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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED] |
For the fiscal year ended December 31, 2005
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] |
For the transition period to
Commission File No. 0-16760
MGM MIRAGE
(Exact name of Registrant as specified in its charter)
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DELAWARE
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88-0215232 |
(State or other jurisdiction of
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(I.R.S. Employer |
incorporation or organization)
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Identification Number) |
3600
Las Vegas Boulevard South Las Vegas, Nevada 89109
(Address of principal executive office) (Zip Code)
(702) 693-7120
(Registrants telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Name of each exchange |
Title of each class
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on which registered |
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Common Stock, $.01 Par Value
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New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the Registrant is a well-known seasoned issuer, as defined
in Rule 405 of the Securities Act. Yes þ No o
Indicate by check mark if the Registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes o No þ
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 þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best of the
Registrants knowledge, in definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K:
Indicate by
check mark whether the Registrant is a large accelerated
filer, an accelerated filer, or a non-accelerated filer. See
definition of accelerated filer and large accelerated filer in Rule 12b-2 of the
Exchange Act (check one):
Large accelerated filer
þ Accelerated
filer o
Non-accelerated filer o
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act):
Yes o No þ
The aggregate market value of the Registrants Common Stock held by non-affiliates of the
Registrant as of June 30, 2005 (based on the closing price on the New York Stock Exchange
Composite Tape on June 30, 2005 was $5.1 billion.
As of March 10, 2006, 284,758,777 shares of Registrants Common Stock, $.01 par value, were outstanding.
Portions of the Registrants definitive Proxy Statement for its 2006 Annual Meeting of
Stockholders are incorporated by reference into Part III of this Form 10-K.
TABLE OF CONTENTS
PART I
ITEM 1. BUSINESS
Overview
MGM MIRAGE is one of the largest gaming companies in the world. We believe that we
own the worlds finest collection of casino resorts. Our strategy is predicated on
creating resorts of memorable character, treating our employees well and providing
superior service for our guests. MGM MIRAGE was organized as MGM Grand, Inc. on January
29, 1986 and is a Delaware corporation. MGM MIRAGE acts largely as a holding company and
its operations are conducted through wholly-owned subsidiaries. MGM MIRAGE is
referred to as the Company or the Registrant, and together with our subsidiaries may
also be referred to as we, us or our.
Acquisition of Mandalay Resort Group
On April 25, 2005, we closed our merger with Mandalay Resort Group (Mandalay)
under which we acquired Mandalay for $71 in cash for each share of common stock of
Mandalay. The total acquisition cost, including the assumption of debt and
transaction costs, was approximately $7.3 billion. As a result of the acquisition we
are a much larger company, with ownership of or investments in 26 casino resorts versus
13, over 66,000 employees versus 40,000, and total assets of over $20 billion versus $11
billion. The acquisition expands our portfolio of resorts on the Las
Vegas Strip, provides additional sites for future development and expands our employee
and customer bases significantly.
Our Operating Casino Resorts
We have provided below certain information about our casino resorts as of December
31, 2005. Except as otherwise indicated, we wholly own and operate the resorts shown
below.
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Number of |
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Approximate |
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Guestrooms |
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Casino Square |
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Gaming |
Name and Location |
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and Suites |
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Footage |
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Slots (1) |
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Tables (2) |
Las Vegas Strip, Nevada (3) |
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Bellagio |
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3,933 |
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155,000 |
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2,409 |
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143 |
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MGM Grand Las Vegas |
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5,044 |
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156,000 |
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2,593 |
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172 |
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Mandalay Bay (4) |
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4,756 |
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157,000 |
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1,949 |
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127 |
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The Mirage |
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3,044 |
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118,000 |
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2,056 |
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109 |
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Luxor |
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4,403 |
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100,000 |
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1,778 |
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88 |
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Treasure Island (TI) |
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2,885 |
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90,000 |
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1,800 |
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64 |
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New York-New York |
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2,024 |
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84,000 |
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1,867 |
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85 |
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Excalibur |
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3,990 |
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100,000 |
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1,762 |
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73 |
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Monte Carlo |
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3,002 |
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102,000 |
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1,726 |
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74 |
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Circus Circus Las Vegas (5) |
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3,764 |
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133,000 |
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2,364 |
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92 |
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Subtotal |
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36,845 |
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1,195,000 |
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20,304 |
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1,027 |
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Other Nevada |
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Primm Valley Resorts (Primm) (6) |
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2,642 |
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137,000 |
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2,854 |
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94 |
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Circus Circus Reno (Reno) |
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1,572 |
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69,000 |
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1,369 |
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52 |
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Silver Legacy 50% owned (Reno) |
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1,710 |
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87,000 |
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1,707 |
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68 |
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Gold Strike (Jean) |
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811 |
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37,000 |
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737 |
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15 |
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Nevada Landing (Jean) |
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303 |
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36,000 |
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733 |
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14 |
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Colorado Belle (Laughlin) |
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1,173 |
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50,000 |
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1,167 |
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39 |
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Edgewater (Laughlin) |
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1,356 |
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57,000 |
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1,099 |
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33 |
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Railroad Pass (Henderson) |
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120 |
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13,000 |
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347 |
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6 |
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Other Domestic Operations |
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MGM Grand
Detroit (Detroit, Michigan) |
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N/A |
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75,000 |
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2,841 |
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72 |
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Beau Rivage (Biloxi, Mississippi) (7) |
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N/A |
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N/A |
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N/A |
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N/A |
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Gold Strike (Tunica, Mississippi) |
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1,133 |
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40,000 |
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1,345 |
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48 |
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Borgata 50% owned (Atlantic City, NewJersey) |
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2,000 |
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125,000 |
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3,572 |
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133 |
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Grand Victoria 50% owned (Elgin, Illinois) |
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N/A |
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34,000 |
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1,100 |
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37 |
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Grand Total |
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49,665 |
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1,955,000 |
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39,175 |
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1,638 |
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(1) |
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Includes slot machines, video poker machines and other electronic gaming
devices. |
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(2) |
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Includes blackjack (21), baccarat, craps, roulette and other table games;
does not include poker. |
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(3) |
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Excludes Boardwalk, which closed in January 2006. |
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(4) |
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Includes the Four Seasons Hotel with 424 guest rooms and THEhotel with 1,117
suites. |
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(5) |
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Includes Slots-a-Fun. |
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(6) |
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Includes Primm Valley, Buffalo Bills and Whiskey Petes, along with the
Primm Center gas station and convenience store. |
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(7) |
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Beau Rivage sustained significant damage in late August 2005 as a result of
Hurricane Katrina and has been closed since. We expect to reopen Beau Rivage in
the third quarter of 2006. |
Bellagio
Bellagio is widely recognized as one of the premier destination resorts in the
world. Located at the heart of the Las Vegas Strip, Bellagio is the only casino resort
to earn the prestigious Five Diamond award from the American Automobile Association
(AAA), which it has earned for the last five years. The resort is richly decorated,
including a conservatory filled with unique botanical displays that change with the
seasons. At the front of Bellagio is an eight-acre lake featuring over 1,000 fountains
that come alive at regular intervals in a choreographed ballet of water, music and
lights. Bellagio features 200,000 square feet of convention space for the discerning
group planner. For both business and leisure customers, Bellagios restaurants offer the
finest choices, including Five Diamond award winners Picasso and Le Cirque.
Entertainment options include O, produced and performed by Cirque du Soleil, the Light
nightclub, and several other bars and lounges. Leisure travelers can also enjoy
Bellagios expansive pool, world-class spa and Gallery of Fine Arts.
MGM Grand Las Vegas
MGM Grand Las Vegas, located on the corner of the Las Vegas Strip and Tropicana
Avenue, is one of the largest casino resorts in the world, and is the
largest to receive the AAA's Four Diamond award. The resorts guest rooms
feature unique themes, including: West Wing, a recently remodeled area offering
boutique-style rooms; Skylofts, ultra-suites on the 29th floor featuring the
ultimate in personal service; and the exclusive Mansion for premium gaming customers.
MGM Grand Las Vegas features an extensive array of restaurants, including two new
restaurants by renowned chef Joël Robuchon, Craftsteak, NOBHILL, SeaBlue, Pearl, Shibuya
and Fiamma Trattoria. Other amenities include the Studio 54 nightclub, Tabu, the Ultra
Lounge, Teatro, numerous retail shopping outlets, a 380,000 square foot state-of-the-art
conference center, and an extensive pool and spa complex. During 2005, the resort opened
a state-of-the-art poker room and a renovated sports book.
Entertainment options at MGM Grand Las Vegas include KÀ, by Cirque du Soleil,
performed in a custom-designed theatre seating almost 2,000 guests; headliner
entertainment in the Hollywood Theatre; and La Femme. The MGM Grand Garden is a special
events center with a seating capacity of over 16,000 that provides a venue for concerts
by such stars as Madonna, Paul McCartney, the Rolling Stones, U2 and others, as well as
championship boxing and other sporting events.
We own a 50% interest in The Signature at MGM Grand, a condominium hotel
development adjacent to the resort. The other 50% is owned by an affiliate of Turnberry
Associates. All three luxury condominium towers are currently under construction. When complete, The Signature at MGM Grand will consist
of over 1,700 total residences, and we will have the opportunity to rent the
condominiums to third parties on behalf of owners who elect to have us do so.
Mandalay Bay
Mandalay Bay is the first major resort on the Las Vegas Strip to greet visitors
arriving by automobile from southern California. This AAA Four
Diamond, South Seas-themed resort features numerous restaurants, such as Charlie Palmers Aureole, Wolfgang
Pucks Trattoria Del Lupo, China Grill, Hubert Kellers Fleur de Lys, and Border Grill.
Mandalay Bays pool area consists of an 11-acre tropical lagoon with numerous pools, a
surfing beach, a lazy river, and Moorea Beach, a European-style ultra beach. Mandalay
Bay also has a 30,000-square-foot spa. Mandalay Bay offers multiple entertainment
venues that include a 12,000-seat special events arena, a 1,760-seat showroom featuring
the Broadway hit Mamma Mia!, the House of Blues, and the Rumjungle restaurant and
nightclub. In addition, Mandalay Bay features the Shark Reef, exhibiting sharks and
rare sea predators.
Included within Mandalay Bay is a Four Seasons Hotel with its own lobby,
restaurants and pool and spa, providing visitors with a luxury five-diamond
hospitality experience. THEhotel is an all-suite hotel tower within the Mandalay Bay
complex. THEhotel includes its own spa and fitness center, a lounge and two
restaurants, including Mix Las Vegas, created by famed chef Alain Ducasse and located on
the top floor of THEhotel.
The Mandalay Bay Conference Center is a convention and meeting complex adjacent to
Mandalay Bay. The complex includes more than one million square feet of exhibit space.
With this building and Mandalay Bays original conference center, Mandalay Bay offers
almost two million gross square feet of conference and exhibit space. Connecting
Mandalay Bay to Luxor is Mandalay Place, a retail center that includes approximately
90,000 square feet of retail space and approximately 40 boutique stores and restaurants,
including stores by GF Ferre, Nike Golf and Urban Outfitters, restaurants by celebrity
chefs Pierro Selvaggio, Hubert Keller and Rick Moonen, and the burlesque club Forty
Deuce.
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The Mirage
The Mirage is a luxurious, tropically-themed resort located on a site shared with
TI at the center of the Las Vegas Strip. The Mirage is recognized by AAA as a Four
Diamond resort. The exterior of the resort is landscaped with palm trees, abundant
foliage and more than four acres of lagoons and other water features centered around a
54-foot volcano and waterfall. Each evening, the volcano erupts at regular intervals,
with flames that spectacularly illuminate the front of the resort. Inside the front
entrance is an atrium with a tropical garden and additional water features capped by a
100-foot-high glass dome, designed to replicate the sights, sounds and fragrances of the
South Seas. Located at the rear of the hotel, adjacent to the swimming pool area, is a
dolphin habitat featuring Atlantic bottlenose dolphins and The Secret Garden of
Siegfried & Roy, an attraction that allows guests to view the beautiful exotic animals
of Siegfried & Roy, the world-famous illusionists.
The Mirage features a wide array of restaurants, including Kokomos, Fin, Stack,
Cravings, and Carnegie Deli. Several of these restaurants have been recently opened or
renovated. Entertainment at The Mirage includes a show featuring Danny Gans, the
renowned singer/impersonator, in The Danny Gans Theatre. We recently
opened Jet, a
16,000-square foot nightclub. We are also constructing a custom theatre for a new
Cirque du Soleil production based on the works of The Beatles, scheduled to open in
mid-2006. The Mirage also has numerous retail shopping outlets and 170,000 square feet
of convention space, including the 90,000-square foot Mirage Events Center.
Luxor
Luxor is an Egyptian-themed hotel and casino complex situated between Mandalay Bay
and Excalibur, which are all connected by a tram. Luxor offers 20,000 square feet of
convention space, a 20,000-square-foot spa, the RA nightclub, and food and entertainment
venues on three different levels beneath a soaring hotel atrium. Above the pyramids
casino, the property offers a special format motion base ride and an IMAX 2D/3D theater.
Luxors other public areas include restaurants, several cocktail lounges and a variety
of specialty shops. Recently, the Luxor opened the Broadway hit musical Hairspray and
added new headline entertainment from comedian Carrot Top.
Treasure Island (TI)
TI is a Caribbean-themed resort located next to The Mirage and also holds the AAA
Four Diamond rating. TI and The Mirage are connected by a monorail and a pedestrian
bridge links TI to the Fashion Show Mall through a re-designed north entrance. TI
features several restaurants, including Dishes, Isla Mexican Kitchen, Kahunaville, and
Canters Deli. Bars and lounges at TI include Mist and Tangerine, which features
indoor/outdoor space with views of the Las Vegas Strip and nightly burlesque
entertainment. The showroom at TI features Mystère, produced and performed by Cirque du
Soleil. The Sirens of TI Show is performed at the front of the resort, providing a
significant presence to visitors on the Las Vegas Strip and beckoning visitors into TI.
New York-New York
New York-New York is located at the corner of the Las Vegas Strip and Tropicana
Avenue. Pedestrian bridges link New York-New York with both MGM Grand Las Vegas and
Excalibur. The architecture at New York-New York replicates many of New York Citys
landmark buildings and icons, including the Statue of Liberty, the Empire State
Building, Central Park, the Brooklyn Bridge and a Coney Island-style roller coaster.
The casino features highly themed interiors including Park Avenue with retail shops, a
Central Park setting in the central casino area, and Little Italy with its traditional
food court set inside a typical residential neighborhood. New York-New York also
features several restaurants and numerous bars and lounges, including nationally
recognized Coyote Ugly and ESPNZone and Nine Fine Irishmen, an authentic Irish Pub.
Entertainment includes Zumanity by Cirque du Soleil and headline performer Rita Rudner.
Excalibur
Excalibur is a castle-themed hotel and casino complex situated immediately north of
Luxor at the corner of the Las Vegas Strip and Tropicana Avenue. Excaliburs public
areas include a Renaissance fair, a medieval village, an amphitheater with a seating
capacity of nearly 1,000 where mock jousting tournaments and costume drama are presented
nightly, two dynamic motion theaters, various artisans booths and medieval games of
skill. In addition, Excalibur has a buffet restaurant, several themed restaurants, as
well as several snack bars, cocktail lounges and a variety of specialty shops. The
property also features a 13,000-square-foot spa. Excalibur, Luxor and Mandalay are
connected by a tram, allowing guests to easily travel among these resorts.
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Monte Carlo
Through the acquisition of Mandalay we now own 100% of Monte Carlo, which is
located on the Las Vegas Strip adjacent to New York-New York. Monte Carlo has a
palatial style reminiscent of the Belle Époque, the French Victorian architecture of the
late 19th century. The resort has amenities such as fine dining at Andres, a brew pub
featuring live entertainment, a health spa, a beauty salon, and a 1,200-seat theatre
featuring the world-renowned magician Lance Burton.
Circus Circus Las Vegas
Circus Circus Las Vegas is a circus-themed hotel and casino complex situated on the north end
of the Las Vegas Strip. From a Big Top above the casino, Circus Circus Las Vegas
offers its guests a variety of circus acts performed daily, free of charge. A mezzanine
area overlooking the casino has a circus midway with carnival-style games and an arcade
that offers a variety of amusements and electronic games. Specialty restaurants, a
buffet, a coffee shop, snack bars, several cocktail bars and a variety of specialty
shops are also available to guests. The Adventuredome, covering approximately five
acres, offers theme park entertainment that includes thrills rides for adults and
children, themed carnival-style midway games, an arcade, food kiosks and souvenir shops,
all in a climate-controlled setting under a giant space-frame dome.
Primm Valley Resorts
The Primm Valley Resorts consist of three hotel-casinos on both sides of Interstate
15 at the California/Nevada state line in Primm, Nevada, approximately 40 miles south of
Las Vegas. Buffalo Bills Resort & Casino, Primm Valley Resort & Casino, Whiskey Petes
Hotel & Casino, Primm Valley Golf Club and three gas stations including the Primm Center
(collectively, the Primm Valley Resorts) form a major destination location and offer
visitors driving from California the first opportunity to wager upon entering Nevada and
the last opportunity before leaving.
Primm Valley Resorts offer an array of amenities and attractions, including a
25,000-square foot conference center, numerous restaurants, and a variety of amusement
rides. The 6,100-seat Star of the Desert Arena hosts top-name entertainers. Connected
to Primm Valley Resorts is the Fashion Outlet of Las Vegas, a shopping mall containing
approximately 400,000 square feet of retail space with over 100 retail outlet stores.
The Fashion Outlet is owned and operated by a third party.
Circus Circus Reno
Circus Circus Reno is a circus-themed hotel and casino complex situated in downtown
Reno, Nevada. Like its sister property in Las Vegas, Circus Circus Reno offers its
guests a variety of circus acts performed daily, free of charge. A mezzanine area has a
circus midway with carnival-style games and an arcade that offers a variety of
amusements and electronic games. The property also has specialty restaurants, a buffet,
a coffee shop, a deli/bakery, a snack bar, cocktail lounges, a gift shop and specialty
shops.
Silver Legacy
Through a wholly-owned entity, we are a 50% participant with Eldorado Limited
Liability Company in Circus and Eldorado Joint Venture, which owns and operates Silver
Legacy, a hotel-casino and entertainment complex situated in downtown Reno, Nevada.
Silver Legacy is located between Circus Circus Reno and the Eldorado Hotel & Casino,
which is owned and operated by an affiliate of our joint venture partner at Silver
Legacy. Silver Legacy is connected at the mezzanine level with Circus Circus Reno and
the Eldorado by enclosed climate-controlled skyways above the streets between the
respective properties. The resorts exterior is themed to evoke images of historical
Reno. Silver Legacy features several restaurants and bars, a special events center,
custom retail shops, a health spa and an outdoor pool and sun deck.
Gold Strike
This property is an Old West-themed hotel-casino located on the east side of
Interstate-15 in Jean, Nevada. Jean is located approximately 25 miles south of Las
Vegas and approximately 15 miles north of the California-Nevada state line. The
property has, among other amenities, a swimming pool and spa, several restaurants, a
banquet center, a gift shop and an arcade. The casino has a stage bar with regularly
scheduled live entertainment and a casino bar.
4
Nevada Landing
Nevada Landing is a turn-of-the-century riverboat-themed hotel-casino located in
Jean across Interstate 15 from Gold Strike. Nevada Landing includes a specialty
restaurant, a full-service coffee shop, a buffet, a snack bar, a gift shop, a swimming
pool and spa and a 300-guest banquet facility.
Colorado Belle
Colorado Belle is situated on the bank of the Colorado River in Laughlin, Nevada,
approximately 90 miles south of Las Vegas. Colorado Belle features a 600-foot replica of
a Mississippi riverboat, and also includes a buffet, a coffee shop, specialty
restaurants, a microbrewery, snack bars and cocktail lounges, as well as a gift shop and
other specialty shops.
Edgewater
Edgewater is located adjacent to Colorado Belle along the Colorado River.
Edgewaters facilities include a specialty restaurant, a coffee shop, a buffet, a snack
bar and cocktail lounges.
Railroad Pass
Railroad Pass is located in Henderson, Nevada, a suburb located southeast of Las
Vegas, and is situated along US Highway 93, the direct route between Las Vegas and Phoenix,
Arizona. The property includes, among other amenities, full-service restaurants, a
buffet, a gift shop, a swimming pool and a banquet facility. In contrast with our other
Nevada properties, Railroad Pass caters to local residents, particularly from Henderson
and Boulder City.
MGM Grand Detroit
MGM Grand Detroit is our interim casino facility in Detroit, Michigan. MGM Grand
Detroit is one of three casinos licensed in Detroit and is operated by MGM Grand
Detroit, LLC. MGM Grand Detroit, Inc., our wholly-owned subsidiary, holds a
controlling interest in MGM Grand Detroit, LLC. A minority interest in MGM Grand
Detroit, LLC is held by Partners Detroit, LLC, a Michigan limited liability company
owned by residents and entities located in the Detroit metropolitan area. MGM Grand
Detroits interior is decorated in an Art Deco motif with themed bars, a VIP lounge and
several restaurants. The site is conveniently located off the Howard Street exit from
the John C. Lodge Expressway in downtown Detroit, and has parking for over 3,000
vehicles in two parking garages and additional on-site covered parking.
Beau Rivage
Beau Rivage sustained significant damage in late August 2005 as a result of
Hurricane Katrina and has been closed since. We expect to reopen Beau Rivage in stages beginning in the
third quarter of 2006. The damage was primarily concentrated on the lower levels,
including the casino, restaurant and retail areas. We intend to rebuild Beau Rivage at
its existing beachfront site where Interstate 110 meets the Gulf Coast in Biloxi,
Mississippi. When fully reopened, Beau Rivage will include 1,740 guest rooms, over 2,000 slot
machines and 90 table games, new and restored restaurants, a state-of-the-art convention
center, and pool and spa amenities. Construction is also continuing on a world-class
golf course, Fallen Oak, designed by renowned golf course architect Tom Fazio, to be
located approximately 20 miles from the resort and scheduled to open
in November 2006.
Gold Strike-Tunica
Gold-Strike Tunica is a dockside casino located along the Mississippi River, 20
miles south of Memphis and approximately three miles west of Mississippi State Highway
61, a major north/south highway connecting Memphis with Tunica County. The property
features an 800-seat showroom, a coffee shop, a specialty restaurant, a buffet, a snack
bar and several cocktail lounges. Gold Strike-Tunica is part of a three-casino
development covering approximately 72 acres. The other two casinos are owned and
operated by unaffiliated third parties. We also own an undivided one-half interest in an
additional 388 acres of land that may be used for future development.
