Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended September 30, 2000, for MGM Mirage (formerly MGM Grand, Inc.). The reporting period is defined by the completion of the Mirage Acquisition on May 31, 2000, a transaction valued at approximately $4.4 billion in equity plus the assumption of $2.0 billion in debt. This acquisition added major Las Vegas Strip properties including Bellagio, The Mirage, Treasure Island, and the Golden Nugget, as well as the Monte Carlo joint venture. The company also operates MGM Grand Las Vegas, New York-New York, MGM Grand Detroit, and properties in Australia and South Africa.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2000 | Nine Months Ended Sep 30, 2000 |
|---|---|---|
| Net Revenues | $1,090.7 million | $2,160.9 million |
| Operating Income | $224.8 million | $328.5 million |
| Net Income | $67.4 million | $92.7 million |
| Diluted EPS | $0.42 | $0.65 |
| Cash and Equivalents | $211.3 million | $211.3 million (Balance Sheet) |
| Operating Cash Flow (9mo) | N/A | $599.5 million |
| Total Debt (Long-term + Current) | $6.03 billion | $6.03 billion (Balance Sheet) |
Note: Revenue and profit figures are significantly impacted by the inclusion of Mirage properties for only four months of the nine-month period.
Material Changes vs. Prior Period
- Revenue Growth: Net revenues increased 172% ($690 million) for the quarter and 123% ($1.19 billion) for the nine months compared to the prior year, driven almost entirely by the Mirage Acquisition and the full quarter of operations at MGM Grand Detroit.
- Same-Store Performance: Excluding acquisitions, same-store casino revenue declined 8% in the quarter due to a lower table game hold percentage at MGM Grand Las Vegas, though slot volume increased. Same-store non-casino revenue increased 7% due to higher food and beverage and room rates.
- Debt Expansion: Total debt surged from $1.34 billion (Sep 1999) to $6.03 billion (Sep 2000) to fund the Mirage Acquisition. Consequently, net interest expense rose to $105 million for the quarter from $19 million in the prior year.
- One-Time Charges: The nine-month period included a $23.5 million restructuring charge and a $102.2 million asset write-down/impairment charge related to discontinued projects and asset re-evaluations following the acquisition.
Guidance, Outlook, and Risks
- Capital Strategy: Management intends to utilize free cash flow to reduce indebtedness. The company has a $2.75 billion Shelf Registration Statement with $1.19 billion remaining capacity for future debt or equity issuance.
- Refinancing: The company plans to refinance the remaining $461 million balance of a $1.3 billion Term Loan prior to its maturity in April 2001.
- Dividends: The quarterly dividend policy was discontinued in April 2000 following the Mirage Acquisition.
- Legal Contingencies: Significant litigation includes a bankruptcy adversary proceeding regarding alleged fraudulent transfers by Ken Mizuno (claims approx. $5.5 million remaining) and a class action lawsuit regarding the Mirage merger (dismissed with prejudice in November 2000).
- Development: Ongoing capital projects include the Borgata in Atlantic City (joint venture) and MGM Grand Detroit permanent facility.
Investor Verification Checklist
- Debt Covenants: Verify compliance with financial ratios required by the new $4.3 billion senior credit facilities and senior notes.
- Same-Store Trends: Monitor the sustainability of the decline in table game hold percentages at MGM Grand Las Vegas.
- Refinancing Risk: Assess the ability to refinance the $461 million Term Loan maturing in April 2001 given current market conditions.
- Integration Costs: Track the realization of the estimated $16 million in annualized cost savings from restructuring plans.
- Legal Exposure: Review the status of the Mizuno bankruptcy proceedings and any potential impact on the company's assets.