UNITED STATESSECURITIES & EXCHANGE COMMISSION Washington, D.C. 20549
FORM 10-Q
For the transition period from to
Commission File No. 0-16760
MGM MIRAGE (Exact name of registrant as specified in its charter)
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /x/ No / /
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
MGM MIRAGE AND SUBSIDIARIES FORM 10-Q I N D E X
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MGM MIRAGE AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except share data)
The accompanying notes are an integral part of these consolidated financial statements.
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MGM MIRAGE AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts) (Unaudited)
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MGM MIRAGE AND SUBIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
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MGM MIRAGE AND SUBSIDIARIES CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NOTE 1—ORGANIZATION AND BASIS OF PRESENTATION
MGM MIRAGE (the "Company"), formerly known as MGM Grand, Inc., is a Delaware corporation, incorporated on January 29, 1986. As of March 31, 2001, approximately 58.5% of the outstanding shares of the Company's common stock were owned by Kirk Kerkorian and Tracinda Corporation, a Nevada corporation wholly owned by Kirk Kerkorian.
On May 31, 2000, the Company completed the acquisition (the "Mirage Acquisition") of Mirage Resorts, Incorporated ("Mirage") (see Note 2). Mirage, through wholly owned subsidiaries, owns and operates the following hotel, casino and entertainment resorts: Bellagio, a European-style luxury resort; The Mirage, a tropically-themed destination resort; Treasure Island at The Mirage, a Caribbean-themed hotel and casino resort; and the Holiday Inn® Casino Boardwalk, all of which are located on the Las Vegas Strip. Mirage also owns a 50% interest in the joint venture that owns and operates the Monte Carlo Resort & Casino, a palatial-style hotel and casino also located on the Las Vegas Strip. Mirage owns and operates Shadow Creek, an exclusive world-class golf course located approximately ten miles north of its Las Vegas Strip properties. Mirage also owns and operates the Golden Nugget, a hotel and casino in downtown Las Vegas, the Golden Nugget-Laughlin, located in Laughlin, Nevada, and Beau Rivage, a beachfront resort located in Biloxi, Mississippi. The Company is developing the Borgata, a hotel and casino resort on 27 acres in the Marina area of Atlantic City, New Jersey, through a limited liability company owned 50-50 with Boyd Gaming Corporation. The Company also owns approximately 95 acres adjacent to the Borgata site which is available for future development.
Through wholly owned subsidiaries, the Company owns and operates the MGM Grand Hotel and Casino ("MGM Grand Las Vegas"), a hotel, casino and entertainment complex, and New York-New York Hotel and Casino, a destination resort, both located on the Las Vegas Strip. The Company, through wholly owned subsidiaries, also owns and operates three resorts located in Primm, Nevada at the California/Nevada state line: Whiskey Pete's, Buffalo Bill's and the Primm Valley Resort (the "Primm Properties"), as well as two championship golf courses located near the Primm Properties.
The Company, through its wholly owned subsidiary, MGM Grand Detroit, Inc., and its local partners in Detroit, Michigan formed MGM Grand Detroit, LLC, to develop a hotel, casino and entertainment complex ("MGM Grand Detroit"). The plans for MGM Grand Detroit call for an 800-room hotel, a 100,000 square-foot casino, signature restaurants and retail outlets, a showroom and other entertainment venues. On July 28, 1999, the Michigan Gaming Control Board issued a casino license to MGM Grand Detroit, LLC to conduct gaming operations in its interim facility ("MGM Grand Detroit Casino"), which commenced operations on July 29, 1999. The MGM Grand Detroit Casino is located directly off of the John C. Lodge Expressway in downtown Detroit.
Through its wholly owned subsidiary, MGM Grand Australia Pty Ltd., the Company owns and operates the MGM Grand Hotel and Casino in Darwin, Australia ("MGM Grand Australia"), which is located on 18 acres of beachfront property on the north central coast of Australia.
Through its wholly owned subsidiary, MGM Grand South Africa, Inc., the Company manages two permanent casinos and one interim casino in two provinces of the Republic of South Africa. The Company managed an interim facility in Nelspruit from October 15, 1997 to November 17, 1999, at which time a permanent casino began operations and the temporary operations ceased. The interim casino in Witbank began operations on March 10, 1998, and the interim casino in Johannesburg operated from September 28, 1998 through November 26, 2000, at which time the permanent facility, the Montecasino, began operations and the temporary operations ceased. The Company receives management fees from its partner, Tsogo Sun Gaming & Entertainment ("Tsogo Sun"), which is
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responsible for providing all project costs. Tsogo Sun has been granted additional licenses for Durban and East London, and the Company anticipates interim casinos will be opened in those locations in 2001.
As permitted by the rules and regulations of the Securities and Exchange Commission, certain information and footnote disclosures normally included in the financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Form 10-K for the year ended December 31, 2000.
In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (which include only normal recurring adjustments) necessary to present fairly the Company's financial position as of March 31, 2001, and the results of its operations for the three month periods ended March 31, 2001 and 2000. The results of operations for such periods are not necessarily indicative of the results to be expected for the full year.
