto lease equipment at Mandalay Bay.

 

24

----

 

In December 2001, the Company entered into aseries of sale and leaseback agreements totaling $130.5 million with a group offinancial institutions, covering equipment located at several Nevadaproperties.  The sale of the equipmentresulted in the recognition of a net deferred gain of $28.3 million, asubstantial portion of which was subsequently reversed when the Companyexercised its purchase option on some of the equipment (see below).  The remaining unamortized deferred gain ofapproximately $10.3 million will be reversed upon termination of the lease,assuming the Company again exercises its purchase option.  The proceeds from these leases were used toreduce borrowings outstanding under the Company’s revolving credit facility.

 

On July 31, 2002, the Company exercised itspurchase option under a $12.5 million aircraft lease agreement (part of the$130.5 million lease agreements entered into in December 2001) pursuant towhich it paid $12.0 million to reacquire the aircraft and reversed $11.5million of related deferred gain, which represented the remaining unamortizedbalance.  On September 30, 2002, theCompany exercised its purchase option under a $5.5 million aircraft leaseagreement (also part of the $130.5 million lease agreements entered into in December2001).  Pursuant to this purchase option,the Company paid $5.1 million to reacquire the aircraft and reversed $4.9million of related deferred gain, which represented the remaining unamortizedbalance.

 

The Company entered into the above operatingleases solely to provide greater financial flexibility.  The rent expense related to these operatingleases is reported separately in the consolidated statements of income asoperating lease rent.  The operatinglease agreements contain financial covenants regarding total debt and interestcoverage that are similar to those under the Company’s credit facilities.  The agreements also contain covenantsregarding equipment maintenance, insurance requirements and prohibitions onliens. As of January 31, 2003, the Company was in compliance with all of thecovenants in these agreements.

 

The leases provide that, at termination, theCompany may elect to purchase the equipment for a stated purchase option amountwhich is equal to the estimated fair value of the equipment at that date, asdetermined by an independent appraisal. If the Company chooses not to purchase the equipment, it may beobligated to pay additional amounts under the lease provisions if suchequipment cannot be sold for the appraised fair value.

 

The following table summarizes these operatinglease agreements.  The two aircraftoperating lease agreements dated December 28, 2001 are not reflected in thetable since the purchase option under each agreement has been exercised, asdiscussed previously.

 

25

----

 

**Summary of Operating Lease Agreements**

**(inthousands)**

 
| **Date of  agreement**                      |   | **10/30/98** |       | **12/21/01** |   | **Total** |       |
|---------------------------------------------|--------|--------------|------------|--------------|--------|-----------|------------|
| Initial value of  leased equipment          |   | $            | 200,000    |         | $      | 112,500   | ** ** | **$** | **312,500** | ** ** |
| Purchase option  at January 31, 2003 (1)    |   | $            | 122,500    |         | $      | 93,700    | ** ** | **$** | **216,200** | ** ** |
| **Current  termination date**               |   | **6/30/03**  | ** ** | **12/21/04** |   |      |       |
| Purchase option  at current termination (1) |   | $            | 113,900    |         | $      | 56,300    | ** ** | **$** | **170,200** | ** ** |
| **Maximum  extended termination date (2)**  |   | **6/30/03**  | ** ** | **12/21/05** |   |      |       |
| Purchase option  at maximum termination (1) |   | $            | 113,900    |         | $      | 45,000    | ** ** | **$** | **158,900** | ** ** |

 

----

(1)           Represents estimated fair value atthat date based upon independent appraisal.

 

(2)           Assumes election of all availablerenewal periods.

 

The Company also leasesvarious storage facilities and has various air space under operating leasesexpiring individually through 2032.  Aportion of the Circus Circus facility in Reno is built on leased land withvarious operating leases expiring through 2033.  The following is a schedule of future minimum rental paymentsrequired as of January 31, 2003 under operating leases that have lease terms inexcess of one year:

 
| **Year ending January 31, (in thousands)** |   |
|--------------------------------------------|--------|
| 2004                                       |   | $ | 32,917 |   |
| 2005                                       |   | 22,152 |   |
| 2006                                       |   | 722 |   |
| 2007                                       |   | 386 |   |
| 2008                                       |   | 247 |   |
| Thereafter                                 |   | 5,610 |   |
|                                       |   | $ | 62,034 |   |

 

Rent expense for all leasesaccounted for as operating leases was as follows:

 
|                   |   | **Year ended  January 31,** |   |
|------------------------|--------|-----------------------------|--------|
| **(in thousands)**     |   | **2003**                    |   | **2002** |   | **2001** |   |
| Operating rent expense |   | $                           | 51,125 |   | $ | 34,071 |   | $ | 43,222 |   |
|                        |        |                             |        |  |  |  |  |  |  |  |

 

Note12.                                                    Income Taxes

 

The Company accounts forincome taxes according to Statement of Financial Accounting Standards No. 109,“Accounting for Income Taxes” (“SFAS 109”). SFAS 109 requires the recognition of

 

26

----

 

deferred tax assets, net ofapplicable reserves, related to net operating loss carryforwards and certaintemporary differences.  The standardrequires recognition of a future tax benefit to the extent that realization ofsuch benefit is more likely than not. Otherwise, a valuation allowance is applied.  At January 31, 2003, the Company believes that its deferred taxassets are fully realizable because of the future reversal of existing taxabletemporary differences and  projectedtaxable income in the future. Accordingly, there is no valuation allowance atJanuary 31, 2003.

 

The components of theprovision for income taxes were as follows:

 
|                 |   | **Year ended  January 31,** |   |
|----------------------|--------|-----------------------------|--------|
| **(in thousands)**   |   | **2003**                    |   | **2002** |   | **2001** |   |
| Current              |   |                        |   |   |   |   |   |
| Federal              |   | $                           | 46,446 |   | $ | 39,147 |   | $ | 53,716 |   |
| State                |   | 1,504                       |   | 1,438 |   | 1,417 |   |
|                 |   | 47,950                      |   | 40,585 |   | 55,133 |   |
| Deferred (see below) |   |                        |   |   |   |   |   |
| Federal              |   | 29,919                      |   | (623 | ) | 19,559 |   |
|                 |   | $                           | 77,869 |   | $ | 39,962 |   | $ | 74,692 |   |

 

The Company recognized a taxbenefit of $15.0 million, $1.3 million and $2.7 million related to the exerciseof stock options for the fiscal years ended January 31, 2003, 2002 and 2001,respectively.  Such amounts reducedcurrent taxes payable and increased additional paid-in capital.

 

The components of deferredincome tax expense were as follows:

 
|                                                                                                                      |   | **Year ended  January 31,** |   |
|---------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------|--------|
| **(in thousands)**                                                                                                        |   | **2003**                    |   | **2002** |   | **2001** |   |
| Additional depreciation resulting from the use of  accelerated methods for tax purposes                                   |   | $                           | 15,077 |   | $ | 10,064 |   | $ | 20,956 |   |
| Nondeductible loss resulting from asset impairment                                                                        |   | —                      |   | (11,935 | ) | — |   |
| Effect of expensing preopening costs for financial  statement purposes versus amortizing over five years for tax purposes |   | 3,830                       |   | 3,832 |   | 4,409 |   |
| Pension plan expense not deductible for tax  purposes and market value adjustment                                         |   | (3,969                      | )      | (5,594 | ) | (1,587 | ) |
| Book reserve for bad debts not deductible for tax  purposes until written off                                             |   | 2,884                       |   | 6,344 |   | (6,643 | ) |
| Difference between book and tax basis of  investments in unconsolidated affiliates                                        |   | 1,797                       |   | (2,553 | ) | (1,822 | ) |
| Prepaid gaming taxes                                                                                                      |   | 1,289                       |   | 49 |   | 314 |   |
| Entertainment production costs                                                                                            |   | 1,314                       |   | (1,127 | ) | — |   |
| Property tax                                                                                                              |   | 1,382                       |   | 94 |   | (271 | ) |
| Other, net                                                                                                                |   | 6,315                       |   | 203 |   | 4,203 |   |
|                                                                                                                      |   | $                           | 29,919 |   | $ | (623  | ) | $ | 19,559 |   |

 

27

----

 

The reconciliation of thedifference between the federal statutory tax rate and the Company’s effectivetax rate was as follows:

 
|                                |   | **Year ended  January 31,** |   |
|-------------------------------------|--------|-----------------------------|--------|
|                                |   | **2003**                    |   | **2002** |   | **2001** |   |
| Federal statutory tax rate          |   | 35.0                        | %      | 35.0 | % | 35.0 | % |
| Nondeductible goodwill impairment   |   | 1.3                         |   | 6.7 |   | — |   |
| Nondeductible goodwill amortization |   | —                      |   | 3.8 |   | 1.8 |   |
| Other, net                          |   | 3.9                         |   | (2.5 | ) | 1.6 |   |
| Effective tax rate                  |   | 40.2                        | %      | 43.0 | % | 38.4 | % |

 

The income tax effects oftemporary differences between financial and income tax reporting that gave riseto deferred income tax assets and liabilities at January 31, 2003 and 2002,were as follows:

 
|                                     |   | **January 31,** |    |
|------------------------------------------|--------|-----------------|---------|
| **(in thousands)**                       |   | **2003**        |    | **2002** |   |
| Deferred tax liabilities                 |   |            |    |   |   |
| Property and equipment                   |   | $               | 221,662 |   | $ | 205,434 |   |
| Investments in unconsolidated affiliates |   | 14,205          |    | 10,671 |   |
| Other                                    |   | 12,982          |    | 1,061 |   |
| Gross deferred tax liabilities           |   | 248,849         |    | 217,166 |   |
|                                     |   |            |    |   |   |
| Deferred tax assets                      |   |            |    |   |   |
| Accrued vacation benefits                |   | 8,137           |    | 9,232 |   |
| Bad debt reserve                         |   | 9,159           |    | 3,510 |   |
| Preopening expenses                      |   | 4,875           |    | 9,762 |   |
| Pension plan                             |   | 8,122           |    | 5,176 |   |
| Other                                    |   | 7,427           |    | 7,784 |   |
| Gross deferred tax assets                |   | 37,720          |    | 35,464 |   |
|                                     |   |            |    |   |   |
| Net deferred tax liabilities             |   | $               | 211,129 |   | $ | 181,702 |   |

 

Note13.                                                    Employee Retirement Plans

 

Approximately 36% of theCompany’s employees (excluding unconsolidated affiliates) are covered byunion-sponsored, collectively bargained, multi-employer defined benefit pensionplans.  The Company contributed $11.0million, $9.2 million and $13.2 million during the years ended January 31,2003, 2002 and 2001, respectively, for such plans.  These contributions are determined in accordance with theprovisions of negotiated labor contracts and generally are based on the numberof hours worked.

 

28

----

 

The Company also has aprofit sharing and investment plan covering primarily nonunion employees whoare at least 21 years of age and have at least one year of service.  The plan is a voluntary defined contributionplan and is subject to the provisions of the Employee Retirement IncomeSecurity Act of 1974.  The plan allowsfor investments in the Company’s common stock as one of the investmentalternatives.  The Company’scontributions to this plan include “automatic” contributions based onemployees’ years of service, and “matching” contributions based on employees’contributions.   Employees vest inCompany contributions over a period of six years.   MotorCity Casino also has a profit sharing and investment plancovering primarily union employees. Contributions to both plans are funded withcash and totaled approximately $7.2 million, $6.3 million and $5.4 million inthe years ended January 31, 2003, 2002 and 2001.

 

On June 18, 1998, theCompany adopted a Supplemental Executive Retirement Plan (“SERP”).  The SERP is a defined benefit plan pursuantto which the Company pays supplemental pension benefits to certain key employeesupon retirement based upon the employees’ years of service, compensation andSERP tier.

 

The following informationsummarizes activity in the SERP:

 
|                                                       |   | **Year ended  January 31,** |    |
|------------------------------------------------------------|--------|-----------------------------|---------|
| **(in thousands)**                                         |   | **2003**                    |    | **2002** |   | **2001** |   |
| Changes in Projected Benefit Obligation                    |   |                        |    |   |   |   |   |
| Projected benefit obligation at beginning of year          |   | $                           | 55,498  |   | $ | 31,548 |   | $ | 20,763 |   |
| Service cost                                               |   | 3,490                       |    | 3,089 |   | 1,783 |   |
| Interest cost                                              |   | 3,979                       |    | 3,329 |   | 1,713 |   |
| Additional liability (1)                                   |   | 244                         |    | 11,622 |   | 1,100 |   |
| Actuarial losses (5)                                       |   | 12,106                      |    | 6,630 |   | 6,436 |   |
| Benefits paid                                              |   | (1,212                      | )       | (720 | ) | (247 | ) |
| Projected benefit obligation at end of year                |   | $                           | 74,105  |   | $ | 55,498 |   | $ | 31,548 |   |
|                                                       |   |                        |    |   |   |   |   |
| Fair Value of Plan Assets (2)                              |   | $                           | —  |   | $ | — |   | $ | — |   |
| Reconciliation of Funded Status                            |   |                        |    |   |   |   |   |
| Funded status                                              |   | $                           | (74,105 | ) | $ | (55,498 | ) | $ | (31,548 | ) |
| Unrecognized actuarial loss                                |   | 29,065                      |    | 17,719 |   | 11,585 |   |
| Unrecognized prior service cost                            |   | 21,833                      |    | 22,992 |   | 12,712 |   |
|                                                       |   |                        |    |   |   |   |   |
| Accrued net periodic pension cost                          |   | $                           | (23,207 | ) | $ | (14,787 | ) | $ | (7,251 | ) |
|                                                       |   |                        |    |   |   |   |   |
| Amounts Recognized in the Consolidated Balance  Sheets     |   |                        |    |   |   |   |   |
| Accrued net periodic pension cost                          |   | $                           | (23,207 | ) | $ | (14,787 | ) | $ | (7,251 | ) |
| Additional minimum liability                               |   | (39,326                     | )       | (31,914 | ) | (23,179 | ) |
| Intangible asset                                           |   | 21,833                      |    | 22,992 |   | 12,712 |   |
| Accumulated other comprehensive loss (3)                   |   | 17,493                      |    | 8,922 |   | 10,467 |   |
| Net liability reflected in the consolidated  balance sheet |   | $                           | (23,207 | ) | $ | (14,787 | ) | $ | (7,251 | ) |
| Components of Net Periodic Pension Cost                    |   |                        |    |   |   |   |   |
| Current period service cost                                |   | $                           | 3,490   |   | $ | 3,089 |   | 1,783 |   |
| Interest cost                                              |   | 3,979                       |    | 3,329 |   | 1,713 |   |
| Amortization of prior service cost                         |   | 1,402                       |    | 1,342 |   | 933 |   |
| Recognized net actuarial loss                              |   | 761                         |    | 496 |   | 181 |   |
| Net expense (4)                                            |   | $                           | 9,632   |   | $ | 8,256 |   | $ | 4,610 |   |
|                                                       |   |                        |    |   |   |   |   |
| Weighted Average Assumptions                               |   |                        |    |   |   |   |   |
| Discount rate                                              |   | 6.7                         | %       | 7.3 | % | 8.0 | % |
| Rate of compensation increase                              |   | 3.0                         | %       | 3.0 | % | 3.0 | % |

 

29

----

 

----

(1)                                  Consistsof liability for prior service cost for new participants, plus certain prioryear adjustments relating to years of credited service and compensation.

(2)                                  Whilethe SERP is an unfunded plan, the Company is informally funding the planthrough life insurance contracts on the participants.  The life insurance contracts had cash surrender values of $35.2  million, $28.6 million and $20.6 million atJanuary 31, 2003, 2002 and 2001, respectively. The life insurance contracts had a face value of $178.2 million atJanuary 31, 2003.

(3)                                  Amountrecorded in the Consolidated Statement of Stockholders’ Equity is net of incometax of $6.1 million, $3.1 million and $3.7 million in the years ended January31, 2003, 2002 and 2001, respectively.

(4)                                  Theperiodic pension expense is included in departmental expenses.

(5)                                  Theincrease in actuarial losses in fiscal 2003 was due primarily to the use of alower discount rate to project benefit obligations.  The change in this assumption reflects the decline in long-termfixed income investment returns.

 

Note14.                                                    Stock Options

 

The Company has variousstock incentive plans for executive, managerial and supervisory personnel, aswell as the Company’s outside directors and consultants.  All of the plans permit grants of options,and two of the plans also permit the grant of performance shares and restrictedstock awards relating to the Company’s common stock.  As of January 31, 2003, the only awards granted pursuant to theseplans were stock options, which are generally exercisable in one or moreinstallments beginning not less than six months after the grant date.

 

30

----

 

Summarized information forstock options was as follows:

 
|                                       |        | **Year ended  January 31,** |                                   |
|--------------------------------------------|-------------|-----------------------------|----------------------------------------|
|                                       | **2003**    |                        | **2002**                               |   | **2001** |   |
|                                       | **Options** |                        | **Weighted  Average  Exercise  Price** |   | **Options** |   | **Weighted  Average  Exercise  Price** |   | **Options** |   | **Weighted  Average  Exercise  Price** |   |
| Outstanding at beginning of year           |        | 9,897,371                   |                                   | $ | 16.24 |   | 5,615,940 |   | $ | 13.46 |   | 6,029,959  |   | $ | 13.70 |   |
| Granted                                    |        | 185,000                     |                                   | 27.22 |   | 4,631,500 |   | 19.33 |   | 655,500 |   | 15.99 |   |
| Exercised                                  |        | (2,232,668                  | )                                      | 13.12 |   | (308,269 | ) | 12.27 |   | (940,061 | ) | 16.06 |   |
| Canceled                                   |        | (43,534                     | )                                      | 16.88 |   | (41,800 | ) | 14.92 |   | (129,458 | ) | 18.36 |   |
| Outstanding at end of year                 |        | 7,806,169                   |                                   | 17.39 |   | 9,897,371 |   | 16.24 |   | 5,615,940 |   | 13.46 |   |
|                                       |        |                        |                                   |   |   |   |   |   |   |   |   |   |   |
| Options exercisable at end of year         |        | 5,098,535                   |                                   | 15.79 |   | 3,484,629 |   | 13.01 |   | 2,422,600 |   | 12.52 |   |
|                                       |        |                        |                                   |   |   |   |   |   |   |   |   |   |   |
| Options available for grant at end of year |        | 3,257,324                   |                                   |   |   | 6,790 |   |   |   | 4,885,990 |   |   |   |
|                                            |             |                             |                                        |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

The following tablesummarizes information about stock options outstanding and exercisable atJanuary 31, 2003:

 
| **Options  Outstanding**       |   | **Options  Exercisable** |   |
|--------------------------------|--------|--------------------------|--------|
| **Range of  Exercise  Prices** |   | **Number  Outstanding**  |   | **Weighted  Average  Remaining  Contractual  Life (yrs)** |   | **Weighted  Average  Exercise  Price** |   | **Number  Exercisable** |   | **Weighted  Average  Exercise  Price** |   |
| $ 11.25 to $13.00              |   | 2,674,602                |   | 5.98 |   | $ | 12.90 |   | 2,467,468 |   | $ | 12.94 |   |
|    14.50 to 20.00    |   | 1,776,900                |   | 8.35 |   | 17.16 |   | 1,660,600 |   | 17.10 |   |
|    20.20 to 28.65    |   | 3,354,667                |   | 8.03 |   | 21.09 |   | 970,467 |   | 20.80 |   |
|                           |   | 7,806,169                |   | 7.40 |   | 17.39 |   | 5,098,535 |   | 15.79 |   |
|                                |        |                          |        |  |  |  |  |  |  |  |  |  |  |

 

31

----

 

Note15.                                                    Stock Related Matters

 

On July 14, 1994, theCompany declared a dividend of one common stock purchase right (the “Rights”)for each share of common stock outstanding at the close of business on August15, 1994.  Each Right entitles the holderto purchase from the Company one share of common stock at an exercise price of$125, subject to certain antidilution adjustments.  The Rights become exercisable ten days after the earlier of anannouncement that an individual or group has acquired 15% or more of theCompany’s outstanding common stock or the announcement of commencement of atender offer for 15% or more of the Company’s common stock.

 

In the event the Rightsbecome exercisable, each Right (except the Rights beneficially owned by theacquiring individual or group, which become void) would entitle the holder topurchase, for the exercise price, a number of shares of the Company’s commonstock having an aggregate current market value equal to two times the exerciseprice.  The Rights expire August 15,2004, and may be redeemed by the Company at a price of $.01 per Right any timeprior to their expiration or the acquisition of 15% or more of the Company’scommon stock.  The Rights should notinterfere with any merger or other business combination approved by theCompany’s Board of Directors and are intended to cause substantial dilution toa person or group that attempts to acquire control of the Company on terms notapproved by the Board of Directors.

 

The Company is authorized toissue up to 75 million shares of $.01 par value preferred stock in one or moreseries having such respective terms, rights and preferences as are designatedby the Board of Directors.  No preferredstock has yet been issued.

 

In June 2001, the Board ofDirectors authorized the purchase of up to 15% of Mandalay’s common stock whichremained outstanding after a prior share purchase authorization was fullyutilized.   Assuming the Companypurchases all of the shares it’s entitled to acquire pursuant to the equityforward agreements discussed in Note 16, the additional shares that may bepurchased as of January 31, 2003, as authorized by the Board of Directors,would be approximately .3 million.  (SeeNote 18 - Subsequent Events for information regarding the settlement of theequity forward agreements.)  In March2003, the Board authorized the purchase of up to an additional 10 millionshares of Mandalay’s common stock. Any share purchases the Company may make inthe future pursuant to this authorization will be dependent upon marketconditions, and are expected to be made in accordance with the volume and otherlimitations of Rule 10b-18 under the Securities Exchange Act of 1934.

 

During the year endedJanuary 31, 2003, the Company purchased 7.5 million shares of its common stockat a cost of $220.9 million.  In fiscal2002 and 2001, the Company purchased 5.2 million shares of its common stock ata cost of $125.9 million and 14.5 million shares of its common stock at a costof $247.1 million, respectively.  Theseamounts do not include interim settlements under the Company’s equity forwardagreements.

