Business Context and Reporting Period
Company: MGM Mirage (formerly MGM Grand, Inc.)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 2004
Business Overview: MGM Mirage operates a portfolio of casino resorts, primarily on the Las Vegas Strip (Bellagio, MGM Grand, The Mirage, Treasure Island, New York-New York, Boardwalk), with additional properties in Primm, Nevada; Biloxi, Mississippi; Detroit, Michigan; and Atlantic City, New Jersey (50% interest in Borgata). The company also held a 50% interest in Monte Carlo and MGM Grand Australia (pending sale).
Key Financial Metrics
| Metric | Q1 2004 | Q1 2003 |
|---|---|---|
| Net Revenues | $1,066.4 million | $951.9 million |
| Operating Income | $254.7 million | $159.5 million |
| Net Income | $105.8 million | $51.0 million |
| Diluted EPS | $0.72 | $0.33 |
| Cash from Operations | $194.8 million | $147.7 million |
| Cash and Equivalents (End of Period) | $196.4 million | $172.1 million |
| Total Debt (Long-term + Current) | $5.40 billion | $5.53 billion |
| Capital Expenditures | $177.0 million | $86.4 million |
Material Changes vs. Prior Period
- Revenue Growth: Net revenues increased 12% year-over-year, driven by a 13% increase in casino revenue and a 10% increase in non-casino revenue. Las Vegas Strip REVPAR increased 11% to $146, primarily due to higher room rates.
- Profitability Surge: Operating income rose 60% to $254.7 million, and income from continuing operations nearly doubled (99% increase) to $97.1 million. This was fueled by strong visitation, premium gaming performance during Chinese New Year and the Super Bowl, and operating leverage.
- Discontinued Operations: The company recorded a net gain of $8.7 million from discontinued operations, largely due to an $8.2 million gain on the sale of the Golden Nugget Subsidiaries (closed January 2004).
- Debt Management: Total debt decreased slightly. The company issued $525 million in new senior notes (5.875% due 2014) and used proceeds, along with $210 million from the Golden Nugget sale, to pay down $615 million in bank credit facility borrowings. Additionally, $49 million of senior notes were repurchased.
- Share Repurchases: The company repurchased 2.9 million shares for $121 million, reducing the weighted average shares outstanding and boosting EPS.
Outlook, Risks, and Contingencies
- Capital Projects: Significant capital expenditures ($177 million in Q1) are ongoing for the Bellagio expansion (new 928-room tower, budget ~$375 million), MGM Grand theatre construction, and room remodels at New York-New York and Bellagio.
- Asset Sales: An agreement was reached to sell MGM Grand Australia for approximately $147 million (A$195 million), expected to close in Q3 2004. The company withdrew its bid for Wembley plc in May 2004 after receiving a competing offer.
- Legal Proceedings:
- Detroit Litigation: The Michigan Court of Appeals affirmed the dismissal of a class-action suit regarding slot machine bonus wheels. However, the "Lac Vieux" litigation regarding the Detroit casino selection process remains pending before the 6th Circuit Court, with an injunction currently prohibiting construction of the permanent MGM Grand Detroit facility.
- NYRA Project: Development of video lottery terminals at Aqueduct is halted pending regulatory and legislative changes in New York.
- Market Risks: The company faces interest rate risk, managed via $300 million in interest rate swap agreements. It is also exposed to tourism trends, economic conditions, and competition in Las Vegas.
Investor Verification Checklist
- Debt Covenants: Verify continued compliance with the Senior Credit Facility leverage ratio (max 5.5:1) and interest coverage ratio (min 2.75:1).
- Detroit Construction Status: Monitor the resolution of the Lac Vieux litigation to determine the timeline for the permanent MGM Grand Detroit facility.
- Asset Sale Closing: Confirm the closing date and final proceeds of the MGM Grand Australia sale.
- Capital Expenditure Budgets: Track the $375 million Bellagio expansion budget against actual spending and potential cost overruns.
- Share Repurchase Program: Note that 5.1 million shares remain authorized for repurchase under the November 2003 program.