5
Borgata
The Borgata Hotel Casino and Spa is located at Renaissance Pointe in Atlantic City,
New Jersey. In addition to its 2,000 guest rooms and suites and extensive gaming floor,
Borgata includes several specialty restaurants, retail shops, a European-style health
spa, meeting space and unique entertainment venues. Borgata was the first new casino in
Atlantic City in over 13 years when it opened in July 2003. Through a wholly-owned subsidiary, we own 50% of the limited
liability company that owns Borgata. Boyd Gaming Corporation (Boyd) owns the other
50% and also operates the resort.
Borgata is currently expanding its gaming and non-gaming amenities, adding 36
casino table games and 500 slot machines, expanding its poker room and race book, and
adding additional restaurant, entertainment and other amenities. This $200 million
project is expected to be completed in the second quarter of 2006. Additionally,
Borgata has plans to add another hotel tower, the Water Club at Borgata, featuring 800
guestrooms and suites, along with a new spa, parking garage and meeting rooms. This
$325 million project is expected to be completed in late 2007. Neither project is
expected to require contributions from us, as existing operating cash flow and Borgatas
recently renegotiated bank credit facility is anticipated to provide for the cost of the
expansions.
Grand Victoria
Through wholly-owned entities, we are a 50% participant with RBG, L.P. in an entity
which owns Grand Victoria, a Victorian-themed riverboat casino and land-based
entertainment complex in Elgin, Illinois, a suburb approximately 40 miles northwest of
downtown Chicago. The riverboat offers dockside gaming, which means its operation is
conducted at dockside without cruising. The property also features a dockside complex
that contains an approximately 83,000-square-foot pavilion with a buffet, a fine dining
restaurant, a VIP lounge and a gift shop.
Golf Courses
We own and operate an exclusive world-class golf course, Shadow Creek, designed by
Tom Fazio and located approximately ten miles north of our Las Vegas Strip resorts.
Shadow Creek is ranked 3rd in Golf Digests ranking of Americas 100 Greatest
Public Courses. We also own and operate the Primm Valley Golf Club, located four miles
south of the Primm Valley Resorts in California, which includes two 18-hole championship
courses. These golf courses were also designed by Tom Fazio.
Future Development
Project CityCenter
In November 2004 we announced a plan to develop a multi-billion dollar urban
metropolis, Project CityCenter, on 66 acres of land on the Las Vegas Strip, between
Bellagio and Monte Carlo. Project CityCenter will feature a 4,000-room casino resort
designed by world-famous architect Cesar Pelli; two 400-room non-gaming boutique hotels,
one of which will be managed by luxury hotelier Mandarin Oriental; approximately 470,000
square feet of retail shops, dining and entertainment venues; and approximately 2.3
million square feet of residential space in over 2,900 luxury condominium and
condominium-hotel units in multiple towers.
As currently contemplated, we believe Project CityCenter will cost approximately $7
billion, excluding preopening and land costs. After estimated proceeds of $2.5 billion
from the sale of residential units, we believe the net project cost will be
approximately $4.5 billion. We expect to complete the design work for Project
CityCenter in mid-2006 and expect the project to open in 2009. The design, budget and
schedule of Project CityCenter are still preliminary, and the ultimate timing, cost and
scope of Project CityCenter are subject to risks attendant to large-scale projects.
Detroit, Michigan
MGM Grand Detroit, LLC has operated an interim casino facility in downtown Detroit
since July 1999. In August 2002 the Detroit City Council approved revised development
agreements with our subsidiary and two other developers. The revised development
agreement released us and the City from certain of the obligations under the original
agreement and significantly changed other provisions of the original agreement.
In April 2005, the 6th Circuit Court of Appeals lifted its injunction
prohibiting commencement of construction of the permanent hotel and casino complexes. We
have obtained land and began construction on our permanent facility, which will be
located near the site of our interim facility. The permanent facility is expected to
open in late 2007 at a cost of approximately $765 million, including land and preopening
costs, and will feature a 400-room hotel, 100,000-square foot casino, numerous
restaurant and entertainment amenities, and spa and convention facilities. The complete
design, timing and cost of the permanent facility are at a preliminary stage, and are
subject to risks attendant to large-scale projects.
6
Macau
We own 50% of MGM Grand Paradise Limited, an entity which is developing, and will
operate, MGM Grand Macau, a hotel-casino resort in Macau S.A.R. Pansy Ho Chiu-king owns
the other 50% of MGM Grand Paradise Limited. MGM Grand Macau will be located on a prime
waterfront site and will feature at least 345 table games and 1,035 slots with room for
significant expansion. Other features will include a 600-room hotel, a luxurious spa,
convertible convention space, a variety of dining
destinations, and other attractions. Construction of MGM Grand Macau, which is estimated to cost $1.1 billion including license and land rights and preopening costs,
began in the second quarter of 2005 and the resort is anticipated to open in late 2007. The complete design, timing, cost and scope of the project are at a
preliminary stage and are subject to the risks attendant to large-scale projects. We
have invested $180 million in the venture, and are committed to loaning the venture up
to $100 million. The venture has obtained commitments from lenders for a credit
facility sufficient, along with equity contributions and shareholder loans, to fund the
construction of MGM Grand Macau.
New York Racing Association
We have entered into a definitive agreement with the New York Racing Association
(NYRA) to manage video lottery terminals (VLTs) at NYRAs Aqueduct horseracing
facility in metropolitan New York. We will assist in the development of the
approximately $170 million facility, including providing project financing, and will
manage the facility for a term of five years, extended automatically if the financing
provided by us is not fully repaid, for a fee. Recent legislative changes will allow us
to operate the VLTs past the expiration date of the current NYRA franchise
agreement.
Atlantic City, New Jersey
We own approximately 130 acres on Renaissance Pointe in Atlantic City, New Jersey.
We lease 10 acres to Borgata under long-term leases for use in its current operations
and for its expansion. Of the remaining 120 acres, approximately 72 acres are suitable
for development. We lease nine of these acres to Borgata on a short-term basis for
surface parking and a portion of the remaining acres consists of common roads,
landscaping and master plan improvements which we designed and developed as required by
our agreement with Boyd. We own an additional 15 developable acres in the Marina District
near Renaissance Pointe.
We must apply for and receive numerous governmental permits and satisfy other
conditions before construction of a new resort on the Renaissance Pointe site could
begin. No assurance can be given that we will develop a casino resort in New Jersey, or
its ultimate schedule, size, configuration or cost if we do develop a casino resort.
United Kingdom
We continue to pursue development opportunities in the United Kingdom. We have
entered into agreements or have formed strategic alliances with several companies in
order to further these development efforts. We are currently pursuing opportunities in
Birmingham, Glasgow, Newcastle and Sheffield. These opportunities are subject to certain
conditions, including obtaining regional casino licenses and regulatory approvals, and
the implementation of an acceptable tax regime. The Gambling Act 2005 includes
authorization for only one initial regional casino (unlimited table games and a maximum
of 1,250 slot machines) and eight large casinos (unlimited table games and a maximum of
150 slot machines), a significant reduction from previous proposals. The Gambling Act
2005 allows for an increase in the number of regional casinos, but it is uncertain
whether more regional casinos will be approved in the near term.
Singapore
In 2005 we agreed to form a joint venture with CapitaLand, a listed company in
Singapore, to pursue one of two gaming licenses in Singapore. We will own 60% of the joint
venture and would manage the resort. In April 2005, we and our partner CapitaLand,
together with 11 other applicants, were successful in qualifying for the second round of
the proposal process for the development of an integrated resort complex in the Marina
Bayfront of Singapore. The Singapore government issued the request for proposals in the
fourth quarter of 2005 and we are in the process of preparing our proposal response.
Only three other bidders have indicated they expect to submit responses for the Marina site.
7
Other
We regularly evaluate possible expansion and acquisition opportunities in both the
domestic and international markets. These opportunities may include the ownership,
management and operation of gaming and other entertainment facilities in Nevada or in
states other than Nevada or outside of the United States. We may undertake these
opportunities either alone or in cooperation with one or more third parties.
Development and operation of any gaming facility in a new jurisdiction is subject to
many contingencies. Several of these contingencies are outside of our control and may
include the passage of appropriate gaming legislation, the issuance of necessary
permits, licenses and approvals, the availability of appropriate financing and the
satisfaction of other conditions. We cannot be sure that we will decide or be able to
proceed with any acquisition or expansion opportunities.
Operations
We operate primarily in one segment, the operation of casino resorts, which
includes offering gaming, hotel, dining, entertainment, retail and other resort
amenities. Giving effect to the Mandalay merger, over half of our net revenue is now
derived from non-gaming activities, a higher percentage than many of our competitors, as
our operating philosophy is to provide a complete resort experience for our guests,
including non-gaming amenities which command a premium price based on their quality. We
believe that we own several of the premier casino resorts in the world, and a main focus
of our strategy is to continually reinvest in these resorts to maintain our competitive
advantage.
As a resort-based company, our operating results are highly dependent on the volume
of customers at our resorts, which in turn impacts the price we can charge for our hotel
rooms and other amenities. We also generate a significant portion of our operating
income from the high-end gaming segment, which can cause variability in our results.
Most of our revenue is essentially cash-based, through customers wagering with cash
or paying for non-gaming services with cash or credit cards. Our resorts, like many in
the industry, generate significant operating cash flow. Our industry is capital
intensive and we rely heavily on the ability of our resorts to generate operating cash
flow to repay debt financing, fund maintenance capital expenditures and provide excess
cash for future development.
Our results of operations do not tend to be seasonal in nature, though a variety of
factors can affect the results of any interim period, including the timing of major Las
Vegas conventions, the amount and timing of marketing and special events for our
high-end customers, and the level of play during major holidays, including New Year and
Chinese New Year. Our significant convention and meeting facilities allow us to maximize
hotel occupancy and customer volumes during off-peak times such as mid-week or during traditionally slower leisure
travel periods, which also leads to better labor utilization.
All of our casino resorts operate 24 hours each day, every day of the year, with
the exception of Grand Victoria which operates 22 hours a day, every day of the year.
Our primary casino operations are owned and managed by us. Other resort amenities may
be owned and operated by us, owned by us but managed by third parties for a fee, or
leased to third parties. We generally have an operating philosophy that prefers
ownership of amenities, since guests have direct contact with staff in these areas and
we prefer to control all aspects of the guest experience. However, we do
lease space to retail and food and beverage operators in certain situations,
particularly for branding opportunities. We also operate many managed outlets,
utilizing third party management for specific expertise in areas such as restaurants and
nightclubs, as well as for branding opportunities. Since we believe that the number of
walk-in customers also affects the success of our casino resorts, we design our
facilities to maximize their attraction to guests of other hotels.
We utilize technology to maximize revenue and efficiency in our operations. We are
in the process of combining our Players Club with Mandalays One Club program. When the
process is complete, Players Club will link our major resorts, and consolidate all slots
and table games activity for customers with a Players Club account. Under the combined
program, customers will qualify for benefits across all of these resorts, regardless of
where they play. We believe that our Players Club enables us to more effectively market
to our customers. A significant portion of the slot machines at our resorts operate
with International Game Technologys EZ-Pay cashless gaming system, including the
Mandalay resorts where we recently converted many of the slot machines to EZ-Pay. We
believe that this system enhances the customer experience and increases the revenue
potential of our slot machines.
Technology is a critical part of our strategy in non-gaming operations and
administrative areas as well. Our hotel systems include yield management modules which
allow us to maximize occupancy and room rates. Additionally, these systems capture most
charges made by our customers during their stay, including allowing customers of any of
our resorts to charge meals and services at other MGM MIRAGE resorts to their hotel
accounts. We are implementing a new hotel management system at all our resorts in 2006
and 2007, which we expect will enhance our guest service and improve our yield management across
our portfolio of resorts.
8
Marketing and Competition
General
Our casino resorts generally operate in highly competitive environments. We compete
against other gaming companies as well as other hospitality and leisure and business
travel companies. Our primary methods of competing successfully in a competitive
environment include:
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Locating our resorts in desirable leisure and business travel markets, and
operating at superior sites within those markets. |
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Constructing and maintaining high-quality resorts and facilities, including
luxurious guestrooms along with premier dining, entertainment and retail
amenities; |
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Recruiting, training and retaining well-qualified and motivated employees
who provide superior and friendly customer service; |
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Providing unique, must-see entertainment attractions; and |
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Developing distinctive and memorable marketing and promotional programs. |
Customers and Competition
Our Las Vegas casino resorts compete for customers with a large number of other
hotel-casinos in the Las Vegas area, including major hotel-casinos on or near the Las
Vegas Strip, major hotel-casinos in the downtown area, which is about five miles from
the center of the Strip, and several major facilities elsewhere in the Las Vegas area.
According to the Las Vegas Convention and Visitors Authority, there were approximately
133,200 guestrooms in Las Vegas at December 31, 2005, up 1% from approximately 131,500
rooms at December 31, 2004. Las Vegas visitor volume was 38.6 million in 2005, a 3%
increase from the 37.4 million reported for 2004. The principal segments of the Las
Vegas gaming market are leisure travel, premium gaming customers, conventions, including
small meetings and corporate incentive programs, and tour and travel. Our high-end
properties, which include Bellagio, MGM Grand Las Vegas, Mandalay Bay, and The Mirage,
appeal to the upper end of each market segment, balancing their business by using the
convention and tour and travel segments to fill the mid-week and off-peak periods. Our
marketing strategy for TI, New York-New York, Luxor and Monte Carlo is aimed at
attracting middle- to upper-middle-income wagerers, largely from the leisure travel and,
to a lesser extent, the tour and travel segments. Excalibur and Circus Circus Las Vegas
generally cater to the value-oriented and middle-income leisure travel and tour and travel
segments.
Outside Las Vegas, our other wholly-owned Nevada operations, including those in Reno and
Laughlin, compete with each other and with many other similar sized and larger
operations. A significant portion of our customers at these resorts come from California. We believe the
expansion of Native American gaming has had a negative impact on all of our Nevada
resorts not located on the Las Vegas Strip, and the anticipated additional expansion in
California could have a further adverse effect on these resorts. Our Nevada resorts not
located in Las Vegas appeal primarily to middle-income customers attracted by room, food
and beverage and entertainment prices that are lower than those offered by major Las
Vegas hotel-casinos. Our target customer for these resorts is the value-oriented leisure
traveler and the value-oriented local customer.
Outside Nevada, our wholly-owned resorts mainly compete for customers in local
gaming markets, where location is a critical success factor. In Tunica, Mississippi, one of our competitors is closer to Memphis, the areas
principal market. In addition, we compete with gaming operations in surrounding
jurisdictions and other leisure destinations in each region. For instance, in Detroit,
Michigan we also compete with a casino in nearby Windsor, Canada. In Biloxi,
Mississippi we also compete with regional riverboat and land-based casinos in Louisiana, Native American casinos in central Mississippi, the south Florida leisure
market, and with casinos in the Bahamas.
Our unconsolidated affiliates mainly compete for customers against casino resorts
in their respective markets, and in some cases against our wholly-owned operations.
Much like our wholly-owned resorts, our unconsolidated affiliates compete through the
quality of amenities, the value of the experience offered to guests, and the location of
their resorts.
Our Companys facilities also compete for gaming customers with hotel-casino
operations located in other areas of the United States and other parts of the world, and
for leisure and business travelers with non-gaming tourist destinations such as Hawaii,
Florida and cruise ships. Our hotel-casinos compete to a lesser extent with
state-sponsored lotteries, off-track wagering, card parlors, and other forms of
legalized gaming in the United States.
9
Marketing
We advertise on radio, television and billboards and in newspapers and magazines in
selected cities throughout the United States and overseas, as well as on the Internet and by direct
mail. We also advertise through our regional marketing offices located in major United
States and foreign cities. A key element of marketing to premium gaming customers is
personal contact by our marketing personnel. Direct marketing is also important in the
convention segment. We maintain Internet websites which inform customers about our
resorts and allow our customers to reserve hotel rooms and make restaurant and show
reservations. We also operate call centers to allow customer contact by phone to make
hotel, restaurant and show reservations.
We utilize our world-class golf courses in marketing programs at our Las Vegas
Strip and other Nevada resorts. Our major Las Vegas resorts offer luxury suite packages
that include golf privileges at Shadow Creek. In connection with our marketing
activities, we also invite our premium gaming customers to play Shadow Creek on a
complimentary basis. We use Primm Valley Golf Club for marketing purposes at our Las
Vegas and Primm resorts, including offering room and golf packages at special rates.
Competitive Risks
The principal negative factors relating to our competitive position are:
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Our limited geographic diversification-our major resorts are concentrated
on the Las Vegas Strip and some of our largest competitors operate in more
gaming markets than we do; |
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There are a number of gaming facilities located closer to where our
customers live than our resorts; |
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Our guestroom, dining and entertainment prices are often higher than those
of most of our competitors in each market, although we believe that the
quality of our facilities and services is also higher; |
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Our hotel-casinos compete to some extent with each other for customers.
Bellagio, MGM Grand Las Vegas, Mandalay Bay and The Mirage, in particular,
compete for some of the same premium gaming customers; and |
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Additional new hotel-casinos and expansion projects at existing Las Vegas
hotel-casinos are under construction or have been proposed. We are unable to
determine to what extent increased competition will affect our future
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Control Over Gaming Activities
General
In connection with the supervision of gaming activities at our casinos, we maintain
stringent controls on the recording of all receipts and disbursements. These controls
include:
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Locked cash boxes on the casino floor; |
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Daily cash and coin counts performed by employees who are independent of casino operations; |
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Constant observation and supervision of the gaming area; |
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Observation and recording of gaming and other areas by closed-circuit television; |
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Constant computer monitoring of our slot machines; and |
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Timely analysis of deviations from expected performance. |
Issuance of Markers
Marker play represents a significant portion of the table games volume at Bellagio,
MGM Grand Las Vegas, Mandalay Bay and The Mirage. Our other facilities do not emphasize
marker play to the same extent, although we offer markers to customers at certain of
those casinos as well.
We maintain strict controls over the issuance of markers and aggressively pursue
collection from those customers who fail to pay their marker balances timely. These
collection efforts are similar to those used by most large corporations when dealing
with overdue customer accounts, including the mailing of statements and delinquency
notices, personal contacts, the use of outside collection agencies and civil litigation.
A significant portion of our Companys accounts receivable, for amounts unpaid
resulting from markers which are not collectible through banking channels, is owed by
major casino customers from the Far East. The collectibility of unpaid markers is
affected by a number of factors, including changes in currency exchange rates and
economic conditions in the customers home countries.
10
In Nevada, Mississippi, Michigan, and Illinois, amounts owed for markers which are
not timely paid are enforceable under state laws. All other states are required to
enforce a judgment for amounts owed for markers entered into in Nevada, Mississippi,
Illinois or Michigan which are not timely paid, pursuant to the Full Faith and Credit
Clause of the United States Constitution. Amounts owed for markers which are not timely
paid are not legally enforceable in some foreign countries, but the United States assets
of foreign customers may be reached to satisfy judgments entered in the United States.
Employees and Labor Relations
As of December 31, 2005, we had approximately 54,500 full-time and 12,000 part-time
employees. At that date, we had collective bargaining contracts with unions covering
approximately 29,000 of our employees. We consider our employee relations to be good.
Regulation and Licensing
The gaming industry is highly regulated, and we must maintain our licenses and pay
gaming taxes to continue our operations. Each of our casinos is subject to extensive
regulation under the laws, rules and regulations of the jurisdiction where it is
located. These laws, rules and regulations generally concern the responsibility,
financial stability and character of the owners, managers, and persons with financial
interest in the gaming operations. Violations of laws in one jurisdiction could result
in disciplinary action in other jurisdictions. A more detailed description of the
regulations to which we are subject is contained in Exhibit 99 to this Annual Report on
Form 10-K, which Exhibit is incorporated herein by reference.
Our businesses are subject to various federal, state and local laws and regulations
in addition to gaming regulations. These laws and regulations include, but are not
limited to, restrictions and conditions concerning alcoholic beverages, environmental
matters, employees, currency transactions, taxation, zoning and building codes, and
marketing and advertising. Such laws and regulations could change or could be
interpreted differently in the future, or new laws and regulations could be enacted.
Material changes, new laws or regulations, or material differences in interpretations by
courts or governmental authorities could adversely affect our operating results.
Forward-looking
Statements
(Cautionary Statements Under the Private Securities Litigation Reform Act of 1995)
This Form 10-K and our 2005 Annual Report to Stockholders contain some
forward-looking statements. Forward-looking statements give our current expectations or
forecasts of future events. You can identify these statements by the fact that they do
not relate strictly to historical or current facts. They contain words such as
anticipate, estimate, expect, project, intend, plan, believe, may,
could, might and other words or phrases of similar meaning in connection with any
discussion of future operating or financial performance. In particular, these include
statements relating to future actions, new projects, future performance, the outcome of
contingencies such as legal proceedings and future financial results. From time to
time, we also provide oral or written forward-looking statements in our Forms 10-Q and
8-K, press releases and other materials we release to the public. Any or all of our
forward-looking statements in this Form 10-K, in our 2005 Annual Report to Stockholders
and in any other public statements we make may turn out to be wrong. They can be
affected by inaccurate assumptions we might make or by known or unknown risks and
uncertainties. Many factors mentioned in this Form 10-K for example, government
regulation and the competitive environment will be important in determining our
future results. Consequently, no forward-looking statement can be guaranteed. Our
actual future results may differ materially.
We undertake no obligation to publicly update any forward-looking statements,
whether as a result of new information, future events or otherwise. You are advised,
however, to consult any further disclosures we make on related subjects in our Forms
10-K, 10-Q and 8-K reports to the Securities and Exchange Commission. Also note that we
provide the following discussion of risks, uncertainties and possible inaccurate
assumptions relevant to our business. This discussion is
provided as permitted by the Private Securities Litigation Reform Act of 1995.
You should also be aware that while we from time to time communicate with
securities analysts, we do not disclose to them any material non-public information,
internal forecasts or other confidential business information. Therefore, you should
not assume that we agree with any statement or report issued by any analyst,
irrespective of the content of the statement or report. To the extent that reports
issued by securities analysts contain projections, forecasts or opinions, those reports
are not our responsibility.