 

32

----

 

Note16.                                                    Equity Forward Agreements

 

To facilitate its purchaseof shares of its common stock, the Company entered into equity forwardagreements with Bank of America (“B of A” or “the Bank”) providing for theBank’s purchase of up to an agreed amount of the outstanding common stock.  Such purchases were in accordance with thevolume and other limitations of Rule 10b-18 under the Securities Exchange Actof 1934.  The agreements, as amended,provide that on the settlement date of March 31, 2003, the Company willpurchase from B of A the shares that the Bank then holds.  For those shares, the Company will pay to Bof A its acquisition cost (as adjusted by any interim settlements) plus accruedfees (the “Settlement Amount”).  At itsoption, the Company may acquire all or a portion of the shares at an earlierdate, or the Company may become obligated to acquire all or a portion of theshares at an earlier date under certain circumstances specified in theagreements.  The agreements provide forinterim settlements whereby the Company may deliver or receive shares at theend of each calendar quarter so that the aggregate market value of the sharesheld by B of A is equal to the remaining notional amounts of the agreements.The shares held by B of A at each interim settlement date are valued at theclosing price of the stock on that date. To the extent that the value of the shares exceeds the notional amount,B of A delivers equivalent shares to the Company.  To the extent the notional amount exceeds the value, the Companydelivers equivalent shares to B of A.

 

Bank of America acquired atotal of 6.9 million shares at a total cost of $138.7 million under theseagreements. Pursuant to the interim settlement provisions and an amendment tothe agreements, the Company received a net of 3.6 million shares and reducedthe notional amount of the agreements by $38.7 million as of January 31, 2003.  As of January 31, 2003, the Company wasentitled to purchase the remaining 3.3 million shares from B of A for thenotional amount of $100 million on the settlement date. (See Note 18 -Subsequent Events for information regarding the settlement of the equityforward agreements.)  The table belowsummarizes the share purchase and interim settlement activity under theseequity forward agreements through January 31, 2003.

 

33

----

 

(in thousands)

 
| **Date** |   | **Description**                           |   | **Shares Acquired  (Delivered) by  BofA** |   | **Shares Acquired  (Delivered) by  Mandalay** |   | **Increase  (Decrease) in  Notional  Amount** |    |
|----------|--------|-------------------------------------------|--------|-------------------------------------------|--------|-----------------------------------------------|--------|-----------------------------------------------|---------|
| 9/8/00   |   | Original agreement                        |   | 4,856                                     |   | —                                        |   | $                                             | 100,000 |   |
| 3/21/01  |   | Amendment (increase of notional amount)   |   | 1,246                                     |   | —                                        |   | 24,933                                        |    |
| 6/30/01  |   | Interim settlement                        |   | (1,543                                    | )      | 1,543                                         |   | —                                        |    |
| 9/15/01  |   | Amendment (increase of notional amount)   |   | 754                                       |   | —                                        |   | 13,741                                        |    |
| 10/31/01 |   | Interim settlement                        |   | 938                                       |   | (938                                          | )      | (35,527                                       | )       |
| 1/31/02  |   | Interim settlement                        |   | (2,438                                    | )      | 2,438                                         |   | —                                        |    |
| 2/6/02   |   | Amendment (contract extension to 3/31/03) |   | (116                                      | )      | 116                                           |   | (3,147                                        | )       |
| 3/31/02  |   | Interim settlement                        |   | (440                                      | )      | 440                                           |   | —                                        |    |
| 6/30/02  |   | Interim settlement                        |   | 370                                       |   | (370                                          | )      | —                                        |    |
| 9/30/02  |   | Interim settlement                        |   | (647                                      | )      | 647                                           |   | —                                        |    |
| 12/31/02 |   | Interim settlement                        |   | 286                                       |   | (286                                          | )      | —                                        |    |
|     |   | Net amounts                               |   | 3,266                                     |   | 3,590                                         |   | $                                             | 100,000 |   |

 

The Company incurs quarterlyinterest charges on the notional amount at a rate equal to LIBOR plus 1.95%.Total interest charges incurred from inception through January 31, 2003,amounted to $11.6 million, of which $3.8 million was incurred in fiscal 2003.  In addition, the Company incurredstructuring fees and commissions totaling $3.7 million, none of which wereincurred in fiscal 2003.  These interestcharges and other fees are included in the cost of treasury stock, net of therelated tax benefit.

 

Note 17. Commitments and Contingent Liabilities

 

**MandalayBay Suites Tower**

The Company is currentlybuilding a new 1,122-suite hotel tower at Mandalay Bay.  The 43-story tower will be located on thewest side of the property.  The newsuites will average 750 square

 

34

----

 

feet, among the largest roomproduct in the Las Vegas market.  Thetower will also include meeting suites, a spa and fitness center, tworestaurants and a lounge.  The Company expectsthat the new suites will serve the demand generated by the new conventioncenter.  The tower broke ground duringthe third quarter of fiscal 2003 and should open in November 2003.  The total cost of the project is estimatedto be $230 million, excluding land, capitalized interest and preopeningexpenses.  As of January 31, 2003, theCompany had incurred costs of $18.5 million related to this project.

 

**RetailCenter**

The Company is constructinga retail center between Mandalay Bay and Luxor.  The center will include approximately 90,000 square feet ofretail space and approximately 35 stores and restaurants, including severalupscale, internationally-branded retailers. Construction began in the third quarter, with an expected opening inFall 2003.  The cost is estimated to beapproximately $30-$40 million, excluding land, capitalized interest andpreopening expenses.  As of January 31,2003, the Company had incurred costs of $10.7 million related to this project.

 

**Detroit**

The Company participateswith the Detroit-based Atwater Casino Group in a joint venture that owns andoperates a casino in Detroit, Michigan. This joint venture is one of threegroups which negotiated casino development agreements with the City ofDetroit.  The Company has a 53.5%ownership interest in the joint venture.

 

Pending the development of apermanent hotel/casino, the joint venture constructed a temporary casino(MotorCity Casino) in downtown Detroit, which opened December 14, 1999.  The cost of the temporary casino, includingland and capitalized interest but excluding preopening expenses, wasapproximately $150 million.  This costwas financed through the joint venture’s $150 million credit facility, which issecured by the assets associated with the temporary casino.  The Company has guaranteed this creditfacility, which had a balance of $20 million at January 31, 2003.  The joint venture’s operation of the casinois subject to ongoing regulatory oversight, and its ability to proceed with anexpanded permanent hotel/casino project is contingent upon the receipt of allnecessary governmental approvals, successful resolution of pending litigationand satisfaction of other conditions.

 

Results for fiscal 2003,include the write-off of $13.0 million of intangible costs associated withMotorCity Casino in Detroit.  Theseintangible costs represent amounts paid by Mandalay to its partner, AtwaterCasino Group, in exchange for a so-called “preference” (applicable topredecessors of Atwater Casino Group) to develop a casino in Detroit.  Mandalay paid $13.0 million to AtwaterCasino Group for its right to this preference, and ultimately, a gaming licensewas awarded to MotorCity Casino. However, in early 2002, preferences of this nature were declaredunconstitutional by the federal courts. Furthermore, on August 2, 2002, MotorCity signed a Revised DevelopmentAgreement with the City of Detroit which provided for the development of apermanent casino on the site of the current temporary facility.  As a result of these events, it wasdetermined that the intangible preference had no value and should be writtenoff.

 

35

----

 

Under the RevisedDevelopment Agreement, MotorCity Casino is to be expanded into a permanentfacility at its current location by December 31, 2005.  This permanent facility is currentlyexpected to include 100,000 square feet of casino space, a 400_room hotel, a1,200_seat theater, convention space and additional restaurants, retail andparking. Depending upon market conditions, the availability of additional landand the joint venture’s ability to obtain reasonable financing, the jointventure could be required to construct an additional 400 rooms.

 

Under the terms of theRevised Development Agreement, the joint venture paid the City $17 million inOctober 2002, and is to pay another $10 million in four equal installmentsbefore June 2003, and an additional $17 million in 12 equal monthlyinstallments beginning June 1, 2003. Also, beginning January 1, 2006, the jointventure is to pay the City 1% of its adjusted casino revenues. If its casinorevenues top $400 million in any given calendar year, the payment will beincreased to 2% for that calendar year.

 

Under the terms of theoperating agreement, the Company is to receive a management fee for a period often (10) years equal to 1.5% of the costs of the permanent casino facility. Themanagement committee of the joint venture has made a preliminary determinationthat the management fee should be paid commencing on the date the RevisedDevelopment Agreement was signed, since that agreement provides for theexisting facility to become the permanent facility.  Pursuant to this determination, the Company recognized amanagement fee of $2.3 million in fiscal 2003 and expects to recognizeapproximately $4.5 million in management fees in fiscal 2004.  Since the Company owns 53.5% of the jointventure, the net benefit of the management fees to the Company is 46.5% of theamounts shown.

 

Originally, the jointventure’s permanent facility was to have been located on land along the DetroitRiver.  The City’s Economic DevelopmentCorporation issued bonds to finance the City’s acquisition of that land, andBank of America issued letters of credit totaling $50 million to secure (andultimately make) the payments of principal and interest on those bonds.  The Company then issued letters of credittotaling $50 million to back Bank of America’s letters of credit.  The Company will continue to provide suchletters of credit. As part of the Revised Development Agreement, the joint venturewill forego the right to receive any of the riverfront land acquired by theCity, and will transfer to the City its interest in certain real propertypreviously purchased by the joint venture and the other casino developers. Boththe joint venture and Mandalay are subject to a radius restriction prohibitingthem from operating additional casinos within approximately 150 miles ofDetroit.  Additionally, they arerequired to indemnify the City for up to $20 million in claims against the Cityin connection with the acquisition of the riverfront land and in connectionwith the *Lac Vieux* litigationdescribed below.

 

The Company has committed tocontribute 20% of the costs of the permanent facility in the form of an investment in the joint venture.The joint venture will seek to borrow any additional funds (above Mandalay’sequity contribution) which may be necessary to complete the expanded permanentfacility. The cost of the additional facilities (excluding land, capitalizedinterest and preopening expenses), is currently estimated to be $275 million.Under the Revised Development Agreement, the Company has guaranteed completionof the expanded facility and has entered into a keep-well agreement with theCity that could require the Company to contribute additional

 

36

----

 

funds to continue operationof the expanded facility for two years. There is no contractual limitation onthe amount that the Company may be required to contribute under its completionguarantee or to keep the project operating for two years. However, based on theperformance of the casino to date, the Company does not expect that theseobligations will require the outlay of additional capital.

 

Various lawsuits have beenfiled in the state and federal courts challenging the constitutionality of theCasino Development Competitive Selection Process Ordinance and the MichiganGaming Control and Revenue Act, and seeking to appeal the issuance of acertificate of suitability and casino license to MotorCity Casino.  A decision by the Sixth Circuit Court ofAppeals in *Lac Vieux Desert Band of LakeSuperior Chippewa Indians v. The Michigan Gaming Control Board et al*.held that the ordinance in its current form was unconstitutional and remandedthe case to the District Court.  TheMichigan Gaming Control Board (“MGCB”) has taken the ruling of the SixthCircuit Court of Appeals under advisement without comment.  The District Court subsequently declaredthat the ordinance in its current form is unconstitutional and awarded the LacVieux Band attorneys fees and costs totaling $545,094.  However, it rejected the Lac Vieux Band’srequest to require a rebidding of the three casino licenses.  The District Court also rejected the LacVieux Band’s request to enjoin the City of Detroit from entering into reviseddevelopment agreements with the three casino developers, including MotorCityCasino.  The Lac Vieux Band has appealedthe District Court’s decision to the Sixth Circuit Court of Appeals.   Pending its decision, the Sixth CircuitCourt of Appeals has issued an opinion granting the Lac Vieux Band’s motion foran injunction that temporarily enjoins the City of Detroit from issuingbuilding permits for the permanent casino facilities and temporarily enjoinsthe casino developers from commencing construction of the permanent casinofacilities.   The effect of the rulingsin this case is uncertain.

 

The Lac Vieux Band has fileda separate action in the Gogebic County, Michigan, Circuit Court entitled *Lac Vieux Desert Band of Lake Superior ChippewaIndians v. Michigan Gaming Control Board*, in which the Lac VieuxBand has requested the Circuit Court to enter an order requiring the MGCB torevoke the casino licenses issued to the three Detroit casinos, includingMotorCity Casino.  The action has beenstayed pending the resolution by the Sixth Circuit Court of Appeals of the LacVieux Band’s appeal of the District Court decision referenced above.

 

In a separate action, onFebruary 13, 2002, John Ren filed suit in the Circuit Court of Wayne County,Michigan, against the Detroit joint venture and the other two casino operatorsin Detroit. The plaintiff purports to represent himself and a class consistingof all persons who lost money and/or incurred debts that remain unpaid at anyof the three Detroit casinos. Relying on the Sixth Circuit Court of Appeals’*Lac Vieux* decision, the plaintiff allegesthat the three casinos have been operating illegally and continue to do so. Therelief sought by the plaintiff includes an injunction to restrain the threecasinos from remaining open until properly licensed, compensatory damages, anddisgorgement of all profits “unjustly obtained.” The court dismissed thisaction on the basis that the plaintiff should first seek relief from the MGCB.  The plaintiff has filed a claim with theMGCB, which is still pending. The joint venture continues to operate MotorCityCasino.

 

37

----

 

Any future adverse ruling bythe courts in the above lawsuits or in other lawsuits, or any adverse ruling bythe MGCB, could affect the joint venture’s operation of its current facility,as well as its ability to retain its certificate of suitability and casinolicense for its expanded permanent facility. No assurance can be givenregarding the timing or outcome of any of these proceedings.

 

The Company is a defendantin various pending litigation.  Inmanagement’s opinion, the ultimate outcome of such litigation will not have amaterial effect on the results of operations or the financial position of theCompany.

 

Note18.                                                    Subsequent Events

 

**ConvertibleSenior Debentures**

 

On March 21, 2003, theCompany issued $350 million principal amount of floating-rate convertiblesenior debentures due 2033 (“convertible debentures”).  An additional $50 million principal amountof the convertible debentures were issued on April 2, 2003, pursuant to anoption granted to the initial purchasers. The convertible debentures bear interest at a floating rate equal to3-month LIBOR (reset quarterly) plus 0.75%, subject to a maximum of 6.75%. Theconvertible debentures also provide for the payment of contingent interest ifthe average market price of the convertible debentures reaches a certainthreshold.  The convertible debenturesprovide for an initial base conversion price of $57.30 per share, reflecting aconversion premium of 100% over Mandalay’s closing stock price of $28.65 onMarch 17, 2003.  The proceeds of theoffering were used to repay borrowings under the Company’s revolving creditfacility.

 

Each convertible debenturewill be convertible into shares of Mandalay’s common stock (i) during anycalendar quarter beginning after June 30, 2003, if the closing price ofMandalay’s common stock is more than 120% of the base conversion price for at least20 of the last 30 trading days of the preceding calendar quarter; (ii) if acredit rating assigned to the convertible securities falls below a specifiedlevel; (iii) if the Company takes certain corporate actions; or (iv) if theCompany calls the convertible debentures for redemption.  If the securities are converted, holderswill receive 17.452 shares per convertible debenture, or an aggregate of 7.0million shares of Mandalay common stock. In addition, if at the time of conversion the market price of Mandalay’scommon stock exceeds the then-applicable base conversion price, holders willreceive up to an additional 14.2789 shares of Mandalay’s common stock perconvertible debenture, as determined pursuant to a specified formula, or up toan additional 5.7 million shares in the aggregate.

 

The Company may redeem allor some of the convertible debentures for cash at any time on or after March21, 2008, at their accreted principal amount plus accrued and unpaid interest,if any, to, but excluding, the redemption date.  At the option of the holders, the Company may be required torepurchase the convertible securities on the 5th, 10th,15th, 20th and 25th anniversaries of theirissuance, at their accreted principal amount plus accrued and unpaid interest,if any, to, but excluding, the purchase date. The Company may choose to pay the purchase price in cash, shares ofMandalay common stock or any combination thereof.

 

38

----

 

**EquityForward Agreements**

 

On March 31, 2003, theCompany settled the equity forward agreements discussed in Note 16.  Pursuant to this settlement, the Companypaid $100 million notional amount to Bank of America in exchange for theremaining 3.3 million shares of Mandalay common stock held by Bank ofAmerica.  The settlement was fundedunder the Company’s revolving credit facility. The acquired shares will beincluded in treasury stock.

 

39

----

 

INDEPENDENTAUDITORS’ REPORT

 

Tothe Board of Directors and Stockholders of Mandalay Resort Group:

 

Wehave audited the accompanying consolidated balance sheets of Mandalay ResortGroup and subsidiaries (the “Company”) as of January 31, 2003 and 2002, and therelated consolidated statements of income, stockholders’ equity, and cash flowsfor each of the three years in the period ended January 31, 2003. Our auditsalso included the consolidated financial statement schedule listed in the indexat Item 15(a)(2).  These financialstatements and financial statement schedule are the responsibility of theCompany’s management.  Ourresponsibility is to express an opinion on these financial statements andfinancial statement schedule based on our audits.  We did not audit the financial statements of Elgin Riverboat Resort-RiverboatCasino, owner of Grand Victoria Casino, the Company’s investment in which isaccounted for by use of the equity method. The Company’s equity of $249,040,000 and $251,022,000 in the GrandVictoria Casino’s net assets as of January 31, 2003 and 2002, respectively, andof $48,998,000, $63,564,000 and $58,856,000 in that entity’s net income foreach of the three years in the period ended January 31, 2003 are included inthe accompanying financial statements. The financial statements of Grand Victoria Casino were audited by otherauditors whose report has been furnished to us, and our opinion, insofar as itrelates to the amounts included for such company, is based solely on the reportof such other auditors.

 

Weconducted our audits in accordance with auditing standards generally acceptedin the United States of America.  Thosestandards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement.  An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements.  An audit alsoincludes assessing the accounting principles used and significant estimatesmade by management, as well as evaluating the overall financial statementpresentation.  We believe that ouraudits and the report of the other auditors provide a reasonable basis for ouropinion.

 

Inour opinion, based on our audits and the report of the other auditors, suchconsolidated financial statements present fairly, in all material respects, thefinancial position of Mandalay Resort Group and subsidiaries as of January 31,2003 and 2002, and the results of their operations and their cash flows foreach of the three years in the period ended January 31, 2003 in conformity withaccounting principles generally accepted in the United States of America.  Also, in our opinion, such consolidatedfinancial statement schedule, when considered in relation to the basic consolidatedfinancial statements taken as a whole, presents fairly in all material respectsthe information set forth therein.

 

Asdescribed in Note 10 and Note 4, respectively, to the consolidated financialstatements, the Company adopted Statements of Financial Accounting StandardsNo. 133, Accounting for Derivative Instruments and Hedging Activities, and No.138, Accounting for Certain Derivative Instruments and Certain HedgingActivities — an Amendment of FASB Statement No. 133, as of

 

40

----

 

February 1,2001, and adopted Statement of Financial Accounting Standards No. 142, Goodwilland Other Intangible Assets, as of February 1, 2002.

 

DELOITTE& TOUCHE LLP

 

LasVegas, Nevada

March6, 2003, except for Note 18, as to which the date is April 2, 2003

 

Management’s Report onFinancial Statements

 

The Company is responsiblefor preparing the consolidated financial statements and related informationappearing in this report.  Managementbelieves that the financial statements present fairly the Company’s financialposition, results of operations and cash flows in conformity with AccountingPrinciples Generally Accepted in the United States.  In preparing its financial statements, the Company is required toinclude amounts based on estimates and judgments which management believes arereasonable under the circumstances.

 

The Company maintainsaccounting and other control systems designed to provide reasonable assurancethat financial records are reliable for purposes of preparing financialstatements and that assets are properly accounted for and safeguarded.  Compliance with these systems and controlsis reviewed through a program of audits by an internal audit staff.

 

The Board of Directorsfulfills its responsibility for the Company’s financial statements through itsaudit committee, which is composed solely of directors who are not Companyofficers or employees.  The auditcommittee meets from time to time with the independent public accountants,management and the internal auditors. The independent public accountants have direct access to the auditcommittee, with or without the presence of management representatives.

 

41

----

 

**SELECTEDQUARTERLY FINANCIAL INFORMATION (UNAUDITED)**

 
|                                          |   | **Fiscal year ended January  31, 2003** |    |
|-----------------------------------------------|--------|-----------------------------------------|---------|
| **(in thousands, except per share  amounts)** |   | **1st Quarter**                         |    | **2nd Quarter** |   | **3rd Quarter** |   | **4th Quarter** |   | **Total** |   |
|                                          |   |                                    |    |   |   |   |   |   |   |   |   |
| Net revenues (1)                              |   | $                                       | 610,597 |   | $ | 603,659 |   | $ | 595,635 |   | $ | 544,227 |   | $ | 2,354,118 |   |
| Income from operations                        |   | 146,594                                 |    | 108,538 |   | 116,383 |   | 80,791 |   | 452,306 |   |
| Income before provision  for income taxes     |   | 79,442                                  |    | 47,217 |   | 52,575 |   | 16,100 |   | 195,334 |   |
| Net income (2)                                |   | 48,858                                  |    | 29,334 |   | 33,220 |   | 4,191 |   | 115,603 |   |
| Basic earnings per share  (3)                 |   | $                                       | 0.71    |   | $ | 0.43 |   | $ | 0.49 |   | $ | 0.06 |   | $ | 1.71 |   |
| Diluted earnings per  share (3)               |   | $                                       | 0.68    |   | $ | 0.41 |   | $ | 0.47 |   | $ | 0.06 |   | $ | 1.65 |   |

 
|                                             |   | **Fiscal year ended January  31, 2002** |    |
|--------------------------------------------------|--------|-----------------------------------------|---------|
| **(in thousands, except per share  amounts)**    |   | **1st Quarter**                         |    | **2nd Quarter** |   | **3rd Quarter** |   | **4th Quarter** |   | **Total** |   |
|                                             |   |                                    |    |   |   |   |   |   |   |   |   |
| Net revenues (1)                                 |   | $                                       | 637,836 |   | $ | 614,407 |   | $ | 580,511 |   | $ | 515,758 |   | $ | 2,348,512 |   |
| Income from operations                           |   | 138,104                                 |    | 111,540 |   | 100,349 |   | 1,067 |   | 351,060 |   |
| Income (loss) before  provision for income taxes |   | 75,095                                  |    | 48,508 |   | 36,377 |   | (66,974 | ) | 93,006 |   |
| Net income (loss)                                |   | 47,362                                  |    | 30,527 |   | 23,311 |   | (48,156 | ) | 53,044 |   |
| Basic earnings (loss) per  share (3)             |   | $                                       | 0.62    |   | $ | 0.41 |   | $ | 0.33 |   | $ | (0.68 | ) | $ | 0.73 |   |
| Diluted earnings (loss)  per share (3)           |   | $                                       | 0.61    |   | $ | 0.40 |   | $ | 0.32 |   | $ | (0.66 | ) | $ | 0.71 |   |

 

----

(1)                          During fiscal 2003, we reclassified equity inearnings of unconsolidated affiliates from revenues to a separate componentwithin income from operations. Quarterly results in fiscal 2003 and 2002 have been reclassified toconform to the new presentation.  Thisreclassification had no impact on previously reported quarterly income fromoperations or net income.

