Business Context and Reporting Period
Company: MGM Mirage (now MGM Resorts International)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2003
Business Overview: The Company operates hotel, casino, and entertainment resorts primarily in Las Vegas, Nevada, with additional properties in Detroit, Biloxi, Darwin, and a 50% interest in the Monte Carlo Resort and the upcoming Borgata in Atlantic City. As of June 30, 2003, approximately 54% of outstanding shares were owned by Tracinda Corporation (Kirk Kerkorian).
Key Financial Metrics
| Metric (in thousands) | Three Months Ended June 30, 2003 |
Six Months Ended June 30, 2003 |
|---|---|---|
| Net Revenues | $985,344 | $1,945,588 |
| Operating Income | $174,557 | $335,968 |
| Net Income | $53,750 | $104,753 |
| Diluted EPS | $0.35 | $0.68 |
| Cash from Operations | N/A | $371,440 |
| Cash and Equivalents | $130,724 | $130,724 |
| Total Debt (Long-term + Current) | $5,124,369 | $5,124,369 |
| Available Borrowings | $711,000 | $711,000 |
Note: Figures exclude discontinued operations unless specified. Debt includes current portion of long-term debt.
Material Changes vs. Prior Period
- Revenue: Net revenues increased 1% quarter-over-quarter (QoQ) to $985 million and 1% year-to-date (YTD) to $1.95 billion. Excluding a one-time $11 million revenue item in 2002, revenue growth was 3% QoQ and 2% YTD.
- Profitability: Operating income decreased 24% QoQ to $175 million and 22% YTD to $336 million. Net income from continuing operations dropped 44% QoQ and 42% YTD.
- Cost Drivers: Increased labor costs due to a new union contract, higher property taxes, and a $5 million settlement with Nevada gaming authorities for cash transaction reporting violations. Preopening expenses rose to $15 million (Q2) largely due to the Borgata project.
- Discontinued Operations: The Company ceased operations of its online gaming site (PLAYMGMMIRAGE.com) and entered an agreement to sell the Golden Nugget Las Vegas and Laughlin properties. These are classified as discontinued operations, resulting in a $2 million loss for the quarter and $0.6 million for the six months.
- Debt & Liquidity: Cash and equivalents declined from $211 million (Dec 31, 2002) to $131 million (June 30, 2003). The Company reduced debt by $106 million during the six-month period.
Guidance, Outlook, and Risks
- Capital Projects: The Company anticipates final capital contributions of up to $38 million to the Borgata joint venture in Q3 2003. Borgata opened July 3, 2003. The Detroit permanent casino project is estimated to cost $575 million (excluding city payments), though construction is currently subject to litigation regarding the developer selection process.
- Share Repurchases: The Company repurchased 3.4 million shares for $91 million in the first half of 2003. A new 10 million share program was authorized in February 2003, with 7.9 million shares remaining available.
- Market Risk: Primary exposure is interest rate risk. A 100 basis-point change in LIBOR would impact annual interest costs by approximately $18 million. Long-term fixed-rate borrowings represent 65% of total debt.
- Legal & Regulatory: Pending litigation in Detroit could delay the permanent casino construction. The Company settled a $5 million regulatory fine in May 2003 regarding cash transaction reporting.
Investor Verification Checklist
- Discontinued Operations: Verify the closing timeline and final sale price of the Golden Nugget Las Vegas and Laughlin properties (agreed at approx. $215 million).
- Borgata Capital Calls: Confirm the timing and amount of the remaining $38 million capital contribution required for the Borgata joint venture.
- Detroit Litigation: Monitor the status of the 6th Circuit Court of Appeals injunction regarding the Detroit casino development agreement.
- Debt Covenants: Review compliance with the amended credit facility covenants (max leverage ratio 5.5:1, min coverage ratio 2.5:1).
- Stock Repurchase Program: Track the execution of the remaining 7.9 million shares authorized under the 2003 repurchase program.