Certain reclassifications have been made to the 2000 financial statements to conform to the 2001 presentation, which have no effect on previously reported net income. In addition, the accompanying financial statements reflect certain adjustments to amounts related to other comprehensive income. The adjustments reduce previously reported comprehensive income by $4.7 million for the three months ended March 31, 2000, but have no effect on previously reported net income.
NOTE 2—MIRAGE ACQUISITION
On May 31, 2000, the Company completed the Mirage Acquisition whereby Mirage shareholders received $21 per share in cash. The acquisition had a total equity value of approximately $4.4 billion. In addition, the Company assumed approximately $2.0 billion of Mirage's outstanding debt, of which approximately $1.0 billion was refinanced and $950 million remains outstanding. The transaction was accounted for as a purchase and, accordingly, the purchase price was preliminarily allocated to the underlying assets acquired and liabilities assumed based upon their estimated fair values at the date of the acquisition. The estimated fair value of assets acquired and liabilities assumed (net of the debt refinanced at the time of the acquisition) were $8.1 billion and $2.7 billion, respectively. The operating results for Mirage are included in the Consolidated Statements of Income from the date of acquisition.
The following unaudited pro forma consolidated financial information for the Company has been prepared assuming the Mirage Acquisition had occurred on January 1, 2000:
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This unaudited pro forma consolidated financial information is not necessarily indicative of what the Company's actual results would have been had the acquisition been completed on January 1, 2000, or of future results..
NOTE 3—LONG-TERM DEBT
Long-term debt consisted of the following:
Total interest incurred for the three month periods ended March 31, 2001 and 2000 was $122 million and $24 million, respectively, of which $24 million and $2 million, respectively, was capitalized.
On January 23, 2001, the Company issued under its shelf registration statement $400 million of senior subordinated notes, which carry a coupon of 8.375% and are due on February 1, 2011. These senior subordinated notes contain covenants consistent with the Company's other senior subordinated notes. Remaining capacity under the shelf registration statement after issuance of these notes is $790 million. Any future offering of securities under the shelf registration statement will only be made by means of a prospectus supplement.
The Company's $1.3 billion term loan was fully repaid during the first quarter of 2001, principally through proceeds from the January 23, 2001 senior subordinated note offering. The Company recognized an extraordinary loss of $0.8 million, net of income tax benefit, relating to the early extinguishment of this loan, reflecting the write-off of unamortized debt issuance costs.
On April 6, 2001, the Company entered into an amendment to its $1.0 billion revolving credit facility whereby the maturity date was extended to April 5, 2002 and the lending commitment was reduced to $800 million.
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NOTE 4—INCOME PER SHARE OF COMMON STOCK
The weighted-average number of common and common equivalent shares used in the calculation of basic and diluted earnings per share consisted of the following:
NOTE 5—CONSOLIDATING CONDENSED FINANCIAL INFORMATION
The Company's subsidiaries (excluding MGM Grand Detroit, LLC and certain minor subsidiaries) have fully and unconditionally guaranteed, on a joint and several basis, payment of the $2.0 billion and $1.0 billion (subsequently amended to $800 million) revolving credit facilities, the senior notes and debentures and the senior subordinated notes. Separate condensed financial statement information for the subsidiary guarantors and non-guarantors as of March 31, 2001 and December 31, 2000 and for the three month periods ended March 31, 2001 and 2000 is as follows:
CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION
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CONDENSED CONSOLIDATING STATEMENT OF INCOME INFORMATION
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CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations
The May 31, 2000 acquisition of Mirage Resorts, Incorporated had a significant impact on our operating results for the three months ended March 31, 2001. The acquisition added four wholly owned and one joint venture resort on the Las Vegas Strip, as well as resorts in downtown Las Vegas and Laughlin, Nevada and Biloxi, Mississippi. Net revenues for the three months ended March 31, 2001 totaled $1.07 billion, an increase of $645 million, or 152%, over the prior-year first quarter. The Mirage properties generated $677 million of net revenues in the first quarter of 2001, while same store net revenues at the MGM properties declined by $32 million, or 8%, to $392 million.
The decrease in revenues at the MGM properties was concentrated in the casino area. Consolidated casino revenues for the first quarter of 2001 were $575 million, an increase of $290 million, or 101%, over the prior-year first quarter. The Mirage properties generated casino revenues of $330 million in the 2001 quarter, while casino revenues at the MGM properties declined by $40 million, or 14%, to $245 million. This decline was principally the result of declines of $18 million, $11 million and $8 million at MGM Grand Las Vegas, MGM Grand Detroit and the Primm Properties, respectively. The decrease at MGM Grand Las Vegas was attributable almost entirely to a lower table game hold percentage, as table games volume and revenues from slots and other casino games were relatively flat with the prior-year quarter. The decline at MGM Grand Detroit resulted from decreased gaming volumes, as a competitor opened the third and final Detroit casino in November 2000. The decrease at the Primm Properties was also attributable to reduced gaming volumes, reflecting increased competition from Native American casinos, as well as higher gasoline and utility costs in California.