 

(2)                          Net income includes a charge for thecumulative effect of an accounting change of $1.9 million related to goodwillin fiscal 2003.  In accordance with theadoption of Statement of Financial Accounting Standards No. 142, “Goodwill andOther Intangible Assets” on February 1, 2002, Mandalay no longer amortizesgoodwill.

 

(3)                          Becauseearnings (loss) per share amounts are calculated using the weighted averagenumber of common and dilutive common equivalent shares outstanding during eachquarter, the sum of the per share amounts for the four quarters may not equalthe total earnings per share amounts for the year.

 

42

----

 

**Elgin Riverboat Resort -Riverboat Casino**

 

Balance Sheets

December 31, 2002 and 2001

 
|                                                                                                 |   | ***2002***   |          | ***2001***   |     |
|------------------------------------------------------------------------------------------------------|--------|--------------|---------------|--------------|----------|
| **ASSETS**                                                                                           |   |         | * *      |         | * * |
|                                                                                                 |   |         |          |         |     |
| *Current assets:*                                                                                    |   |         | * *      |         | * * |
| *Cash and cash equivalents*                                                                          |   | *$*          | *62,170,699*  | * *     | *$*      | *63,624,380* | * * |
| *Accounts receivable, net of  allowance for doubtful accounts of $91,500 and $250,000, respectively* |   | *666,543*    | * *      | *801,350*    | * * |
| *Inventories*                                                                                        |   | *570,551*    | * *      | *419,027*    | * * |
| *Prepaid expenses*                                                                                   |   | *1,671,977*  | * *      | *1,343,425*  | * * |
|                                                                                                 |   |         | * *      |         | * * |
| *Total current assets*                                                                               |   | *65,079,770* | * *      | *66,188,182* | * * |
|                                                                                                 |   |         | * *      |         | * * |
| *Property and equipment, net*                                                                        |   | *69,513,062* | * *      | *71,508,881* | * * |
|                                                                                                 |   |         | * *      |         | * * |
| *Other assets*                                                                                       |   | *68,900*     | * *      | *56,400*     | * * |
|                                                                                                 |   |         | * *      |         | * * |
| *Total assets*                                                                                       |   | *$*          | *134,661,732* | * *     | *$*      | *137,753,463* | * * |
|                                                                                                 |   |         | * *      |         | * * |
| ***LIABILITIES  AND PARTNERS’ EQUITY***                                                         |   |         | * *      |         | * * |
|                                                                                                 |   |         | * *      |         | * * |
| *Current liabilities:*                                                                               |   |         | * *      |         | * * |
| *Accounts payable*                                                                                   |   | *$*          | *805,661*     | * *     | *$*      | *406,868* | * * |
| *Accrued liabilities*                                                                                |   | *47,515,769* | * *      | *52,189,471* | * * |
|                                                                                                 |   |         | * *      |         | * * |
| *Total current liabilities*                                                                          |   | *48,321,430* | * *      | *52,596,339* | * * |
|                                                                                                 |   |         | * *      |         | * * |
| *Total liabilities*                                                                                  |   | *48,321,430* | * *      | *52,596,339* | * * |
|                                                                                                 |   |         | * *      |         | * * |
| *Commitments and  contingencies*                                                                     |   |         | * *      |         | * * |
|                                                                                                 |   |         | * *      |         | * * |
| *Partners’ equity*                                                                              |   | *86,340,302* | * *      | *85,157,124* | * * |
|                                                                                                 |   |         | * *      |         | * * |
| *Total liabilities and partners’  equity*                                                       |   | *$*          | *134,661,732* | * *     | *$*      | *137,753,463* | * * |

 

The accompanying notesare an integral part of these financial statements.

 

43

----

 

**Elgin Riverboat Resort - RiverboatCasino**

 

Statements ofOperations

For Each of the Three Years Ended December 31, 2002

 
|                           |   | **2002**    |        | **2001**    |   | **2000**    |   |
|--------------------------------|--------|-------------|-------------|-------------|--------|-------------|--------|
| Revenues:                      |   |        |        |        |   |        |   |
| Casino                         |   | $           | 392,973,373 |        | $      | 399,574,280 |   | $ | 370,299,913 |   |
| Food and  beverage             |   | 28,093,250  |        | 29,542,892  |   | 27,397,113  |   |
| Admissions and  other          |   | 12,052,427  |        | 11,375,386  |   | 10,807,332  |   |
|                           |   |        |        |        |   |        |   |
|                           |   | 433,119,050 |        | 440,492,558 |   | 408,504,358 |   |
|                           |   |        |        |        |   |        |   |
| Less:  promotional allowances  |   | (30,250,504 | )           | (30,244,503 | )      | (27,402,778 | )      |
|                           |   |        |        |        |   |        |   |
|                           |   | 402,868,546 |        | 410,248,055 |   | 381,101,580 |   |
|                           |   |        |        |        |   |        |   |
| Operating  expenses:           |   |        |        |        |   |        |   |
| Casino                         |   | 228,234,291 |        | 202,885,894 |   | 188,533,577 |   |
| Food and  beverage             |   | 6,513,115   |        | 6,823,873   |   | 6,821,673   |   |
| General and  administrative    |   | 44,947,987  |        | 50,563,689  |   | 48,258,404  |   |
| Depreciation and  amortization |   | 8,422,486   |        | 8,671,916   |   | 7,686,148   |   |
| Other operating  expenses      |   | 12,684,712  |        | 15,155,268  |   | 13,934,750  |   |
|                           |   |        |        |        |   |        |   |
|                           |   | 300,802,591 |        | 284,100,640 |   | 265,234,552 |   |
|                           |   |        |        |        |   |        |   |
| Operating income               |   | 102,065,955 |        | 126,147,415 |   | 115,867,028 |   |
|                           |   |        |        |        |   |        |   |
| Other income  (expense):       |   |        |        |        |   |        |   |
| Interest income                |   | 617,223     |        | 1,446,685   |   | 1,767,562   |   |
| (Loss) gain on  asset disposal |   | —      |        | —      |   | (40,306     | )      |
|                           |   |        |        |        |   |        |   |
|                           |   | 617,223     |        | 1,446,685   |   | 1,727,256   |   |
|                           |   |        |        |        |   |        |   |
| Net income                     |   | $           | 102,683,178 |        | $      | 127,594,100 |   | $ | 117,594,284 |   |

 

The accompanying notesare an integral part of these financial statements.

 

44

----

 

**ElginRiverboat Resort - Riverboat Casino**

 

Statements of Partners’ Equity

For Each of the Three Years Ended December 31, 2002

 
|                        |   | **Nevada Landing  Partnership** |       | **RBG, L.P.** |   | **Total**    |   |
|-----------------------------|--------|---------------------------------|------------|---------------|--------|--------------|--------|
|                        |   |                            |       |          |   |         |   |
| Balance, January  1, 2000   |   | $                               | 41,734,370 |          | $      | 41,734,370   |   | $ | 83,468,740 |   |
|                        |   |                            |       |          |   |         |   |
| Net income                  |   | 58,797,142                      |       | 58,797,142    |   | 117,594,284  |   |
|                        |   |                            |       |          |   |         |   |
| Distributions to  partners  |   | (61,750,000                     | )          | (61,750,000   | )      | (123,500,000 | )      |
|                        |   |                            |       |          |   |         |   |
| Balance,  December 31, 2000 |   | 38,781,512                      |       | 38,781,512    |   | 77,563,024   |   |
|                        |   |                            |       |          |   |         |   |
| Net income                  |   | 63,797,050                      |       | 63,797,050    |   | 127,594,100  |   |
|                        |   |                            |       |          |   |         |   |
| Distributions to  partners  |   | (60,000,000                     | )          | (60,000,000   | )      | (120,000,000 | )      |
|                        |   |                            |       |          |   |         |   |
| Balance,  December 31, 2001 |   | 42,578,562                      |       | 42,578,562    |   | 85,157,124   |   |
|                        |   |                            |       |          |   |         |   |
| Net income                  |   | 51,341,589                      |       | 51,341,589    |   | 102,683,178  |   |
|                        |   |                            |       |          |   |         |   |
| Distributions to  partners  |   | (50,750,000                     | )          | (50,750,000   | )      | (101,500,000 | )      |
|                        |   |                            |       |          |   |         |   |
| Balance,  December 31, 2002 |   | $                               | 43,170,151 |          | $      | 43,170,151   |   | $ | 86,340,302 |   |

 

The accompanying notesare an integral part of these financial statements.

** **

**45**

----

 

Elgin Riverboat Resort - Riverboat Casino

 

Statements of CashFlows

For Each of the Three Years Ended December 31, 2002

 
|                                                                                 |   | ***2002***     |          | ***2001***     |     | ***2000***     |     |
|--------------------------------------------------------------------------------------|--------|----------------|---------------|----------------|----------|----------------|----------|
| *Cash flows from operating activities:*                                              |   |           | * *      |           | * * |           | * * |
| *Net income*                                                                         |   | *$*            | *102,683,178* | * *       | *$*      | *127,594,100*  | * * | *$* | *117,594,284* | * * |
| *Adjustments to reconcile net income to net cash provided  by operating activities:* |   |           | * *      |           | * * |           | * * |
| *Depreciation and amortization*                                                      |   | *8,422,486*    | * *      | *8,671,916*    | * * | *7,686,148*    | * * |
| *Net loss (gain) from sale of asset*                                                 |   | *—*       | * *      | *—*       | * * | *40,306*       | * * |
| *Changes in assets and liabilities:*                                                 |   |           | * *      |           | * * |           | * * |
| *Accounts receivable*                                                                |   | *134,807*      | * *      | *(457,634*     | *)*      | *346,353*      | * * |
| *Inventories*                                                                        |   | *(151,524*     | *)*           | *53,143*       | * * | *(51,584*      | *)*      |
| *Prepaid expenses*                                                                   |   | *(328,552*     | *)*           | *(196,756*     | *)*      | *(58,841*      | *)*      |
| *Other assets*                                                                       |   | *(12,500*      | *)*           | *—*       | * * | *(1,000*       | *)*      |
| *Accounts payable*                                                                   |   | *398,793*      | * *      | *13,740*       | * * | *447*          | * * |
| *Accrued liabilities*                                                                |   | *(4,673,702*   | *)*           | *4,020,104*    | * * | *9,554,003*    | * * |
|                                                                                 |   |           | * *      |           | * * |           | * * |
| *Net cash provided by operating activities*                                          |   | *106,472,986*  | * *      | *139,698,613*  | * * | *135,110,116*  | * * |
|                                                                                 |   |           | * *      |           | * * |           | * * |
| *Cash flows from investing activities:*                                              |   |           | * *      |           | * * |           | * * |
| *Capital expenditures*                                                               |   | *(6,426,667*   | *)*           | *(7,608,733*   | *)*      | *(3,760,160*   | *)*      |
|                                                                                 |   |           | * *      |           | * * |           | * * |
| *Net cash used in investing activities*                                              |   | *(6,426,667*   | *)*           | *(7,608,733*   | *)*      | *(3,760,160*   | *)*      |
|                                                                                 |   |           | * *      |           | * * |           | * * |
| *Cash flows from financing activities:*                                              |   |           | * *      |           | * * |           | * * |
| *Distributions to partners*                                                          |   | *(101,500,000* | )             | *(120,000,000* | )        | *(123,500,000* | )        |
|                                                                                 |   |           | * *      |           | * * |           | * * |
| *Net cash used in financing activities*                                              |   | *(101,500,000* | *)*           | *(120,000,000* | )        | *(123,500,000* | )        |
|                                                                                 |   |           | * *      |           | * * |           | * * |
| *Net (decrease) increase in cash and cash equivalents*                               |   | *(1,453,681*   | *)*           | *12,089,880*   | * * | *7,849,956*    | * * |
|                                                                                 |   |           | * *      |           | * * |           | * * |
| *Cash and cash equivalents, beginning of year*                                       |   | *63,624,380*   | * *      | *51,534,500*   | * * | *43,684,544*   | * * |
|                                                                                 |   |           | * *      |           | * * |           | * * |
| *Cash and cash equivalents, end of year*                                             |   | *$*            | *62,170,699*  | * *       | *$*      | *63,624,380*   | * * | *$* | 51,534,500 | * * |

 

*Theaccompanying notes are an integral part of these financial statements.*

 

46

----

 

**Elgin Riverboat Resort - RiverboatCasino**

 

Notes to FinancialStatements

 

**1.****                                     ****Business**

 

Elgin Riverboat Resort -Riverboat Casino (“Joint Venture”), doing business as the Grand VictoriaCasino, was formed in December 1992, as a partnership, under a Joint VentureAgreement between Nevada Landing Partnership and RBG, L.P., in which eachpartner owns a fifty percent interest.

 

The Joint Venture islicensed by the Illinois Gaming Board (“IGB”) to own and operate a riverboatcasino on the Fox River in Elgin, Illinois. The original license, issued on October 6, 1994, was valid for athree-year term.  On October 17, 2000,the IGB approved the renewal of the license for a term of four years.

 

**2.****                                      Summaryof Significant Accounting Policies**

 

**CasinoRevenues**

In accordance with industrypractice, the Joint Venture recognizes as casino revenues the net win fromgaming activities, which is the difference between gaming wins and losses.

 

**PromotionalAllowances**

The retail value ofadmissions, food and beverage, and other complimentary items furnished tocustomers without charge is included in gross revenue and then deducted aspromotional allowances.  The estimatedcosts of providing such promotional allowances have been included in casinoexpenses as follows:

 

|                  |   | **2002**   |       | **2001**   |   | **2000**   |   |
|-----------------------|--------|------------|------------|------------|--------|------------|--------|
| Admissions and  other |   | $          | 9,639,112  |       | $      | 9,164,805  |   | $ | 8,858,483 |   |
| Food and  beverage    |   | 16,677,766 |       | 16,666,842 |   | 14,454,073 |   |
|                  |   | $          | 26,316,878 |       | $      | 25,831,647 |   | $ | 23,312,556 |   |

 

**Cash andCash Equivalents**

The Joint Venture considersall highly liquid investments purchased with an original maturity of threemonths or less to be cash equivalents. The Joint Venture maintains cash balances at a financial institution inexcess of federally insured limits.

 

**Inventories**

Inventories, consisting of food, beverage, and gift shop items arestated at the lower of cost or market value. Cost is determined by the first-in, first-out method.

 

47

----

 

**AdvertisingExpense**

Advertising expenses are expensed asincurred.  Advertising expense for theyears ended December 31, 2002, 2001 and 2000 were $3,334,814, $5,682,903and $4,898,159, respectively.

 

**Propertyand Equipment**

Property, improvements and equipment arestated at cost.  The Joint Venturecomputes depreciation and amortization using the straight-line method over theestimated useful lives of the assets. The estimated useful lives are as follows:

 
| Buildings                                                        |   | 39 years   |   |
|------------------------------------------------------------------|--------|------------|--------|
| Riverboat                                                        |   | 20  years  |   |
| Land improvements                                                |   | 15  years  |   |
| Furniture, fixtures and equipment, gaming and computer equipment |   | 2-7  years |   |

 

**Reserve for Slot Club Redemption**

The Company’s player club allows customers toearn “points” based on the volume of their gaming activity.  These points are redeemable for certaincomplimentary services and/or cash rebates. The Joint Venture has accrued for the total liability of all pointsearned, but not redeemed by slot club members, less inactive players.  Expenses incurred from actual pointredemptions and the change in reserve for slot club redemption is presented asa reduction in casino revenues on the statements of operations.

 

**IncomeTaxes**

The financial statements of the Joint Venturedo not reflect a provision for income taxes because the partners are requiredto recognize their proportionate share of the Joint Venture’s income in theirindividual tax returns.

 

**Use ofEstimates in the Preparation of Financial Statements**

The preparation of financial statements inconformity with accounting principles generally accepted in the United Statesof America requires management to make estimates and assumptions that affectthe reported amounts of assets and liabilities and disclosure of contingentassets and liabilities at the date of the financial statements and the reportedamounts of revenues and expenses during the reporting period.  Actual results could differ from thoseestimates.

 

48

----

 

**Long-LivedAssets**

Long-lived assets are comprised of propertyand equipment.  Long-lived assets arereviewed for impairment whenever events or changes in circumstances indicatethat the carrying amount of the asset may not be recoverable.

 

**3.             Property and Equipment**

 

A summary of property andequipment at December 31, 2002 and 2001 is as follows:

 
|                                                             |   | **2002**    |       | **2001**    |   |
|------------------------------------------------------------------|--------|-------------|------------|-------------|--------|
|                                                             |   |        |       |        |   |
| Buildings                                                        |   | $           | 29,170,069 |        | $      | 29,170,069 |   |
| Riverboat                                                        |   | 52,699,655  |       | 52,699,655  |   |
| Leasehold improvements                                           |   | 5,517,891   |       | 5,517,891   |   |
| Furniture, fixtures and equipment, gaming and computer equipment |   | 50,909,708  |       | 43,653,199  |   |
| Construction in progress                                         |   | 144,193     |       | 974,035     |   |
|                                                             |   |        |       |        |   |
| Total property and equipment                                     |   | 138,441,516 |       | 132,014,849 |   |
|                                                             |   |        |       |        |   |
| Less: accumulated depreciation and amortization                  |   | 68,928,454  |       | 60,505,968  |   |
|                                                             |   |        |       |        |   |
| Property and equipment, net                                      |   | $           | 69,513,062 |        | $      | 71,508,881 |   |

 

**4.             Accrued Liabilities**

 

A summary of accruedliabilities at December 31, 2002 and 2001 is as follows:

 
|                                                                |   | **2002**  |       | **2001**  |   |
|---------------------------------------------------------------------|--------|-----------|------------|-----------|--------|
| Accrued  commitment to Grand Victoria Foundation and County of Kane |   | $         | 25,962,289 |      | $      | 32,119,418 |   |
| Reserve for  progressive jackpots                                   |   | 6,132,865 |       | 5,878,817 |   |
| Accrued payroll,  vacation and related taxes                        |   | 3,887,394 |       | 3,608,424 |   |
| Accrued fines  and expenses payable to Illinois Gaming Board        |   | 3,200,000 |       | 1,500,000 |   |
| Reserve for slot  club redemptions                                  |   | 2,435,091 |       | 2,851,491 |   |
| Accrued ground  lease                                               |   | 883,711   |       | 1,275,108 |   |
| Unredeemed  chip/token liability                                    |   | 827,000   |       | 866,161   |   |
| Accrued gaming,  sales and state withholding taxes                  |   | 779,062   |       | 680,689   |   |
| Accrued property  taxes                                             |   | 776,580   |       | 752,000   |   |
| Accrued  liability insurance                                        |   | 559,411   |       | 533,747   |   |
| Accrued audit  and legal                                            |   | 462,700   |       | 359,000   |   |
| Accrued  employees’ tips                                       |   | 396,430   |       | 364,371   |   |
| Unclaimed  property liability                                       |   | 351,410   |       | 269,602   |   |
| Other                                                               |   | 278,849   |       | 50,485    |   |
| Accrued employee  expenses payable to Mandalay Resort Group         |   | 229,762   |       | 405,158   |   |
| Accrued  promotions and advertising                                 |   | 228,215   |       | 550,000   |   |
| Kane County  Forest Preserve trust agreement                        |   | 125,000   |       | 125,000   |   |
| Total accrued  liabilities                                          |   | $         | 47,515,769 |      | $      | 52,189,471 |   |

 

49

----

 

**5.             Fair Value of Financial Instruments**

 

The carrying amounts of cashand cash equivalents, accounts receivable and accounts payable approximate fairvalue because of the short maturity of these instruments.

 

**6.             Leases**

 

In accordance with theGround Lease and Development Agreement, as amended, (the “Agreement”) the JointVenture leases land for a term of ten years commencing with the initialissuance of the IGB license, with the right to renew the Agreement forsuccessive five year terms, not to exceed a total lease term of thirtyyears.  The Agreement requires annuallease payments equal to the greater of (i) $107,195 or (ii) three percent ofthe Joint Venture’s annual net operating income, as defined.

 

The future minimum leasecommitments under the ground lease as of December 31, 2002 are as follows:

 
| 2003 |   | $      | 107,195 |   |
|------|--------|--------|---------|--------|
| 2004 |   | 81,938 |    |

 

Rent expense for the yearsended December 31, 2002, 2001, and 2000 were $4,239,215, $5,207,797 and$4,822,905, respectively.

 

**7.             Commitments**

 

Pursuant to an agreementwith the City of Elgin, the Joint Venture has guaranteed that the City shallreceive at least $500,000 annually resulting from a combination of leasepayments and admission taxes.  For eachof the three years ended December 31, 2002, 2001, and 2000, the JointVenture has paid amounts in excess of the guarantee.

 

Pursuant to the Fox RiverTrust Agreement, entered into on July 20, 1993, the Joint Venture has agreed tomake certain payments to a trust fund for the benefit of the Fox River.  Annual contributions of $500,000 commencedon October 6, 1995, the initial anniversary date of the issuance of the IGBlicense, and will continue for twelve successive years.

 

The Joint Venture has agreedto contribute to both the County of Kane and a foundation that has beenestablished for the benefit of educational, environmental and economicdevelopment programs in the region.  Thetotal commitment is equal to 20% of adjusted

 

50

----

 

net operating income(“ANOI”), as defined.  This commitmentmust be paid within 120 days of the end of the fiscal year for which it hasbeen calculated.  Donation expense forthe years ended December 31, 2002, 2001, and 2000 were $25,962,289, $32,119,418and $30,660,173, respectively.