11
Factors
that May Affect Our Future Results
You
should be aware that the occurrence of any of the events described in this section and
elsewhere in this report or in any other of our filings with the SEC could have a material
adverse effect on our business, financial position, results of
operations and cash flows.
In evaluating us, you should consider carefully, among other things, the risks described below.
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We have significant indebtedness. At December 31, 2005, we had approximately
$12.4 billion of indebtedness. The interest rate on a large portion of our
long-term debt will be subject to fluctuation based on changes in short-term
interest rates and the level of debt-to-EBITDA (as defined) under the provisions of
our senior credit facility. Our current bank credit agreements and the indentures
governing our debt securities do not prohibit us from borrowing additional funds in
the future. Our interest expense could increase as a result of these factors.
Additionally, our indebtedness could increase our vulnerability to general adverse
economic and industry conditions, limit our flexibility in planning for or reacting
to changes in our business and industry, limit our ability to borrow additional
funds and place us at a competitive disadvantage compared to other less leveraged
competitors. Our ability to reduce our outstanding debt will be subject to our
future cash flows, other capital requirements and other factors, some of which are
not within our control. |
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Our casinos in Las Vegas and elsewhere are destination resorts that compete with
other destination travel locations throughout the United States and the world. We
do not believe that our competition is limited to a particular geographic area, and
gaming operations in other states or countries could attract our customers. To the
extent that new casinos enter our markets or hotel room capacity is expanded by
others in major destination locations, competition will increase. Major
competitors, including new entrants, have either recently expanded their hotel room
capacity or are currently expanding their capacity or constructing new resorts in
Las Vegas. Also, the recent growth of gaming in areas outside Las Vegas, including
California, has increased the competition faced by our operations in Las Vegas and
elsewhere. In particular, as large scale gaming operations in Native American
tribal lands increase, competition will increase. |
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The expansion of Native American gaming in California has already impacted our
operations. According to the California Gambling Control Commission, more than 60
compacts with tribes had been approved by the federal government as of December 31,
2005, with more than 50 of the tribes legally operating casinos in California in
accordance with these compacts. Additional expansion of gaming in California could
have an adverse impact on our results of operations. |
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The ownership and operation of gaming facilities are subject to extensive
federal, state and local laws, regulations and ordinances, which are administered
by the relevant regulatory agencies in each jurisdiction. These laws, regulations
and ordinances vary from jurisdiction to jurisdiction, but generally concern the
responsibility, financial stability and character of the owners and managers of
gaming operations as well as persons financially interested or involved in gaming
operations. As such, our gaming regulators can require us to disassociate
ourselves from suppliers or business partners found unsuitable by the regulators.
For a summary of gaming regulations that affect our business, see Regulation and
Licensing. The regulatory environment in any particular jurisdiction may change
in the future and any such change could have a material adverse effect on our
results of operations. In addition, we are subject to various gaming taxes, which
are subject to possible increase at any time. For instance, the gaming tax rate in
Michigan was increased in 2004. |
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Our business is affected by economic and market conditions in the
markets in which we operate and in the locations our customers reside. Bellagio,
MGM Grand Las Vegas, Mandalay Bay and The Mirage are particularly affected by
economic conditions in the Far East, and all of our Nevada resorts are affected by
economic conditions in the United States, and California in particular. A
recession or economic slowdown could cause a reduction in visitation to our
resorts, which would adversely affect our operating results. |
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Certain of our casino properties are located in areas that may be subject to
extreme weather conditions, including, but not limited to, hurricanes. Such extreme
weather conditions may interrupt our operations, damage our properties, and reduce
the number of customers who visit our facilities in such areas. Although we
maintain both property and business interruption insurance coverage for certain
extreme weather conditions, such coverage is subject to deductibles and limits on
maximum benefits, including limitation on the coverage period for business
interruption, and we cannot assure you that we will be able to fully insure such losses or fully collect, if at
all, on claims resulting from such extreme weather conditions. Furthermore, such
extreme weather conditions may interrupt or impede access to our affected properties
and may cause visits to our affected properties to decrease for an indefinite
period. For example, in August 2005, Hurricane Katrina caused significant damage to
our Beau Rivage resort. See Managements Discussion and Analysis of Financial
Condition and Results of Operations Financial Statement Impact of Hurricane
Katrina. |
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We are a large consumer of electricity and other energy. Accordingly, increases
in energy costs, such as those experienced recently may have a negative impact on
our operating results. Additionally, higher energy and gasoline prices which
affect our customers may result in reduced visitation to our resorts and a
reduction in our revenues. For example, Nevada Power, which supplies power to our
Las Vegas resorts, recently submitted a rate request which would significantly
increase our cost of electricity at those resorts. |
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Many of our customers travel by air. As a result, the cost and availability of
air service and the impact of events like those of September 11, 2001, can affect
our business. Additionally, there is one principal interstate highway between Las
Vegas and Southern California, where a large number of our customers reside.
Capacity constraints of that highway or any other traffic disruptions may affect
the number of customers who visit our facilities. |
|
|
|
Leisure and business travel, especially travel by air, are particularly
susceptible to global geopolitical events, such as terrorist attacks or acts of war
or hostility, which can create economic and political uncertainties that could
adversely impact our business levels. Furthermore, although we have been able to
purchase some insurance coverage for certain types of terrorist acts, insurance
coverage against loss or business interruption resulting from war and some forms of
terrorism continues to be unavailable. |
|
|
|
Our joint venture for the construction and operation of a hotel-casino in Macau
S.A.R. involves significant risks. In June 2004, we announced that we entered into
a joint venture agreement with Pansy Ho Chiu-king to develop, build and operate a
major hotel-casino resort in Macau S.A.R. The facility, MGM Grand Macau, will be
jointly owned and operated by the two shareholders. MGM Grand Macaus operations
will be subject to unique risks, including risks related to: (a) Macaus regulatory
framework; (b) our ability to adapt to the different regulatory and gaming
environment in Macau while remaining in compliance with the requirements of the
gaming regulatory authorities in the jurisdictions in which we currently operate,
as well as other applicable federal, state, or local laws in the United States and
Macau; (c) the transition of Macau from a Portuguese colony to a special
administrative region of the Peoples Republic of China; and (d) the extreme
weather conditions in the region. |
|
|
|
Furthermore, any such operations in Macau or any future operations in which we may
engage in any other foreign territories are subject to risk pertaining to
international operations, including foreign currency risks, foreign government
regulations that may make it difficult for us to operate in a profitable manner in
such jurisdiction, inability to adequately enforce our rights in such jurisdiction,
general geopolitical risks such as political and economic instability, hostilities
with neighboring countries and changes in diplomatic and trade relationships, and
potentially adverse tax consequences. |
|
|
|
Our plans for future construction can be affected by a number of factors,
including time delays in obtaining necessary governmental permits and approvals and
legal challenges. We may make changes in project scope, budgets and schedules for
competitive, aesthetic or other reasons, and these changes may also result from
circumstances beyond our control. These circumstances include weather
interference, shortages of materials and labor, work stoppages, labor disputes,
unforeseen engineering, environmental or geological problems and unanticipated cost
increases. Any of these circumstances could give rise to delays or cost overruns.
Major expansion projects at our existing resorts can also result in disruption of
our business during the construction period. |
|
|
|
Claims have been brought against us and our subsidiaries in various legal
proceedings, and additional legal and tax claims arise from time to time. It is
possible that our cash flows and results of operations could be affected by the
resolution of these claims. We believe that the ultimate disposition of current
matters will not have a material impact on our financial condition or results of
operations. Please see the further discussion under Legal Proceedings. |
|
|
|
There is intense competition to attract and retain qualified management and
other employees in the gaming industry. Our inability to recruit or retain
personnel could adversely affect our business. |
|
|
|
Tracinda Corporation beneficially owns approximately 56% of our outstanding
common stock as of December 31, 2005. As a result, Tracinda Corporation has the
ability to elect our entire Board of Directors and determine the outcome of other
matters submitted to our stockholders, such as the approval of significant
transactions. |
13
Executive Officers of the Registrant
The following table sets forth, as of March 1, 2006, the name, age and position of
each of our executive officers. Executive officers are elected by and serve at the
pleasure of the Board of Directors.
|
|
|
|
|
|
|
Name |
|
Age |
|
Position |
J. Terrence Lanni
|
|
|
62 |
|
|
Chairman and Chief Executive Officer |
James J. Murren
|
|
|
44 |
|
|
President, Chief Financial Officer, Treasurer and Director |
John T. Redmond
|
|
|
47 |
|
|
President and Chief Executive Officer of MGM Grand Resorts, LLC
and Director |
Robert H. Baldwin
|
|
|
55 |
|
|
President and Chief Executive Officer of Mirage Resorts,
Incorporated, President of Project CityCenter and Director |
Gary N. Jacobs
|
|
|
60 |
|
|
Executive Vice President, General Counsel, Secretary
and Director |
Glenn D. Bonner
|
|
|
54 |
|
|
Senior Vice President and Chief Information Officer |
Daniel J. DArrigo
|
|
|
37 |
|
|
Senior Vice PresidentFinance |
Alan Feldman
|
|
|
47 |
|
|
Senior Vice PresidentPublic Affairs |
Bruce Gebhardt
|
|
|
58 |
|
|
Senior Vice PresidentGlobal Security |
Phyllis A. James
|
|
|
53 |
|
|
Senior Vice President and Senior Counsel |
Punam Mathur
|
|
|
45 |
|
|
Senior Vice PresidentCorporate Diversity and Community Affairs |
Cynthia Kiser Murphey
|
|
|
48 |
|
|
Senior Vice PresidentHuman Resources |
Shawn T. Sani
|
|
|
40 |
|
|
Senior Vice PresidentTaxes |
Robert C. Selwood
|
|
|
50 |
|
|
Senior Vice PresidentAccounting |
Bryan L. Wright
|
|
|
42 |
|
|
Senior Vice President, Assistant General Counsel and Assistant Secretary |
Mr. Lanni has served as Chairman of the Company since July 1995. He served as
Chief Executive Officer of the Company from June 1995 to
December 1999, and since March
2001. Prior thereto, he served in
various executive capacities at Caesars World, Inc., including its
President and Chief Operating Officer from 1981 to 1995.
Mr. Murren has served as President of the Company since December 1999, as Chief
Financial Officer since January 1998 and as Treasurer since November 2001. He served as
Executive Vice President of the Company from January 1998 to December 1999. Prior
thereto, he was Managing Director and Co-Director of Research for Deutsche Morgan
Grenfell, having served that firm in various other capacities since 1984.
Mr. Redmond has served as President and Chief Executive Officer of MGM Grand
Resorts, LLC since March 2001. He served as Co-Chief Executive Officer of the Company
from December 1999 to March 2001. He served as President and Chief Operating Officer of
Primadonna Resorts from March 1999 to December 1999. He served as Vice Chairman of MGM
Grand Detroit, LLC from April 1998 to February 2000, and as its Chairman since February
2000. He served as Senior Vice President of MGM Grand Development, Inc. from August
1996 to September 1998. Prior thereto, he was Senior Vice President and Chief Financial
Officer of Caesars World, Inc.s Caesars Palace and Desert Inn hotel-casinos and served
in various other senior operational and development positions with Caesars World, Inc.
Mr. Baldwin has served as President and Chief Executive Officer of Mirage Resorts
since June 2000 and as President of Project CityCenter since March 2005. He served as
Chief Financial Officer and Treasurer of Mirage Resorts from September 1999 to June
2000. He was President and Chief Executive Officer of Bellagio, LLC from June 1996 to
March 2005. He served as President and Chief Executive Officer of The Mirage from
August 1987 to April 1997.
Mr. Jacobs has served as Executive Vice President and General Counsel of the
Company since June 2000 and as Secretary since January 2002. Prior thereto, he was a
partner with the law firm of Christensen, Miller, Fink, Jacobs, Glaser, Weil & Shapiro,
LLP, and is currently of counsel to that firm.
Mr. Bonner has served as Senior Vice President and Chief Information Officer of the
Company since January 2005. He served as Vice PresidentChief Information Officer of
the Company from June 2000 to January 2005. He served as Chief Information Officer of
Mirage Resorts from January 1997 to May 2000. Prior thereto, he was a Managing Consultant with
Microsoft Corporation from October 1994 to January 1997.
14
Mr. DArrigo has served as Senior Vice PresidentFinance of the Company since
February 2005. He served as Vice PresidentFinance of the Company from December 2000
to February 2005. He served as Assistant Vice President of the Company from January
2000 to December 2000. Prior thereto, he served as Director of Corporate Finance of the
Company from January 1997 to January 2000 and as Manager of Corporate Finance of the
Company from October 1995 to January 1997.
Mr. Feldman has served as Senior Vice PresidentPublic Affairs of the Company
since September 2001. He served as Vice President Public Affairs of the Company from
June 2000 to September 2001, and served as Vice President of Public Affairs for Mirage
Resorts from March 1990 to May 2000.
Mr. Gebhardt has served as Senior Vice PresidentGlobal Security of the Company
since November 2004. Prior thereto, he served as a Special Agent of the Federal Bureau
of Investigation for over 30 years, and was the FBIs Deputy Director for two years
prior to his retirement in October 2004.
Ms. James has served as Senior Vice President and Senior Counsel of the Company
since March 2002. From 1994 to 2001 she served as Corporation (General) Counsel and Law
Department Director for the City of Detroit. In that capacity she also served on
various public and quasi-public boards and commissions on behalf of the City, including
the Election Commission, the Detroit Building Authority and the Board of Ethics. Prior
thereto, from 1985 until 1994, she practiced law as a partner with the firm of
Pillsbury, Madison & Sutro.
Ms. Mathur has served as Senior Vice PresidentCorporate Diversity and Community
Affairs of the Company since May 2004. She served as Vice PresidentCorporate
Diversity and Community Affairs of the Company from December 2001 to May 2004. She
served as Vice PresidentCommunity Affairs of the Company from November 2000 to
December 2001 and as Director of Community Affairs of the Company from June 2000 to
October 2000. She served as Director of Community Affairs of Mirage Resorts from April
1996 to May 2000.
Ms. Murphey has served as Senior Vice PresidentHuman Resources of the Company
since November 2000. She served as Senior Vice PresidentHuman Resources and
Administration of MGM Grand Las Vegas from November 1995 to October 2000.
Mr. Sani has served as Senior Vice PresidentTaxes of the Company since July 2005.
He served as Vice PresidentTaxes of the Company from June 2002 to July 2005. Prior
thereto he was a partner in the Transaction Advisory Services practice of Arthur
Andersen LLP, having served that firm in various other capacities since 1988.
Mr. Selwood has served as Senior Vice PresidentAccounting of the Company since
February 2005. He served as Vice PresidentAccounting of the Company from December
2000 to February 2005. He served as Director of Corporate Finance of Mirage Resorts
from April 1993 to December 2000.
Mr. Wright has served as Senior Vice President and Assistant General Counsel of the
Company since March 2005. He served as Vice President and Assistant General Counsel of
the Company from July 2001 to March 2005. He has served as Assistant Secretary of the
Company since January 2002. Prior to joining the Company, Mr. Wright served as Vice
President and Assistant General Counsel of Boyd Gaming Corporation from February 2000 to
July 2001 and as Associate General Counsel of Boyd Gaming Corporation from September
1993 to February 2000.
Available Information
We maintain a website, www.mgmmirage.com, which includes financial and other
information for investors. We provide access to our SEC filings on our website, free of
charge, through a link to the SECs EDGAR database. Through that link, our filings are
available as soon as reasonably practicable after we file the documents.
ITEM 1A. RISK FACTORS
We
incorporate by reference the information appearing under
Factors that May Affect Our Future Results
in Item 1 of this Form 10-K .
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
15
ITEM 2. PROPERTIES
Our principal executive offices are located at Bellagio. The following table lists
our significant land holdings. Unless otherwise indicated, all properties are
wholly-owned.
|
|
|
|
|
|
|
Approximate |
|
|
Name and Location |
|
Acres |
|
Notes |
Las Vegas, Nevada operations: |
|
|
|
|
Bellagio |
|
78 |
|
One acre is subject to a ground lease that expires (giving effect to our options to renew) in 2073. |
|
MGM Grand Las Vegas |
|
104 |
|
|
Mandalay Bay |
|
100 |
|
|
The Mirage |
|
100 |
|
Site is shared with TI. |
Luxor |
|
60 |
|
|
TI |
|
NA |
|
See The Mirage. |
New York-New York |
|
24 |
|
Approximately 2 acres will be used for the Project CityCenter residential sales office. |
|
Excalibur |
|
52 |
|
|
Monte Carlo |
|
28 |
|
Approximately 4 acres will be used for Project CityCenter. |
Circus Circus Las Vegas |
|
69 |
|
Includes Slots-a-Fun. |
Shadow Creek Golf Course |
|
240 |
|
|
|
|
|
|
|
Other Nevada operations: |
|
|
|
|
Circus Circus Reno |
|
7 |
|
A portion of the site is subject to two ground leases, which expire in 2032 and 2033, respectively. |
Primm Valley Resorts |
|
143 |
|
Substantially all leased under a ground lease that expires (giving effect to our renewal option) in 2068. |
|
Primm Valley Golf Club |
|
448 |
|
Located in California, 4 miles from the Primm Valley Resorts. |
Laughlin properties |
|
38 |
|
Colorado Belle occupies 22 acres; Edgewater occupies 16 acres. |
Jean, Nevada properties |
|
106 |
|
Gold Strike occupies 51 acres; Nevada Landing occupies 55 acres. |
|
Railroad
Pass, Aenderson, Nevada |
|
9 |
|
|
|
|
|
|
|
Other domestic operations: |
|
|
|
|
MGM Grand Detroit |
|
8 |
|
|
Beau Rivage, Biloxi, Mississippi |
|
41 |
|
Includes 10 acres of tidelands leased from the State of Mississippi under a lease that expires (giving effect to our option to renew) in 2049. |
|
Gold Strike, Tunica, Mississippi |
|
24 |
|
|
|
|
|
|
|
Other land: |
|
|
|
|
Las Vegas Strip central |
|
66 |
|
Future site of Project CityCenter; includes the site of the former Boardwalk. |
|
|
10 |
|
Located immediately behind New York-New York; a portion of this site will be used for temporary facilities related to construction of Project CityCenter. |
Las Vegas Strip south |
|
20 |
|
Located immediately south of Mandalay Bay. |
|
|
15 |
|
Located across the Las Vegas Strip from Luxor. |
North Las Vegas, Nevada |
|
66 |
|
Located adjacent to Shadow Creek. |
Henderson, Nevada |
|
47 |
|
Adjacent to Railroad Pass. |
Primm, Nevada |
|
141 |
|
Approximately 16 acres immediately north of Buffalo Bills and approximately 125 acres adjacent to Primm Valley Golf Club. |
|
Jean, Nevada |
|
61 |
|
Located adjacent to Gold Strike. |
Sloan, Nevada |
|
89 |
|
|
Detroit, Michigan |
|
25 |
|
Future site of permanent MGM Grand Detroit casino. |
Biloxi, Mississippi |
|
508 |
|
Future site of Fallen Oak Golf Course. |
Tunica, Mississippi |
|
388 |
|
We own an undivided 50% interest in this site with another, unaffiliated, gaming company. |
Atlantic City, New Jersey |
|
153 |
|
Approximately 19 acres are leased to Borgata, including nine acres under a short-term lease. Of the remaining land, approximately 77 acres are suitable for development. |
Prior to February 2005, substantially all of the Companys assets other than assets
of its foreign subsidiaries and certain assets in use at MGM Grand Detroit were pledged
as collateral for our senior notes and principal credit facilities. As a result of the
redemption of our 6.875% Senior Notes due February 2008 and the repayment of our 6.95%
senior notes due February 2005, we applied for, and received, release of collateral
under our credit facility and senior notes.
We have contributed approximately 7 acres of land adjacent to MGM Grand Las Vegas
to ventures formed with Turnberry Associates to develop The Signature at MGM Grand. The
land is collateralized by construction financing for Towers 1 and 2 in the amount of up
to $440 million. As of December 31, 2005, $121 million was outstanding under the
construction financing.
16
Silver Legacy occupies approximately 5 acres in Reno, Nevada, adjacent to Circus
Circus Reno. The site is collateralized by a mortgage securing Silver Legacys senior
credit facility and 10.125% mortgage notes. As of December 31, 2005, $160 million of
principal of the 10.125% mortgage notes were outstanding.
Primm Valley Resorts are not served by a municipal water system. We have rights to
water in various wells located on federal land in the vicinity of the Primm Valley
Resorts and have received permits to pipe the water to the Primm Valley Resorts. These
permits and rights are subject to the jurisdiction and ongoing regulatory authority of
the U.S. Bureau of Land Management, the States of Nevada and California and local
governmental units. We believe that adequate water for the Primm Valley Resorts is
available; however, we cannot be certain that the future needs will be within the
permitted allowance. Also, we can give no assurance that any future requests for
additional water will be approved or that no further requirements will be imposed by
governmental agencies on our use and delivery of water for the Primm Valley Resorts.
Borgata occupies approximately 46 acres at Renaissance Pointe, including 19 acres
we lease to Borgata. Borgata owns approximately 27 acres which are collateralized by a
mortgage securing bank credit facilities in the amount of up to $750 million. As of
December 31, 2005, $342 million was outstanding under the bank credit facility.
We also own or lease various other improved and unimproved property in Las Vegas
and other locations in the United States and certain foreign countries.
ITEM 3. LEGAL PROCEEDINGS
Poulos Slot Machine Litigation
On April 26, 1994, an individual filed a complaint in a class action lawsuit in the
United States District Court for the Middle District of Florida against 41
manufacturers, distributors and casino operators of video poker and electronic slot
machines, including the Company. On May 10, 1994, another plaintiff filed a complaint
in a class action lawsuit alleging substantially the same claims in the same court
against 48 defendants, including the Company. On September 26, 1995, another plaintiff
filed a complaint in a class action lawsuit alleging substantially the same claims in
the United States District Court for the District of Nevada against 45 defendants,
including the Company. The court consolidated the three cases in the United States
District Court for the District of Nevada.
