Approximately 10% of the Company's 1997 gross revenues were attributable to the game of baccarat. Baccarat tends to be the game of choice of certain high rollers, many of whom reside or have wealth originating in the Far East. The economies of certain Asian countries have experienced well-publicized difficulties over the past several months, with sharp declines in regional stock markets and devaluations of certain currencies.

The Company's international baccarat business was strong in the prior-year first quarter and had generally remained strong through January 1998. Such business declined significantly, however, in February and March. As a result, the Company's baccarat revenues in the first quarter declined 30% from the prior-year period, which was the principal factor in the 5% decline in the Company's total net operating revenues.

The Bellagio and Beau Rivage projects remain on budget and on schedule for their mid-October 1998 and first quarter 1999 openings, respectively. Employment offices for these new hotels opened several weeks ago and to date have scheduled over 45,000 interviews for the approximately 13,000 new positions being created.

The opening of these new resorts will be among the biggest challenges in the history of the hospitality industry. The Company anticipates that several thousand of its existing employees will form the core of the workforce at its new properties, both through promotion and transfer. To ensure a smooth transition, the existing Mirage properties have begun hiring and training replacement employees, resulting in higher staffing levels than would ordinarily be necessary. Management estimates that this affected pre-tax income in the quarter by some $2 million to $3 million.

The End of Secured Debt

The Company paid-off at maturity its $133 million of zero coupon, 11% accreting first mortgage notes during the quarter, leaving the Company with no outstanding secured indebtedness.  It also retired before maturity the $100 million of 9 1/4% notes otherwise due in 2003.  Although it was financially advantageous for the Company to redeem the 9 1/4% notes, the associated call premium and write-off of unamortized debt issuance costs resulted in a $3.5 million net extraordinary charge in the quarter.  The 1997 quarter included a similar charge of $2.2 million associated with amending and increasing the size of the Company's revolving bank credit facility.
 

Property Results

Despite the decline in the baccarat business, The Mirage achieved $52 million of operating cash flow, which is believed to be considerably more than any other Nevada hotel-casino during the quarter.  The Mirage's table games revenues, excluding baccarat, rose 2% and its slot revenues rose 9%.

Treasure Island's gross revenues were approximately $101 million in the first quarter of both 1998 and 1997. Increases in competition, however, particularly in Treasure Island's market segment, resulted in increases in promotional allowances and expenses. This, together with the higher-than- normal staffing levels mentioned above, resulted in a decrease in operating cash flow. The two Golden Nuggets were likewise affected by competitive market conditions.

The Company's 50%-owned Monte Carlo hotel-casino achieved quarterly gross revenues exceeding any quarter during 1997. Its promotional allowances and operating expenses also increased, resulting in operating cash flow that declined slightly from the prior-year period. This unconsolidated subsidiary, however, has reduced its debt from $165.8 million at March 31, 1997 to only $93.2 million at March 31, 1998. Hence, net of the unconsolidated subsidiary's interest expense, Monte Carlo's contribution to the Company's earnings increased slightly over the prior-year period.
 
 

(a)  During the 1998 three-month period, Monte Carlo's gross revenues, EBDIT and operating income were $67.4 million, $22.0 million and $16.5 million, respectively.  Such amounts during the 1997 three-month period were $66.3 million, $23.6 million and $18.5 million, respectively.
(b)  Earnings before depreciation, interest and taxes.
(c)  Cash rate (i.e., excluding complimentary accommodations) at the Company's Las Vegas hotels.