 

**8.             Related Party Transactions**

 

Employment expenses,including salaries, benefits and incentives, for certain key Joint Ventureemployees, are paid by one of the Joint Venture Partners and then reimbursed bythe Joint Venture.

 

**9.             Profit Sharing Plan**

 

The Joint Venture contributes to a defined contribution plan whichprovides for contributions in accordance with the plan document.  The plan covers substantially allemployees.  The Joint Venturecontributes a set dollar amount to all eligible employees as well as a matchingcontribution of 25% of employee contributions limited to specified dollaramount as stated in the plan document. Contribution expense for the years ended December 31, 2002, 2001 and2000 were $704,673, $613,944 and $475,943, respectively.

 

**10.          Subsequent Event**

 

On January 21, 2003, theJoint Venture and the IGB settled a complaint for alleged violations of theIllinois Riverboat Gambling Act and the IGB’s Adopted Rules after the JointVenture agreed to pay a fine of $3,200,000. This amount has been included in accrued liabilities at December 31,2002.

 

51

----

 

**Reportof Independent Accountants**

 

To the Partners of the Elgin Riverboat Resort -

Riverboat Casino

 

In our opinion, the accompanying balance sheets and the relatedstatements of operations, partners’ equity and cash flows present fairly, inall material respects, the financial position of Elgin Riverboat Resort -Riverboat Casino (“Joint Venture”) at December 31, 2002 and 2001, and theresults of its operations and its cash flows for each of the three years in theperiod ended December 31, 2002 in conformity with accounting principlesgenerally accepted in the United States of America.  These financial statements are the responsibility of the JointVenture’s management; our responsibility is to express an opinion on thesefinancial statements based on our audits. We conducted our audits of these statements in accordance with auditingstandards generally accepted in the United States of America, which requirethat we plan and perform the audit to obtain reasonable assurance about whetherthe financial statements are free of material misstatement.  An audit includes examining, on a testbasis, evidence supporting the amounts and disclosures in the financialstatements, assessing the accounting principles used and significant estimatesmade by management, and evaluating the overall financial statementpresentation.  We believe that ouraudits provide a reasonable basis for our opinion.

 

PricewaterhouseCoopers LLP

January 21, 2003

 

52

----

 

**VICTORIA PARTNERS**

**(dba Monte Carlo Resort& Casino)**

 

**BALANCE SHEETS**

**DECEMBER 31, 2002 AND 2001**

 
|                                                                                                         |   | **2002**    |        | **2001**    |   |
|--------------------------------------------------------------------------------------------------------------|--------|-------------|-------------|-------------|--------|
| **ASSETS**                                                                                                   |   |        |        |        |   |
|                                                                                                         |   |        |        |        |   |
| CURRENT ASSETS:                                                                                              |   |        |        |        |   |
| Cash and cash equivalents                                                                                    |   | $           | 15,106,522  |        | $      | 14,180,059 |   |
| Accounts receivable—net of  allowance for doubtful accounts  of $3,351,921 and $2,244,401, respectively |   | 7,684,742   |        | 9,497,964   |   |
| Inventories                                                                                                  |   | 3,323,940   |        | 3,472,205   |   |
| Prepaid expenses                                                                                             |   | 3,969,820   |        | 1,750,940   |   |
|                                                                                                         |   |        |        |        |   |
| Total current assets                                                                                         |   | 30,085,024  |        | 28,901,168  |   |
|                                                                                                         |   |        |        |        |   |
| PROPERTY AND EQUIPMENT—Net                                                                              |   | 290,734,380 |        | 298,021,708 |   |
|                                                                                                         |   |        |        |        |   |
| OTHER ASSETS—Net                                                                                        |   | 2,628,050   |        | 4,011,070   |   |
|                                                                                                         |   |        |        |        |   |
| TOTAL ASSETS                                                                                                 |   | $           | 323,447,454 |        | $      | 330,933,946 |   |
|                                                                                                         |   |        |        |        |   |
| **LIABILITIES AND PARTNERS’ EQUITY**                                                                    |   |        |        |        |   |
|                                                                                                         |   |        |        |        |   |
| CURRENT LIABILITIES:                                                                                         |   |        |        |        |   |
| Revolving credit facility                                                                                    |   | $           | —      |        | $      | 87,000,000 |   |
| Accounts payable                                                                                             |   | 2,848,802   |        | 3,044,348   |   |
| Accrued liabilities:                                                                                         |   |        |        |        |   |
| Jackpots and prizes                                                                                          |   | 3,992,910   |        | 3,315,085   |   |
| Salaries, wages and benefits                                                                                 |   | 7,602,725   |        | 8,254,093   |   |
| Gaming and other taxes                                                                                       |   | 1,968,689   |        | 1,735,792   |   |
| Advance room deposits                                                                                        |   | 2,839,334   |        | 1,199,034   |   |
| Other                                                                                                        |   | 2,117,280   |        | 2,286,403   |   |
|                                                                                                         |   |        |        |        |   |
| Total current liabilities                                                                                    |   | 21,369,740  |        | 106,834,755 |   |
|                                                                                                         |   |        |        |        |   |
| COMMITMENTS AND CONTINGENCIES                                                                                |   |        |        |        |   |
|                                                                                                         |   |        |        |        |   |
| PARTNERS’ EQUITY                                                                                        |   | 302,077,714 |        | 224,099,191 |   |
|                                                                                                         |   |        |        |        |   |
| TOTAL LIABILITIES AND  PARTNER’S EQUITY                                                                 |   | $           | 323,447,454 |        | $      | 330,933,946 |   |

 

The accompanying notes are an integral part of these financialstatements.

 

53

----

 

**VICTORIA PARTNERS**

**(dba Monte Carlo Resort& Casino)**

 

**STATEMENTS OF INCOME**

**YEARS ENDED DECEMBER 31,2002, 2001 AND 2000**

 
|                           |   | **2002**    |       | **2001**    |   | **2000**    |   |
|--------------------------------|--------|-------------|------------|-------------|--------|-------------|--------|
|                           |   |        |       |        |   |        |   |
| OPERATING REVENUES:            |   |        |       |        |   |        |   |
| Casino                         |   | $           | 97,387,402 |        | $      | 101,720,130 |   | $ | 107,492,821 |   |
| Rooms                          |   | 97,590,237  |       | 99,792,667  |   | 109,066,568 |   |
| Food and beverage              |   | 41,197,776  |       | 40,132,646  |   | 42,151,622  |   |
| Other                          |   | 28,937,874  |       | 30,881,760  |   | 34,529,276  |   |
|                           |   |        |       |        |   |        |   |
|                           |   | 265,113,289 |       | 272,527,203 |   | 293,240,287 |   |
| Less promotional  allowances   |   | (14,796,312 | )          | (15,940,986 | )      | (16,681,983 | )      |
|                           |   |        |       |        |   |        |   |
| Net operating revenues         |   | 250,316,977 |       | 256,586,217 |   | 276,558,304 |   |
|                           |   |        |       |        |   |        |   |
| OPERATING EXPENSES:            |   |        |       |        |   |        |   |
| Casino                         |   | 53,850,831  |       | 56,145,225  |   | 56,909,623  |   |
| Rooms                          |   | 30,586,314  |       | 30,222,733  |   | 30,787,811  |   |
| Food and beverage              |   | 29,752,220  |       | 29,706,136  |   | 32,154,499  |   |
| Other operating expenses       |   | 16,256,836  |       | 17,454,511  |   | 19,728,833  |   |
| General and administrative     |   | 40,800,689  |       | 39,534,090  |   | 38,404,734  |   |
| Depreciation and  amortization |   | 13,020,719  |       | 16,674,921  |   | 20,016,434  |   |
|                           |   |        |       |        |   |        |   |
| Total operating expenses       |   | 184,267,609 |       | 189,737,616 |   | 198,001,934 |   |
|                           |   |        |       |        |   |        |   |
| OPERATING INCOME               |   | 66,049,368  |       | 66,848,601  |   | 78,556,370  |   |
|                           |   |        |       |        |   |        |   |
| OTHER INCOME (EXPENSE):        |   |        |       |        |   |        |   |
| Interest and other income      |   | 141,719     |       | 410,371     |   | 635,860     |   |
| Interest expense               |   | (1,212,564  | )          | (4,684,293  | )      | (6,844,456  | )      |
|                           |   |        |       |        |   |        |   |
| OTHER EXPENSE—Net         |   | (1,070,845  | )          | (4,273,922  | )      | (6,208,596  | )      |
|                           |   |        |       |        |   |        |   |
| NET INCOME                     |   | $           | 64,978,523 |        | $      | 62,574,679  |   | $ | 72,347,774 |   |

 

The accompanying notes are an integral part of these financialstatements.

 

54

----

 

**VICTORIA PARTNERS**

**(dba Monte Carlo Resort& Casino)**

 

**STATEMENTS OF CHANGES INPARTNERS’ EQUITY**

**YEARS ENDED DECEMBER 31,2002, 2001 AND 2000**

 
|                         |   | **Gold Strike L.V.** |        | **MRGS Corp.** |   | **Total**   |   |
|------------------------------|--------|----------------------|-------------|----------------|--------|-------------|--------|
|                         |   |                 |        |           |   |        |   |
| BALANCE, DECEMBER 31, 1999   |   | $                    | 130,827,909 |           | $      | 114,348,829 |   | $ | 245,176,738 |   |
|                         |   |                 |        |           |   |        |   |
| Net income                   |   | 36,173,887           |        | 36,173,887     |   | 72,347,774  |   |
|                         |   |                 |        |           |   |        |   |
| Distributions to partners    |   | (42,000,000          | )           | (42,000,000    | )      | (84,000,000 | )      |
|                         |   |                 |        |           |   |        |   |
| BALANCE, DECEMBER 31, 2000   |   | 125,001,796          |        | 108,522,716    |   | 233,524,512 |   |
|                         |   |                 |        |           |   |        |   |
| Net income                   |   | 31,287,340           |        | 31,287,339     |   | 62,574,679  |   |
|                         |   |                 |        |           |   |        |   |
| Distributions to partners    |   | (36,000,000          | )           | (36,000,000    | )      | (72,000,000 | )      |
|                         |   |                 |        |           |   |        |   |
| BALANCE, DECEMBER 31, 2001   |   | 120,289,136          |        | 103,810,055    |   | 224,099,191 |   |
|                         |   |                 |        |           |   |        |   |
| Net income                   |   | 32,489,262           |        | 32,489,261     |   | 64,978,523  |   |
|                         |   |                 |        |           |   |        |   |
| Partners’ contributions |   | 43,500,000           |        | 43,500,000     |   | 87,000,000  |   |
|                         |   |                 |        |           |   |        |   |
| Distributions to partners    |   | (37,000,000          | )           | (37,000,000    | )      | (74,000,000 | )      |
|                         |   |                 |        |           |   |        |   |
| BALANCE, DECEMBER 31, 2002   |   | $                    | 159,278,398 |           | $      | 142,799,316 |   | $ | 302,077,714 |   |

 

The accompanying notes are an integral part of these financialstatements.

 

55

----

 

**VICTORIA PARTNERS**

**(dba Monte Carlo Resort& Casino)**

 

**STATEMENTS OF CASH FLOWS**

**YEARS ENDED DECEMBER 31,2002, 2001 AND 2000**

 
|                                                                                      |   | **2002**    |       | **2001**    |   | **2000**    |   |
|-------------------------------------------------------------------------------------------|--------|-------------|------------|-------------|--------|-------------|--------|
|                                                                                      |   |        |       |        |   |        |   |
| CASH FLOWS FROM OPERATING  ACTIVITIES:                                                    |   |        |       |        |   |        |   |
| Net income                                                                                |   | $           | 64,978,523 |        | $      | 62,574,679  |   | $ | 72,347,774 |   |
| Adjustments to reconcile net  income to net cash provided by operating activities:        |   |        |       |        |   |        |   |
| Depreciation and  amortization                                                            |   | 13,020,719  |       | 16,674,921  |   | 20,016,434  |   |
| (Gain) loss on disposal of  fixed assets                                                  |   | (15,959     | )          | (16,874     | )      | 8,915       |   |
| Increase (decrease) in  allowance for doubtful accounts                                   |   | 1,107,520   |       | 633,574     |   | (375,028    | )      |
| Changes in assets and  liabilities:                                                       |   |        |       |        |   |        |   |
| Accounts receivable                                                                       |   | 705,702     |       | 2,882,220   |   | (4,123,136  | )      |
| Prepaid expenses                                                                          |   | (2,218,880  | )          | 750,060     |   | 102,922     |   |
| Inventories                                                                               |   | 148,265     |       | (143,695    | )      | (168,696    | )      |
| Other assets                                                                              |   | 1,345,518   |       | (183,800    | )      | 166,412     |   |
| Accounts payable                                                                          |   | (195,546    | )          | (1,448,987  | )      | 1,895,701   |   |
| Interest payable                                                                          |   | (200,628    | )          | (379,801    | )      | 124,934     |   |
| Accrued liabilities:                                                                      |   |        |       |        |   |        |   |
| Jackpots and prizes                                                                       |   | 677,825     |       | (1,155,107  | )      | 152,258     |   |
| Salaries, wages and  benefits                                                             |   | (651,368    | )          | 583,465     |   | 844,629     |   |
| Gaming and other taxes                                                                    |   | 232,897     |       | (460,707    | )      | 445,933     |   |
| Advance room deposits                                                                     |   | 1,640,300   |       | (767,187    | )      | 521,182     |   |
| Other                                                                                     |   | 31,505      |       | (684,719    | )      | 1,016,851   |   |
|                                                                                      |   |        |       |        |   |        |   |
| Net cash provided by  operating activities                                                |   | 80,606,393  |       | 78,858,042  |   | 92,977,085  |   |
|                                                                                      |   |        |       |        |   |        |   |
| CASH FLOWS FROM INVESTING  ACTIVITIES:                                                    |   |        |       |        |   |        |   |
| Capital expenditures                                                                      |   | (5,745,035  | )          | (7,365,990  | )      | (7,333,505  | )      |
| Proceeds from sale of  fixed assets                                                       |   | 65,105      |       | 110,732     |   | 131,511     |   |
|                                                                                      |   |        |       |        |   |        |   |
| Net cash used in investing  activities                                                    |   | (5,679,930  | )          | (7,255,258  | )      | (7,201,994  | )      |
|                                                                                      |   |        |       |        |   |        |   |
| CASH FLOWS FROM FINANCING  ACTIVITIES:                                                    |   |        |       |        |   |        |   |
| Partners’ contributions                                                              |   | 87,000,000  |       | —      |   | —      |   |
| Distributions to partners                                                                 |   | (74,000,000 | )          | (72,000,000 | )      | (84,000,000 | )      |
| Payments on revolving  credit facility                                                    |   | (87,000,000 | )          | —      |   | —      |   |
|                                                                                      |   |        |       |        |   |        |   |
| Net cash used in financing  activities                                                    |   | (74,000,000 | )          | (72,000,000 | )      | (84,000,000 | )      |
|                                                                                      |   |        |       |        |   |        |   |
| INCREASE (DECREASE) IN  CASH AND CASH EQUIVALENTS                                         |   | $           | 926,463    |        | $      | (397,216    | )      | $ | 1,775,091 |   |
|                                                                                      |   |        |       |        |   |        |   |
| CASH AND CASH EQUIVALENTS,  BEGINNING OF YEAR                                             |   | 14,180,059  |       | 14,577,275  |   | 12,802,184  |   |
|                                                                                      |   |        |       |        |   |        |   |
| CASH AND CASH EQUIVALENTS,  END OF YEAR                                                   |   | $           | 15,106,522 |        | $      | 14,180,059  |   | $ | 14,577,275 |   |
|                                                                                      |   |        |       |        |   |        |   |
| SUPPLEMENTAL DISCLOSURE OF  CASH FLOW INFORMATION—Cash paid during year for interest |   | $           | 1,413,192  |        | $      | 4,827,952   |   | $ | 6,209,233 |   |

 

The accompanying notes are an integral part of these financialstatements.

 

56

----

 

**VictoriaPartners**

*(dbaMonte Carlo Resort & Casino)*

**NOTESTO FINANCIAL STATEMENTS**

**YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000**

 

**1. ORGANIZATION AND OPERATIONS**

 

Gold Strike L.V., a subsidiary of MandalayResort Group (“MRG”), and MRGS Corp. (a subsidiary of Mirage Resorts,Incorporated) formed a partnership, Victoria Partners (the “Partnership”),under a joint venture agreement.  Thepurpose of the joint venture was to acquire certain unimproved property for thedevelopment and operation of a hotel-casino. The Partnership is doing business under the name Monte Carlo Resort& Casino.  The joint ventureagreement was signed on December 9, 1994 and provides for an even split of netincome or losses from the Partnership, with MRG as managing partner.  The casino opened for business on June 21,1996.

 

During 1996, Gold Strike L.V. and MRGS Corp.made additional cash capital contributions to the Partnership of $37,000,000and $21,500,000, respectively.  GoldStrike L.V. also paid for certain fixed assets on behalf of the Partnership of$13,600,000.

 

In 1997, Gold Strike L.V. made an additionalcapital contribution of $2,100,000 to fund completion of the project.

 

In 2002, Gold Strike L.V. and MRGS Corp. madecash capital contributions of $43,500,000 each in order to retire the reducingrevolving loan facility (see Note 5).

 

**2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

 

***Useof Estimates***—The preparation of financialstatements in conformity with accounting principles generally accepted in theUnited States of America requires management to make estimates and assumptionsthat affect the reported amounts of assets and liabilities and disclosure ofcontingent assets and liabilities at the date of the financial statements andthe reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

 

***Cashand Cash Equivalents***—Cash and cash equivalentsinclude all cash balances and highly liquid investments with maturities threemonths or less at the date of purchase.

 

***Allowancefor Doubtful Accounts***—The Partnership reserves anestimated amount for receivables that may not be collected.  Methodologies for estimating bad debtreserves range from specific reserves to various percentages applied to agedreceivables.  Historical collectionrates and customer relationships are considered in determining specificreserves.  Bad debt expense was$2,375,718, $1,934,365 and $954,151 for the years ended December 31, 2002, 2001and 2000.  Write-offs, net ofrecoveries, were $1,268,198, $1,300,791 and $1,329,179 for the years endedDecember 31, 2002, 2001 and 2000, respectively.

 

57

----

 

***Inventories***—Inventoriesare stated at the lower of cost, using a first-in, first-out basis, or marketvalue.

 

***Propertyand Equipment***—Property and equipment are stated atcost.  Depreciation is computed usingthe straight-line method over the estimated useful life of the asset.  Costs of major improvements are capitalized,while costs of normal repairs and maintenance are charged to expense as incurred.

 

***Long-LivedAssets***—In accordance with the provisions ofStatement of Financial Accounting Standards (“SFAS”) No. 144*, Accounting for the Impairment or Disposal of Long*-*Lived Assets*, the Partnership evaluatesthe potential impairment of long-lived assets when events or changes in circumstancesindicate that the carrying amount of a long-lived asset may not berecoverable.  If it is determined thatthe carrying value of long-lived assets may not be recoverable based upon therelevant facts and circumstances, the Partnership estimates the futureundiscounted cash flows expected to result from the use of the asset and itseventual disposition.  If the sum of theexpected undiscounted future cash flows is less than the carrying value of theasset, the Partnership will recognize an impairment loss for the differencebetween the carrying value of the asset and its fair value.

 

***OtherAssets***—Other assets consist of county licensedeposits, Internet domain name rights, china, glass, silverware, linen anduniforms.

 

***IncomeTaxes***—Income taxes are not recorded by thePartnership since any income or loss is allocated to the partners and includedin their respective income tax returns. Accordingly, no provision for income taxes has been made and thePartnership has no liability for income taxes.

 

***DeferredFinance Charges***—Fees paid by the Partnership inobtaining its long-term debt facility were included in other assets and werefully amortized as of December 31, 2001. These charges were amortized over the period of the loan.  Amortization relating to these charges of$236,142 and $510,288 was included in interest expense in the years endedDecember 31, 2001 and 2000, respectively.

 

***Jackpotsand Prizes***—The Partnership accrues for allprogressive slot machine jackpots and other fixed jackpots in excess of $25,000.  Fixed jackpot accruals are recorded as areduction of gaming revenues ratably over the period of play expected toprecede payout.  Any portion of ajackpot not already accrued is charged to revenue at the time of payout.

 

***RevenueRecognition***—Casino revenues are the net differencebetween the sums received as winnings and the sums paid as losses.  Incentives, such as discounts to inducecasino play, are deducted from gross revenues. Hotel, food and beverage, and other revenues are generally recognized asservices are provided to customers.

 

58

----

 

***ComplimentaryAllowances***—Revenues include the retail value ofrooms, food and beverage furnished gratuitously to customers.  Such amounts are then deducted as complimentaryallowances.

 

The estimated costs of providing suchcomplimentary allowances, as they relate to the casino department, are includedin casino expenses as follows for the years ended January 31:

 
|               |   | **2002**  |      | **2001**  |   | **2000**  |   |
|--------------------|--------|-----------|-----------|-----------|--------|-----------|--------|
|               |   |      |      |      |   |      |   |
| Rooms              |   | $         | 1,798,576 |      | $      | 1,983,934 |   | $ | 2,079,504 |   |
| Food  and beverage |   | 4,139,629 |      | 4,398,029 |   | 4,998,652 |   |
| Other              |   | 794,950   |      | 964,108   |   | 846,560   |   |
|               |   |      |      |      |   |      |   |
|               |   | $         | 6,733,155 |      | $      | 7,346,071 |   | $ | 7,924,716 |   |

 

***PlayerClub Points***—The Partnership’s casino player cluballows customers to earn “points” based on the volume of their gamingactivity.  These points are redeemablefor certain complimentary services and/or cash rebates.  In February 2001, the Emerging Issues TaskForce (“EITF”) of the Financial Accounting Standards Board (“FASB”) reached aconsensus in EITF Issue No. 00-22, *Accountingfor “Points” and Certain Other Time-Based or Volume-Based Sales IncentiveOffers, and Offers for Free Products or Services to be Delivered in the Future*.  EITF Issue No. 00-22 requires that theredemption of points for cash be recognized as a reduction of revenue.  The Partnership has complied with therequirements of EITF Issue No. 00-22 in the accompanying statements ofincome.