The consolidated complaint claims that we and the other defendants have engaged in
a course of fraudulent and misleading conduct intended to induce people to play video
poker and electronic slot machines based on a false belief concerning how the gaming
machines operate, as well as the chances of winning. Specifically, the plaintiffs
allege that the gaming machines are not truly random as advertised to the public, but
are pre-programmed in a predictable and manipulative manner. The complaint alleges
violations of the Racketeer Influenced and Corrupt Organizations Act, as well as claims
of common law fraud, unjust enrichment and negligent misrepresentation, and asks for
unspecified compensatory and punitive damages. In December 1997, the court granted in
part and denied in part the defendants motions to dismiss the complaint for failure to
state a claim and ordered the plaintiffs to file an amended complaint, which they filed
in February 1998. We, along with most of the other defendants, answered the amended
complaint and continue to deny the allegations contained in the amended complaint. The
parties have fully briefed the issues regarding class certification, which are currently
pending before the court.
In June 2002, the U.S. District Court in Nevada ruled that the plaintiffs met
certain prerequisite requirements for class action status, but the court denied the
plaintiffs motion for class action certification, on the grounds that the proposed
class lacked the cohesiveness required to settle common claims against the casino
industry. The court had previously stayed discovery pending resolution of these class
certification issues. In August 2004, the Ninth Circuit Court of Appeals affirmed the
District Courts ruling denying class action status for the case. In November 2004, the
District Court set a discovery deadline of April 2005 and trial in September 2005.
After plaintiffs dismissal of certain operator and cruise ship defendants, the
remaining defendants in April 2005 filed dispositive motions for summary judgment. In
September 2005, the District Court entered an order granting summary judgment to all
defendants that remained in the case on all of plaintiffs claims, dismissed the case in
its entirety and entered judgment in favor of defendants. In
October 2005, plaintiffs filed an appeal to the Ninth Circuit Court of Appeals of the
judgment granting summary judgment to defendants, and of two prior discovery orders that
had been entered in the case. The appeal remains pending.
17
Boardwalk Shareholder Litigation
On
September 28, 1999, a former stockholder of our subsidiary which owns and,
until January 2006 operated, the Boardwalk Hotel and Casino filed a first amended complaint in a putative
class action lawsuit in District Court for Clark County, Nevada against Mirage Resorts
and certain former directors and principal stockholders of the Boardwalk subsidiary. The
complaint alleged that Mirage Resorts induced the other defendants to breach their
fiduciary duties to Boardwalks minority stockholders by devising and implementing a
scheme by which Mirage Resorts acquired Boardwalk at significantly less than the true
value of its shares. The complaint sought an unspecified amount of compensatory damages
from Mirage Resorts and punitive damages from the other defendants, whom we are required
to defend and indemnify.
In June 2000, the court granted our motion to dismiss the complaint for failure to
state a claim upon which relief may be granted. The plaintiff appealed the ruling to
the Nevada Supreme Court. The parties filed briefs with the Nevada Supreme Court, and
oral arguments were conducted in October 2001. In February 2003, the Nevada Supreme
Court overturned the District Courts order granting our motion to dismiss the complaint
and remanded the case to the District Court for further proceedings on the elements of
the lawsuit involving wrongful conduct in approving the merger and/or in the valuation
of the merged corporations shares. The Nevada Supreme Court affirmed the District
Courts dismissal of the plaintiffs claims for lost profits and mismanagement. The
Nevada Supreme Courts ruling relates only to the District Courts ruling on our motion
to dismiss and is not a determination of the merits of the plaintiffs case. The
plaintiff filed an amended complaint, and in November 2003, the District Court certified
the action as a class action.
In March 2005, the District Court for Clark County, Nevada granted summary judgment
in our favor. In May 2005 plaintiffs filed an appeal of the dismissal to the Nevada
Supreme Court. At a mediation conference mandated by court rule, the parties reached a
settlement agreement on terms favorable to us, which is in the process of documentation
and is subject to final approval by the Nevada Supreme Court.
Mandalay Resort Group Shareholder Litigation
On April 25, 2005, the Company consummated its acquisition of Mandalay pursuant to an Agreement and Plan of Merger,
dated as of June 15, 2004 (the Merger Agreement), among the Company, MGM MIRAGE
Acquisition Co. #61, a Nevada corporation, that was a wholly-owned subsidiary of the
Company (Merger Sub), and Mandalay. The acquisition was effected by merging Merger
Sub with and into Mandalay (the Merger), with Mandalay continuing as the surviving
corporation.
In connection with the Merger, Mandalay and its directors were named defendants in
Stephen Ham, Trustee for the J.C. Ham Residuary Trust v. Mandalay Resort Group, et al.,
which was filed in June 2004 in the 8th Judicial District Court for Clark
County, Nevada, and Robert Lowinger v. Mandalay Resort Group, et al., which was filed in
June 2004, also in the 8th Judicial District Court for Clark County, Nevada.
Both of these actions make claims concerning the Merger, including claims of breach of
fiduciary duty against Mandalays directors, and seek injunctive relief and unspecified
monetary damages. The plaintiffs in both actions agreed that Mandalay and the directors
did not need to respond to the pending complaints, as they intended to file a joint
amended complaint and consolidate both actions. In December 2004, the plaintiff in Ham
filed a motion for temporary restraining order and motion for preliminary injunction
enjoining the Mandalay shareholder vote on the proposed merger and for an order
shortening time to allow plaintiff to conduct expedited discovery. The plaintiffs
motion was denied. In January 2005, the plaintiff in Ham filed an amended complaint for
breach of fiduciary duty in connection with the defendants approval of the proposed
merger. Mandalay moved to dismiss the amended complaint in April 2005. In October
2005, the Nevada District Court issued a minute order dismissing the
Ham case. In November 2005, a formal decision, order and
judgment of dismissal of the case was entered. Plaintiff in the
Lowinger case has indicated his intention to file a voluntary dismissal of his action,
but the dismissal has not yet been filed. The Company will continue to monitor and
protect its interest in these cases until their final conclusion.
Other
We and our subsidiaries are also defendants in various other lawsuits, most of
which relate to routine matters incidental to our business. We do not believe that the
outcome of this other pending litigation, considered in the aggregate, will have a
material adverse effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of our security holders during the fourth
quarter of 2005.
18
PART II
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Effective
May 2, 2005, our common stock is traded on the New York Stock Exchange under the symbol
MGM formerly our stock trading symbol was
MGG. The following table sets forth, for the calendar quarters indicated, the high
and low sale prices of our common stock on the New York Stock
Exchange Composite Tape. These prices, along with all share and per
share information in this Form 10-K, have been adjusted for a
2-for-1 stock split effected in May 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
2004 |
|
|
High |
|
Low |
|
High |
|
Low |
First quarter |
|
$ |
39.80 |
|
|
$ |
34.50 |
|
|
$ |
23.09 |
|
|
$ |
18.36 |
|
Second quarter |
|
|
42.98 |
|
|
|
32.58 |
|
|
|
24.89 |
|
|
|
20.50 |
|
Third quarter |
|
|
46.75 |
|
|
|
39.30 |
|
|
|
25.07 |
|
|
|
19.81 |
|
Fourth quarter |
|
|
44.75 |
|
|
|
35.30 |
|
|
|
36.75 |
|
|
|
24.58 |
|
There were approximately 3,703 record holders of our common stock as of March
1, 2006.
We have not paid dividends on our common stock in the last two fiscal years. We
intend to retain our earnings to fund the operation of our business, to service and
repay our debt, to make strategic investments in high return growth projects at our
proven resorts, to repurchase shares of common stock and to reserve our capital to raise
our capacity to capture investment opportunities overseas and in emerging domestic
markets. Furthermore, as a holding company with no independent operations, our ability
to pay dividends will depend upon the receipt of dividends and other payments from our
subsidiaries. Our senior credit facility contains financial covenants that could
restrict our ability to pay dividends. Our Board of Directors periodically reviews our
policy with respect to dividends, and any determination to pay dividends in the future
will be at the sole discretion of the Board of Directors.
The following table includes information about our stock option plans at December
31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of securities |
|
|
|
|
|
Number of securities |
|
|
to be issued upon |
|
Weighted average |
|
remaining available |
|
|
exercise of |
|
exercise price of |
|
for future issuance |
|
|
outstanding options, |
|
outstanding options, |
|
under equity |
|
|
warrants and rights |
|
warrants and rights |
|
compensation plans |
|
|
(in thousands, except per share data) |
Equity compensation plans approved by
security holders |
|
|
34,607 |
|
|
$ |
22.85 |
|
|
|
6,540 |
|
Equity compensation plans not approved
by security holders (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
In May 2002, the Board of Directors approved a restricted stock plan,
not approved by security holders, under which 1,806,000 shares were issued.
In November 2002, the Board of Directors determined that no more
restricted stock awards would be granted. At December 31, 2005, there were
834,000 restricted shares outstanding, all of which will become unrestricted in
2006. |
Our share repurchases are only conducted under repurchase programs approved by
our Board of Directors and publicly announced. The following table includes information
about our share repurchases for the quarter ended December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Purchased |
|
|
Maximum |
|
|
|
Total |
|
|
Average |
|
|
As Part of a |
|
|
Shares Still |
|
|
|
Shares |
|
|
Price Per |
|
|
Publicly-Announced |
|
|
Available for |
|
|
|
Purchased |
|
|
Share |
|
|
Program |
|
|
Repurchase |
|
October 1 October 31, 2005 |
|
|
1,107,000 |
|
|
$ |
37.59 |
|
|
|
1,107,000 |
|
|
|
16,893,000 |
(1) |
November 1 November 30, 2005 |
|
|
2,393,000 |
|
|
|
37.92 |
|
|
|
2,393,000 |
|
|
|
14,500,000 |
(1) |
December 1 December 31, 2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,500,000 |
(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,500,000 |
|
|
|
|
|
|
|
3,500,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The July 2004 repurchase program allows for the repurchase of up to 20
million shares with no expiration. |
The amounts in the above table exclude approximately 3,200 shares surrendered
by certain recipients of restricted shares who elected to use a portion of the shares on
which restrictions lapsed in October 2005 to pay required withholding taxes.
19
ITEM 6. SELECTED FINANCIAL DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31, |
|
|
2005 |
|
2004 |
|
2003 |
|
2002 |
|
2001 |
|
|
(In thousands, except per share data) |
Net revenues |
|
$ |
6,481,967 |
|
|
$ |
4,238,104 |
|
|
$ |
3,862,743 |
|
|
$ |
3,756,928 |
|
|
$ |
3,699,852 |
|
Operating income |
|
|
1,357,208 |
|
|
|
950,860 |
|
|
|
699,729 |
|
|
|
746,538 |
|
|
|
599,892 |
|
Income from continuing operations |
|
|
443,256 |
|
|
|
349,856 |
|
|
|
230,273 |
|
|
|
289,476 |
|
|
|
160,440 |
|
Net income |
|
|
443,256 |
|
|
|
412,332 |
|
|
|
243,697 |
|
|
|
292,435 |
|
|
|
169,815 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
1.56 |
|
|
$ |
1.25 |
|
|
$ |
0.77 |
|
|
$ |
0.92 |
|
|
$ |
0.51 |
|
Net income per share |
|
|
1.56 |
|
|
|
1.48 |
|
|
|
0.82 |
|
|
|
0.93 |
|
|
|
0.53 |
|
|
Weighted average number of shares |
|
|
284,943 |
|
|
|
279,325 |
|
|
|
297,861 |
|
|
|
315,618 |
|
|
|
317,542 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
1.50 |
|
|
$ |
1.21 |
|
|
$ |
0.76 |
|
|
$ |
0.90 |
|
|
$ |
0.50 |
|
Net income per share |
|
|
1.50 |
|
|
|
1.43 |
|
|
|
0.80 |
|
|
|
0.91 |
|
|
|
0.53 |
|
|
Weighted average number of shares |
|
|
296,334 |
|
|
|
289,333 |
|
|
|
303,184 |
|
|
|
319,880 |
|
|
|
321,644 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At year-end |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
20,699,420 |
|
|
$ |
11,115,029 |
|
|
$ |
10,811,269 |
|
|
$ |
10,568,698 |
|
|
$ |
10,542,568 |
|
Total debt, including capital leases |
|
|
12,358,829 |
|
|
|
5,463,619 |
|
|
|
5,533,462 |
|
|
|
5,222,195 |
|
|
|
5,465,608 |
|
Stockholders equity |
|
|
3,235,072 |
|
|
|
2,771,704 |
|
|
|
2,533,788 |
|
|
|
2,664,144 |
|
|
|
2,510,700 |
|
Stockholders equity per share |
|
$ |
11.35 |
|
|
$ |
9.87 |
|
|
$ |
8.85 |
|
|
$ |
8.62 |
|
|
$ |
7.98 |
|
Number of shares outstanding |
|
|
285,070 |
|
|
|
280,740 |
|
|
|
286,192 |
|
|
|
309,148 |
|
|
|
314,792 |
|
In June 2003, we ceased operations of PLAYMGMMIRAGE.com, our online gaming website
(Online). In January 2004, we sold the Golden Nugget Las Vegas and the Golden Nugget Laughlin
including substantially all of the assets and liabilities of those resorts (the Golden Nugget
Subsidiaries). In July 2004, we sold the subsidiaries that owned and operated MGM Grand Australia.
The results of Online, the Golden Nugget Subsidiaries and MGM Grand Australia are classified as
discontinued operations for all periods presented. The Mandalay acquisition occurred on April
25, 2005.
20
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Executive Overview
Current Operations
At December 31, 2005, our operations consisted of 24 wholly-owned casino resorts
and 50% investments in three other casino resorts, including:
|
|
|
|
|
|
|
Las Vegas, Nevada:
|
|
Bellagio, MGM Grand Las Vegas, Mandalay Bay, The
Mirage, Luxor, TI, New York-New York, Excalibur, Monte Carlo, Circus Circus
Las Vegas, Slots-A-Fun and Boardwalk (Boardwalk closed in January 2006 in
preparation for Project CityCenter see Other Factors Affecting Liquidity). |
|
|
|
|
|
|
|
Other domestic:
|
|
The Primm Valley Resorts (Whiskey Petes, Buffalo Bills
and Primm Valley Resort) in Primm, Nevada; Circus Circus Reno and Silver
Legacy (50% owned) in Reno, Nevada; Colorado Belle and Edgewater in Laughlin,
Nevada; Gold Strike and Nevada Landing in Jean, Nevada; Railroad Pass in
Henderson, Nevada; MGM Grand Detroit; Beau Rivage in Biloxi, Mississippi and
Gold Strike Tunica in Tunica, Mississippi; Borgata (50% owned) in Atlantic
City, New Jersey; and Grand Victoria (50% owned) in Elgin, Illinois. |
Other operations include the Shadow Creek golf course in North Las Vegas; two golf
courses at Primm Valley; a 50% investment in The Signature at MGM Grand, a
condominium-hotel development adjacent to MGM Grand Las Vegas; and a 50% investment in
MGM Grand Paradise Limited, which is constructing a casino resort in Macau.
Mandalay Acquisition
On April 25, 2005, we closed our merger with Mandalay Resort Group (Mandalay)
under which we acquired Mandalay for $71 in cash for each share of common stock of
Mandalay. The total acquisition cost of $7.3 billion included equity value of
approximately $4.8 billion, the assumption or repayment of outstanding Mandalay debt
with a fair value of approximately $2.9 billion and $0.1 billion of transaction costs,
offset by the $0.5 billion received by Mandalay from the sale of its interest in
MotorCity Casino in Detroit, Michigan.
The Mandalay acquisition expands our portfolio of resorts on the Las Vegas Strip,
provides additional sites for future development and expands our employee and customer
bases significantly. These factors result in the recognition of certain intangible
assets and significant goodwill. The purchase price allocation is preliminary and may
be adjusted up to one year after the acquisition. In particular, we are still
evaluating certain customer relationship intangible assets related to individual and
group hotel reservations as well as gaming loyalty program members. We did not incur
any significant employee termination costs or other exit costs in connection with the
Mandalay acquisition.
Key Performance Indicators
We operate primarily in one segment, the operation of casino resorts, which
includes offering gaming, hotel, dining, entertainment, retail and other resort
amenities. Giving effect to the Mandalay merger, over half of our net
revenue is now
derived from non-gaming activities, a higher percentage than many of our competitors, as
our operating philosophy is to provide a complete resort experience for our guests,
including non-gaming amenities which command a premium price based on their quality. We
believe that we own several of the premier casino resorts in the world, and a main focus
of our strategy is to continually reinvest in these resorts to maintain our competitive
advantage.
As a resort-based company, our operating results are highly dependent on the volume
of customers at our resorts, which in turn impacts the price we can charge for our hotel
rooms and other amenities. We also generate a significant portion of our operating
income from the high-end gaming segment, which can cause variability in our results.
Key performance indicators related to revenue are:
|
|
|
Gaming revenue indicators table games drop and slots handle (volume
indicators); win or hold percentage, which is not fully controllable by us.
Our normal table games win percentage is in the range of 18% to 22% of table
games drop and our normal slots win percentage is in the range of 6.5% to 7.5% of
slots handle; |
|
|
|
|
Hotel revenue indicators hotel occupancy (volume indicator); average daily
rate (ADR, price indicator); revenue per available room (REVPAR), a summary
measure of hotel results, combining ADR and occupancy rate. |
21
Most of our revenue is essentially cash-based, through customers wagering with cash
or paying for non-gaming services with cash or credit cards. Our resorts, like many in
the industry, generate significant operating cash flow. Our industry is capital
intensive and we rely heavily on the ability of our resorts to generate operating cash
flow to repay debt financing, fund maintenance capital expenditures and provide excess
cash for future development.
We generate a majority of our net revenues and operating income from our resorts in
Las Vegas, Nevada, which exposes us to certain risks outside of our control, such as
competition from other recently opened Las Vegas resorts, including several expanded
resorts and a major new competitor, and the impact from expansion of gaming in
California. We are also exposed to risks related to tourism and the general economy,
including national and global economic conditions and terrorist attacks or other global
events.
Our results of operations do not tend to be seasonal in nature, though a variety of
factors can affect the results of any interim period, including the timing of major Las
Vegas conventions, the amount and timing of marketing and special events for our
high-end customers, and the level of play during major holidays, including New Year and
Chinese New Year. Our results do not depend on key individual customers, though our
success in marketing to customer groups, such as convention customers, or the financial
health of customer groups, such as business travelers or high-end gaming customers from
a particular country or region, can impact our results.
Overall Outlook
We have invested heavily in our existing operations in the past three years, and
expect to continue to do so on a targeted basis in 2006. Our Las Vegas Strip resorts
require ongoing capital investment to maintain their competitive advantages. We believe
these investments in additional non-gaming amenities have enhanced our ability to
generate increased visitor volume and allowed us to charge premium prices for our
amenities.
The most likely significant factors affecting operating results at our existing
resorts in 2006 will be the addition of Mandalay, the expected continued positive impact
of our targeted capital improvements, and the completion of Towers 1 and 2 of The
Signature at MGM Grand. The Mandalay acquisition will continue to affect year-over-year
comparisons through April 2006 as a result of the net revenues and operating income of
these resorts, which includes the impact on depreciation and amortization expense of
recognizing depreciable real property and amortizable intangible assets at fair value,
and additional interest expense as a result of financing the merger through borrowings
under our senior credit facility. Additionally, ongoing impacts of cost savings and
revenue enhancements will positively affect earnings throughout 2006.
Some of the capital improvements we made in 2005 were made towards the end of the
year, so 2006 will be the first full year of results including these improvements,
particularly at The Mirage, where the Jet nightclub and several restaurants were added
at or near year-end. In addition, this resort will benefit from the Beatles-themed show
by Cirque du Soleil expected to open in mid-2006. These improvements, along with
improvements at other resorts, are expected to drive continued increases in REVPAR and
increased customer volumes in gaming areas, restaurants, shops, entertainment venues and
our other resort amenities.
Towers 1 and 2 of The Signature at MGM Grand are expected to be completed in the
second and fourth quarters of 2006, respectively. At that time, we will recognize our
share of the ventures net income, which will consist of the sales and costs associated
with the sales of the condominium units, along with deferred profit from our
contribution of land to the venture, within income from unconsolidated affiliates in
the consolidated statement of income. Upon completion of each tower, we will have the
opportunity to rent the condominiums to third parties on behalf of owners who elect to
have us do so, providing a potential ongoing revenue stream.
Financial Statement Impact of Hurricane Katrina
Beau Rivage sustained significant damage in late August 2005 as a result of
Hurricane Katrina and has been closed since. We expect to reopen Beau Rivage in the
third quarter of 2006, although some of the resorts rooms, restaurants and other
amenities will not reopen until the fourth quarter. The Company maintains insurance
covering both property damage and business interruption as a result of the storm. The
deductible under this coverage is approximately $15 million, based on the amount of
damage incurred. Based on current estimates, insurance proceeds are expected to exceed
the net book value of damaged assets; therefore, the Company will not record an
impairment charge related to the storm and upon ultimate settlement of the claim will
likely record a gain. The damaged assets have been written off and a corresponding
insurance receivable, classified within Other long-term assets in the accompanying consolidated balance sheets, has been recorded.
Business interruption coverage covers lost profits and other costs incurred during
the period of closure and up to six months following the reopening of the facility.
The costs expected to be incurred during the interruption period are less than the
anticipated business interruption proceeds; therefore, post-storm costs are being offset
by the expected recoveries. All post-storm costs and expected recoveries are recorded
net within General and administrative expenses in the accompanying consolidated
statements of income, except for depreciation of non-damaged assets, which is classified
as Depreciation and amortization.
22
Results of Operations
Summary Financial Results
The following table summarizes our financial results:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
|
|
|
Percentage |
|
|
|
|
|
Percentage |
|
|
|
|
2005 |
|
Change |
|
2004 |
|
Change |
|
2003 |
|
|
(In thousands, except per share data) |
Net revenues |
|
$ |
6,481,967 |
|
|
|
53 |
% |
|
$ |
4,238,104 |
|
|
|
10 |
% |
|
$ |
3,862,743 |
|
Operating income |
|
|
1,357,208 |
|
|
|
43 |
% |
|
|
950,860 |
|
|
|
36 |
% |
|
|
699,729 |
|
Income from continuing operations |
|
|
443,256 |
|
|
|
27 |
% |
|
|
349,856 |
|
|
|
52 |
% |
|
|
230,273 |
|
Diluted income from continuing
operations per share |
|
$ |
1.50 |
|
|
|
24 |
% |
|
$ |
1.21 |
|
|
|
59 |
% |
|
$ |
0.76 |
|
References to same-store results throughout Managements Discussion and Analysis
exclude the Mandalay resorts and Monte Carlo for all periods. Same-store results also
exclude Beau Rivage for all periods.
