Business Context and Reporting Period
Company: MGM Mirage (formerly MGM Grand, Inc.)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2004
Business Overview: MGM Mirage operates casino resorts in Las Vegas, Nevada; Primm, Nevada; Detroit, Michigan; Biloxi, Mississippi; and Atlantic City, New Jersey. The company also holds 50% interests in Monte Carlo (Las Vegas) and Borgata (Atlantic City). As of September 30, 2004, approximately 59% of outstanding shares were owned by Tracinda Corporation.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2004 | Nine Months Ended Sep 30, 2004 | Three Months Ended Sep 30, 2003 | Nine Months Ended Sep 30, 2003 |
|---|---|---|---|---|
| Net Revenues | $1,036.4 million | $3,175.4 million | $976.8 million | $2,902.8 million |
| Operating Income | $222.4 million | $737.6 million | $158.5 million | $489.6 million |
| Net Income | $126.9 million | $337.4 million | $47.2 million | $152.0 million |
| Diluted EPS (Total) | $0.89 | $2.33 | $0.31 | $0.99 |
| Cash and Equivalents | $355.6 million (Sep 30, 2004) vs. $178.0 million (Dec 31, 2003) | |||
| Long-Term Debt | $5.57 billion (Sep 30, 2004) vs. $5.52 billion (Dec 31, 2003) | |||
| Operating Cash Flow (9mo) | $608.9 million (2004) vs. $534.3 million (2003) |
Material Changes vs. Prior Period
- Revenue Growth: Net revenues increased 6% for the quarter and 9% for the nine-month period compared to 2003. This was driven by strong visitation in Las Vegas, higher room rates (REVPAR up 9% for the nine months), and the inclusion of Borgata (50% owned) which opened in July 2003.
- Profitability: Operating income increased 40% for the quarter and 51% year-to-date. Income from continuing operations rose 84% (quarter) and 90% (nine months), primarily due to revenue growth, operating leverage, and a significant reduction in the provision for doubtful accounts.
- Discontinued Operations: The quarter included a significant gain of $74.4 million from the sale of MGM Grand Australia Subsidiaries. The nine-month period also included an $8.2 million gain from the sale of the Golden Nugget Subsidiaries.
- Interest Expense: Net interest expense increased to $95.3 million (quarter) and $277.7 million (nine months) due to the issuance of fixed-rate debt in 2004 and higher variable market rates.
Guidance, Outlook, and Risks
- Mandalay Acquisition: In June 2004, MGM Mirage entered a definitive agreement to acquire Mandalay Resort Group for approximately $8.1 billion. The transaction is expected to close in Q1 2005, subject to regulatory and shareholder approval.
- Capital Projects: Major ongoing projects include the Bellagio expansion (opening late 2004) and the K2 Cirque du Soleil show at MGM Grand Las Vegas (opening late 2004). Capital expenditures for the nine months totaled $526.5 million.
- Liquidity: The company holds $355.6 million in cash and has approximately $2.3 billion available under its senior credit facility. Lenders have committed to increasing facility capacity to $7 billion to support the Mandalay acquisition.
- Legal Proceedings: Significant litigation includes the Lac Vieux Desert Band case regarding the Detroit casino development, which currently prohibits permanent construction pending resolution. Other active cases include Poulos Slot Machine litigation and Boardwalk Shareholder litigation.
- Tax Risks: The effective tax rate for the quarter was 37%, impacted by non-deductible costs related to a Michigan ballot initiative. The company is evaluating potential tax benefits from repatriating earnings from the MGM Grand Australia sale.
Investor Verification Checklist
- Mandalay Deal Closure: Verify the status of regulatory approvals and shareholder votes required to close the $8.1 billion Mandalay acquisition.
- Detroit Litigation: Monitor the Lac Vieux Desert Band litigation, as the resolution is critical to the construction of the permanent MGM Grand Detroit facility.
- Debt Structure: Review the impact of recent fixed-rate debt issuances ($1.5 billion in 2004) on future interest expense and leverage ratios.
- Discontinued Operations: Confirm the final tax treatment of the $136 million net proceeds from the MGM Grand Australia sale and the timing of repatriation.
- Capital Expenditures: Track the completion and cost overruns of the Bellagio expansion and K2 theater projects scheduled for late 2004.