 

***Advertising***—Advertisingcosts are expensed as incurred and amounted to $4,030,752, $3,454,222 and$4,281,868 for the years ended December 31, 2002, 2001 and 2000 respectively.

 

***Recently Issued Accounting Pronouncements***—In August 2001, the FASB issued SFAS No.144,*Accounting for the Impairment orDisposal of Long-Lived Assets*. SFAS No. 144 established a single accounting model for the impairment ordisposal of long-lived assets and new standards for reporting discontinuedoperations.  SFAS No. 144 supersededSFAS No. 121,*Accounting for the Impairmentof Long-Lived Assets to Be Disposed Of*, and Accounting PrinciplesBoard Opinion No. 30,*Reporting the Resultsof Operations—Reporting the Effects of Disposal of a Segment of a Business, andExtraordinary, Unusual and Infrequently Occurring Events**and Transactions*.  The Partnership adopted SFAS No. 144 duringthe 2002 fiscal year and the adoption did not have a material impact on the2002 financial statements.

 

In June 2002, the FASBissued SFAS No. 146,*Accounting for CostsAssociated with Exit or Disposal Activities*.  SFAS No. 146 requires companies to recognizecosts associated with exit or disposal activities when they are incurred ratherthan at the date of a commitment to an exit or disposal plan, as previouslyrequired under EITF Issue No. 94-3. Examples of costs covered by the standard include lease terminationcosts and certain employee severance costs that are associated with arestructuring, discontinued operation, plant closing or other exit or disposal 

 

59

----

 

activity.  SFAS No. 146 is to be applied prospectivelyto exit or disposal activities initiated after December 31, 2002.  The Partnership does not believe theadoption of this standard will have a material impact on its financial positionor results of operations.

 

In November 2002, the FASB issued FASBInterpretation No. (“FIN”) 45, *Guarantor’sAccounting and Disclosure Requirements for Guarantees, Including IndirectGuarantees of Indebtedness of Others*.  FIN 45 requires disclosures to be made by a guarantor in itsinterim and annual financial statements about its obligations under certainguarantees that it has issued. Additionally, a guarantor is required to recognize, at the inception ofa guarantee, a liability for the fair value of the obligation undertaken inissuing the guarantee.  The initialliability recognition and measurement provisions of FIN 45 apply prospectivelyto guarantees issued or modified after December 31, 2002.  The disclosure requirements in FIN 45are effective for financial statements of interim or annual periods endingafter December 15, 2002.  ThePartnership has determined that FIN 45 will not have a material impact onits financial position or results of operations.

 

In January 2003, the FASB issued FASBInterpretation FIN 46, *Consolidation ofVariable Interest Entities*, which addresses consolidation bybusiness enterprises where equity investors do not bear the residual economicrisks and rewards.  These entities havebeen commonly referred to as “special purpose entities.”  Companies are required to apply theprovisions of FIN 46 prospectively for all variable interest entities createdafter January 31, 2003.  FIN 46 isexpected to have no impact on the Partnership’s results of operations or financialposition.

** **

**3.**RELATED PARTY TRANSACTIONS

The Partnership is engaged in a joint ventureagreement with an entertainer.  Underthis agreement, the Partnership constructed a showroom for the performance ofthe entertainer’s act and advanced the entertainer money, in the form of twonotes, for the purpose of additional necessary equipment.  In 1996, Gold Strike L.V. paid off thebalance of the two notes.  Theentertainer then owed the balance of the notes to Gold Strike L.V.  The Partnership collected payments on thenotes from the entertainer’s share of the proceeds of the act and remitted suchpayments on the entertainer’s behalf to Gold Strike L.V.  During 1999, the balance of one of the noteswas retired.  During 2002, the balanceof the second note was retired.  AtDecember 31, 2001, the balance of the second note was $116,493.

 

MRG provides management information systemservices to the Partnership and directly charges or allocates a portion of itscosts to the Partnership.  For the yearsended December 31, 2002, 2001 and 2000, $991,704, $991,704 and $941,788,respectively, were allocated to the Partnership and included in general andadministrative expenses.  Additionally,certain management employees of MRG are assigned on a permanent basis to the Partnership.  The cost of these employees’ salaries paidby MRG is reimbursed by the Partnership.

 

During 2002, the Partnership sold fullydepreciated miscellaneous pieces of equipment to entities controlled by MRG for$6,356.  During 2001, the Partnershipsold fully depreciated slot machines and other gaming equipment to an entitycontrolled by principal officers of MRG for 

 

60

----

 

$22,670, and the Partnership sold computerequipment to an MRG subsidiary with a net book value of $2,223 for $2,300; however,there were no such transactions during 2000.

** **

**4.PROPERTY AND EQUIPMENT**

 

Property and equipment consist of the following at December 31:

 
|                                            |   | **2002**     |        | **2001**     |   | **Estimated  Useful  Life  (Years)** |   |
|-------------------------------------------------|--------|--------------|-------------|--------------|--------|--------------------------------------|--------|
|                                            |   |         |        |         |   |                                 |   |
| Land                                            |   | $            | 54,979,644  |         | $      | 54,979,644                           |   |   |   |
| Buildings                                       |   | 263,586,452  |        | 263,448,522  |   | 30–45                           |   |
| Leasehold  improvements                         |   | 6,100,923    |        | 6,100,923    |   | 2.5                                  |   |
| Furniture,  fixtures and equipment              |   | 81,712,258   |        | 79,949,747   |   | 3–15                            |   |
| Construction  in progress                       |   | 513,706      |        | 356,520      |   |                                 |   |
|                                            |   |         |        |         |   |                                 |   |
|                                            |   | 406,892,983  |        | 404,835,356  |   |                                 |   |
| Less  accumulated depreciation and amortization |   | (116,158,603 | )           | (106,813,648 | )      |                                 |   |
|                                            |   |         |        |         |   |                                 |   |
| Property  and equipment—net                |   | $            | 290,734,380 |         | $      | 298,021,708                          |   |   |   |

 

Included in leasehold improvements is the1996 purchase of the interest in the lease between Fri-Admin (“Carrows”) and LaQuinta Development Partners (“La Quinta”) for approximately $6 million.  The Partnership subleased the property toCarrows, the former lessee.  During 1997,New York-New York Hotel & Casino, LLC (“New York-New York”) purchased LaQuinta and thereby became the lessor of the property.  Under the agreement, the Partnership now pays all obligations toNew York-New York and is paid a similar amount by Carrows.  The lease specifies a term of 10 yearsthrough November 2008 at an annual base rent of $73,142 and provides forcertain additional rents based upon annual revenues.  The lease also provides for an additional five-year renewaloption, increasing the annual base rent to $75,000 through November 2013.

** **

**5.**                      REVOLVING CREDIT FACILITY

 

The Partnership had a revolving loan facilitywith a total commitment of $200,000,000 and a maturity date of April 2,2002.  The interest rate fluctuatedbased on the Partnership’s performance. At December 31, 2001, interest was payable at the London InterbankOffering Rate (“LIBOR”) of 1.9375% plus a margin of .625%.  The weighted-average interest rate as ofDecember 31, 2001 was 2.75%.  AtDecember 31, 2001, the entire balance was classified as current.  In 2002, the Partnership requested anextension of the maturity date to July 5, 2002, at which time the outstandingcommitment was retired with funds contributed equally by each partner.

 

61

----

 

**6. Commitments andContingencies**

 

***Litigation***—ThePartnership is party to various litigation arising in the normal course ofbusiness.  Management is of the opinionthat the ultimate resolution of these matters will not have a material adverseeffect on the financial position or the results of operations of thePartnership.

 

***OperatingLeases***—The Partnership leases certain equipmentunder operating leases.  Future minimumpayments under noncancelable operating leases with initial terms of one year ormore consist of the following at December 31, 2002:

 
| 2003   |   | $       | 206,102 |   |
|--------|--------|---------|---------|--------|
| 2004   |   | 206,102 |    |
| 2005   |   | 206,102 |    |
| 2006   |   | 14,500  |    |
|   |   |    |    |
|   |   | $       | 632,806 |   |

 

Total rental expense under operating leasesfor the years ended December 31, 2002, 2001 and 2000 was $946,610, $658,857 and$818,878, respectively.

 

**7. Subsequent Event**

 

On March 17, 2003, the tram connecting thePartnership's property to the Bellagio (a major hotel/ casino owned byBellagio, LLC, which owns one of the partners, MRGS Corp.) was closed in orderto make way for the construction of a new hotel tower at Bellagio.  The construction of the new tower isexpected to be completed in December 2004. It is expected that the tram will be reconnected between this new towerand the Partnership's property during the first half of 2005.  Pursuant to an agreement dated April 11,2003 between Bellagio, LLC and the Partnership (among others), Bellagio LLCpaid the Partnership the book value of that portion of the tram track that willnot be used in the new configuration (approximately $375,000). Bellagio, LLCalso paid the Partnership $3.5 million, and agreed to pay an additional $3.5million to the Partnership 12 months from the date of the agreement.  These two payments are intended tocompensate the Partnership for the potential loss of income during the constructionphase.  Should the construction periodbe more or less than the anticipated 24 months, these payments will be adjustedratably.  Furthermore, to the extentthat the Partnership suffers a loss of rental income from leased retail outletsdue to the closure of the tram, Bellagio, LLC will pay additional amounts tothe Partnership.

 

62

----

 

INDEPENDENT AUDITORS’ REPORT

 

Partners Victoria Partners dba Monte CarloResort & Casino

We have audited the accompanying balancesheet of Victoria Partners dba Monte Carlo Resort & Casino (a NevadaPartnership, the “Partnership”) as of December 31, 2002 and the relatedstatements of income, changes in partners’ equity and cash flows for the yearthen ended.  These financial statementsare the responsibility of the Partnership’s management.  Our responsibility is to express an opinionon these financial statements based on our audit.  The financial statements of the Partnership as of December 31,2001 and for the years ended December 31, 2001 and 2000 were audited by otherauditors who have ceased operations. Those auditors expressed an unqualified opinion on those financialstatements in their report dated February 26, 2002.

 

We conducted our audit in accordance withauditing standards generally accepted in the United States of America.  Those standards require that we plan andperform the audit to obtain reasonable assurance about whether the financialstatements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting theamounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles usedand significant estimates made by management, as well as evaluating the overallfinancial statement presentation.  Webelieve that our audit provides a reasonable basis for our opinion.

 

In our opinion, the 2002 financial statementspresent fairly, in all material respects, the financial position of VictoriaPartners dba Monte Carlo Resort & Casino as of December 31, 2002 and the resultsof its operations and its cash flows for the year then ended in conformity withaccounting principles generally accepted in the United States of America.

 

Deloitte & Touche LLP

 

Las Vegas, Nevada

February 28, 2003, except for Note 7, as towhich the date is April 11, 2003

 

63

----

 

This is a copy of the report previously issued byArthur Andersen LLP.  The report has notbeen reissued by Arthur Andersen LLP nor has Arthur Andersen LLP provided itsconsent to the inclusion of its report in this Amendment No.1 on Form 10-K/A tothe Annual Report on Form 10-K.

 

REPORT OF INDEPENDENTPUBLIC ACCOUNTANTS

 

To the Partners of Victoria Partnersdba Monte Carlo Resort & Casino:

 

We have audited the accompanying balancesheets of VICTORIA PARTNERS dba MONTE CARLO RESORT & CASINO (a NevadaPartnership, the “Partnership”) as of December 31, 2001 and 2000, and therelated statements of income, changes in partners’ equity and cash flows foreach of the three years in the period ended December 31, 2001 (see note 2regarding change to previously issued financial statements). These financialstatements are the responsibility of the Partnership’s management. Ourresponsibility is to express an opinion on these financial statements based onour audits.

 

We conducted our audits in accordance withauditing standards generally accepted in the United States. Those standardsrequire that we plan and perform the audit to obtain reasonable assurance aboutwhether the financial statements are free of material misstatement. An auditincludes examining, on a test basis, evidence supporting the amounts anddisclosures in the financial statements. An audit also includes assessing theaccounting principles used and significant estimates made by management, aswell as evaluating the overall financial statement presentation. We believethat our audits provide a reasonable basis for our opinion.

 

In our opinion, the financial statementsreferred to above present fairly, in all material respects, the financialposition of Victoria Partners dba Monte Carlo Resort & Casino as ofDecember 31, 2001 and 2000, and the results of its operations and its cashflows for each of the three years in the period ended December 31, 2001, inconformity with accounting principles generally accepted in the United States.

 

 

ARTHUR ANDERSEN LLP

 

Las Vegas, Nevada

February 26, 2002

 

64

----

 
| **ITEM 15.** | **EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND  REPORTS ON** |
|--------------|-------------------------------------------------------------|
|         | **FORM 8-K.**                                               |

 

(a)(1)  Consolidated Financial Statements:

 
| MANDALAY  RESORT GROUP                                                                               |
|------------------------------------------------------------------------------------------------------|
| Consolidated Balance Sheets  as of January 31, 2003 and 2002                                    |
| Consolidated  Statements of Income for the three years ended January 31, 2003                        |
| Consolidated  Statements of Cash Flows for the three years ended January 31, 2003                    |
| Consolidated  Statements of Stockholders’ Equity for the three years ended January 31, 2003     |
| Notes to  Consolidated Financial Statements                                                          |
| Independent Auditors’  Report                                                                   |
| Management’s  Report on Financial Statements                                                    |
| Selected  Quarterly Financial Information (Unaudited)                                                |
|                                                                                                 |
| ELGIN  RIVERBOAT RESORT - RIVERBOAT CASINO                                                           |
| Balance Sheets as of December 31, 2002  and 2001                                                     |
| Statements  of Operations for each of the three years ended December 31, 2002                        |
| Statements of Partners’  Equity for each of the three years ended December 31, 2002             |
| Statements  of Cash Flows for each of the three years ended December 31, 2002                        |
| Notes to Financial  Statements                                                                       |
| Report of Independent  Accountants                                                                   |
|                                                                                                 |
| VICTORIA PARTNERS                                                                                    |
| Balance Sheets as of December 31, 2002  and 2001                                                     |
| Statements  of Income for each of the three years ended December 31, 2002                            |
| Statements of  Changes in Partners’ Equity for each of the three years ended December 31,  2002 |
| Statements  of Cash Flows for each of the three years ended December 31, 2002                        |
| Notes to Financial  Statements                                                                       |
| Independent Auditors’ Report                                                                    |
| Report of Independent Public  Accountants                                                            |

 

65

----

 

(a)(2)  SupplementalFinancial Statement Schedules:

 

SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS

(in thousands)

 
| **Year Ended January 31,**            |   | **Balance at  Beginning  of year** |   | **Charged to  Costs and  Expenses** |   | **Deductions** |   | **Balance  at end  of year** |   |
|---------------------------------------|--------|------------------------------------|--------|-------------------------------------|--------|----------------|--------|------------------------------|--------|
| 2003  Allowance for doubtful accounts |   | $                                  | 35,404 |                                | $      | 7,165          |   | $                            | 15,299 |   | $ | 27,270 |   |
| 2002  Allowance for doubtful accounts |   | 33,321                             |   | 20,381                              |   | 18,298         |   | 35,404                       |   |
| 2001  Allowance for doubtful accounts |   | 13,807                             |   | 21,329                              |   | 1,815          |   | 33,321                       |   |
|                                       |        |                                    |        |                                     |        |                |        |                              |        |  |  |  |  |

 

(a)(3) Exhibits:

 

Thefollowing exhibits are filed as a part of this report or incorporated herein byreference:

 
| 3.1.1. | Restated Articles of Incorporation of the Registrant  as of July 15, 1998 and Certificate of Amendment thereto, dated June 29,  1989.  (Incorporated by reference to  Exhibit 3(a) to the Registrant’s Annual Report on Form 10-K for the  fiscal year ended January 31, 1991 – Commission File No. 1-8570.)         |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                |   |   |   |   |
| 3.1.2. | Certificate of Division of Shares into Smaller  Denominations, dated June 20, 1991.   (Incorporated by reference to Exhibit 3(b) to the Registrant’s Annual  Report on Form 10-K for the fiscal year ended January 31, 1992 –  Commission File No. 1-8570.)                                                          |
|   |                                                                                                                                                                                                                                                                                                                                |   |   |   |   |
| 3.1.3. | Certificate of Division of Shares into Smaller  Denominations, dated June 22, 1993.   (Incorporated by reference to Exhibit 3(i) to the Registrant’s Current  Report on Form 8-K dated July 21, 1993 – Commission File No. 1-8570.)                                                                                  |
|   |                                                                                                                                                                                                                                                                                                                                |   |   |   |   |
| 3.1.4. | Certificate of Amendment of Restated Articles of  Incorporation of the Registrant, filed with the Office of the Secretary of  State of Nevada on June 18, 1999.   (Incorporated by reference to Exhibit 3(i) to the Registrant’s Current  Report on Form 8-K dated June 18, 1999 – Commission File No. 1-8570.) |
|   |                                                                                                                                                                                                                                                                                                                                |   |   |   |   |
| 3.2    | Restated Bylaws of the Registrant dated April 30,  1999.  (Incorporated by reference to  Exhibit 3(ii) to the Registrant’s Annual Report on Form 10-K for the fiscal  year ended January 31, 1999 – Commission File No. 1-8570.)                                                                                     |
|   |                                                                                                                                                                                                                                                                                                                                |
| 4.1.   | Rights Agreement dated as of July 14, 1994, between  the Registrant and First Chicago Trust Company of New York. (Incorporated by  reference to Exhibit 4 to the Registrant’s Current Report on Form 8-K dated  August 15, 1994 – Commission File No. 1-8570.)                                                            |

 

66

----

 
| 4.2.   | Amendment to Rights Agreement effective as of  April 16, 1996, between the Registrant and First Chicago Trust Company  of New York.  (Incorporated by  reference to Exhibit 4(a) to the Registrant’s Quarterly Report on  Form 10-Q for the quarterly period ended July 31, 1996 –  Commission File No. 1-8570.)                                                                                                                                                                                                                                                                                                     |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |   |   |   |
| 4.3.   | Revolving Loan Agreement, dated as of August 22,  2001, by and among the Registrant, the banks named therein, Bank of America,  N.A., as administration agent, and Citicorp USA, Inc, and Bankers Trust  Company, as syndication agents for the Banks, and the related Subsidiary  Guarantee, dated August 22, 2001, of the Registrant’s subsidiaries named  therein.  (Incorporated by reference  to Exhibit 4(a) to the Registrant’s Quarterly Report on Form 10-Q for the  quarterly period ended July 31, 2001 – Commission File No. 1-8570.)                                                                         |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |   |   |   |
| 4.4.   | Term Loan Agreement, dated as of August 22, 2001, by  and among the Registrant, the banks named therein, Bank of America, N.A., as  administration agent, and Citicorp USA, Inc, and Bankers Trust Company, as  syndication agents for the Banks, and the related Subsidiary Guarantee, dated  August 22, 2001, of the Registrant’s subsidiaries named therein.  (Incorporated by reference to Exhibit 4(b)  to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period  ended July 31, 2001 – Commission File No. 1-8570.)                                                                               |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |   |   |   |
| 4.5.   | First Amendment Agreement, dated December 19, 2001,  to the Revolving Loan Agreement and Term Loan Agreement, both dated August  22, 2001, by and among the Registrant, the banks named therein, Bank of  America, N.A., as administration agent, and Citicorp USA, Inc, and Bankers  Trust Company, as syndication agents for the Banks, and the related  Subsidiary Guarantee, dated August 22, 2001, of the Registrant’s subsidiaries  named therein.  (Incorporated by  reference to Exhibit 4.5 to the Registrant’s Annual Report on Form 10-K for  the fiscal year ended January 31, 2002 – Commission File No. 1-8570.) |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |   |   |   |
| 4.6.   | Second Amendment Agreement, dated February 5, 2003,  to the Revolving Loan Agreement and Term Loan Agreement, both dated August  22, 2001, by and among Mandalay Resort Group, the banks named therein and  Bank of America, N.A. as administrative agent.  (Incorporated by reference to Exhibit 4.1 to the Registrant’s  Current Report on Form 8-K dated February 5, 2003 – Commission File No.  1-8570.)                                                                                                                                                                                                                        |

 

67

----

 
| 4.7.   | Capital Markets Term Loan Agreement, dated as of  August 22, 2001, by and among the Registrant, the banks named therein, Bank  of America, N.A., as administration agent, and Citicorp USA, Inc, and Bankers  Trust Company, as syndication agents for the Banks, and the related  Subsidiary Guarantee, dated August 22, 2001, of the Registrant’s subsidiaries  named therein.  (Incorporated by  reference to Exhibit 4(c) to the Registrant’s Quarterly Report on Form 10-Q  for the quarterly period ended July 31, 2001 – Commission File No.  1-8570.) |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   |   |   |
| 4.8.   | Rate Swap Master Agreement, dated as of October 24,  1986, and Rate Swap Supplements One through Four, by and between the  Registrant and Bank of America, N.A.   (Incorporated by reference to Exhibit 4(j) to the Registrant’s Current  Report on Form 8-K dated December 29, 1986 – Commission File No. 1-8570.)                                                                                                                                                                                                                                                     |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   |   |   |
| 4.9.   | Interest Rate Swap Agreement, dated as of September  27, 1999, by and between the Registrant and Bank of America, N.A.  (Incorporated by reference to Exhibit 4(a)  to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period  ended October 31, 1999 – Commission File No. 1-8570.)                                                                                                                                                                                                                                                                   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   |   |   |
| 4.10.  | Interest Rate Swap Agreement, dated as of September  27, 1999, by and between the Registrant and Bank of America, N.A.  (Incorporated by reference to Exhibit 4(b)  to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period  ended October 31, 1999 – Commission File No. 1-8570.)                                                                                                                                                                                                                                                                   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   |   |   |
| 4.11.  | Interest Rate Swap Agreement, dated as of  October 13, 1999, by and between the Registrant and Bank of America,  N.A.  (Incorporated by reference to  Exhibit 4(c) to the Registrant’s Quarterly Report on Form 10-Q for the  quarterly period ended October 31, 1999 – Commission File No. 1-8570.)                                                                                                                                                                                                                                                               |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   |   |   |
| 4.12.  | Interest Rate Swap Agreement, dated as of June 3,  2002, by and between the Registrant and Citibank, N.A.  (Incorporated by reference to Exhibit 4.1  to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period  ended July 31, 2002 – Commission File No. 1-8570.)                                                                                                                                                                                                                                                                                    |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   |   |   |
| 4.13.  | Interest Rate Swap Agreement, dated as of June 3,  2002, by and between the Registrant and Citibank, N.A.  (Incorporated by reference to Exhibit 4.2  to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period  ended July 31, 2002 – Commission File No. 1-8570.)                                                                                                                                                                                                                                                                                    |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   |   |   |
| 4.14.  | Interest Rate Swap Agreement, dated as of August 7,  2002, by and between the Registrant and Citibank, N.A.  (Incorporated by reference to Exhibit 4.3  to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period  ended July 31, 2002 – Commission File No. 1-8570.)                                                                                                                                                                                                                                                                                  |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   |   |   |
| 4.15.  | Interest Rate Swap Agreement, dated as of August 7,  2002, by and between the Registrant and Bank of America, N.A.  (Incorporated by reference to Exhibit 4.4                                                                                                                                                                                                                                                                                                                                                                                                                     |