On a consolidated basis, the most important factors and trends contributing to our
performance over the last three years have been:
|
|
|
The addition of Mandalays resorts on April 25, 2005. For the eight months
we owned the Mandalay resorts, net revenue for these operations was $1.9 billion
and operating income was $433 million; |
|
|
|
|
The ongoing capital investments in our resorts, which we believe is allowing
us to market more effectively to visitors, capture a greater share of our
visitors increased travel budgets, and generate premium pricing for our
resorts rooms and other amenities. These investments include the Spa Tower at
Bellagio, which opened in December 2004, and the repositioning of MGM Grand Las
Vegas, highlighted by KÀ, by Cirque du Soleil, and the Skylofts and West Wing
room enhancements; |
|
|
|
|
The overall positive economic environment in the United States since early
2004, particularly in the leisure and business travel segments, resulting in
increases in room pricing and increased visitation, particularly at our Las
Vegas Strip resorts; |
|
|
|
|
The closure of Beau Rivage in August 2005 after Hurricane Katrina.
Operating income was $60 million at Beau Rivage in 2004 and decreased to $40 million in
2005 as a result of only having eight months of operations; |
|
|
|
|
The war with Iraq and the outbreak of SARS in Asia, both of which negatively
impacted leisure travel and our high-end gaming business in late 2003 and early
2004; |
|
|
|
|
The new labor contract covering employees at our Las Vegas Strip resorts
since mid-2002, which provides for significant annual wage and benefits
increases through 2007. |
As a result of the above trends, our net revenues increased 53% in 2005, and 11% on
a same-store basis. Operating margins were relatively flat with 2004 21% in 2005
compared to 22% in 2004. The 2004 margin was a significant increase over the 18%
operating margin in 2003. See further discussion of operating income and operating
margins in Operating Results below. The increase in income from continuing operations
generally resulted from the increased operating income, offset in part by increased
interest expense, discussed below in Non-operating Results.
Operating Results
The following table includes key information about our operating results:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
|
|
|
|
Percentage |
|
|
|
|
|
|
Percentage |
|
|
|
|
|
|
2005 |
|
|
Change |
|
|
2004 |
|
|
Change |
|
|
2003 |
|
|
|
(In thousands) |
|
Net revenues |
|
$ |
6,481,967 |
|
|
|
53 |
% |
|
$ |
4,238,104 |
|
|
|
10 |
% |
|
$ |
3,862,743 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Casino and hotel operations |
|
|
3,547,059 |
|
|
|
55 |
% |
|
|
2,289,249 |
|
|
|
6 |
% |
|
|
2,152,236 |
|
General and administrative |
|
|
958,263 |
|
|
|
56 |
% |
|
|
612,632 |
|
|
|
5 |
% |
|
|
585,161 |
|
Corporate expense |
|
|
130,633 |
|
|
|
68 |
% |
|
|
77,910 |
|
|
|
27 |
% |
|
|
61,541 |
|
Preopening, restructuring and property
transactions, net |
|
|
52,573 |
|
|
|
114 |
% |
|
|
24,566 |
|
|
|
45 |
% |
|
|
16,922 |
|
Depreciation and amortization |
|
|
588,102 |
|
|
|
46 |
% |
|
|
402,545 |
|
|
|
1 |
% |
|
|
400,766 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,276,630 |
|
|
|
55 |
% |
|
|
3,406,902 |
|
|
|
6 |
% |
|
|
3,216,626 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from unconsolidated affiliates |
|
|
151,871 |
|
|
|
27 |
% |
|
|
119,658 |
|
|
|
123 |
% |
|
|
53,612 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
$ |
1,357,208 |
|
|
|
43 |
% |
|
$ |
950,860 |
|
|
|
36 |
% |
|
$ |
699,729 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
The 2005 increase in net revenues resulted from the addition of Mandalay and an 11%
increase in same-store net revenues. Same-store net revenues increased largely as a
result of strong room pricing and increased volumes in slots and across all non-gaming
areas. These trends were particularly prominent at Bellagio and MGM Grand Las Vegas as
a result of new and expanded amenities at those resorts.
The 2004 increase in net revenues was largely due to strong room pricing, increased
gaming volumes, and the impact of targeted capital investments in 2003 and 2004 at New
York-New York and MGM Grand Las Vegas.
In 2005, operating income did not increase to the same extent as net revenues,
largely due to already strong operating margins, a lower-than-normal bad debt provision
in 2004, higher corporate expense and higher preopening, restructuring and property
transactions, net. This resulted in an operating margin of 21% versus 22% in 2004.
Corporate expense increased as a percentage of revenue due primarily to merger integration costs.
Our operating income in 2004 increased 36%, due primarily to the strong revenue
trends and a full year of Borgatas results. The increase in income from unconsolidated
affiliates was responsible for approximately one-third of the increase in operating
income, while improvements at our operating resorts, particularly Bellagio, MGM Grand
Las Vegas and New York-New York, made up the rest of the increase. Operating income at
MGM Grand Detroit was essentially flat in 2004 compared to 2003, despite an increase in
the gaming tax rate from 18% to 24% effective September 2004.
We expect operating margins to stay relatively consistent with current levels in
2006. Anticipated revenue gains at Mandalay resorts and continued realization of merger
cost savings will offset typical increases in labor costs, the additional 2% gaming tax payable to the City of Detroit
beginning January 1, 2006, and the inclusion of stock
compensation expense (see Recently issued Accounting
Standards).
Operating Results Detailed Revenue Information
The following table presents detail of our net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
|
|
|
|
Percentage |
|
|
|
|
|
|
Percentage |
|
|
|
|
|
|
2005 |
|
|
Change |
|
|
2004 |
|
|
Change |
|
|
2003 |
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
Casino revenue, net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table games |
|
$ |
1,140,053 |
|
|
|
21 |
% |
|
$ |
943,343 |
|
|
|
9 |
% |
|
$ |
866,096 |
|
Slots |
|
|
1,741,556 |
|
|
|
43 |
% |
|
|
1,218,589 |
|
|
|
9 |
% |
|
|
1,115,029 |
|
Other |
|
|
100,042 |
|
|
|
61 |
% |
|
|
62,033 |
|
|
|
10 |
% |
|
|
56,389 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Casino revenue, net |
|
|
2,981,651 |
|
|
|
34 |
% |
|
|
2,223,965 |
|
|
|
9 |
% |
|
|
2,037,514 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-casino revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rooms |
|
|
1,673,696 |
|
|
|
84 |
% |
|
|
911,259 |
|
|
|
9 |
% |
|
|
833,272 |
|
Food and beverage |
|
|
1,330,210 |
|
|
|
58 |
% |
|
|
841,147 |
|
|
|
11 |
% |
|
|
757,278 |
|
Entertainment, retail and other |
|
|
1,098,612 |
|
|
|
58 |
% |
|
|
696,117 |
|
|
|
7 |
% |
|
|
647,702 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-casino revenue |
|
|
4,102,518 |
|
|
|
68 |
% |
|
|
2,448,523 |
|
|
|
9 |
% |
|
|
2,238,252 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,084,169 |
|
|
|
52 |
% |
|
|
4,672,488 |
|
|
|
9 |
% |
|
|
4,275,766 |
|
Less: Promotional allowances |
|
|
(602,202 |
) |
|
|
39 |
% |
|
|
(434,384 |
) |
|
|
5 |
% |
|
|
(413,023 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
6,481,967 |
|
|
|
53 |
% |
|
$ |
4,238,104 |
|
|
|
10 |
% |
|
$ |
3,862,743 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table games revenue, including baccarat, was flat on a same-store basis in 2005. A
4% increase in table games volume was offset by a slightly lower hold percentage, though
hold percentages were within our normal range for all three years presented. In 2004,
table games volume increased 9%, with particular strength in baccarat volume, up 18%.
In both 2005 and 2004, key events such as New Year, Chinese New Year and other marketing
events, were well-attended.
Slots revenue increased 8% on a same-store basis, following a 9% increase in 2004.
Additional volume in 2005 was generated by the Spa Tower at Bellagio Bellagios slots
revenue increased over 30% and the traffic generated by KÀ and other amenities at MGM
Grand Las Vegas, where slots revenue increased almost 10%. In both periods, we benefited
from the continued success of our Players Club affinity program and marketing events
targeted at repeat customers.
Hotel revenue increased 19% on a same-store basis in 2005. We had more rooms
available as a result of the Bellagio expansion and 2004 room remodel activity at MGM
Grand Las Vegas, and our company-wide same-store REVPAR increased 13% to $140. This was
on top of a 10% increase in 2004 over 2003. The increase in REVPAR in 2005 was entirely
rate-driven, as same-store occupancy was consistent at 92%. The 2004 increase was also
largely rate-driven.
24
Other non-gaming revenue was also up in 2005, with KÀ leading to a 35% increase in
same-store entertainment revenue, and several new restaurants and bars at MGM Grand Las
Vegas, Bellagio, TI and The Mirage leading to a 14% increase in same-store food and
beverage revenue. These results followed similar trends experienced in 2004
compared to 2003. We expect these increases to continue in 2006, as we will open a new
Beatles-themed Cirque du Soleil show at The Mirage, along with more new restaurants and
lounges across our resort portfolio, including the recently opened Jet nightclub and
several restaurants at The Mirage.
Operating Results Details of Certain Charges
Preopening and start-up expenses consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Project CityCenter |
|
$ |
5,173 |
|
|
$ |
|
|
|
$ |
|
|
MGM Grand Macau |
|
|
1,914 |
|
|
|
|
|
|
|
|
|
Jet nightclub at The Mirage |
|
|
1,891 |
|
|
|
|
|
|
|
|
|
Bellagio expansion |
|
|
665 |
|
|
|
3,805 |
|
|
|
|
|
KÀ |
|
|
1,871 |
|
|
|
3,655 |
|
|
|
|
|
Borgata |
|
|
|
|
|
|
|
|
|
|
19,326 |
|
New York-New York (Zumanity, Nine Fine Irishmen) |
|
|
|
|
|
|
|
|
|
|
4,310 |
|
Players Club |
|
|
|
|
|
|
|
|
|
|
3,051 |
|
Other |
|
|
4,238 |
|
|
|
2,816 |
|
|
|
2,579 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
15,752 |
|
|
$ |
10,276 |
|
|
$ |
29,266 |
|
|
|
|
|
|
|
|
|
|
|
Preopening and start-up expenses at MGM Grand Macau relate to our share of the
operating results of that venture prior to its opening. Preopening and start-up
expenses related to Borgata represent our share of the operating results of Borgata
prior to its July 2003 opening. We expect preopening and start-up expenses for Project
CityCenter and MGM Grand Macau to increase in 2006. In addition, we will incur
preopening and start-up expenses related to the permanent facility at MGM Grand Detroit
and the new Beatles-themed show by Cirque du Soleil at The Mirage.
Restructuring costs (credit) consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Contract termination costs |
|
$ |
|
|
|
$ |
3,693 |
|
|
$ |
4,049 |
|
Siegfried & Roy show closure The Mirage |
|
|
|
|
|
|
|
|
|
|
1,623 |
|
Other |
|
|
(59 |
) |
|
|
1,932 |
|
|
|
925 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(59 |
) |
|
$ |
5,625 |
|
|
$ |
6,597 |
|
|
|
|
|
|
|
|
|
|
|
There were no material restructuring activities in 2005. At December 31, 2005,
there were no material restructuring accruals. All material restructuring costs have
been fully paid or otherwise resolved.
In 2004, restructuring costs include $3 million for contract termination costs
related to the Aqua restaurant at Bellagio and $2 million of workforce reduction costs
at MGM Grand Detroit as a result of our efforts to minimize the impact of a gaming tax
increase in Michigan.
In 2003, restructuring costs included $2 million related to the closure of the
Siegfried & Roy show, primarily for severance costs of employees involved in the shows
production. Also, we terminated a restaurant lease and closed two marketing offices,
resulting in $4 million of contract termination charges. Other severance of $1 million
in 2003 related primarily to restructuring of table games staffing at several resorts.
Property transactions, net consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Impairment of assets to be disposed of |
|
$ |
22,651 |
|
|
$ |
473 |
|
|
$ |
7,172 |
|
Write-off of abandoned capital projects |
|
|
5,971 |
|
|
|
|
|
|
|
|
|
Demolition costs |
|
|
5,362 |
|
|
|
7,057 |
|
|
|
6,614 |
|
Gain on sale of North Las Vegas land |
|
|
|
|
|
|
|
|
|
|
(36,776 |
) |
Other net losses on asset sales or disposals |
|
|
2,896 |
|
|
|
1,135 |
|
|
|
4,049 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
36,880 |
|
|
$ |
8,665 |
|
|
$ |
(18,941 |
) |
|
|
|
|
|
|
|
|
|
|
25
In 2005, recognized impairments relate primarily to assets removed from service in
connection with new capital projects at several resorts, including Bellagio, TI, The
Mirage and Mandalay Bay. The amount of the impairments was based on the net book value
of the disposed assets. Abandoned projects included individually insignificant projects
at several resorts. Demolition costs related primarily to room remodel activity at MGM
Grand Las Vegas and the new showroom at The Mirage.
In 2004, there were no material unusual property transactions. In 2003, we sold
315 acres of land in North Las Vegas, Nevada near Shadow Creek for approximately $55
million, resulting in the $37 million gain reflected above. Also in 2003, we recorded
write-downs and impairments of assets abandoned or replaced with new construction,
primarily at MGM Grand Las Vegas in preparation for new restaurants and the KÀ theatre.
Demolition costs in 2004 and 2003 related primarily to preparation for the Bellagio
standard room remodel, Bellagio expansion and KÀ theatre at MGM Grand Las Vegas.
Non-operating Results
The following table summarizes information related to interest on our long-term
debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
(In thousands) |
|
Interest cost |
|
$ |
685,686 |
|
|
$ |
401,391 |
|
|
$ |
352,820 |
|
Less: Capitalized interest |
|
|
(29,527 |
) |
|
|
(23,005 |
) |
|
|
(15,234 |
) |
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
$ |
656,159 |
|
|
$ |
378,386 |
|
|
$ |
337,586 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest, net of amounts capitalized |
|
$ |
588,587 |
|
|
$ |
321,008 |
|
|
$ |
308,198 |
|
Weighted average total debt balance |
|
$10.1 billion |
|
|
$5.5 billion |
|
|
$5.2 billion |
|
Weighted average interest rate |
|
|
6.8 |
% |
|
|
7.3 |
% |
|
|
6.7 |
% |
Interest cost was higher in 2005 due to the funding of the cash consideration in
the Mandalay acquisition through senior credit facility borrowings, and the assumption
of debt in the Mandalay acquisition. While variable market interest rates continued to
increase in 2005, our effective interest rate decreased due to a more normalized ratio
of variable rate debt in 2005; our variable interest rate under our senior credit
facility has been lower than the interest rates on our fixed-rate borrowings.
Capitalized interest increased in 2005 as we began capitalizing interest on Project
CityCenter and our investment in MGM Grand Paradise Limited. We expect capitalized interest to
increase in 2006 as we will start capitalizing interest on a longer portion of the land related
to Project City Center and as we spend more on the construction of Project CityCenter.
Interest cost was higher in 2004 as we had a higher average borrowing rate due to
increases in variable interest rates and the issuance of significant fixed rate debt in
the second half of 2004 in anticipation of the Mandalay merger. Capitalized interest
increased in 2004 due to the ongoing Bellagio expansion and KÀ theatre projects offset
partially by the cessation of interest capitalization on our investment in Borgata in
July 2003.
Non-operating items from unconsolidated affiliates, primarily our share of interest
expense at Borgata and Silver Legacy and state income taxes at Borgata, increased from
$12 million in 2004 to $16 million in 2005. Borgatas
lower interest expense was largely offset by the addition of Silver
Legacys interest expense, and the remaining decrease resulted from a reduction in state income taxes in
the fourth quarter of 2004 at Borgata as a result of recording the benefit of
certain investment tax credits. In 2004, non-operating items from unconsolidated
affiliates was higher than 2003, $12 million versus $10 million, due to the full year of
Borgatas results, offset by the reduction to state income taxes in the fourth quarter
of 2004 described above.
The following table summarizes information related to our income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Income from continuing operations before income tax |
|
$ |
678,900 |
|
|
$ |
555,815 |
|
|
$ |
343,660 |
|
Income tax provision |
|
|
235,644 |
|
|
|
205,959 |
|
|
|
113,387 |
|
Effective income tax rate |
|
|
34.7 |
% |
|
|
37.1 |
% |
|
|
33.0 |
% |
Cash paid for income taxes |
|
$ |
75,776 |
|
|
$ |
128,393 |
|
|
$ |
94,932 |
|
The effective income tax rate in 2005 was lower than in 2004 due primarily to a tax
benefit realized from the repatriation of foreign earnings from Australia as a result of
the provisions of the American Jobs Creation Act of 2004 that provided for a special
one-time deduction of 85 percent on certain repatriated earnings of foreign
subsidiaries. Additionally, in 2004 the Company accrued additional state deferred taxes
related to capital investments in New Jersey and incurred non-deductible costs related
to a Michigan ballot initiative; neither of these items recurred in 2005.
26
The effective income tax rate in 2004 was higher than in 2003 primarily due to the
additional New Jersey taxes and non-deductible Michigan ballot initiative costs
discussed above, as well as overseas development costs for which no tax benefit was
provided and the reversal of a greater amount of tax reserves in 2003 compared to 2004
as a result of completion of audits and the expiration of statutes of limitations.
In 2005, taxes paid decreased from 2004, in part due to increased tax benefits from
stock option exercises and one-time benefit plan deductions, partially offset by
decreased accelerated tax depreciation deductions and increased pre-tax income. In
addition, a federal tax overpayment from 2004 was applied to 2005, reducing the 2005 tax
payments. In 2004, taxes paid increased from 2003, primarily due to increased pre-tax
income and the full utilization of tax credit carryforwards in 2003. We expect cash
paid for income taxes to increase significantly in 2006 due to the required payment of
taxes on the gain on Mandalays sale of MotorCity Casino, required tax payments on the
income associated with Towers 1 and 2 of The Signature at MGM Grand, and continued
increases in income resulting from the Mandalay merger and continued improvements in
operating results.
Liquidity and Capital Resources
Cash Flows Summary
Our cash flows consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Net cash provided by operations |
|
$ |
1,182,796 |
|
|
$ |
829,247 |
|
|
$ |
740,812 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing cash flows: |
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of Mandalay Resort Group, net |
|
|
(4,420,990 |
) |
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(759,949 |
) |
|
|
(702,862 |
) |
|
|
(550,232 |
) |
Proceeds from the sale of subsidiaries, net |
|
|
|
|
|
|
345,730 |
|
|
|
|
|
Investments in unconsolidated affiliates |
|
|
(183,000 |
) |
|
|
(11,602 |
) |
|
|
(41,350 |
) |
Other |
|
|
61,122 |
|
|
|
20,981 |
|
|
|
35,894 |
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(5,302,817 |
) |
|
|
(347,753 |
) |
|
|
(555,688 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing cash flows: |
|
|
|
|
|
|
|
|
|
|
|
|
Net borrowing (repayment) under bank credit facilities |
|
|
4,725,000 |
|
|
|
(1,574,489 |
) |
|
|
(285,087 |
) |
Issuance of long-term debt |
|
|
880,156 |
|
|
|
1,528,957 |
|
|
|
600,000 |
|
Repayment of long-term debt |
|
|
(1,408,992 |
) |
|
|
(52,149 |
) |
|
|
(28,011 |
) |
Issuance of common stock |
|
|
145,761 |
|
|
|
135,910 |
|
|
|
36,254 |
|
Purchase of treasury stock |
|
|
(217,316 |
) |
|
|
(348,895 |
) |
|
|
(442,864 |
) |
Other |
|
|
(61,783 |
) |
|
|
(15,306 |
) |
|
|
(45,527 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
4,062,826 |
|
|
|
(325,972 |
) |
|
|
(165,235 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
$ |
(57,195 |
) |
|
$ |
155,522 |
|
|
$ |
19,889 |
|
|
|
|
|
|
|
|
|
|
|
Cash Flows Operating Activities
Trends in our operating cash flows tend to follow trends in our operating income,
excluding non-cash charges, since our business is primarily cash-based. Cash flow from
operations has increased in each of the last two years due to higher operating income
offset by higher combined interest and tax payments.
At December 31, 2005 and 2004, we held cash and cash equivalents of $378 million
and $435 million, respectively. We require a certain amount of cash on hand to operate
our resorts. Beyond our cash on hand, we utilize a company-wide cash management system
to minimize the amount of cash held in banks. Funds are swept from accounts at our
resorts daily into central bank accounts, and excess funds are invested overnight or are
used to repay borrowings under our bank credit facilities. Included in cash and cash
equivalents at December 31, 2004 was $141 million received from the sale of MGM Grand
Australia and still held in Australia. These funds, net of amounts paid for Australia taxes on the sale, were repatriated to the United
States in 2005 and used to fund capital expenditures during the year.
27
Cash Flows Investing Activities
The acquisition of Mandalay closed on April 25, 2005, at a cost of $4.4 billion,
net of cash acquired, plus the assumption of $2.9 billion of Mandalay debt.
Capital expenditures in 2005 included maintenance capital spending at our resorts
such as room remodel activity at MGM Grand Las Vegas, including the completion of the
Skylofts and West Wing room enhancements and spending on the following key expansion
and development projects:
|
|
Project CityCenter; |
|
|
|
The permanent casino at MGM Grand Detroit, including costs of purchasing land; |
|
|
|
The new theatre at The Mirage for the Beatles-themed show by Cirque du Soleil,
along with new restaurants and other amenities at this resort; |
|
|
|
Rebuilding costs at Beau Rivage. |
Capital expenditures in 2004 consisted of large capital projects, such as the Bellagio
expansion and the KÀ theatre at MGM Grand Las Vegas, and maintenance capital activities,
such as room remodel projects at New York New York and MGM Grand Las Vegas and new
restaurant and entertainment amenities at several resorts. Capital expenditures in 2003
included major projects at our existing resorts, including projects described above
which began in 2003, the Zumanity theatre at New York-New York, the Bellagio room
remodel and slot technology improvements.
The sale of the Golden Nugget Subsidiaries closed in January 2004 with net proceeds
to the Company of $210 million. The sale of MGM Grand Australia closed in July 2004
with net proceeds to the Company of $136 million.