Consolidated room revenues for the three months ended March 31, 2001 were $237 million, an increase of $165 million, or 230%, over the first quarter of 2000. The Mirage properties generated room revenues of $158 million in the 2001 quarter, and the MGM properties achieved an increase of $7 million, or 10%, to $79 million. This increase was generated at MGM Grand Las Vegas and New York-New York. MGM Grand Las Vegas achieved a 13% increase in room revenues, resulting principally from an 11% growth in average daily rate. Occupancy and average daily rate each grew at New York-New York, resulting in a 9% increase in room revenues.
Consolidated food and beverage, entertainment, retail and other revenues were $353 million for the first quarter of 2001, an increase of $253 million, or 253%, over the prior-year first quarter. The addition of the Mirage properties accounted for $251 million of this increase. The remaining $2 million was attributable primarily to increased food and beverage revenues at MGM Grand Las Vegas.
Consolidated operating expenses (before preopening expense, restructuring costs and corporate expense) were $822 million during the first quarter of 2001, an increase of $502 million, or 157%, over the $320 million recorded in the first quarter of 2000. The Mirage properties generated $513 of operating expenses, while operating expenses at the MGM properties declined by $11 million, or 3%, to $309 million. The expense reduction at the MGM properties was principally the result of lower expenses at MGM Grand Detroit, which enabled that property to achieve an improvement in operating margin despite the decline in its operating revenues.
Corporate expense was $11 million in the 2001 first quarter, an increase of $5 million over the first quarter of 2000. This increase was primarily attributable to the Mirage acquisition, reflecting higher corporate operating expenses related to a larger corporate structure and higher airplane costs due to the operation of two corporate airplanes in the current year compared to only one in the prior year.
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Interest expense, net of amounts capitalized, was $98 million for the first quarter of 2001, versus $22 million in the prior-year quarter. This increase reflected substantial increases both in interest cost and interest capitalized, each as a result of the Mirage acquisition. Interest cost was $122 million in the 2001 first quarter versus $24 million in the prior-year quarter, as our total debt increased from $1.31 billion at December 31, 1999 to $5.87 billion at December 31, 2000. This increase is reflective of the debt issued and assumed in connection with the Mirage acquisition. Interest capitalized increased to $24 million from the $2 million recorded in the prior-year quarter. A substantial majority of the interest capitalized in the 2001 first quarter related to development projects in the Marina area of Atlantic City, on development sites acquired in the Mirage acquisition.
Liquidity and Capital Resources
As of March 31, 2001 and December 31, 2000, we held cash and cash equivalents of $259 million and $228 million respectively. Cash provided by operating activities for the first three months of 2001 was $217 million, compared with $72 million for the comparable period of 2000.
Capital expenditures for the first quarter of 2001 were $65 million. These expenditures related to general property improvements at our resorts, including the recently completed convention/exhibit hall project at The Mirage, as well as pre-construction activities associated with ongoing development projects, including capitalized interest, principally in Atlantic City.
On January 23, 2001, we issued $400 million of senior subordinated notes, which carry a coupon of 8.375% and are due on February 1, 2011. These senior subordinated notes were issued under our shelf registration statement, leaving remaining capacity of $790 million. Any future offering of securities under the shelf registration statement will only be made by means of a prospectus supplement. We repaid the remaining $461 million balance under the $1.3 million term loan during the first quarter of 2001, principally through proceeds from the senior subordinated note offering. We also reduced the outstanding balances under our other bank credit facilities by $62 million, bringing total net reductions in debt during the quarter to $119 million.
On April 6, 2001, we entered into an amendment to our $1.0 billion revolving credit facility whereby the maturity date was extended to April 5, 2002 and the lending commitment was reduced to $800 million.
We intend to focus on utilizing available free cash flow to reduce indebtedness, as well as to finance our ongoing operations. We expect to finance operations, capital expenditures and existing debt obligations through cash flow from operations, cash on hand, bank credit facilities and, depending on market conditions, public offerings of securities under the shelf registration statement.
Safe Harbor Provision
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. Certain information included in this report contains statements that are forward-looking, such as statements relating to plans for future expansion and other business development activities, as well as other capital spending, financing sources, the effects of regulation (including gaming and tax regulations) and competition. Such forward-looking information involves important risks and uncertainties that could significantly affect anticipated results in the future and, accordingly, such results may differ from those expressed in any forward-looking statements made by or on behalf of the Company. These risks and uncertainties include, but are not limited to, those relating to competition, development and construction activities, dependence on existing management, leverage and debt service (including sensitivity to fluctuations in interest rates), domestic or international economic conditions
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(including sensitivity to fluctuations in foreign currencies), pending or future legal proceedings, changes in federal or state tax laws or the administration of such laws, changes in gaming laws or regulations (including the legalization of gaming in certain jurisdictions) and application for licenses and approvals under applicable jurisdictional laws and regulations (including gaming laws and regulations).
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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