 

68

----

 
|          | to the Registrant’s Quarterly Report on Form 10-Q  for the quarterly period ended July 31, 2002 – Commission File No. 1-8570.)                                                                                                                                                                                  |
|---------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|          |                                                                                                                                                                                                                                                                                                                      |
| 4.16. ** | Interest Rate Swap Agreement, dated as of February  13, 2003, by and between the Registrant and Bank of America, N.A.                                                                                                                                                                                                     |
|          |                                                                                                                                                                                                                                                                                                                      |   |   |   |   |
| 4.17. ** | Interest Rate Swap Agreement, dated as of February  12, 2003, by and between the Registrant and The Bank of Nova Scotia.                                                                                                                                                                                                  |
|          |                                                                                                                                                                                                                                                                                                                      |   |   |   |   |
| 4.18.         | Interest Rate Cap Agreement, dated October 20, 1997,  between the Registrant and Morgan Guaranty Trust Company of New York.  (Incorporated by reference to Exhibit 4(f)  to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period  ended October 31, 1997 – Commission File No. 1-8570.) |
|          |                                                                                                                                                                                                                                                                                                                      |   |   |   |   |
| 4.19.         | Interest Rate Cap Agreement, dated January 13, 1998,  between the Registrant and Morgan Guaranty Trust Company of New York.  (Incorporated by reference to Exhibit 4(h)  to the Registrant’s Annual Report on Form 10-K for the fiscal year  ended January 31, 1998 – Commission File No. 1-8570.)    |
|          |                                                                                                                                                                                                                                                                                                                      |   |   |   |   |
| 4.20.         | Interest Rate Cap Agreement dated June 14, 2000,  between the Registrant and Morgan Guaranty Trust Company of New York.  (Incorporated by reference to Exhibit 4(e) to the Registrant’s Quarterly  Report on Form 10-Q for the quarterly period ended July 31, 2000 –  Commission File No. 1-8570.)        |
|          |                                                                                                                                                                                                                                                                                                                      |   |   |   |   |
| 4.21.         | Interest Rate Cap Agreement dated June 29,  2000, between the Registrant and Morgan Guaranty Trust Company of New York.  (Incorporated by reference to Exhibit 4(f) to the Registrant’s Quarterly  Report on Form 10-Q for the quarterly period ended July 31, 2000 –  Commission File No. 1-8570.)   |
|          |                                                                                                                                                                                                                                                                                                                      |   |   |   |   |
| 4.22.         | Grid Promissory Note, dated October 17, 1997,  between the Registrant and Lyon Short Term Funding Corp.  (Incorporated by reference to Exhibit 4(g)  to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period  ended October 31, 1997 – Commission File No. 1-8570.)                     |
|          |                                                                                                                                                                                                                                                                                                                      |   |   |   |   |
| 4.23.         | Commercial Paper Dealer Agreement, dated October 9,  1997, between the Registrant and Merrill Lynch Money Markets Inc.  (Incorporated by reference to Exhibit 4(b)  to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period  ended October 31, 1997 – Commission File No. 1-8570.)      |
|          |                                                                                                                                                                                                                                                                                                                      |   |   |   |   |
| 4.24.         | Commercial Paper Dealer Agreement, dated October 9,  1997, between the Registrant and BancAmerica Robertson Stephens.  (Incorporated by reference to Exhibit 4(c)  to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period  ended October 31, 1997 – Commission File No. 1-8570.)       |
|          |                                                                                                                                                                                                                                                                                                                      |   |   |   |   |
| 4.25.         | Commercial Paper Dealer Agreement, dated October 9,  1997, between the Registrant and Credit Suisse First Boston Corporation.  (Incorporated by                                                                                                                                                                      |

 

69

----

 
|   | reference to Exhibit 4(d) to the Registrant’s Quarterly  Report on Form 10-Q for the quarterly period ended October 31, 1997 –  Commission File No. 1-8570.)                                                                                                                                                                                                                                                                                                                |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 4.26.  | Issuing and Paying Agency Agreement, dated October  9, 1997, between the Registrant and The Chase Manhattan Bank.  (Incorporated by reference to Exhibit 4(e)  to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period  ended October 31, 1997 – Commission File No. 1-8570.)                                                                                                                                                                       |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |   |   |   |
| 4.27.  | Indenture by and between the Registrant and First  Interstate Bank of Nevada, N.A., as Trustee with respect to the Registrant’s  6-3/4% Senior Subordinated Notes due 2003 and its 7-5/8% Senior Subordinated  Debentures due 2013. (Incorporated by reference to Exhibit 4(a) to the  Registrant’s Current Report on Form 8-K dated July 21, 1993 –  Commission File No. 1-8570.)                                                                                |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |   |   |   |
| 4.28.  | Indenture, dated February 1, 1996, by and between  the Registrant and First Interstate Bank of Nevada, N.A., as Trustee.  (Incorporated by reference to Exhibit 4(b) to the Registrant’s Current Report  on Form 8-K dated January 29, 1996 – Commission File No. 1-8570.)                                                                                                                                                                                             |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |   |   |   |
| 4.29.  | Supplemental Indenture, dated February 1, 1996, by  and between the Registrant and First Interstate Bank of Nevada, N.A., as  Trustee, with respect to the Registrant’s 6.45% Senior Notes due February 1,  2006.  (Incorporated by reference to  Exhibit 4(c) to the Registrant’s Current Report on Form 8-K dated January 29,  1996 – Commission File No. 1-8570.)                                                                                              |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |   |   |   |
| 4.30.  | 6.45% Senior Notes due February 1, 2006 in the  principal amount of $200,000,000.   (Incorporated by reference to Exhibit 4(d) to the Registrant’s Current  Report on Form 8-K dated January 29, 1996 – Commission File No. 1-8570.)                                                                                                                                                                                                                                   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |   |   |   |
| 4.31.  | Supplemental Indenture, dated as of  November 15, 1996, to an indenture dated February 1, 1996, by and  between the Registrant and Wells Fargo Bank (Colorado), N.A., as Trustee,  with respect to the Registrant’s 6.70% Senior Notes due November 15,  2096.  (Incorporated by reference to  Exhibit 4(c) to the Registrant’s Quarterly Report on Form 10-Q for the  quarterly period ended October 31, 1996 – Commission File No. 1-8570.) |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |   |   |   |
| 4.32.  | 6.70% Senior Notes due February 15, 2096 in the  principal amount of $150,000,000.   (Incorporated by reference to Exhibit 4(d) to the Registrant’s  Quarterly Report on Form 10-Q for the quarterly period ended October 31,  1996 – Commission File No. 1-8570.)                                                                                                                                                                                                |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |   |   |   |
| 4.33.  | Indenture, dated November 15, 1996, by and  between the Registrant and Wells Fargo Bank (Colorado), N.A., as  Trustee.  (Incorporated by reference  to Exhibit 4(e) to the Registrant’s Quarterly Report on Form 10-Q for the  quarterly period ended October 31, 1996 – Commission File No. 1-8570.)                                                                                                                                                        |

 

70

----

 
| 4.34.  | Supplemental Indenture, dated as of  November 15, 1996, to an indenture dated November 15, 1996, by and  between the Registrant and Wells Fargo Bank (Colorado), N.A., as Trustee,  with respect to the Registrant’s 7.0% Senior Notes due November 15,  2036.  (Incorporated by reference to  Exhibit 4(f) to the Registrant’s Quarterly Report on Form 10-Q for the  quarterly period ended October 31, 1996 – Commission File No. 1-8570.) |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |   |   |   |
| 4.35.  | 7.0% Senior Notes due February 15, 2036, in the  principal amount of $150,000,000.   (Incorporated by reference to Exhibit 4(g) to the Registrant’s Quarterly  Report on Form 10-Q for the quarterly period ended October 31,  1996 – Commission File No. 1-8570.)                                                                                                                                                                                           |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |   |   |   |
| 4.36.  | Instrument of Joinder, dated May 31, 1998, by  Mandalay Corp., pursuant to the Subsidiary Guaranty dated as of May 23,  1997, with respect to the Amended and Restated Loan Agreement, in favor of  Bank of America, N.A., as administrative agent for the Banks.  (Incorporated by reference to Exhibit 4(a)  to the Registrant’s Quarterly Report on Form 10-Q for the quarterly  period ended July 31, 1998 – Commission File No. 1-8570.)           |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |   |   |   |
| 4.37.  | Indenture dated November 20, 1998, by and  between the Registrant and The Bank of New York, as Trustee.  (Incorporated by reference to Exhibit 4(a)  to the Registrant’s Quarterly Report on Form 10-Q for the quarterly  period ended October 31, 1998 – Commission File No. 1-8570.)                                                                                                                                                                       |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |   |   |   |
| 4.38.  | Supplemental Indenture, dated November 20,  1998, by and between the Registrant and The Bank of New York, as Trustee,  with respect to the Registrant’s 9-1/4% Senior Subordinated Notes due  December 1, 2005.  (Incorporated  by reference to Exhibit 4(b) to the Registrant’s Quarterly Report on Form 10-Q  for the quarterly period ended October 31, 1998 – Commission File No.  1-8570.)                                                    |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |   |   |   |
| 4.39.  | 9-1/4% Senior Subordinated Notes due December 1,  2005 in the principal amount of $275,000,000.  (Incorporated by reference to Exhibit 4(c) to the Registrant’s  Quarterly Report on Form 10-Q for the quarterly period ended  October 31, 1998 – Commission File No. 1-8570.)                                                                                                                                                                               |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |   |   |   |
| 4.40.  | Indenture dated as of July 24, 2000 by and between  the Registrant and The Bank of New York with respect to $500 million  aggregate principal amount of 10-1/4% Senior Subordinated Notes due  2007.  (Incorporated by reference to  Exhibit 4.1 to the Registrant’s Form S-4 Registration Statement No.  333-44216.)                                                                                                                                                       |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |   |   |   |
| 4.41.  | Indenture dated as of August 16, 2000 by and between  the Registrant and The Bank of New York, with respect to $200 million  aggregate principal amount of 91⁄2% Senior Notes due 2008.  (Incorporated by reference to Exhibit 4.1  to the Registrant’s Form S-4 Registration Statement No. 333-44838.)                                                                                                                                                                  |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |   |   |   |
| 4.42.  | Indenture dated as of December 20, 2001 by and among  the Registrant and The Bank of New York, with respect to $300 million  aggregate principal amount of 9-                                                                                                                                                                                                                                                                                                                         |

 

71

----

 
|          | 3/8% Senior Subordinated Notes due 2010.  (Incorporated by reference to Exhibit 4.1  to the Registrant’s Form S-4 Registration Statement No. 333-82936.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|---------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 4.43.         | Registration Rights Agreement dated as of December  20, 2001 by and among the Registrant and Banc of America Securities LLC,  Deutsche Bank Alex Brown, Inc., Salomon Smith Barney Inc., Merrill Lynch,  Pierce, Fenner & Smith Incorporated, Credit Lyonnais Securities (USA)  Inc., Credit Suisse First Boston Corporation, Dresdner Kleinwort Wasserstein  Grantchester Inc., Scotia Capital (USA) Inc., SG Cowen Securities  Corporation, UBS Warburg LLC, and Wells Fargo Brokerage Services LLC.  (Incorporated by reference to Exhibit 4.1  to the Registrant’s Form S-4 Registration Statement No. 333-82936.) |
|          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   |   |   |
| 4.44. ** | Indenture dated as of March 21, 2003 by and among  the Registrant and The Bank of New York with respect to $400 million  aggregate principal amount of Floating Rate Convertible Senior Debentures due  2033.                                                                                                                                                                                                                                                                                                                                                                                                                        |
|          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   |   |   |
| 4.45. ** | Registration Rights Agreement dated as of March 21,  2003 by and between the Registrant and Merrill Lynch & Co., Merrill  Lynch, Pierce, Fenner & Smith Incorporated and Banc of America Securities  LLC.                                                                                                                                                                                                                                                                                                                                                                                                                    |
|          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   |   |   |
| 10.1. *  | Amended and Restated 1989 Stock Option Plan of the  Registrant.  (Incorporated by  reference to Exhibit 10 to the Post Effective Amendment No. 4 to the  Registrant’s Registration Statement (No. 33-39215) on Form S-8.)                                                                                                                                                                                                                                                                                                                                                                                                  |
|          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   |   |   |
| 10.2. *  | Amended and Restated 1991 Stock Incentive Plan of  the Registrant.  (Incorporated by  reference to Exhibit 10 to the Post Effective Amendment No. 3 to the  Registrant’s Registration Statement (No. 33-56420) on Form S-8.)                                                                                                                                                                                                                                                                                                                                                                                               |
|          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   |   |   |
| 10.3. *  | Amended and Restated 1993 Stock Option Plan of the  Registrant.  (Incorporated by  reference to Exhibit 10 to the Post Effective Amendment No. 2 to the  Registrant’s Registration Statement (No. 33-53303) on Form S-8.)                                                                                                                                                                                                                                                                                                                                                                                                  |
|          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   |   |   |
| 10.4. *  | 1998 Stock Option Plan.  (Incorporated by reference to Exhibit 4(g) to the Registrant’s  Registration Statement (No. 333-51073) on Form S-8.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   |   |   |
| 10.5. *  | 1999 Non-Employee Directors Stock Option Plan.  (Incorporated by reference to Exhibit  10(i) to the Registrant’s Annual Report on Form 10-K for the fiscal year  ended January 31, 1999 – Commission File No. 1-8570.)                                                                                                                                                                                                                                                                                                                                                                                                |
|          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   |   |   |
| 10.6. *  | 2000 Stock Incentive Plan.  (Incorporated by reference to Appendix B to the Registrant’s  definitive proxy statement dated April 28, 2000 relating to the 2000 Annual  Meeting of Registrant’s Stockholders.)                                                                                                                                                                                                                                                                                                                                                                                                         |
|          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   |   |   |
| 10.7. *  | 2002 Stock Incentive Plan.  (Incorporated by reference to Appendix B to the Registrant’s  definitive proxy statement dated May 14, 2002 relating to the 2002 Annual  Meeting of Registrant’s Stockholders.)                                                                                                                                                                                                                                                                                                                                                                                                           |

 

72

----

 
| 10.8. *   | Executive Compensation Insurance Plan.  (Incorporated by reference to Exhibit  10(i) to the Registrant’s Annual Report on Form 10-K for the fiscal  year ended January 31, 1992 – Commission File No. 1-8570.)                                                                                                 |
|----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|           |                                                                                                                                                                                                                                                                                                                          |   |   |   |   |
| 10.9.          | Lease, dated August 3, 1977, by and between B&D  Properties, Inc., as lessor, and the Registrant, as lessee; Amendment of  Lease, dated May 6, 1983.   (Incorporated by reference to Exhibit 10(h) to the Registrant’s  Registration Statement (No. 2-85794) on Form S-1.)                                      |
|           |                                                                                                                                                                                                                                                                                                                          |   |   |   |   |
| 10.10.         | Thirteenth Amendment and Restatement of the  Registrant’s Employees’ Profit Sharing and Investment Plan.  (Incorporated by reference to Exhibit 4(d)  to Post Effective Amendment No. 11 to the Registrant’s Registration Statement  (No. 33-18278 on Form  S-8.)                                    |
|           |                                                                                                                                                                                                                                                                                                                          |   |   |   |   |
| 10.11.         | Fourteenth Amendment, dated November 21, 2000, to  the Registrant’s Employees’ Profit Sharing and Investment Plan.  (Incorporated by reference to Exhibit  10(j) to the Registrant’s Annual Report on Form 10–K for the fiscal year  ended January 31, 2001 – Commission File No. 1-8570.) |
|           |                                                                                                                                                                                                                                                                                                                          |   |   |   |   |
| 10.12.         | Fifteenth Amendment, dated November 29, 2001, to the  Registrant’s Employees’ Profit Sharing and Investment Plan.  (Incorporated by reference to Exhibit  10.11 to the Registrant’s Annual Report on Form 10-K for the fiscal year  ended January 31, 2002 – Commission File No. 1-8570.)            |
|           |                                                                                                                                                                                                                                                                                                                          |   |   |   |   |
| 10.13.         | Sixteenth Amendment, dated November 20, 2002, to the  Registrant’s Employees’ Profit Sharing and Investment Plan.  (Incorporated by reference to Exhibit 4(g)  to Post Effective Amendment No. 12 to the Registrant’s Registration Statement  No. 33-18278 on Form S-8.)                                  |
|           |                                                                                                                                                                                                                                                                                                                          |   |   |   |   |
| 10.14. ** | Seventeenth Amendment, dated December 31, 2002, to  the Registrant’s Employees’ Profit Sharing and Investment Plan.                                                                                                                                                                                                 |
|           |                                                                                                                                                                                                                                                                                                                          |   |   |   |   |
| 10.15.         | Ninth Amendment and Restatement of the Registrant’s  Employees’ Profit Sharing and Investment Trust. (Incorporated by reference to  Exhibit 4(e) to Post Effective Amendment No. 11 to the Registrant’s  Registration Statement (No. 33-18278) on Form S-8.)                                                   |
|           |                                                                                                                                                                                                                                                                                                                          |   |   |   |   |
| 10.16.         | Tenth Amendment and Restatement of the Registrant’s  Employees’ Profit Sharing and Investment Trust. (Incorporated by reference to  Exhibit 10.13 to the Registrant’s Annual Report on Form 10-K for the fiscal  year ended January 31, 2002 – Commission File No. 1-8570.)                               |
|           |                                                                                                                                                                                                                                                                                                                          |   |   |   |   |
| 10.17.         | Group Annuity Contract No. GA70867 between  Philadelphia Life (formerly Bankers Life Company) and Trustees of the  Registrant’s Employees’ Profit Sharing and Investment Plan.  (Incorporated by reference to Exhibit 4(c)  to the Registrant’s Registration Statement (No. 33-1459) on Form S-8.)        |

 

73

----

 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   |   |   |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|
| 10.18. | Lease by and between Robert Lewis Uccelli, guardian,  as lessor, and Nevada Greens, a limited partnership, William N. Pennington,  as trustee, and William G. Bennett, as trustee, and related Assignment of  Lease.  (Incorporated by reference to  Exhibit 10(p) to the Registrant’s Registration Statement (No. 33-4475) on  Form S-1.)                                                                                                                                                                            |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   |   |   |
| 10.19. | Agreement of Purchase, dated March 15, 1985, by and  between Denio Brothers Trucking Company, as seller, and the Registrant, as  buyer, and related lease by and between Denio Brothers Trucking Co., as  lessor, and Nevada Greens, a limited partnership, William N. Pennington, as  trustee, and William G. Bennett, as trustee, and related Assignment of  Lease.  (Incorporated by reference to  Exhibit 10(q) to the Registrant’s Registration Statement (No. 33-4475) on  Form S-1.)                                |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   |   |   |
| 10.20. | Amended and Restated Agreement of Joint Venture of  Circus and Eldorado Joint Venture by and between Eldorado Limited Liability  Company and Galleon, Inc. (Incorporated by reference to Exhibit 3.3 to the  Form S-4 Registration Statement of Circus and Eldorado Joint Venture and  Silver Legacy Capital Corp. – Commission File No. 333-87202.)                                                                                                                                                                            |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   |   |   |
| 10.21. | Amended and Restated Credit Agreement, dated  November 24, 1997, by and among Circus and Eldorado Joint Venture, the Banks  named therein and Bank of America National Trust and Savings Association as  administrative agent, and the related Note, Amended and Restated Make-Well  Agreement and Amended and Restated Deed of Trust.  (Incorporated by reference to Exhibit 4(h) to the Registrant’s  Quarterly Report on Form 10-Q for the quarterly period ended October 31, 1997  – Commission File No. 1-8570.) |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   |   |   |
| 10.22. | Amendment No. 1 to the Amended and Restated Credit  Agreement, by and among Circus and Eldorado Joint Venture, the Banks named  therein and Bank of America, N.A., as administrative agent.  (Incorporated by reference to Exhibit  10(w) to the Registrant’s Annual Report on Form 10-K for the fiscal year  ended January 31, 2000 – Commission File No. 1-8570.)                                                                                                                                                   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   |   |   |
| 10.23. | Second and Amended and Restated Credit Agreement,  dated as of March 5, 2002, among Circus and Eldorado Joint Venture, the banks  referred to therein and Bank of America, N.A., as administrative agent.  (Incorporated by reference to Exhibit  10.9.2 to the Annual Report on Form 10–K for the year ended December 31,  2001 of Eldorado Resorts LLC and Eldorado Capital Corp. – Commission File No. 333-11811.)                                                                                       |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   |   |   |
| 10.24. | Guaranty, dated as of March 5, 2002, made by Silver  Legacy Capital Corp., in favor of Bank of America, N.A., as administrative  agent.  (Incorporated by reference to  Exhibit 10.9.3 to the Annual Report on Form 10–K for the year ended  December 31, 2001 of Eldorado Resorts LLC and Eldorado Capital Corp. –  Commission File No. 333-11811.)                                                                                                                                                        |