Investments in unconsolidated affiliates in 2005 consists primarily of our required
contributions to MGM Grand Paradise Limited, which is developing MGM Grand Macau. In 2004, such investments related
primarily to The Signature at MGM Grand, and in 2003 such investments related primarily
to Borgata.
Cash Flows Financing Activities
Our primary financing activities in 2005 related to the Mandalay acquisition. The
cash purchase price of Mandalay, $4.4 billion, was funded from borrowings under our
senior credit facility. We also issued $875 million of fixed rate debt in various
issuances:
|
|
|
In June 2005, we issued $500 million of 6.625% senior notes due 2015; |
|
|
|
|
In September 2005, we issued $375 million of 6.625% senior notes due 2015. |
In the first quarter of 2005, we repaid at their scheduled maturity two issues of
senior notes due in 2005, $176.4 million of 6.625% senior notes and $300 million of
6.95% senior notes, and redeemed one issue of senior notes due in 2008, $200 million of
6.875% senior notes. The redemption of the 2008 senior notes resulted in a loss on
early retirement of debt of $20 million, which is classified as Other, net in the
accompanying consolidated statements of income. With the redemption of the 2008 senior
notes and the repayment of the 6.95% senior notes, the Companys senior credit facility
and senior notes are now unsecured.
In addition, in the second quarter of 2005 we initiated a tender offer for several
issuances of Mandalays senior notes and senior subordinated notes totaling $1.5
billion. Holders of $155 million of Mandalays senior notes and senior subordinated
notes redeemed their holdings. Holders of Mandalays floating rate convertible senior
debentures with a principal amount of $394 million had the right to redeem the
debentures for $566 million through June 30, 2005. $388 million of principal of the
convertible debentures were tendered for redemption and redeemed for $558 million.
Since the Mandalay acquisition we have reduced net debt by $419 million.
In 2004, we issued $1.5 billion of fixed rate debt in various issuances:
|
|
|
In February and March 2004, we issued $525 million of 5.875% senior notes due 2014; |
|
|
|
In August 2004, we issued $550 million of 6.75% senior notes due 2012; |
|
|
|
In September 2004, we issued $450 million of 6% senior notes due 2009 at a premium to yield 5.65%. |
28
In 2004, we repaid a net $1.6 billion on our bank credit facilities and repurchased
$49 million of our existing senior notes for $52 million, resulting in a loss on early
retirement of debt of $6 million, including the write-off of unamortized original issue
discount, which is classified as Other, net in the accompanying consolidated
statements of income.
In 2003, we issued $600 million of 6% senior notes, due 2009 and repaid a net $285
million on our bank credit facilities. The net proceeds of these financing activities
were used to supplement operating cash flows, fund capital expenditures and repurchase
shares of our common stock.
Our share repurchases are only conducted under repurchase programs approved by our
Board of Directors and publicly announced. Our share repurchase activity was as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
August 2001 authorization (2.8 million shares purchased) |
|
$ |
|
|
|
$ |
|
|
|
$ |
36,034 |
|
February 2003 authorization (20 million shares purchased) |
|
|
|
|
|
|
|
|
|
|
335,911 |
|
November 2003 authorization (16 million and 4 million shares
purchased) |
|
|
|
|
|
|
348,895 |
|
|
|
70,919 |
|
July 2004 authorization (5.5 million shares purchased) |
|
|
217,316 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
217,316 |
|
|
$ |
348,895 |
|
|
$ |
442,864 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average price of shares repurchased |
|
$ |
39.51 |
|
|
$ |
21.80 |
|
|
$ |
16.59 |
|
At December 31, 2005, we had 14.5 million shares available for repurchase under a
July 2004 authorization. We received $146 million, $136 million and $36 million in
proceeds from the exercise of employee stock options in the years ended December 31,
2005, 2004 and 2003, respectively.
Principal Debt Arrangements
Our long-term debt consists of publicly held senior and subordinated notes and our
senior credit facility. We pay fixed rates of interest ranging from 5.875% to 10.25% on
the senior and subordinated notes. We pay variable interest based on LIBOR on our
senior credit facility. Our current senior credit facility is a $7.0 billion, five-year
credit facility with a syndicate of banks led by Bank of America, N.A., and consists of
a $5.5 billion revolving credit facility and a $1.5 billion term loan facility. As of
December 31, 2005, we had approximately $2.2 billion of available liquidity under our
senior credit facility.
Other Factors Affecting Liquidity
Distributions from The Signature at MGM Grand. As discussed earlier,
Towers 1 and 2 of The Signature at MGM Grand are expected to be completed in the second
and fourth quarters of 2006, respectively. We expect to receive
distributions totaling at least $100
million upon completion
of these towers.
Long-term Debt Payable in 2006. We repaid $200 million of long-term debt
at maturity in February 2006 with available borrowings under our senior credit facility.
Another $245 million of long-term debt matures later in 2006.
Project CityCenter. In November 2004 we announced a plan to develop a
multi-billion dollar urban metropolis, Project CityCenter, on 66 acres of land on the
Las Vegas Strip, between Bellagio and Monte Carlo. Project CityCenter will feature a
4,000-room casino resort designed by world-famous architect Cesar Pelli; two 400-room
boutique hotels, one of which will be managed by luxury hotelier Mandarin Oriental;
approximately 470,000 square feet of retail shops, dining and entertainment venues; and
approximately 2.3 million square feet of residential space in over 2,900 luxury
condominium and condominium-hotel units in multiple towers.
As currently contemplated, we believe Project CityCenter will cost approximately $7
billion, excluding preopening and land costs. After estimated proceeds of $2.5 billion
from the sale of residential units, we believe the net project cost will be
approximately $4.5 billion. We expect to complete the design work for Project
CityCenter in mid-2006 and expect the project to open in 2009. The design, budget and
schedule of Project CityCenter are still preliminary, and the ultimate timing, cost and
scope of Project CityCenter are subject to risks attendant to large-scale projects.
29
Detroit Permanent Casino. MGM Grand Detroit, LLC has operated an interim
casino facility in downtown Detroit since July 1999. In August 2002 the Detroit City
Council approved revised development agreements with our subsidiary and two other
developers. The revised development agreement released us and the City from certain of
the obligations under the original agreement and significantly changed other provisions
of the original agreement.
In April 2005, the 6th Circuit Court of Appeals lifted its injunction
prohibiting commencement of construction of the permanent hotel and casino complexes. We
have obtained land and began construction on our permanent facility, which will be
located near the site of our interim facility. The permanent facility is expected to
open in late 2007 at a cost of $765 million, including land and preopening costs, and
will feature a 400-room hotel, 100,000-square foot casino, numerous restaurant and
entertainment amenities, and spa and convention facilities. The complete design, timing
and cost of the permanent facility are at a preliminary stage, and are subject to risks
attendant to large-scale projects.
MGM Grand Macau. We own 50% of MGM Grand Paradise Limited, an entity which
is developing, and will operate, MGM Grand Macau, a hotel-casino resort in Macau S.A.R.
Pansy Ho Chiu-king owns the other 50% of MGM Grand Paradise Limited. MGM Grand Macau
will be located on a prime waterfront site and will feature at least 345 table games and
1,035 slots with room for significant expansion. Other features will include a 600-room
hotel, a luxurious spa, convertible convention space, a
variety of dining destinations, and other attractions. Construction of MGM Grand Macau, which is estimated to
cost $1.1 billion including license and land rights and preopening costs, began in the second quarter of 2005 and the resort is anticipated to
open in late 2007. The complete design, timing, cost and scope of the
project are at a preliminary stage and are subject to the risks attendant to large-scale
projects. We have invested $180 million in the venture, and are committed to loaning
the venture up to $100 million. The venture has obtained commitments from lenders for a
credit facility sufficient, along with equity contributions and shareholder loans, to
fund the construction of MGM Grand Macau.
Beau Rivage Rebuilding. We have already begun the process of rebuilding
Beau Rivage. Damage was extensive on the main levels of the resort, largely destroying
the casino floor and gaming equipment, the resorts restaurants, the retail area and a
portion of the parking garage. There was also damage, though to a lesser extent,
in the hotel tower. We expect to reopen the resort in stages beginning in the third quarter of 2006. When fully
reopened, Beau Rivage will include 1,740 guestrooms, over 2,000 slot machines and 90
table games, new and restored restaurants, a state-of-the-art convention center, and
pool and spa amenities.
We believe that a large portion of the costs to rebuild Beau Rivage will be covered
under our insurance policies. However, we cannot determine the exact amount of
reimbursement until we submit our claims and receive notice of approval from our
insurers. It is also uncertain as to the timing of such reimbursements, and we have
been funding the rebuilding costs in advance of receiving reimbursements from our
insurers.
New York Racing Association. We have entered into a definitive agreement
with the New York Racing Association (NYRA) to manage video lottery terminals (VLTs)
at NYRAs Aqueduct horseracing facility in metropolitan New York. We will assist in the
development of the approximately $170 million facility, including providing project
financing, and will manage the facility for a term of five years (extended automatically
if the financing provided by us is not fully repaid) for a fee. Recent legislative
changes will allow us to operate the VLTs past the expiration date of the current
NYRA franchise agreement.
Off Balance Sheet Arrangements
Our off balance sheet arrangements consist primarily of investments in
unconsolidated affiliates, which currently consist primarily of our investments in
Borgata, Grand Victoria, Silver Legacy, MGM Grand Macau and The Signature at MGM Grand.
We have not entered into any transactions with special purpose entities, nor have we
engaged in any derivative transactions other than straightforward interest rate swaps.
Our joint venture and unconsolidated affiliate investments allow us to realize the
benefits of owning a full-scale resort in a manner that minimizes our initial
investment. We provided a guaranty for up to 50% of the interest and principal payment
obligations on the construction financing for the first two towers of The Signature at
MGM Grand. Otherwise, we have not guaranteed financing obtained by our investees, nor
are there any other provisions of the venture agreements which are unusual or subject us
to risks to which we would not be subjected if we had full ownership of the resort.
At December 31, 2005, we had outstanding letters of credit totaling $53 million, of
which $50 million support bonds issued by the Economic Development Corporation of the
City of Detroit. These bonds are recorded as a liability in our consolidated balance
sheets. This obligation was undertaken to secure our right to develop a permanent
casino in Detroit.
30
Commitments and Contractual Obligations
The following table summarizes our scheduled contractual commitments as of December
31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
Thereafter |
|
|
|
(In millions) |
|
Long-term debt |
|
$ |
445 |
|
|
$ |
1,402 |
|
|
$ |
377 |
|
|
$ |
1,276 |
|
|
$ |
5,898 |
|
|
$ |
2,893 |
|
Estimated interest payments on
long-term debt (1) |
|
|
853 |
|
|
|
769 |
|
|
|
688 |
|
|
|
659 |
|
|
|
559 |
|
|
|
811 |
|
Capital leases |
|
|
2 |
|
|
|
1 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases |
|
|
13 |
|
|
|
11 |
|
|
|
9 |
|
|
|
9 |
|
|
|
8 |
|
|
|
338 |
|
Long-term liabilities (2) |
|
|
61 |
|
|
|
9 |
|
|
|
9 |
|
|
|
58 |
|
|
|
8 |
|
|
|
5 |
|
Other purchase obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction commitments (3) |
|
|
432 |
|
|
|
146 |
|
|
|
54 |
|
|
|
28 |
|
|
|
4 |
|
|
|
|
|
Employment agreements |
|
|
125 |
|
|
|
62 |
|
|
|
27 |
|
|
|
12 |
|
|
|
|
|
|
|
|
|
Entertainment agreements (4) |
|
|
124 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (5) |
|
|
101 |
|
|
|
44 |
|
|
|
4 |
|
|
|
3 |
|
|
|
1 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,156 |
|
|
$ |
2,449 |
|
|
$ |
1,169 |
|
|
$ |
2,045 |
|
|
$ |
6,478 |
|
|
$ |
4,048 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Estimated interest payments on long-term debt are based on principal amounts
outstanding at December 31, 2005 and forecasted LIBOR rates for our bank credit
facility. |
|
(2) |
|
Includes our obligation to support $50 million of bonds issued by the Economic
Development Corporation of the City of Detroit as part of our development agreement
with the City. The bonds mature in 2009. Also includes the estimated payments of
obligations under our deferred compensation and supplemental executive retirement
plans, based on balances as of December 31, 2005 and assumptions of retirement based
on plan provisions. |
|
(3) |
|
Included in construction commitments is $413 million related to Project
CityCenter, consisting primarily of commitments related to design work and the
Bellagio employee parking garage. While we have entered into a contract with a
general contractor for the construction of most of Project CityCenter, we are not
committed to any component of the project until we request and approve a guaranteed
maximum price (GMP) for the component with the general contractor. We expect to
approve GMPs for most or all of the components of Project CityCenter in 2006. |
|
(4) |
|
Our largest entertainment commitments consist of minimum contractual payments
to Cirque du Soleil, which performs shows at several of our resorts. We are
generally contractually committed for a period of 12 months based on our ability to
exercise certain termination rights; however, we expect these shows to continue for
longer periods. |
|
(5) |
|
The amount for 2006 includes approximately $61 million of open purchase
orders. Other commitments are for various contracts, including corporate aircraft
purchases, maintenance and other service agreements and advertising commitments. |
Summary of Expected Sources and Uses of Funds
In addition to the contractual obligations disclosed above, other significant
operating uses of cash in 2006 include tax payments. Other significant investing uses
of cash flow in 2006 include uncommitted capital expenditures, expected to be
approximately $850 million, excluding capitalized interest and spending at Beau Rivage.
We plan to fund our contractual obligations and other estimated spending through a
combination of operating cash flow, distributions from The Signature at MGM Grand,
available borrowings under our senior credit facility and potential issuances of fixed
rate long-term debt. We generated almost $1.2 billion in operating cash flow in 2005,
which included deductions for interest payments, tax payments and certain contractually
committed payments reflected in the above table, including operating leases, employment
agreements and entertainment agreements. We expect to generate a higher level of
operating cash flow in 2006 due primarily to the continued impact of the Mandalay
acquisition, as well as expected increases in operating income at other resorts.
Critical Accounting Policies and Estimates
Managements discussion and analysis of our results of operations and liquidity and
capital resources are based on our consolidated financial statements. To prepare our
consolidated financial statements in accordance with accounting principles generally
accepted in the United States of America, we must make estimates and assumptions that
affect the amounts reported in the consolidated financial statements. We regularly
evaluate these estimates and assumptions, particularly in areas we consider to be
critical accounting estimates, where changes in the estimates and assumptions could have
a material impact on our results of operations, financial position or cash flows.
Senior management and the Audit Committee of the Board of Directors have reviewed the
disclosures included herein about our critical accounting estimates, and have reviewed
the processes to determine those estimates.
31
Allowance for Doubtful Casino Accounts Receivable
Marker play represents a significant portion of the table games volume at Bellagio,
MGM Grand Las Vegas, Mandalay Bay and The Mirage. Our other facilities do not emphasize
marker play to the same extent, although we offer markers to customers at those casinos
as well.
We maintain strict controls over the issuance of markers and aggressively pursue
collection from those customers who fail to pay their marker balances timely. These
collection efforts are similar to those used by most large corporations when dealing
with overdue customer accounts, including the mailing of statements and delinquency
notices, personal contacts, the use of outside collection agencies and civil litigation.
Markers are generally legally enforceable instruments in the United States. At
December 31, 2005 and 2004, approximately 44% and 54%, respectively, of our casino
accounts receivable was owed by customers from the United States. Markers are not
legally enforceable instruments in some foreign countries, but the United States assets
of foreign customers may be reached to satisfy judgments entered in the United States.
At December 31, 2005 and 2004, approximately 42% and 25%, respectively, of our casino
accounts receivable was owed by customers from the Far East.
We maintain an allowance, or reserve, for doubtful casino accounts at all of our
operating casino resorts. The provision for doubtful accounts, an operating expense,
increases the allowance for doubtful accounts. We regularly evaluate the allowance for
doubtful casino accounts. At resorts where marker play is not significant, the
allowance is generally established by applying standard reserve percentages to aged
account balances. At resorts where marker play is significant, we apply standard
reserve percentages to aged account balances under a specified dollar amount and
specifically analyze the collectibility of each account with a balance over the
specified dollar amount, based on the age of the account, the customers financial
condition, collection history and any other known information. We also monitor regional
and global economic conditions and forecasts to determine if reserve levels are
adequate.
The collectibility of unpaid markers is affected by a number of factors, including
changes in currency exchange rates and economic conditions in the customers home
countries. Because individual customer account balances can be significant, the
allowance and the provision can change significantly between periods, as information
about a certain customer becomes known or as changes in a regions economy occur.
The following table shows key statistics related to our casino receivables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Casino accounts receivable |
|
$ |
221,873 |
|
|
$ |
174,713 |
|
|
$ |
159,569 |
|
Allowance for doubtful casino accounts receivable |
|
|
68,768 |
|
|
|
57,111 |
|
|
|
75,265 |
|
Allowance as a percentage of casino accounts receivable |
|
|
31 |
% |
|
|
33 |
% |
|
|
47 |
% |
Median age of casino accounts receivable |
|
39 days |
|
|
33 days |
|
|
43 days |
|
Percentage of casino accounts outstanding over 180 days |
|
|
19 |
% |
|
|
15 |
% |
|
|
23 |
% |
The allowance for doubtful accounts as a percentage of casino accounts receivable
has decreased in the last two years, particularly in 2004, as a result of improved
collections leading to improved credit statistics. Our reserve percentages for 2004 and
2005 are consistent with the percentage before the September 11, 2001 attacks, and are
representative of a more normalized collection experience and positive global economic
conditions relative to the conditions in 2001 and 2002.
At December 31, 2005, a 100 basis-point change in the allowance for doubtful
accounts as a percentage of casino accounts receivable would change net income by $1.5
million, or less than $0.01 per share.
Fixed asset capitalization and depreciation policies
Property and equipment are stated at cost. For the majority of our property and
equipment, cost has been determined based on estimated fair values in connection with
the Mandalay acquisition and the May 2000 Mirage Resorts acquisition. Maintenance and
repairs that neither materially add to the value of the property nor appreciably prolong
its life are charged to expense as incurred. Depreciation and amortization are provided
on a straight-line basis over the estimated useful lives of the assets. We account for
construction projects in accordance with Statement of Financial Accounting Standards No.
67, Accounting for Costs and Initial Rental Operations of Real Estate Projects. When
we construct assets, we capitalize direct costs of the project, including fees paid to
architects and contractors, property taxes, and certain costs of our design and
construction subsidiaries.
32
We must make estimates and assumptions when accounting for capital expenditures.
Whether an expenditure is considered a maintenance expense or a capital asset is a
matter of judgment. When constructing or purchasing assets, we must determine whether
existing assets are being replaced or otherwise impaired, which also may be a matter of
judgment. Our depreciation expense is highly dependent on the assumptions we make about
our assets estimated useful lives. We determine the estimated useful lives based on
our experience with similar assets, engineering studies, and our estimate of the usage
of the asset. Whenever events or circumstances occur which change the estimated useful
life of an asset, we account for the change prospectively.
In accordance with Statement of Financial Accounting Standards No. 34,
Capitalization of Interest Cost (SFAS 34), interest cost associated with major
development and construction projects is capitalized as part of the cost of the project.
Interest is typically capitalized on amounts expended on the project using the
weighted-average cost of our outstanding borrowings, since we typically do not borrow
funds directly related to a development project. Capitalization of interest starts when
construction activities, as defined in SFAS 34, begin and ceases when construction is
substantially complete or development activity is suspended for more than a brief
period.
Whether we capitalize interest on a project depends in part on managements
actions. In November 2004, we announced the development of Project CityCenter in Las
Vegas. In connection with this announcement and the start of design activities, we
began capitalizing interest associated with this project, including capitalizing
interest on land costs for the portion of the Project CityCenter site not currently
being utilized in operations. Interest capitalized on this project for the years ended
December 31, 2004 and 2005 was $2 million and $12 million, respectively.
Impairment of Long-lived Assets
We evaluate our property and equipment and other long-lived assets for impairment
in accordance with Statement of Financial Accounting Standards No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets. For assets to be disposed of, we
recognize the asset at the lower of carrying value or fair market value less costs of
disposal, as estimated based on comparable asset sales, offers received, or a discounted
cash flow model. For assets to be held and used, we review for impairment whenever
indicators of impairment exist. We then compare the estimated future cash flows of the
asset, on an undiscounted basis, to the carrying value of the asset. If the
undiscounted cash flows exceed the carrying value, no impairment is indicated. If the
undiscounted cash flows do not exceed the carrying value, then an impairment is recorded
based on the fair value of the asset, typically measured using a discounted cash flow
model. If an asset is still under development, future cash flows include remaining
construction costs. All recognized impairment losses, whether for assets to be disposed
of or assets to be held and used, are recorded as operating expenses.
There are several estimates, assumptions and decisions in measuring impairments of
long-lived assets. First, management must determine the usage of the asset. To the
extent management decides that an asset will be sold, it is more likely that an
impairment may be recognized. Assets must be tested at the lowest level for which
identifiable cash flows exist. This means that some assets must be grouped, and
management has some discretion in the grouping of assets. Future cash flow estimates
are, by their nature, subjective and actual results may differ materially from our
estimates.
On a quarterly basis, we review our major long-lived assets to determine if events
have occurred or circumstances exist that indicate a potential impairment. We estimate
future cash flows using our internal budgets. When appropriate, we discount future cash
flows using our weighted-average cost of capital, developed using a standard capital
asset pricing model. Whenever an impairment loss is recorded, or a test for impairment
is made, we discuss the facts and circumstances with the Audit Committee.
See Results of Operations for discussion of write-downs and impairments recorded
in 2003, 2004 and 2005. In June 2003, we entered into an agreement to sell the Golden
Nugget Subsidiaries. The fair value less costs to sell exceeds the carrying value,
therefore no impairment was indicated. In February 2004, we entered into an agreement
to sell MGM Grand Australia. The fair value less costs to sell exceeds the carrying
value, therefore no impairment was indicated. Other than the above items, we are not
aware of events or circumstances that would cause us to review any material long-lived
assets for impairment.
Income taxes
We are subject to income taxes in the United States, and in several states and
foreign jurisdictions in which we operate. We account for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes
(SFAS 109). SFAS 109 requires the recognition of deferred tax assets, net of
applicable reserves, related to net operating loss carryforwards and certain temporary
differences. The standard requires recognition of a future tax benefit to the extent
that realization of such benefit is more likely than not. Otherwise, a valuation
allowance is applied.
