Management’s Discussion and Analysis of Financial Condition and Results of Operations 36 ACCOUNTING PRINCIPLES ADOPTED IN 2004 Taxation on Foreign Earnings RECENTLY ISSUED ACCOUNTING STANDARDS Stock-based Compensation December 15, 2004, with optional application to components disposed of or classi- fied as held for sale within that fiscal year. We did not apply EITF 03-13 to our sale of MGM Grand Australia, but if we had applied EITF 03-13 we still would have classified MGM Grand Australia as a discontinued operations. In December 2004, the staff of the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position 109-2, “Accounting and Disclosure Guidance for the Foreign Repatriation Provision within the American Jobs Creation Act of 2004” (“FSP 109-2”). FSP 109-2 allows us additional time beyond the financial reporting period in which the Act was enacted to evaluate the effects of the Act on our plans for repatriation of unremitted earnings. Under SFAS 109, we did not historically record a provision for U.S. Federal or State income taxes on undistributed earnings of foreign subsidiaries because such earnings were considered to be indefinitely  reinvested in the operations of foreign subsidiaries. Upon the sale of MGM Grand Australia, we did provide deferred taxes of $11 million on the basis that the  proceeds would be repatriated without the benefit of the 85 percent one-time deduction provided by the Act. The Act may allow a special one-time deduction of 85 percent of certain repatriated foreign earnings; however, additional clarifying  language is necessary to ensure we qualify for the deduction. The potential benefit to us of the repatriation provisions of the Act is $7 million.  In December 2004, the FASB issued FASB Statement No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123(R)”). Under the original standard, SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”), companies had the option of recording stock options issued to employees at fair value or intrinsic value, which generally leads to no expense being recorded. Most companies, including us, opted to use this intrinsic value method and make required disclosures of fair value expense. SFAS 123(R) eliminates this intrinsic value alternative. SFAS 123(R) is effective for us on July 1, 2005, at which time all future share-based payments must be recorded at fair value. Transition methods are discussed below. We must make certain changes in the manner of valuation of options and must make certain decisions which will affect the amount and timing of expense recognition, as discussed below. Choice of valuation model. Under SFAS 123, stock options were generally valued using the Black-Scholes model. SFAS 123(R) does not specify which model must be used, but requires that certain assumptions be included in the chosen model. Essentially, we have a choice of continuing to apply the Black-Scholes model or applying a binomial (lattice) model. The key difference is that a binomial model can better account for sub-optimal exercises; that is, exercises before the contractual  expiration of the option. A binominal model is more complex to apply, and generally results in a lower value than a comparable valuation using the Black-Scholes model. We have not yet determined which model we will apply. In November 2004, the Emerging Issues Task Force (“EITF”) of the FASB reached a consensus on Issue No. 03-13, “Applying the Conditions in Paragraph 42 of FASB Statement No. 144,  Accounting for the Impairment or Disposal of Long-Lived Assets , in Determining Whether to Report Discontinued Operations,” (“EITF 03-13”). EITF 03-13 requires us to analyze whether the cash flows of a disposed component have been eliminated from our ongoing operations and whether we retain a continuing involvement in the operations of the disposed component. If significant migration of customers occurs to our other operations, we would be precluded from classifying a sold or disposed operation as a “discontinued” operation. EITF 03-13 is effective for components disposed of or classified as held for sale in periods beginning after Discontinued operations