 

74

----

 
| 10.25. | Second Amended and Restated Security Agreement,  dated as of March 5, 2002, by and between Circus and Eldorado Joint Venture  and Bank of America, N.A., as administrative agent.  (Incorporated by reference to Exhibit 10.9.4 to the Annual  Report on Form 10–K for the year ended December 31, 2001 of Eldorado  Resorts LLC and Eldorado Capital Corp. – Commission File No. 333-11811.)                                                       |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |   |   |   |
| 10.26. | Guarantor Security Agreement, dated as of March 5,  2002, by and between Silver Legacy Capital Corp. and Bank of America, N.A.,  as administrative agent.   (Incorporated by reference to Exhibit 10.9.5 to the Annual Report on  Form 10–K for the year ended December 31, 2001 of Eldorado Resorts LLC  and Eldorado Capital Corp. – Commission File No. 333-11811.)                                                                              |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |   |   |   |
| 10.27. | Second Amended and Restated Deed of Trust, dated as  of February 26, 2002, but effective March 5, 2002, by and among Circus and  Eldorado Joint Venture and Bank of America, N.A., as administrative  agent.  (Incorporated by reference to  Exhibit 10.9.6 to the Annual Report on Form 10–K for the year ended December 31,  2001 of Eldorado Resorts LLC and Eldorado Capital Corp. – Commission File  No. 333-11811.)                           |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |   |   |   |
| 10.28. | Second Amended and Restated Assignment of Rent and  Revenues entered into as of February 26, 2002, but effective March 5, 2002,  by and between Circus and Eldorado Joint Venture and Bank of America, N.A.,  as administrative agent.   (Incorporated by reference to Exhibit 10.9.7 to the Annual Report on  Form 10–K for the year ended December 31, 2001 of Eldorado Resorts LLC  and Eldorado Capital Corp. – Commission File No. 333-11811.) |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |   |   |   |
| 10.29. | Second Amended and Restated Collateral Account  Agreement, dated March 5, 2002, by and between Circus and Eldorado Joint  Venture and Bank of America, N.A., as administrative agent.  (Incorporated by reference to Exhibit  10.9.8 to the Annual Report on Form 10–K for the year ended December 31,  2001 of Eldorado Resorts LLC and Eldorado Capital Corp. – Commission File  No. 333-11811.)                                                  |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |   |   |   |
| 10.30. | Intercreditor Agreement, dated as of March 5, 2002,  by and among Bank of America, N.A., as administrative agent, The Bank of New  York, as trustee, Circus and Eldorado Joint Venture and Silver Legacy Capital  Corp.  (Incorporated by reference to  Exhibit 10.9.9 to the Annual Report on Form 10–K for the year ended  December 31, 2001 of Eldorado Resorts LLC and Eldorado Capital Corp. –  Commission File No. 333-11811.)                |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |   |   |   |
| 10.31. | Indenture, dated as of March 5, 2002, among Circus  and Eldorado Joint Venture,  Silver  Legacy Capital Corp., and The Bank of New York, as trustee.  (Incorporated by reference to Exhibit  10.10.1 to the Annual Report on Form 10–K for the year ended  December 31, 2001 of Eldorado Resorts LLC and Eldorado Capital Corp. –  Commission File No. 333-11811.)                                                                             |

 

75

----

 
| 10.32. | Deed of Trust, dated as of February 26, 2002, by  Circus and Eldorado Joint Venture, to First American Title Company of Nevada  for the benefit of The Bank of New York.   (Incorporated by reference to Exhibit 10.10.2 to the Annual Report on  Form 10–K for the year ended December 31, 2001 of Eldorado Resorts LLC  and Eldorado Capital Corp. – Commission File No. 333-11811.)                                                                                                                                                                                                                    |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |   |   |   |
| 10.33. | Security Agreement, dated as of March 5, 2002, by  and between  Circus and Eldorado Joint  Venture and Silver Legacy Corp. for the benefit of The Bank of New York, as  trustee.  (Incorporated by reference  to Exhibit 10.10.3 to the Annual Report on Form 10–K for the year ended  December 31, 2001 of Eldorado Resorts LLC and Eldorado Capital Corp. –  Commission File No. 333-11811.)                                                                                                                                                                                                       |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |   |   |   |
| 10.34. | Assignment of Rent and Revenues entered into as of  February 26, 2002, by and between Circus and Eldorado Joint Venture and The  Bank of New York, as trustee.   (Incorporated by reference to Exhibit 10.10.4 to the Annual Report on  Form 10–K for the year ended December 31, 2001 of Eldorado Resorts LLC  and Eldorado Capital Corp. – Commission File No. 333-11811.)                                                                                                                                                                                                                              |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |   |   |   |
| 10.35. | Collateral Account Agreement, dated as of March 5,  2002, by and among Circus and Eldorado Joint Venture, Silver Legacy Capital  Corp., and The Bank of New York, as trustee.   (Incorporated by reference to Exhibit 10.10.5 to the Annual Report on  Form 10–K for the year ended December 31, 2001 of Eldorado Resorts LLC  and Eldorado Capital Corp. – Commission File No. 333-11811.)                                                                                                                                                                                                               |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |   |   |   |
| 10.36. | Environment Indemnity Agreement entered into as of  March 5, 2002, by Circus and Eldorado Joint Venture and Silver Legacy Capital  Corp.  (Incorporated by reference to  Exhibit 10.10.6 to the Annual Report on Form 10–K for the year ended December 31,  2001 of Eldorado Resorts LLC and Eldorado Capital Corp. – Commission File  No. 333-11811.)                                                                                                                                                                                                                                                    |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |   |   |   |
| 10.37. | Agreement and Plan of Merger, dated March 19, 1995,  by and among the Registrant and M.S.E. Investments, Incorporated, Last Chance  Investments, Incorporated, Gold Strike Investments, Incorporated, Diamond  Gold, Inc., Gold Strike Aviation, Incorporated, Gold Strike Finance Company,  Inc., Oasis Development Company, Inc., Michael S. Ensign, William A.  Richardson, David R. Belding, Peter A. Simon II and Robert J. Verchota.  (Incorporated by reference to Exhibit  10(ee) to the Registrant’s Annual Report on Form 10-K for the fiscal year  ended January 31, 1995 – Commission File No. 1-8570.) |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |   |   |   |
| 10.38. | First Amendment to Agreement and Plan of Merger,  dated May 30, 1995, by and among the Registrant and M.S.E. Investments,  Incorporated, Last Chance Investments, Incorporated, Goldstrike Investments,  Incorporated, Diamond Gold, Inc., Gold Strike Aviation, Incorporated,  Goldstrike Finance Company, Inc., Oasis Development Company, Inc., Michael S.  Ensign, William A. Richardson, David R. Belding, Peter A. Simon II and Robert  J. Verchota.  (Incorporated by                                                                                                                                             |

 

76

----

 
|          | reference to Exhibit 99.2 of the Schedule 13D of  Michael S. Ensign relating to the Registrant’s Common Stock, filed on  June 12, 1995.)                                                                                                                                                                                                                                                                                                                |
|---------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|          |                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.39.        | Exchange Agreement, dated March 19, 1995, by and  among the Registrant and New Way, Inc., a wholly owned subsidiary of the  Registrant, Glenn W. Schaeffer, Gregg H. Solomon, Antonio C. Alamo, Anthony  Korfman and William Ensign. (Incorporated by reference to Exhibit 10(ff) to  the Registrant’s Annual Report on Form 10-K for the fiscal year ended January  31, 1995 – Commission File No. 1-8570.)                                            |
|          |                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |   |   |   |
| 10.40.        | First Amendment to Exchange Agreement, dated May 30,  1995, by and among the Registrant and New Way, Inc., a wholly owned  subsidiary of the Registrant, Glenn W. Schaeffer, Gregg H. Solomon, Antonio  C. Alamo, Anthony Korfman and William Ensign.  (Incorporated by reference to Exhibit 10(d) to the Registrant’s  Current Report on Form 8-K dated June 1, 1995 – Commission File No. 1-8570.)                                               |
|          |                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |   |   |   |
| 10.41.        | Registration Rights Agreement, dated as of June 1,  1995, by and among the Registrant and Michael S. Ensign, William A.  Richardson, David R. Belding, Peter A. Simon II, Glenn W. Schaeffer, Gregg H.  Solomon, Antonio C. Alamo, Anthony Korfman, William Ensign and Robert J.  Verchota.  (Incorporated by reference  to Exhibit 99.5 of the Schedule 13D of Michael S. Ensign, relating to the Registrant’s  Common Stock, filed on June 12, 1995.) |
|          |                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |   |   |   |
| 10.42.        | Standstill Agreement, dated as of June 1, 1995, by  and among the Registrant and Michael S. Ensign, William A. Richardson, David  R. Belding, Peter A. Simon II and Glenn W. Schaeffer.  (Incorporated by reference to Exhibit 99.4  of the Schedule 13D of Michael S. Ensign, relating to the Registrant’s Common  Stock, filed on June 12, 1995.)                                                                                                |
|          |                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |   |   |   |
| 10.43.        | Amendment No. 1 to Standstill Agreement, effective  April 16, 1996, by and among the Registrant and Michael S. Ensign,  William A. Richardson, David R. Belding, Peter A. Simon II and Glenn W.  Schaeffer.  (Incorporated by reference  to Exhibit 99.7 of Amendment No. 2 to the Schedule 13D of Michael S. Ensign,  relating to the Registrant’s Common Stock, filed on September 5, 1996.)                                                |
|          |                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |   |   |   |
| 10.44. * | 2000 Executive Officers’ Bonus Plan.  (Incorporated by reference to Appendix A  to the Registrant’s definitive proxy statement dated April 28, 2000 relating  to its 2000 Annual Meeting of Stockholders.)                                                                                                                                                                                                                                         |
|          |                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |   |   |   |
| 10.45. * | Amendment and Restatement of Employment Agreement  dated November 1, 1997, by and between the Registrant and Michael S.  Ensign.  (Incorporated by reference to  Exhibit 10(gg) to the Registrant’s Annual Report on Form 10-K for the  fiscal year ended January 31, 1998 – Commission File No. 1-8570.)                                                                                                                                     |
|          |                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |   |   |   |
| 10.46. * | Amendment and Restatement of Employment Agreement  dated November 1, 1997, by and between the Registrant and Glenn W.  Schaeffer.  (Incorporated by                                                                                                                                                                                                                                                                                                          |

 

77

----

 
|          | reference to Exhibit 10(hh) to the Registrant’s  Annual Report on Form 10-K for the fiscal year ended January 31,  1998 – Commission File No. 1-8570.)                                                                                                                                                                                                                                                                                                                                                                                                                    |
|---------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.47. * | Amendment and Restatement of Employment Agreement  dated November 1, 1997, by and between the Registrant and William A.  Richardson.  (Incorporated by  reference to Exhibit 10(ii) to the Registrant’s Annual Report on Form 10-K  for the fiscal year ended January 31, 1998 – Commission File No.  1-8570.)                                                                                                                                                                                                                                                       |
|          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   |   |   |
| 10.48.        | Joint Venture Agreement, dated as of December 18,  1992, between Nevada Landing Partnership and RBG, L.P.  (Incorporated by reference to Exhibit  10(g) to the Registrant’s Quarterly Report on Form 10-Q for the quarterly  period ended July 31, 1995 – Commission File No. 1-8570.)                                                                                                                                                                                                                                                                                    |
|          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   |   |   |
| 10.49.        | Amendment dated July 15, 1993 to the Joint Venture  Agreement between Nevada Landing Partnership and RBG, L.P. (Incorporated by  reference to Exhibit 10(h) to the Registrant’s Quarterly Report on Form 10-Q  for the quarterly period ended July 31, 1995 – Commission File No. 1-8570.)                                                                                                                                                                                                                                                                                     |
|          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   |   |   |
| 10.50.        | Amendment dated October 6, 1994 to the Joint Venture  Agreement between Nevada Landing Partnership and RBG, L.P. (Incorporated by  reference to Exhibit 10(i) to the Registrant’s Quarterly Report on Form 10-Q  for the quarterly period ended July 31, 1995 – Commission File No. 1-8570.)                                                                                                                                                                                                                                                                                   |
|          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   |   |   |
| 10.51.        | Amendment dated June 1, 1995 to the Joint Venture  Agreement between Nevada Landing Partnership and RBG, L.P.  (Incorporated by reference to Exhibit  10(j) to the Registrant’s Quarterly Report on Form 10-Q for the quarterly  period ended July 31, 1995 – Commission File No. 1-8570.)                                                                                                                                                                                                                                                                                |
|          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   |   |   |
| 10.52.        | Amendment dated February 28, 1996 to the Joint  Venture Agreement between Nevada Landing Partnership and RBG, L.P.  (Incorporated by reference to Exhibit  10(ww) to the Registrant’s Annual Report on Form 10-K for the fiscal  year ended January 31, 1996 – Commission File No. 1-8570.)                                                                                                                                                                                                                                                                          |
|          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   |   |   |
| 10.53.        | Reducing Revolving Loan Agreement, dated as of  December 21, 1994, among Victoria Partners, each bank party thereto, The  Long-Term Credit Bank of Japan, Ltd., Los Angeles Agency, and Societe  Generale, as Co-agents, and Bank of America N.A., as administrative agent  (without Schedules or Exhibits) (the “Victoria Partners Loan  Agreement”).  (Incorporated by  reference to Exhibit 99.2 to Amendment No. 1 on Form 8-K/A to the Current  Report on Form 8-K dated December 9, 1994 of Mirage Resorts,  Incorporated.  Commission File No.  1-6697.) |
|          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   |   |   |
| 10.54.        | Amendment No. 1 to the Victoria Partners Loan  Agreement, dated as of January 31, 1995.   (Incorporated by reference to Exhibit 10(uu) to the Annual Report on  Form 10-K for the year ended December 31, 1994 of Mirage Resorts,  Incorporated.  Commission File No.  1-6697.)                                                                                                                                                                                                                                                                                                |

 

78

----

 
| 10.55. | Amendment No. 2 to the Victoria Partners Loan  Agreement, dated as of June 30, 1995.   (Incorporated by reference to Exhibit 10.1 to the Quarterly Report on  Form 10-Q for the quarterly period ended June 30, 1995 of Mirage Resorts,  Incorporated.  Commission File No.  1-6697.)                                                           |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                      |   |   |   |   |
| 10.56. | Amendment No. 3 to the Victoria Partners Loan  Agreement, dated as of July 28, 1995.   (Incorporated by reference to Exhibit 10.3 to the Quarterly Report on  Form 10-Q for the quarterly period ended June 30, 1995 of Mirage Resorts,  Incorporated.  Commission File No.  1-6697.)                                                           |
|   |                                                                                                                                                                                                                                                                                                                                                      |   |   |   |   |
| 10.57. | Amendment No. 4 to the Victoria Partners Loan  Agreement, dated as of October 16, 1995.   (Incorporated by reference to Exhibit 10(a) to the Registrant’s  Quarterly Report on Form 10-Q for the quarterly period ended October 31, 1995  – Commission File No. 1-8570.)                                                                   |
|   |                                                                                                                                                                                                                                                                                                                                                      |   |   |   |   |
| 10.58. | Amendment No. 5 to the Victoria Partners Loan  Agreement dated as of August 1, 1996.   (Incorporated by reference to Exhibit 10(a) to the Registrant’s  Quarterly Report on Form 10-Q for the quarterly period ended  July 31, 1996 – Commission File No. 1-8570.)                                                                    |
|   |                                                                                                                                                                                                                                                                                                                                                      |   |   |   |   |
| 10.59. | Amendment No. 6 to the Victoria Partners Loan  Agreement, dated as of April 12, 1997.   (Incorporated by reference to Exhibit 10(ccc) to the Registrant’s  Annual Report on Form 10-K for the fiscal year ended January 31,  1997 – Commission File No. 1-8570.)                                                                      |
|   |                                                                                                                                                                                                                                                                                                                                                      |   |   |   |   |
| 10.60. | Amendment No. 7 to the Victoria Partners Loan  Agreement, dated as of January 12, 1998.   (Incorporated by reference to Exhibit 10.2 to the Quarterly Report on  Form 10-Q for the quarterly period ended March 31, 1998 of Mirage Resorts,  Incorporated. Commission File No. 1-6697.)                                                              |
|   |                                                                                                                                                                                                                                                                                                                                                      |   |   |   |   |
| 10.61. | Amendment No. 8 to the Victoria Partners Loan  Agreement, dated as of March 28, 2002. (Incorporated by reference to Exhibit  10.58 to the Registrant’s Annual Report on Form 10-K for the fiscal year  ended January 31, 2002  – Commission  File No. 1-8570.)                                                                             |
|   |                                                                                                                                                                                                                                                                                                                                                      |   |   |   |   |
| 10.62. | Joint Venture Agreement, dated as of December 9,  1994, between MRGS Corp. and Gold Strike L.V. (without Exhibit) (the “Victoria  Partners Venture Agreement”).   (Incorporated by reference to Exhibit 99.1 to the Current Report on  Form 8-K dated December 9, 1994 of Mirage Resorts, Incorporated.  Commission File No. 1-6697.) |
|   |                                                                                                                                                                                                                                                                                                                                                      |   |   |   |   |
| 10.63. | Amendment No. 1 to the Victoria Partners Venture  Agreement dated as of April 17, 1995.   (Incorporated by reference to Exhibit 10(c) to the Quarterly Report on  Form 10-Q for the quarterly period ended March 31, 1995 of Mirage Resorts,  Incorporated.  Commission File No.  1-6697.)                                                      |

 

79

----

 
| 10.64. | Amendment No. 2 to the Victoria Partners Venture  Agreement dated as of September 25, 1995.   (Incorporated by reference to Exhibit 10.4 to the Quarterly Report on  Form 10-Q for the quarterly period ended September 30, 1995 of Mirage  Resorts, Incorporated.  Commission  File No. 1-6697.)                                     |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                            |   |   |   |   |
| 10.65. | Amendment No. 3 to the Victoria Partners Venture  Agreement dated as of February 28, 1996.   (Incorporated by reference to Exhibit 10(fff) to the Registrant’s  Annual Report on Form 10-K for the fiscal year ended January 31,  1996 – Commission File No. 1-8570.)                                                       |
|   |                                                                                                                                                                                                                                                                                                                                            |   |   |   |   |
| 10.66. | Amendment No. 4 to the Victoria Partners Venture  Agreement dated as of May 29, 1996.   (Incorporated by reference to Exhibit 10(b) to the Registrant’s Quarterly  Report on Form 10-Q for the quarterly period ended April 30, 1996 –  Commission File No. 1-8570.)                                                             |
|   |                                                                                                                                                                                                                                                                                                                                            |   |   |   |   |
| 10.67. | Consulting Agreement, dated June 1, 1995, between  Circus Circus Casinos, Inc. (a subsidiary of the Registrant) and Lakeview  Company.  (Incorporated by reference  to Exhibit 10(ggg) to the Registrant’s Annual Report on Form 10-K for  the fiscal year ended January 31, 1996 – Commission File No. 1-8570.)            |
|   |                                                                                                                                                                                                                                                                                                                                            |   |   |   |   |
| 10.68. | Operating Agreement, dated October 7, 1997, by and  between Circus Circus Michigan, Inc. and Atwater Casino Group, L.L.C.  (Incorporated by reference to Exhibit  10(a) to the Registrant’s Quarterly Report on Form 10-Q for the quarterly  period ended October 31, 1997 – Commission File No. 1-8570.)                        |
|   |                                                                                                                                                                                                                                                                                                                                            |   |   |   |   |
| 10.69. | First Amendment to Operating Agreement, dated  October 7, 1997, by and between Circus Circus Michigan, Inc. and Atwater  Casino Group, L.L.C. (Incorporated by reference to Exhibit 10(hhh) to the  Registrant’s Annual Report on Form 10-K for the fiscal year ended January 31,  2000 – Commission File No. 1-8570.)                |
|   |                                                                                                                                                                                                                                                                                                                                            |   |   |   |   |
| 10.70. | Amended First Amendment to Operating Agreement,  dated October 7, 1997, by and between Circus Circus Michigan, Inc. and  Atwater Casino Group, L.L.C.   (Incorporated by reference to Exhibit 10(iii) to the Registrant’s  Annual Report on Form 10-K for the fiscal year ended January 31, 2000 –  Commission File No. 1-8570.) |
|   |                                                                                                                                                                                                                                                                                                                                            |   |   |   |   |
| 10.71. | Second Amendment to Operating Agreement, dated  October 7, 1997, by and between Circus Circus Michigan, Inc. and Atwater  Casino Group, L.L.C.