33
As reflected in Note 11 to the accompanying consolidated financial statements, at
December 31, 2005, we had $126 million of deferred tax assets and $3.4 billion of
deferred tax liabilities. Except for certain New Jersey state net operating losses,
certain other New Jersey state deferred tax assets and certain foreign deferred tax
assets, we believe that it is more likely than not that our deferred tax assets are
fully realizable because of the future reversal of existing taxable temporary
differences and future projected taxable income. The valuation allowance at December
31, 2005 related to the New Jersey and foreign deferred tax assets were $6 million and
$2 million, respectively.
Our income tax returns are subject to examination by the Internal Revenue Service
(IRS) and other tax authorities. While positions taken in tax returns are sometimes
subject to uncertainty in the tax laws, we do not take such positions unless we have
substantial authority to do so under the Internal Revenue Code and applicable
regulations. We may take positions on our tax returns based on substantial authority
that are not ultimately accepted by the IRS.
We assess such potential unfavorable outcomes based on the criteria of Statement of
Financial Accounting Standards No. 5, Accounting for Contingencies (SFAS 5). We
establish a tax reserve if an unfavorable outcome is probable and the amount of the
unfavorable outcome can be reasonably estimated. We assess the potential outcomes of
tax uncertainties on a quarterly basis. In determining whether the probable criterion
of SFAS 5 is met, we presume that the taxing authority will focus on the exposure and we
assess the probable outcome of a particular issue based upon the relevant legal and
technical merits. We also apply our judgment regarding the potential actions by the tax
authorities and resolution through the settlement process.
We maintain required tax reserves until such time as the underlying issue is
resolved. When actual results differ from reserve estimates, we adjust the income tax
provision and our tax reserves in the period resolved. For tax years that are examined
by taxing authorities, we adjust tax reserves in the year the tax examinations are
settled. For tax years that are not examined by taxing authorities, we adjust tax
reserves in the year that the statute of limitations expires. Our estimate of the
potential outcome for any uncertain tax issue is highly judgmental, and we believe we
have adequately provided for any reasonable and foreseeable outcomes related to
uncertain tax matters.
During 2003, we filed amended returns for tax years subsequent to 1996 to reflect
the impact of the IRS audits of the 1993 through 1996 tax years on those subsequent
years. In the fourth quarter of 2003, the statutes of limitations expired for the 1997
through 1999 tax years, resulting in a reduction of our tax reserves of $13 million and
a corresponding reduction in our provision for income taxes. In the third quarter of
2004, the statute of limitations expired for our 2000 tax return, resulting in a
reduction of our tax reserves of $6 million and a corresponding reduction in our
provision for income taxes. The IRS is currently auditing our 2001 and 2002 tax
returns, and the tax returns for years after 2002 are subject to possible future
examination.
We classify reserves for tax uncertainties within Other accrued liabilities in
the accompanying consolidated balance sheets, separate from any related income tax
payable or deferred income taxes. Reserve amounts may relate to the deductibility of an
item, as well as potential interest associated with those items.
A portion of our tax reserves was assumed in the Mirage Resorts and Mandalay
acquisitions. The IRS audit of the tax returns of Mirage Resorts through the merger date was
settled in August 2003, resulting in a payment to the IRS of $45 million, including
interest. These matters had been previously reserved for, so the settlement had no
impact on our goodwill balances. Any future adjustments to the acquired Mirage Resorts
and Mandalay tax reserves will be recorded as an adjustment to goodwill.
Business Combinations
We account for business combinations in accordance with Statement of Financial Accounting Standards
No, 141, Accounting for Business Combinations (SFAS
141) and Statement of Financial Accounting Standards No. 142,
Accounting tor Goodwill and Other Intangible Assets
(SFAS 142), and related interpretations. SFAS 141 requires that
we record the net assets of acquired businesses at fair value, and we must make estimates
and assumptions to determine the fair value of these acquired assets and assumed liabilities.
In determining the fair value of
acquired assets and assumed liabilities in the Mandalay acquisition, we
hired third-party valuation specialists to assist us with certain fair value estimates,
primarily related to land, property and equipment and intangible assets. We and the third-party specialist
applied significant judgment and utilized a variety of assumptions in determining the fair value of acquired assets
and assumed liabilities, including market data, estimated future cash flows, growth rates, current
replacement cost for similar capacity for certain fixed assets, market rate assumptions for contractual
obligations and settlement plans for contingencies and liabilities.
34
The Mandalay purchase price allocation
is preliminary and may be adjusted up to one year after the acquisition. In particular, the
Company is still evaluating certain customer relationship intangible assets
related to individual and group hotel reservations as well as gaming loyalty program members.
Changes to the assumptions we used to estimate fair value could impact the recorded amounts for
acquired assets and assumed liabilities and significant changes to these balances could have a
material impact to our future
reported results. For instance, lower or higher fair values assigned to property, plant, and
equipment and
certain amortizable intangible assets could result in lower or higher amounts of depreciation and
amortization recorded.
Recently Issued Accounting Standards
Stock-based Compensation
In December 2004, the FASB issued FASB Statement No. 123 (revised 2004),
Share-Based Payment (SFAS 123(R)). Under the original standard, SFAS No. 123,
Accounting for Stock-Based Compensation (SFAS 123), companies had the option of
recording stock options issued to employees at fair value or intrinsic value, which
generally leads to no expense being recorded. Most companies, including us, opted to
use this intrinsic value method and make required disclosures of fair value expense.
SFAS 123(R) eliminates this intrinsic value alternative. SFAS 123(R) was effective for
us on January 1, 2006, and all future share-based payments must be recorded at
fair value. The following are the key impacts and decisions regarding implementation of
SFAS 123(R).
Valuation model. Under SFAS 123, stock options were generally valued using
the Black-Scholes model. SFAS 123(R) does not specify which model must be used, but
requires that certain assumptions be included in the chosen model, which may be a closed
form model, such as the Black-Scholes model, or a binomial model. We have chosen to
continue applying the Black-Scholes model.
Vesting patterns. Under SFAS 123(R), awards with graded vesting, as all of
our awards have, may be expensed in one of two time patterns: 1) On a straight-line
basis over the complete vesting period, as though the entire award was one grant; or 2)
On an accelerated basis, treating each vesting layer as a separate grant and amortizing
each layer on a straight-line basis. For disclosure purposes under SFAS 123, we used
the accelerated basis. We will use the straight-line method for future grants under
SFAS 123(R). As discussed below under transition methods, such policy will only apply
to future grants. Expense recognized under SFAS 123(R) for previously granted options
will continue to be recorded on the accelerated basis.
Estimating forfeitures. Under SFAS 123, we could choose whether to
estimate forfeitures at the grant date or recognize actual forfeitures as they occur.
Under SFAS 123(R), we must estimate forfeitures as of the grant date.
Presentation of excess tax benefits in the statement of cash flows. Under
SFAS 123(R), the excess of tax benefits realized from the exercise of employee stock
options over the tax benefit associated with the financial reporting expense is shown as
a financing cash inflow in the statement of cash flows. Previously, these excess
benefits were shown as an operating cash inflow.
Transition. There are two allowable transition alternatives the
modified-prospective transition or the modified-retrospective transition. We will apply
the modified-prospective transition. Under the modified-prospective transition, we will
begin applying the valuation and other criteria to stock options granted beginning
January 1, 2006. We will begin recognizing expense for the unvested portion of
previously issued grants at the same time, based on the valuation and attribution
methods originally used to calculate the disclosures.
The impact of adopting SFAS 123(R) on our operating results will depend in part on
the amount of stock options or other share-based payments we grant in the future. The
following table shows compensation expense, net of tax, related to options granted
through December 31, 2005, based on the options vesting schedules:
|
|
|
|
|
|
|
(In thousands) |
|
2003 (Actual, included in our pro forma disclosures) |
|
$ |
43,310 |
|
2004 (Actual, included in our pro forma disclosures) |
|
|
22,963 |
|
2005 (Actual, included in our pro forma disclosures) |
|
|
47,934 |
|
2006 (Estimated, to be recorded as expense) |
|
|
45,595 |
|
We do not believe the adoption of SFAS 123(R) will have a material impact on our
cash flows or financial position.
Rental costs incurred during a construction period
In
October 2005, the Financial Accounting Standards Board issued Staff Position FAS 13-1, Accounting for
Rental Costs Incurred during a Construction Period (FSP FAS 13-1). FSP FAS 13-1
requires that rental costs associated with ground or building operating leases incurred
during a construction period be expensed. Prevalent practice in real estate and
hospitality industries had been to capitalize such rental costs during a construction
period as a project cost.
35
FSP FAS 13-1 is effective for fiscal years beginning after December 15, 2005, with
early adoption permitted. We will adopt FSP FAS 13-1 in the first quarter of 2006. We
do not believe that the adoption of FSP FAS 13-1 will have a material impact on our cash
flows or financial position. We have historically not had significant leases during
construction. We will have some minor leases in connection with Project CityCenter, and
MGM Grand Paradise Limited will have a land lease for the project site in Macau.
Market Risk
Market risk is the risk of loss arising from adverse changes in market rates and
prices, such as interest rates, foreign currency exchange rates and commodity prices.
Our primary exposure to market risk is interest rate risk associated with our long-term
debt. We attempt to limit our exposure to interest rate risk by managing the mix of our
long-term fixed rate borrowings and short-term borrowings under our bank credit
facilities.
As of December 31, 2005, long-term fixed rate borrowings represented approximately
61% of our total borrowings. Based on December 31, 2005 debt levels, an assumed 100
basis-point change in LIBOR would cause our annual interest cost to change by
approximately $48 million.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We incorporate by reference the information appearing under Market Risk in Item 7
of this Form 10-K.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our Consolidated Financial Statements and Notes to Consolidated Financial
Statements, including the Independent Registered Public Accounting Firms Report
thereon, referred to in Item 15(a)(1) of this Form 10-K, are included at pages 49 to 75
of this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Our Chief Executive Officer (principal executive officer) and Chief Financial
Officer (principal financial officer) have concluded that the design and operation of
our disclosure controls and procedures are effective as of December 31, 2005. This
conclusion is based on an evaluation conducted under the supervision and with the
participation of Company management. Disclosure controls and procedures are those
controls and procedures which ensure that information required to be disclosed in this
filing is accumulated and communicated to management and is recorded, processed,
summarized and reported in a timely manner and in accordance with Securities and
Exchange Commission rules and regulations.
Managements Annual Report on Internal Control Over Financial Reporting
Managements Annual Report on Internal Control Over Financial Reporting, referred
to in Item 15(a)(1) of this Form 10-K, is included at page 47 of this Form 10-K.
Attestation Report of the Independent Registered Public Accounting Firm
The Independent Registered Public Accounting Firms Attestation Report on
managements assessment of our internal control over financial reporting referred to in
Item 15(a)(1) of this Form 10-K, is included at page 48 of this Form 10-K.
Changes in Internal Control over Financial Reporting
During the quarter ended December 31, 2005, there were no changes in our internal
control over financial reporting that materially affected, or are reasonably likely to
affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
36
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
We incorporate by reference the information appearing under Executive Officers of
the Registrant in Item 1 of this Form 10-K and under Election of Directors in our
definitive Proxy Statement for our 2006 Annual Meeting of Stockholders, which we expect
to file with the Securities and Exchange Commission on or about April 3, 2006 (the
Proxy Statement). We have adopted a code of conduct which is posted on our website,
along with any amendments or waivers to the Code.
ITEM 11. EXECUTIVE COMPENSATION
We incorporate by reference the information appearing under Executive Compensation
and Other Information in the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
We incorporate by reference the information appearing under Principal
Stockholders in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We incorporate by reference the information appearing under Certain Transactions
in the Proxy Statement.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
We incorporate by reference the information appearing under Audit Committee
Report in the Proxy Statement.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
|
|
|
(a)(1). Financial Statements. |
|
|
|
|
|
Included in Part II of this Report: |
|
|
Managements Annual Report on Internal Control Over Financial Reporting |
|
|
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting |
|
|
Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements |
|
|
Consolidated Balance Sheets December 31, 2005 and 2004 |
|
|
Years Ended December 31, 2005, 2004 and 2003 |
|
|
Consolidated Statements of Income |
|
|
Consolidated Statements of Cash Flows |
|
|
Consolidated Statements of Stockholders Equity |
|
|
Notes to Consolidated Financial Statements |
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|
|
(a)(2). Financial Statement Schedule. |
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|
|
Included in Part IV of this Report: |
|
|
Years Ended December 31, 2005, 2004 and 2003 |
|
|
Schedule II Valuation and Qualifying Accounts |
|
|
We have omitted schedules other than the one listed above because they are not
required or are not applicable, or the required information is shown in the financial
statements or notes to the financial statements.
37
(a)(3). Exhibits.
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Exhibit |
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|
|
Number |
|
Description |
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|
2 |
(1) |
|
|
Agreement and Plan of Merger, dated as of June 15, 2004,
among MGM MIRAGE, Mandalay Resort Group and MGM MIRAGE Acquisition Co.
#61, a wholly owned subsidiary of MGM MIRAGE (incorporated by reference
to Exhibit 2.01 to the Companys Current Report on Form 8-K dated June
17, 2004). |
|
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|
|
|
|
|
|
|
3 |
(1) |
|
|
Certificate of Incorporation of the Company, as amended
through 1997 (incorporated by reference to Exhibit 3(1) to Registration
Statement No. 33-3305 and to Exhibit 3(a) to the Companys Annual Report
on Form 10-K for the fiscal year ended December 31, 1997). |
|
|
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|
|
|
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|
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3 |
(2) |
|
|
Certificate of Amendment to Certificate of Incorporation
of the Company, dated January 7, 2000, relating to an increase in the
authorized shares of common stock (incorporated by reference to Exhibit
3(2) to the Companys Annual Report on Form 10-K for the fiscal year
ended December 31, 1999 (the 1999 10-K)). |
|
|
|
|
|
|
|
|
|
3 |
(3) |
|
|
Certificate of Amendment to Certificate of Incorporation
of the Company, dated January 7, 2000, relating to a 2-for-1 stock split
(incorporated by reference to Exhibit 3(3) to the 1999 10-K). |
|
|
|
|
|
|
|
|
|
3 |
(4) |
|
|
Certificate of Amendment to Certificate of Incorporation
of the Company, dated August 1, 2000 (incorporated by reference to
Exhibit 3(i).4 to the Companys Quarterly Report on Form 10-Q for the
fiscal quarter ended September 30, 2000 (the September 2000 10-Q)). |
|
|
|
|
|
|
|
|
|
3 |
(5) |
|
|
Certificate of Amendment to Certificate of Incorporation
of the Company, dated June 3, 2003, relating to compliance with
provisions of the New Jersey Casino Control Act relating to holders of
Company securities (incorporated by reference to Exhibit 3.1 to the
Companys Quarterly Report on Form 10-Q for the fiscal quarter ended June
30, 2003 (the June 2003 10-Q)). |
|
|
|
|
|
|
|
|
|
3 |
(6) |
|
|
Certificate of Amendment to Certificate of Incorporation
of the Company, dated May 3, 2005 (incorporated by reference to Exhibit
3.10 to Amendment No. 1 to the Companys Form 8-A filed with the
Commission on May 11, 2005). |
|
|
|
|
|
|
|
|
|
3 |
(7) |
|
|
Amended and Restated Bylaws of the Company, effective May
11, 2004 (incorporated by reference to Exhibit 3.1 to the Companys
Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2004
(the June 2004 10-Q). |
|
|
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|
|
|
|
|
|
4 |
(1) |
|
|
Indenture by and between Mandalay and First Interstate
Bank of Nevada, N.A., as Trustee with respect to Mandalays 7.625% Senior
Subordinated Debentures due 2013 (incorporated by reference to Exhibit
4(a) to Mandalays Current Report on Form 8-K dated July 21, 1993). |
|
|
|
|
|
|
|
|
|
4 |
(2) |
|
|
Indenture, dated February 1, 1996, by and between
Mandalay and First Interstate Bank of Nevada, N.A., as Trustee
(incorporated by reference to Exhibit 4(b) to Mandalays Current Report
on Form 8-K dated January 29, 1996 (the Mandalay January 1996 8-K)). |
|
|
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|
|
|
|
|
|
4 |
(3) |
|
|
Supplemental Indenture, dated February 1, 1996, by and
between Mandalay and First Interstate Bank of Nevada, N.A., as Trustee,
with respect to Mandalays 6.45% Senior Notes due February 1, 2006
(incorporated by reference to Exhibit 4(c) to the Mandalay January 1996 8-K). |
|
|
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|
|
|
|
|
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4 |
(4) |
|
|
6.45% Senior Notes due February 1, 2006 in the principal
amount of $200,000,000 (incorporated by reference to Exhibit 4(d) to the Mandalay
January 1996 8-K). |
38
|
|
|
|
|
|
|
|
|
Exhibit |
|
|
|
|
Number |
|
Description |
|
|
4 (5) |
|
|
Indenture, dated as October 15, 1996, between MRI and
Firstar Bank of Minnesota, N.A., as trustee (the MRI 1996 Indenture)
(incorporated by reference to Exhibit 4.1 to the Quarterly Report on Form
10-Q of Mirage Resorts Incorporated (MRI) (Commission File No. 01-6697) for the fiscal quarter ended
September 30, 1996 (the MRI September 1996 10-Q)). |
|
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|
|
|
|
|
|
4 (6) |
|
|
Supplemental Indenture, dated as October 15, 1996, to the
MRI 1996 Indenture (incorporated by reference to Exhibit 4.2 to the MRI
September 1996 10-Q). |
|
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|
4 (7) |
|
|
Supplemental Indenture, dated as of November 15, 1996, to
an indenture dated February 1, 1996, by and between Mandalay and Wells
Fargo Bank (Colorado), N.A., as Trustee, with respect to Mandalays 6.70%
Senior Notes due November 15, 2096 (incorporated by reference to Exhibit
4(c) to Mandalays Quarterly Report on Form 10-Q for the fiscal quarter
ended October 31, 1996 (the Mandalay October 1996 10-Q)). |
|
|
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|
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|
|
|
|
4 (8) |
|
|
6.70% Senior Notes due February 15, 2096 in the principal
amount of $150,000,000 (incorporated by reference to Exhibit 4(d) to the
Mandalay October 1996 10-Q). |
|
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|
|
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|
4 (9) |
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|
Indenture, dated November 15, 1996, by and between
Mandalay and Wells Fargo Bank (Colorado), N.A., as Trustee (incorporated
by reference to Exhibit 4(e) to the Mandalay October 1996 10-Q). |
|
|
|
|
|
|
|
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|
4 (10) |
|
|
Supplemental Indenture, dated as of November 15, 1996,
to an indenture dated November 15, 1996, by and between Mandalay and
Wells Fargo Bank (Colorado), N.A., as Trustee, with respect to Mandalays
7.0% Senior Notes due November 15, 2036 (incorporated by reference to the
Mandalay October 1996 10-Q). |
|
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|
4 (11) |
|
|
7.0% Senior Notes due February 15, 2036, in the
principal amount of $150,000,000 (incorporated by reference to Exhibit 4(g) to the Mandalay October 1996 10-q). |
|
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|
4 (12) |
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|
Indenture, dated as of August 1, 1997, between MRI and
First Security Bank, National Association, as trustee (the MRI 1997
Indenture) (incorporated by reference to Exhibit 4.1 to the Quarterly
Report on Form 10-Q of MRI for the fiscal quarter ended June 30, 1997
(the MRI June 1997 10-Q)). |
|
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|
|
|
|
|
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|
4 (13) |
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|
Supplemental Indenture, dated as of August 1, 1997, to
the MRI 1997 Indenture (incorporated by reference to Exhibit 4.2 to the
MRI June 1997 10-Q). |
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|
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|
|
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|
4 (14) |
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|
Indenture, dated as of February 4, 1998, between MRI and
PNC Bank, National Association, as trustee (the MRI 1998 Indenture)
(incorporated by reference to Exhibit 4(e) to the Annual Report on Form
10-K of MRI for the fiscal year ended December 31, 1997 (the MRI 1997
10-K)). |
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|
|
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|
4 (15) |
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|
Supplemental Indenture, dated as of February 4, 1998, to
the MRI 1998 Indenture (incorporated by reference to Exhibit 4(f) to the
MRI 1997 10-K). |
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|
|
|
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|
4 (16) |
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|
Indenture, dated as of May 31, 2000, among the Company,
as issuer, the Subsidiary Guarantors parties thereto, as guarantors, and
The Bank of New York, as trustee (incorporated by reference to Exhibit 4
to the Companys Current Report on Form 8-K dated May 22, 2000 (the
May 2000 8-K)). |
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|
4 (17) |
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|
Indenture dated as of July 24, 2000 by and between
Mandalay and The Bank of New York with respect to $500 million aggregate
principal amount of 10.25% Senior Subordinated Notes due 2007
(incorporated by reference to Exhibit 4.1 to Mandalays Form S-4
Registration Statement No. 333-44216). |
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|
4 (18) |
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|
Indenture dated as of August 16, 2000 by and between
Mandalay and The Bank of New York, with respect to $200 million aggregate
principal amount of 9.5% Senior Notes due 2008 (incorporated by reference
to Exhibit 4.1 to Mandalays Form S-4 Registration Statement No.