(Incorporated by reference to Exhibit 10(jjj) to the  Registrant’s Annual Report on Form 10-K for the fiscal year ended January 31,  2000 – Commission File No. 1-8570.)              |
|   |                                                                                                                                                                                                                                                                                                                                            |   |   |   |   |
| 10.72. | Third Amendment, dated January 21, 2001, to  Operating Agreement, dated October 7, 1997, by and between Circus Circus  Michigan, Inc. and Atwater Casino Group, L.L.C.  (Incorporated by reference to Exhibit 10(ddd) to the                                                                                                               |

 

80

----

 
|   | Registrant’s Annual Report on Form 10–K for the fiscal  year ended January 31, 2001 – Commission File No. 1-8570.)                                                                                                                                                                                                                                                                                                                                                                                    |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.73. | Amended and Restated Development Agreement, dated as  of April 9, 1998, by and among Detroit Entertainment, L.L.C., the City  of Detroit and the Economic Development Corporation of the City of Detroit  for the City of Detroit Casino Development Project.  (Incorporated by reference to Exhibit 10(a) to the Registrant’s  Quarterly Report on Form 10-Q for the quarterly period ended  July 31, 1998 – Commission File No. 1-8570.)                                                       |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |   |   |   |
| 10.74. | First Amendment, dated June 25, 1998, to the Amended  and Restated Development Agreement, dated as of April 9, 1998, by and  among Detroit Entertainment, L.L.C., the City of Detroit and the Economic  Development Corporation of the City of Detroit for the City of Detroit Casino  Development Project.  (Incorporated by  reference to Exhibit 10(b) to the Registrant’s Quarterly Report on Form 10-Q  for the quarterly period ended July 31, 1998 – Commission File No.  1-8570.)        |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |   |   |   |
| 10.75. | Second Amendment, dated December 1999, to the  Amended and Restated Development Agreement, dated April 9, 1998, by and among  Detroit Entertainment, L.L.C., the City of Detroit and the Economic  Development Corporation of the City of Detroit for the City of Detroit Casino  Development Project.  (Incorporated by  reference to Exhibit 10(mmm) to the Registrant’s Annual Report on Form 10-K  for the fiscal year ended January 31, 2000 – Commission File No. 1-8570.)                           |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |   |   |   |
| 10.76. | Third Amendment, dated November 30, 2000,  to the Amended and Restated Development  Agreement, dated April 9, 1998,  by  and among Detroit Entertainment, L.L.C., the City of Detroit and the Economic  Development Corporation of the City of Detroit for the City of Detroit Casino  Development Project.  (Incorporated by  reference to Exhibit 10(hhh) to the Registrant’s Annual Report on Form 10–K  for the fiscal year ended January 31, 2001 – Commission File No.  1-8570.) |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |   |   |   |
| 10.77. | Fourth Amendment, dated November 2001, to the  Amended and Restated Development Agreement, dated April 9, 1998, by and among  Detroit Entertainment, L.L.C., the City of Detroit and the Economic  Development Corporation of the City of Detroit for the City of Detroit Casino  Development Project.  (Incorporated by  reference to Exhibit 10.74 to the Registrant’s Annual Report on Form 10-K for  the fiscal year ended January 31, 2002 – Commission File No. 1-8570.)                             |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |   |   |   |
| 10.78. | Fifth Amendment, dated March 2002, to the Amended  and Restated Development Agreement, dated April 9, 1998, by and among Detroit  Entertainment, L.L.C., the City of Detroit and the Economic Development  Corporation of the City of Detroit for the City of Detroit Casino Development  Project.  (Incorporated by reference  to                                                                                                                                                                                   |

 

81

----

 
|   | Exhibit 10.75 to the Registrant’s Annual Report on  Form 10-K for the fiscal year ended January 31, 2002 – Commission File No.  1-8570.)                                                                                                                                                                                                                                                                                                                                                |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.79. | Sixth Amendment, dated April 2002, to the Amended  and Restated Development Agreement, dated April 9, 1998, by and among Detroit  Entertainment, L.L.C., the City of Detroit and the Economic Development  Corporation of the City of Detroit for the City of Detroit Casino Development  Project.  (Incorporated by reference  to Exhibit 10.76 to the Registrant’s Annual Report on Form 10-K for the fiscal  year ended January 31, 2002 – Commission File No. 1-8570.)         |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |   |   |   |
| 10.80. | Seventh Amendment, dated June 12, 2002, to the  Amended and Restated Development Agreement, dated April 9, 1998, by and among  Detroit Entertainment, L.L.C., the City of Detroit and the Economic  Development Corporation of the City of Detroit for the City of Detroit Casino  Development Project.  (Incorporated by  reference to Exhibit 10 to the Registrant’s Quarterly Report on Form 10-Q for  the quarterly period ended April 30, 2002 – Commission File No. 1-8570.) |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |   |   |   |
| 10.81. | Conveyance Agreement, dated April 29, 1999, by and  among the City of Detroit, the Economic Development Corporation of the City  of Detroit and Detroit Entertainment, L.L.C. (Incorporated by reference to  Exhibit 10(a) to the Registrant’s Quarterly Report on Form 10-Q for the  quarterly period ended April 30, 1999 – Commission File No. 1-8570.)                                                                                                                              |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |   |   |   |
| 10.82. | Loan Agreement, dated as of June 30, 1999 among  Detroit Entertainment, L.L.C., the Banks named therein and Bank of America  National Trust and Savings Association, as administrative agent for the  Banks.  (Incorporated by reference to  Exhibit 10(a) to the Registrant’s Quarterly Report on Form 10-Q for the  quarterly period ended July 31, 1999 – Commission File No. 1-8570.)                                                                                          |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |   |   |   |
| 10.83. | Amendment No. 1 to the Loan Agreement, dated  June 30, 1999 among Detroit Entertainment, L.L.C., the Banks named  therein and Bank of America, N.A., as administrative agent for the  Banks.  (Incorporated by reference to  Exhibit 10(d) to the Registrant’s Quarterly Report on Form 10-Q for the  quarterly period ended July 31, 2000 – Commission File No. 1-8570.)                                                                                                |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |   |   |   |
| 10.84. | Amendment No. 2, dated January 31, 2001, to the Loan  Agreement, dated June 30, 1999, among Detroit Entertainment, L.L.C., the  Banks named therein and Bank of America, N.A., as administrative agent for  the Banks.  (Incorporated by reference  to Exhibit 10(lll) to the Registrant’s Annual Report on Form 10–K for the  fiscal year ended January 31, 2001 – Commission File No. 1-8570.)                                                                         |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |   |   |   |
| 10.85. | Subordination Agreement, dated January 31, 2001, by  and between Circus Circus Michigan, Inc. and Detroit Entertainment, L.L.C.,  with respect to the Loan Agreement, dated June 30, 1999, in favor of Bank of  America, N.A., as administrative agent for the lending banks.  (Incorporated by reference to Exhibit                                                                                                                                                                         |

 

82

----

 
|   | 10(mmm) to the Registrant’s Annual Report on Form  10–K for the fiscal year ended January 31, 2001 – Commission File No.  1-8570.)                                                                                                                                                                                                                                                                                                                                                                               |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.86. | Hotel Pre-opening Services Agreement, dated as of  January 1, 1997, by and among the Registrant and Four Seasons Hotels  Limited.  (Incorporated by reference  to Exhibit 10(kkk) to the Registrant’s Annual Report on Form 10-K for  the fiscal year ended January 31, 1998 – Commission File No. 1-8570.)                                                                                                                                                                                                      |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   |   |   |
| 10.87. | Hotel Management Agreement, dated as of March 10,  1998, by and among the Registrant, Mandalay Corp. and Four Seasons Hotel  Limited.  (Incorporated by reference  to Exhibit 10(lll) to the Registrant’s Annual Report on Form 10-K for  the fiscal year ended January 31, 1998 – Commission File No. 1-8570.)                                                                                                                                                                                                  |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   |   |   |
| 10.88. | Hotel License Agreement, dated as of March 10, 1998,  by and among Mandalay Corp. and Four Seasons Hotel Limited.  (Incorporated by reference to Exhibit  10(mmm) to the Registrant’s Annual Report on Form 10-K for the fiscal  year ended January 31, 1998 – Commission File No. 1-8570.)                                                                                                                                                                                                                      |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   |   |   |
| 10.89. | Lease Intended As Security, dated October 30,  1998, among Circus Circus Leasing, Inc., as lessee; the Registrant, as  guarantor; First Security Bank, National Association, as Trustee, the Banks  named therein and Bank of America, N.A., as administrative agent for the  Banks.  (Incorporated by reference to  Exhibit 10(a) to the Registrant’s Quarterly Report on Form 10-Q for the  quarterly period ended October 31, 1998 – Commission File No. 1-8570.)                                        |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   |   |   |
| 10.90. | Amendment No. 1, dated January 28, 1999, to Lease  Intended As Security, dated October 30, 1998, among Circus Circus Leasing,  Inc., as lessee; the Registrant, as guarantor; First Security Bank, National  Association, as Trustee, the Banks named therein and Bank of America, N.A.,  as administrative agent for the Banks.   (Incorporated by reference to Exhibit 10(rrr) to the Registrant’s  Annual Report on Form 10–K for the fiscal year ended January 31, 2001 –  Commission File No. 1-8570.) |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   |   |   |
| 10.91. | Guaranty, dated October 30, 1998, by the  Registrant in favor of First Security Bank, National Association, as Trustee,  and the Banks named therein.  (Incorporated  by reference to Exhibit 10(b) to the Registrant’s Quarterly Report on Form 10-Q  for the quarterly period ended October 31, 1998 – Commission File No.  1-8570.)                                                                                                                                                                      |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   |   |   |
| 10.92. | Master Lease, dated December 21, 2001, among the  Registrant, Mandalay Corp., Ramparts, Inc., New Castle Corp., and Circus  Circus Casinos, Inc. as lessees and Wells Fargo Bank Northwest, N.A., as  lessor.  (Incorporated by reference to  Exhibit 10.88 to the Registrant’s Annual Report on Form 10-K for the fiscal  year ended January 31, 2002 – Commission File No. 1-8570.)                                                                                                                                 |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   |   |   |
| 10.93. | Guaranty, dated December 21, 2001, by the Registrant  and its subsidiaries named therein in favor of Wells Fargo Bank Northwest,  N.A., and the other beneficiaries                                                                                                                                                                                                                                                                                                                                                                  |

 

83

----

 
|          | named therein.   (Incorporated by reference to Exhibit 10.89 to the Registrant’s Annual  Report on Form 10-K for the fiscal year ended January 31, 2002 – Commission  File No. 1-8570.)                                                                                                                                                                     |
|---------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|          |                                                                                                                                                                                                                                                                                                                                                                       |
| 10.94.        | Aircraft Lease Agreement between the Registrant and  General Electric Capital Corporation.   (Incorporated by reference to Exhibit 10.90 to the Registrant’s Annual  Report on Form 10-K for the fiscal year ended January 31, 2002 – Commission  File No. 1-8570.)                                                                                         |
|          |                                                                                                                                                                                                                                                                                                                                                                       |   |   |   |   |
| 10.95.        | Aircraft Lease Agreement, dated December 28, 2001,  between the Registrant and General Electric Capital Corporation.  (Incorporated by reference to Exhibit 10.91 to the Registrant’s Annual Report  on Form 10-K for the fiscal year ended January 31, 2002 – Commission File No.  1-8570.)                                                                     |
|          |                                                                                                                                                                                                                                                                                                                                                                       |   |   |   |   |
| 10.96. * | Supplemental Executive Retirement Plan.  (Incorporated by reference to Exhibit  10(c) to the Registrant’s Quarterly Report on Form 10-Q for the  quarterly period ended October 31, 1998 – Commission File No. 1-8570.)                                                                                                                                |
|          |                                                                                                                                                                                                                                                                                                                                                                       |   |   |   |   |
| 10.97. * | Amendment No. 1 to Supplemental Executive Retirement  Plan.  (Incorporated by reference to  Exhibit 10(uuu) to the Registrant’s Annual Report on Form 10–K for the fiscal  year ended January 31, 2001 – Commission File No. 1-8570.)                                                                                                             |
|          |                                                                                                                                                                                                                                                                                                                                                                       |   |   |   |   |
| 10.98. * | Amendment No. 2 to Supplemental Executive Retirement  Plan.  (Incorporated by reference to  Exhibit 10(a) to the Registrant’s Quarterly Report on Form 10–Q for the  quarterly period ended July 31, 2001 – Commission File No. 1-8570.)                                                                                                          |
|          |                                                                                                                                                                                                                                                                                                                                                                       |   |   |   |   |
| 10.99.        | Stock Purchase Agreement, dated as of September 8,  2000, among the Registrant, Bank of America, N.A. and MBG Trust.  (Incorporated by reference to Exhibit  10(a) to the Registrant’s Quarterly Report on Form 10-Q for the quarterly  period ended July 31, 2000 – Commission File No. 1-8570.)                                                      |
|          |                                                                                                                                                                                                                                                                                                                                                                       |   |   |   |   |
| 10.100.       | First Amendment, dated as of January 2, 2001, to  Stock Purchase Agreement, dated as of September 8, 2000, among the  Registrant, Bank of America, N.A., and MBG Trust.  (Incorporated by reference to Exhibit 10(www) to the  Registrant’s Annual Report on Form 10–K for the fiscal year ended  January 31, 2001 – Commission File No. 1-8570.) |
|          |                                                                                                                                                                                                                                                                                                                                                                       |   |   |   |   |
| 10.101.       | Second Amendment, dated as of March 21, 2001, to  Stock Purchase Agreement, dated as of September 8, 2000, among the  Registrant, Bank of America, N.A., and MBG Trust.  (Incorporated by reference to Exhibit 10(xxx) to the  Registrant’s Annual Report on Form 10-K for the fiscal year ended  January 31, 2001 – Commission File No. 1-8570.)      |
|          |                                                                                                                                                                                                                                                                                                                                                                       |   |   |   |   |
| 10.102.       | Amendment, dated as of September 15, 2001, to  Stock Purchase Agreement, dated as of September 8, 2000, among the  Registrant, Bank of America, N.A., and MBG Trust, and to the Collateral  Agreement, dated as of September 8, 2000, among the Registrant, Bank of  America, N.A., MBG Trust and Banc of America                                           |

 

84

----

 
|        | Securities LLC.   (Incorporated by reference to Exhibit 10(a) to the Registrant’s  Quarterly Report on Form 10-Q for the quarterly period ended October 31,  2001 – Commission File No. 1-8570.)                                                                                                                                                                                                                                                                                                            |
|-------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.103.     | Amendment, dated as of February 6, 2002, to  Stock Purchase Agreement, dated as of September 8, 2000, among the  Registrant, Bank of America, N.A., and MBG Trust, and to the Collateral  Agreement, dated as of September 8, 2000, among the Registrant, Bank of  America, N.A., MBG Trust and Banc of America Securities LLC. (Incorporated by  reference to Exhibit 10.99 to the Registrant’s Annual Report on Form 10-K for  the fiscal year ended January 31, 2002 – Commission File No. 1-8570.) |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |   |   |   |
| 10.104.     | Collateral Agreement dated as of September 8,  2000 among the Registrant, Bank of America, N.A., MBG Trust and Banc of  America Securities LLC.  (Incorporated  by reference to Exhibit 10(b) to the Registrant’s Quarterly Report on Form 10-Q  for the quarterly period ended July 31, 2000 – Commission File No.  1-8570.)                                                                                                                                                                          |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |   |   |   |
| 10.105.     | Amended and Restated Trust Agreement dated as of  September 8, 2000 between NMS Services (Cayman), Inc. and Wilmington  Trust Company.  (Incorporated by  reference to Exhibit 10(c) to the Registrant’s Quarterly Report on Form 10-Q  for the quarterly period ended July 31, 2000 – Commission File No.  1-8570.)                                                                                                                                                                                   |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |   |   |   |
| 10.106.     | Amendment, dated as of September 15, 2001, to  the Amended and Restated Trust Agreement, dated as of September 8, 2000,  between NMS Services (Cayman) Inc. and Wilmington Trust Company.  (Incorporated by reference to Exhibit  10(b) to the Registrant’s Quarterly Report on Form 10-Q for the quarterly  period ended October 31, 2001 – Commission File No. 1-8570.)                                                                                                                         |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 21. ** | Subsidiaries of the Registrant.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 23.1.       | Consent of Deloitte & Touche LLP related to the  Registrant’s Consolidated Financial Statements.                                                                                                                                                                                                                                                                                                                                                                                                                       |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 23.2.       | Consent of Deloitte & Touche LLP related to the  financial statements of Victoria Partners.                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 23.3.       | Consent of PricewaterhouseCoopers LLP.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 99.1.       | Certification of Michael S. Ensign Pursuant to 18  U.S.C. Section 1350, as Adopted   Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                            |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 99.2.       | Certification of Glenn Schaeffer Pursuant to 18  U.S.C. Section 1350, as Adopted   Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                              |

 

85

----

 

----

*Thisexhibit is a management contract or compensatory plan or arrangement requiredto be filed as an exhibit to this Report.

 

**Previously filed with this report.

 

Certaininstruments with respect to long-term debt have not been filed hereunder orincorporated by reference herein where the total amount of such debt thereunderdoes not exceed 10% of our consolidated total assets.  Copies of such instruments will be furnished to the Securitiesand Exchange Commission upon request.

 

(b)           Duringthe fourth quarter of the fiscal year ended January 31, 2003, Mandalay filed nocurrent report on Form 8-K.

 

(c)           Theexhibits required by Item 601 of Regulation S-K filed as part of this report orincorporated herein by reference are listed in Item 15(a)(3) above, and theexhibits filed herewith are listed on the Index to Exhibits which accompaniesthis report.

 

(d)           SeeItem 15(a)(2) of this report.

 

86

----

 

SIGNATURES

 

Pursuantto the requirements of Section 13 or 15(d) of the Securities Exchange Act of1934, the registrant has duly caused this report to be signed on its behalf bythe undersigned, thereunto duly authorized.

 
|                      |   | MANDALAY RESORT GROUP              |
|---------------------------|--------|------------------------------------|
|                      |   |
| Dated: June 25, 2003 | By:    |  /s/ GLENN  SCHAEFFER         |   |
|                      |   | Glenn Schaeffer                    |
|                      |   | President, Chief Financial Officer |
|                      |   | and Treasurer                      |
|                           |        |                                    |  |  |

 

87

----

 

CERTIFICATIONS

 

I,Michael S. Ensign, Chairman of the Board, Chief Executive  Officer and Chief Operating Officer ofMandalay Resort Group, certify that:

 

1.                                       Ihave reviewed this annual report on Form 10-K/A of Mandalay Resort Group;

 

2.                                       Basedon my knowledge, this annual report does not contain any untrue statement of amaterial fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, notmisleading with respect to the period covered by this annual report;

 

3.                                       Basedon my knowledge, the financial statements, and other financial informationincluded in this annual report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant asof, and for, the periods presented in this annual report;

 

4.                                       Theregistrant’s other certifying officers and I are responsible for establishingand maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the registrant and have:

 

a)                                      designedsuch disclosure controls and procedures to ensure that material informationrelating to the registrant, including its consolidated subsidiaries, is madeknown to us by others within those entities, particularly during the period inwhich this annual report is being prepared;

 

b)                                     evaluatedthe effectiveness of the registrant’s disclosure controls and procedures as ofa date within 90 days prior to the filing date of this annual report (the“Evaluation Date”); and

 

c)                                      presented inthis annual report our conclusions about the effectiveness of the disclosurecontrols and procedures based on our evaluation as of the Evaluation Date;

 

5.                                       Theregistrant’s other certifying officers and I have disclosed, based on our mostrecent evaluation, to the registrant’s auditors and the audit committee ofregistrant’s board of directors (or persons performing the equivalentfunctions):

 

a)                                      allsignificant deficiencies in the design or operation of internal controls whichcould adversely affect the registrant’s ability to record, process, summarizeand report financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and

 

88

----

 

b)                                     any fraud,whether or not material, that involves management or other employees who have asignificant role in the registrant’s internal controls; and

 

6.                                       Theregistrant’s other certifying officers and I have indicated in this annualreport whether or not there were significant changes in internal controls or inother factors that could significantly affect internal controls subsequent tothe date of our most recent evaluation, including any corrective actions withregard to significant deficiencies and material weaknesses.

 

 
| Date:  June 25, 2003 |  /s/ MICHAEL S. ENSIGN                                                                            |   |
|--------------------------------|--------------------------------------------------------------------------------------------------------|--------|
|                           | Michael S. Ensign                                                                                      |
|                           | Chairman  of the Board, Chief Executive  Officer and Chief Operating Officer of  Mandalay Resort Group |

 

89

----

 

I, GlennSchaeffer, President, Chief Financial Officer and Treasurer of Mandalay ResortGroup, certify that:

 

1.                                       Ihave reviewed this annual report on Form 10-K/A of Mandalay Resort Group;

 

2.                                       Basedon my knowledge, this annual report does not contain any untrue statement of amaterial fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, notmisleading with respect to the period covered by this annual report;

 

3.                                       Basedon my knowledge, the financial statements, and other financial informationincluded in this annual report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant asof, and for, the periods presented in this annual report;

 

4.                                       Theregistrant’s other certifying officers and I are responsible for establishingand maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the registrant and have:

 

a)                                      designedsuch disclosure controls and procedures to ensure that material informationrelating to the registrant, including its consolidated subsidiaries, is madeknown to us by others within those entities, particularly during the period inwhich this annual report is being prepared;

 

b)                                     evaluatedthe effectiveness of the registrant’s disclosure controls and procedures as ofa date within 90 days prior to the filing date of this annual report (the“Evaluation Date”); and

 

d)                                     presented inthis annual report our conclusions about the effectiveness of the disclosurecontrols and procedures based on our evaluation as of the Evaluation Date;

 

5.                                       Theregistrant’s other certifying officers and I have disclosed, based on our mostrecent evaluation, to the registrant’s auditors and the audit committee ofregistrant’s board of directors (or persons performing the equivalentfunctions):

 

a)                                    allsignificant deficiencies in the design or operation of internal controls whichcould adversely affect the registrant’s ability to record, process, summarizeand report financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and

 

b)                                     any fraud,whether or not material, that involves management or other employees who have asignificant role in the registrant’s internal controls; and

 

90

----

 

6.                                       Theregistrant’s other certifying officers and I have indicated in this annualreport whether or not there were significant changes in internal controls or inother factors that could significantly affect internal controls subsequent tothe date of our most recent evaluation, including any corrective actions withregard to significant deficiencies and material weaknesses.

 

 
| Date:  June 25, 2003 |  /s/ GLENN SCHAEFFER                                                   |   |
|--------------------------------|-----------------------------------------------------------------------------|--------|
|                           | Glenn Schaeffer                                                             |
|                           | President, Chief  Financial Officer and  Treasurer of Mandalay Resort Group |

 

91

----

 

INDEX TO EXHIBITSFORM 10-K/AFiscal Year EndedJanuary 31, 2003

 
| **Exhibit  Number** |   |                                                                                                                                           |
|---------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------|
|                |   |                                                                                                                                           |
| 23.1                |   | Consent of Deloitte & Touche LLP related to the Registrant’s  Consolidated Financial Statements.                                      |
|                |   |                                                                                                                                           |
| 23.2                |   | Consent of Deloitte & Touche LLP related to the  financial statements of Victoria Partners.                                                |
|                |   |                                                                                                                                           |
| 23.3                |   | Consent of PricewaterhouseCoopers LLP.                                                                                                         |
|                |   |                                                                                                                                           |
| 99.1.               |   | Certification of Michael S. Ensign Pursuant to 18  U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley  Act of 2002. |
|                |   |                                                                                                                                           |
| 99.2.               |   | Certification of Glenn  Schaeffer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section  906 of the Sarbanes-Oxley Act of 2002.   |

 

92

----