333-44838). |
39
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|
|
Exhibit |
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|
Number |
|
Description |
|
|
4(19)
|
|
Indenture, dated as of September 15, 2000, among the
Company, as issuer, the Subsidiary Guarantors parties thereto, as
guarantors, and U.S. Trust Company, National Association, as trustee
(incorporated by reference to Exhibit 4 to the Companys Amended Current
Report on Form 8-K/A dated September 12, 2000). |
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|
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|
|
4(20)
|
|
First Supplemental Indenture, dated as of September 15,
2000, among the Company, Bellagio Merger Sub, LLC and U.S. Trust Company,
National Association, as trustee (incorporated by reference to Exhibit
4(11) to the Companys Annual Report on Form 10-K for the fiscal year ended December
31, 2000 (the 2000 10-K)). |
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|
4(21)
|
|
First Supplemental Indenture, dated as of September 30,
2000, among the Company, Bellagio Merger Sub, LLC and The Bank of New
York, as trustee (incorporated by reference to Exhibit 4(12) to the 2000 10-K). |
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|
4(22)
|
|
Second Supplemental Indenture, dated as of October 10,
2000, to the MRI 1996 Indenture (incorporated by reference to Exhibit
4(13) to the 2000 10-K). |
|
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|
|
|
|
|
4(23)
|
|
Second Supplemental Indenture, dated as of October 10,
2000, to the MRI 1997 Indenture (incorporated by reference to Exhibit
4(14) to the 2000 10-K). |
|
|
|
|
|
|
|
4(24)
|
|
Second Supplemental Indenture, dated as of October 10,
2000, to the MRI 1998 Indenture (incorporated by reference to Exhibit
4(15) to the 2000 10-K). |
|
|
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|
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|
|
4(25)
|
|
Second Supplemental Indenture, dated as of December 31,
2000, among the Company, MGM Grand Hotel & Casino Merger Sub, LLC and The
Bank of New York, as trustee (incorporated by reference to Exhibit 4(16)
to the 2000 10-K). |
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|
|
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|
|
4(26)
|
|
Second Supplemental Indenture, dated as of December 31,
2000, among the Company, MGM Grand Hotel & Casino Merger Sub, LLC and
U.S. Trust Company, National Association, as trustee (incorporated by
reference to Exhibit 4(17) to the 2000 10-K). |
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|
|
|
|
4(27)
|
|
Indenture, dated as of January 23, 2001, among the
Company, as issuer, the Subsidiary Guarantors parties thereto, as
guarantors, and United States Trust Company of New York, as trustee
(incorporated by reference to Exhibit 4 to the Companys Current Report
on Form 8-K dated January 18, 2001). |
|
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|
|
|
|
|
4(28)
|
|
Indenture dated as of December 20, 2001 by and among
Mandalay and The Bank of New York, with respect to $300 million aggregate
principal amount of 9.375% Senior Subordinated Notes due 2010
(incorporated by reference to Exhibit 4.1 to Mandalays Form S-4
Registration Statement No. 333-82936). |
|
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|
|
|
|
|
4(29)
|
|
Indenture dated as of March 21, 2003 by and among
Mandalay and The Bank of New York with respect to $400 million aggregate
principal amount of Floating Rate Convertible Senior Debentures due 2033
(incorporated by reference to Exhibit 4.44 to Mandalays Annual Report on
Form 10-K for the fiscal year ended January 31, 2003). |
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|
|
|
|
4(30)
|
|
First Supplemental Indenture dated as of July 26, 2004,
relating to Mandalays Floating Rate Senior Convertible Debentures due
2033 (incorporated by reference to Exhibit 4 to Mandalays Current Report
on Form 8-K dated July 26, 2004). |
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|
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|
|
4(31)
|
|
Indenture, dated as of July 31, 2003, by and between
Mandalay and The Bank of New York with respect to $250 million aggregate
principal amount of 6.5% Senior Notes due 2009 (incorporated by reference
to Exhibit 4.1 to Mandalays Quarterly Report on Form 10-Q for the fiscal
quarter ended July 31, 2003). |
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|
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|
4(32)
|
|
Indenture, dated as of September 17, 2003, among the
Company, as issuer, the Subsidiary Guarantors parties thereto, as
guarantors, and U.S. Bank National Association, as trustee (incorporated
by reference to Exhibit 4.1 to the Companys Current Report on Form 8-K
dated September 11, 2003). |
40
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Exhibit |
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Number |
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Description |
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4 (33) |
|
Indenture, dated as of November 25, 2003, by and between
Mandalay and The Bank of New York with respect to $250 million aggregate
principal amount of 6.375% Senior Notes due 2011 (incorporated by
reference to Exhibit 4.1 to Mandalays Quarterly Report on Form 10-Q for
the fiscal quarter ended October 31, 2003). |
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|
|
|
|
|
|
|
4 (34) |
|
Indenture dated as of February 27, 2004, among the
Company, as issuer, the Subsidiary Guarantors, as guarantors, and U.S.
Bank National Association, as trustee (incorporated by reference to
Exhibit 4.1 to the Companys Current Report on Form 8-K, dated February
27, 2004). |
|
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|
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|
4 (35) |
|
Indenture dated as of August 25, 2004, among the
Company, as issuer, certain subsidiaries of the Company, as guarantors,
and U.S. Bank National Association, as trustee (incorporated by reference
to Exhibit 4.1 to the Companys Current Report on Form 8-K dated August
25, 2004). |
|
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|
|
|
|
|
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|
4 (36) |
|
Indenture, dated June 20, 2005, among MGM MIRAGE,
certain subsidiaries of MGM MIRAGE, and U.S. Bank National Association
(incorporated by reference to Exhibit 99.1 to the Companys Current
Report on Form 8-K dated June 20, 2005). |
|
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|
|
|
|
|
|
|
|
4 (37) |
|
Supplemental Indenture, dated September 9, 2005, among
MGM MIRAGE, certain subsidiaries of MGM MIRAGE, and U.S. Bank National
Association (incorporated by reference to Exhibit 4.1 to the Companys
Current Report on Form 8-K dated September 9, 2005). |
|
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|
|
|
|
|
|
|
|
10.1 |
(1) |
|
Guarantee, dated as of May 31, 2000, by certain subsidiaries of the
Company, in favor of The Chase Manhattan Bank, as successor in interest
to PNC Bank, National Association, as trustee for the benefit of the
holders of Notes pursuant to the Indenture referred to therein
(incorporated by reference to Exhibit 10.4 to the May 2000 8-K). |
|
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|
|
|
|
|
|
|
10.1 |
(2) |
|
Schedule setting forth material details of the Guarantee, dated as of
May 31, 2000, by certain subsidiaries of the Company, in favor of U.S.
Trust Company, National Association (formerly known as U.S. Trust Company
of California, N.A.), as trustee for the benefit of the holders of Notes
pursuant to the Indenture referred to therein (incorporated by reference
to Exhibit 10.5 to the May 2000 8-K). |
|
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|
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|
|
|
|
10.1 |
(3) |
|
Guarantee (Mirage Resorts, Incorporated 7.25% Senior Notes Due October
15, 2006), dated as of May 31, 2000, by the Company and certain of its
subsidiaries, in favor of Firstar Bank of Minnesota, N.A., as trustee for
the benefit of the holders of Notes pursuant to the Indenture referred to
therein (incorporated by reference to Exhibit 10.6 to the May 2000 8-K). |
|
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|
|
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|
10.1 |
(4) |
|
Schedule setting forth material details of the Guarantee (Mirage
Resorts, Incorporated 6.75% Notes Due February 1, 2008), dated as of May
31, 2000, by the Company and certain of its subsidiaries, in favor of The
Chase Manhattan Bank, as trustee for the benefit of the holders of the
Notes pursuant to the Indenture referred to therein (incorporated by
reference to Exhibit 10.7 to the May 2000 8-K). |
|
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|
10.1 |
(5) |
|
Schedule setting forth material details of the Guarantee (Mirage
Resorts, Incorporated 6.75% Notes Due August 1, 2007 and 7.25% Debentures
Due August 1, 2017), dated as of May 31, 2000, by the Company and certain
of its subsidiaries, in favor of First Security Bank, National
Association, as trustee for the benefit of the holders of the Notes
pursuant to the Indenture referred to therein (incorporated by reference
to Exhibit 10.8 to the May 2000 8-K). |
|
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|
10.1 |
(6) |
|
Instrument of Joinder, dated as of May 31, 2000, by MRI and certain of
its wholly owned subsidiaries, in favor of the beneficiaries of the
Guarantees referred to therein (incorporated by reference to Exhibit 10.9
to the May 2000 8-K). |
|
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|
|
|
|
|
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|
10.1 |
(7) |
|
Guarantee (MGM MIRAGE 9.75% Senior Subordinated Notes due 2007) dated
as of April 25, 2005, by certain subsidiaries of MGM MIRAGE, in favor of
The Bank of New York N.A., as trustee for the benefit of the holders of
the Notes pursuant to the Indenture referred to therein (incorporated by
reference to Exhibit 10.6 to the Companys Quarterly Report on Form 10-Q
for the fiscal quarter ended September 30, 2005 (the September 2005
10-Q)). |
41
|
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|
|
|
|
Exhibit |
|
|
|
Number |
|
Description |
|
|
|
10.1 |
(8) |
|
Guarantee (MGM MIRAGE 8.5% Senior Notes due 2010), dated as of April
25, 2005, by certain subsidiaries of MGM MIRAGE, in favor of The Bank of
New York N.A., as successor to U.S. Trust Company, National Association,
for the benefit of the holders of the Notes pursuant to the Indenture
referred to therein (incorporated by reference to Exhibit 10.7 to the
September 2005 10-Q). |
|
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|
|
|
|
|
|
|
|
10.1 |
(9) |
|
Guarantee (Mirage Resorts, Incorporated 7.25% Senior Notes due 2006),
dated as of April 25, 2005, by certain subsidiaries of MGM MIRAGE, in
favor of U.S. Bank National Association, as trustee for the benefit of
the holders of the Notes pursuant to the Indenture referred to therein
(incorporated by reference to Exhibit 10.8 to the September 2005 10-Q). |
|
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|
|
|
|
|
|
|
|
10.1 |
(10) |
|
Guarantee (Mandalay Resort Group 7.625% Senior Subordinated Notes due
2013), dated as of April 25, 2005, by certain subsidiaries of MGM MIRAGE,
in favor of The Bank of New York, as trustee for the benefit of the
holders of the Notes pursuant to the Indenture referred to therein
(incorporated by reference to Exhibit 10.9 to the September 2005 10-Q). |
|
|
|
|
|
|
|
|
|
|
10.1 |
(11) |
|
Guarantee (Mandalay Resort Group 6.45% Senior Notes due 2006), dated
as of April 25, 2005, by certain subsidiaries of MGM MIRAGE, in favor of
Wells Fargo Bank (Colorado), N.A., as successor in interest to First
Interstate Bank of Nevada, N.A., as trustee for the benefit of the
holders of the Notes pursuant to the Indenture referred to therein
(incorporated by reference to Exhibit 10.10 to the September 2005 10-Q). |
|
|
|
|
|
|
|
|
|
|
10.1 |
(12) |
|
Guarantee (MGM MIRAGE 8.375% Senior Subordinated Notes due 2011),
dated as of April 25, 2005, by certain subsidiaries of MGM MIRAGE, in
favor of The Bank of New York N.A., successor to the United States Trust
Company of New York, as trustee for the benefit of holders of the Notes
pursuant to the Indenture referred to therein (incorporated by reference
to Exhibit 10.11 to the September 2005 10-Q). |
|
|
|
|
|
|
|
|
|
|
10.1 |
(13) |
|
Guarantee (MGM MIRAGE 6.0% Senior Notes due 2009), dated as of April
25, 2005, by certain subsidiaries of MGM MIRAGE, in favor of U.S. Bank
National Association, as trustee for the benefit of the holders of the
Notes pursuant to the Indenture referred to therein (incorporated by
reference to Exhibit 10.12 to the September 2005 10-Q). |
|
|
|
|
|
|
|
|
|
|
10.1 |
(14) |
|
Guarantee (MGM MIRAGE 6.0% Senior Notes due 2009 (Exchange Notes)),
dated as of April 25, 2005, by certain subsidiaries of MGM MIRAGE, in
favor of U.S. Bank National Association, as trustee for the benefit of
the holders of the Notes pursuant to the Indenture referred to therein
(incorporated by reference to Exhibit 10.13 to the September 2005 10-Q). |
|
|
|
|
|
|
|
|
|
|
10.1 |
(15) |
|
Guarantee (MGM MIRAGE 5.875% Senior Notes due 2014), dated as of
April 25, 2005, by certain subsidiaries of MGM MIRAGE, in favor of U.S.
Bank National Association, as trustee for the benefit of the holders of
the Notes pursuant to the Indenture referred to therein (incorporated by
reference to Exhibit 10.14 to the September 2005 10-Q). |
|
|
|
|
|
|
|
|
|
|
10.1 |
(16) |
|
Guarantee (MGM MIRAGE 5.875% Senior Notes due 2014 (Exchange Notes)),
dated as of April 25, 2005, by certain subsidiaries of MGM MIRAGE, in
favor of U.S. Bank National Association, as trustee for the benefit of
the holders of the Notes pursuant to the Indenture referred to therein
(incorporated by reference to Exhibit 10.15 to the September 2005 10-Q). |
|
|
|
|
|
|
|
|
|
|
10.1 |
(17) |
|
Guarantee (MGM MIRAGE 6.75% Senior Notes due 2012), dated as of April
25, 2005, by certain subsidiaries of MGM MIRAGE, in favor of U.S. Bank
National Association, as trustee for the benefit of the holders of the
Notes pursuant to the Indenture referred to therein (incorporated by
reference to Exhibit 10.16 to the September 2005 10-Q). |
|
|
|
|
|
|
|
|
|
|
10.1 |
(18) |
|
Guarantee (Mirage Resorts, Incorporated 6.75% Senior Notes due 2007
and 7.25% Debentures due 2017), dated as of April 25, 2005, by certain
subsidiaries of MGM MIRAGE, in favor of Wells Fargo Bank Northwest,
National Association, as trustee for the benefit of the holders of the
Notes pursuant to the Indenture referred to therein (incorporated by
reference to Exhibit 10.17 to the September 2005 10-Q). |
42
|
|
|
|
|
|
|
Exhibit |
|
|
|
Number |
|
Description |
|
|
10.1(19)
|
|
Guarantee (Mirage Resorts, Incorporated 6.75% Senior Notes due 2008),
dated as of April 25, 2005, by certain subsidiaries of MGM MIRAGE, in
favor of JPMorgan Chase Bank, N.A., successor in interest to PNC Bank,
National Association, as trustee for the benefit of the holders of the
Notes pursuant to the Indenture referred to therein (incorporated by
reference to Exhibit 10.18 to the September 2005 10-Q). |
|
|
|
|
|
|
|
10.1(20)
|
|
Guarantee (Mandalay Resort Group 10.25% Senior Subordinated Notes due
2007), dated as of April 25, 2005, by certain subsidiaries of MGM MIRAGE,
in favor of The Bank of New York, as trustee for the benefit of the
holders of the Notes pursuant to the Indenture referred to therein
(incorporated by reference to Exhibit 10.19 to the September 2005 10-Q). |
|
|
|
|
|
|
|
10.1(21)
|
|
Guarantee (Mandalay Resort Group 9.375% Senior Subordinated Notes due
2010), dated as of April 25, 2005, by certain subsidiaries of MGM MIRAGE,
in favor of The Bank of New York, as trustee for the benefit of the
holders of the Notes pursuant to the Indenture referred to therein
(incorporated by reference to Exhibit 10.20 to the September 2005 10-Q). |
|
|
|
|
|
|
|
10.1(22)
|
|
Guarantee (Mandalay Resort Group 6.70% Senior Notes due 2096), dated
as of April 25, 2005, by certain subsidiaries of MGM MIRAGE, in favor of
The Bank of New York, as successor in interest to First Interstate Bank
of Nevada, N.A., as trustee for the benefit of the holders of the Notes
pursuant to the Indenture referred to therein (incorporated by reference
to Exhibit 10.21 to the September 2005 10-Q). |
|
|
|
|
|
|
|
10.1(23)
|
|
Guarantee (Mandalay Resort Group 7.0% Senior Notes due 2036), dated
as of April 25, 2005, by certain subsidiaries of MGM MIRAGE, in favor of
The Bank of New York, as trustee for the benefit of the holders of the
Notes pursuant to the Indenture referred to therein (incorporated by
reference to Exhibit 10.22 to the September 2005 10-Q). |
|
|
|
|
|
|
|
10.1(24)
|
|
Guarantee (Mandalay Resort Group 9.5% Senior Notes due 2008), dated
as of April 25, 2005, by certain subsidiaries of MGM MIRAGE, in favor of
The Bank of New York, as trustee for the benefit of the holders of the
Notes pursuant to the Indenture referred to therein (incorporated by
reference to Exhibit 10.23 to the September 2005 10-Q). |
|
|
|
|
|
|
|
10.1(25)
|
|
Guarantee (Mandalay Resort Group Floating Rate Convertible Senior
Debentures due 2033), dated as of April 25, 2005, by certain subsidiaries
of MGM MIRAGE, in favor of The Bank of New York, as trustee for the
benefit of the holders of the Notes pursuant to the Indenture referred to
therein (incorporated by reference to Exhibit 10.24 to the September 2005
10-Q). |
|
|
|
|
|
|
|
10.1(26)
|
|
Guarantee (Mandalay Resort Group 6.5% Senior Notes due 2009), dated
as of April 25, 2005, by certain subsidiaries of MGM MIRAGE, in favor of
The Bank of New York, as trustee for the benefit of the holders of the
Notes pursuant to the Indenture referred to therein (incorporated by
reference to Exhibit 10.25 to the September 2005 10-Q). |
|
|
|
|
|
|
|
10.1(27)
|
|
Guarantee (Mandalay Resort Group 6.375% Senior Notes due 2011), dated
as of April 25, 2005, by certain subsidiaries of MGM MIRAGE, in favor of
The Bank of New York, as trustee for the benefit of the holders of the
Notes pursuant to the Indenture referred to therein (incorporated by
reference to Exhibit 10.26 to the September 2005 10-Q). |
|
|
|
|
|
|
|
10.1(28)
|
|
Fourth Amended and Restated Loan Agreement, dated November 22, 2004,
by and among the Company, as Borrower, MGM Grand Detroit, LLC, as a
Co-Borrower, the Lenders and Co-Documentation Agents therein named, Bank
of America, N.A., as the Administrative Agent, The Royal Bank of Scotland
PLC, as the Syndication Agent, and Bank of America Securities LLC and The
Royal Bank of Scotland PLC, as Joint Lead Arrangers and Joint Book
Managers (incorporated by reference to Exhibit 10.1(10) to the Companys
Annual Report on Form 10-K for the fiscal year ended December 31, 2004). |
43
|
|
|
|
|
|
|
|
|
|
Exhibit |
|
|
|
Number |
|
Description |
|
|
|
10.1 |
(29) |
|
Guaranty Agreement, dated August 16, 2004, by MGM MIRAGE in favor of
Bank of America, N.A., as Administrative Agent for the benefit of the
Lenders from time to time party to a Construction Loan Agreement with the
Borrower, Turnberry/MGM Grand Towers, LLC (incorporated by reference to
Exhibit 10.2 of the September 2004 10-Q). |
|
|
|
|
|
|
|
|
|
|
10.1 |
(30) |
|
Guaranty Agreement, dated September 21, 2005, by MGM MIRAGE in favor
of Bank of America, N.A., as Administrative Agent for the benefit of the
Lenders from time to time party to a Construction Loan Agreement with the
Borrower, Turnberry/MGM Grand Tower B, LLC. |
|
|
|
|
|
|
|
|
|
|
10.2 |
(1) |
|
Lease, dated August 3, 1977, by and between B&D Properties, Inc., as
lessor, and Mandalay, as lessee; Amendment of Lease, dated May 6, 1983
(incorporated by reference to Exhibit 10(h) to Mandalays Registration
Statement (No. 2-85794) on Form S-1). |
|
|
|
|
|
|
|
|
|
|
10.2 |
(2) |
|
Lease by and between Robert Lewis Uccelli, guardian, as lessor, and
Nevada Greens, a limited partnership, William N. Pennington, as trustee,
and William G. Bennett, as trustee, and related Assignment of Lease
(incorporated by reference to Exhibit 10(p) to Mandalays Registration
Statement (No. 33-4475) on Form S-1). |
|
|
|
|
|
|
|
|
|
|
10.2 |
(3) |
|
Amended and Restated Ground Lease Agreement, dated July 1, 1993,
between Primm South Real Estate Company and The Primadonna Corporation
(incorporated by reference to Exhibit 10.1 to the Quarterly Report on
Form 10-Q of Primadonna Resorts, Inc. (Commission File No. 0-21732) for
the fiscal quarter ended September 30, 1993). |
|
|
|
|
|
|
|
|
|
|
10.2 |
(4) |
|
First Amendment to the Amended and Restated Ground Lease Agreement and
Consent and Waiver, dated as of August 25, 1997, between The Primadonna
Corporation and Primm South Real Estate Company (incorporated by
reference to Exhibit 10.31 to the Annual Report on Form 10-K of
Primadonna Resorts, Inc. for the fiscal year ended December 31, 1997). |
|
|
|
|
|
|
|
|
|
|
10.2 |
(5) |
|
Public Trust Tidelands Lease, dated February 4, 1999, between the
State of Mississippi and Beau Rivage Resorts, Inc. (without exhibits)
(incorporated by reference to Exhibit 10.73 to the Annual Report on Form
10-K of MRI for the fiscal year ended December 31, 1999). |
|
|
|
|
|
|
|
|
|
|
*10.3 |
(1) |
|
Nonqualified Stock Option Plan (incorporated by reference to Exhibit 10(1) to the Companys Annual Report on Form
10-K for the fiscal year ended December 31, 1996). |
|
|
|
|
*10.3 |
(2) |
|
1997 Nonqualified Stock Option Plan, Amended and Restated February 2, 2004 (incorporated by reference to Exhibit 10.1
of the June 2004 10-Q). |
|
|
|
|
|
|
|
|
|
|
*10.3 |
(3) |
|
MGM MIRAGE 2005 Omnibus Incentive Plan (incorporated by reference to Exhibit 10 to the Companys Registration
Statement on Form S-8 filed May 12, 2005). |
|
|
|
|
|
|
|
|
|
|
*10.3 |
(4) |
|
Amended and Restated Annual Performance Based Incentive Plan for Executive Officers, giving effect to amendment
approved by the Companys shareholders on May 13, 2003
(incorporated by reference to Appendix B to the Companys 2003 Proxy
Statement). |
|
|
|
|
|
|
|
|
|
|
*10.3 |
(5) |
|
Non-Qualified Deferred Compensation Plan, dated as of January 1, 2001 (incorporated by reference to Exhibit 10.3(12)
to the 2000 10-K). |
|
|
|
|
|
|
|
|
|
|
*10.3 |
(6) |
|
Supplemental Executive Retirement Plan, dated as of January 1, 2001 (incorporated by reference to Exhibit 10.3(13) to
the 2000 10-K). |
|
|
|
|
|
|
|
|
|
|
*10.3 |
(7) |
|
Deferred Compensation Plan II, dated as of December 30, 2004 (incorporated by reference to Exhibit 10.2 to the
Companys Current Report on Form 8-K dated January 10, 2005 (the January 2005 8-K). |
44
|
|
|
|
|
|
|
|
|
|
Exhibit |
|
|
|
Number |
|
Description |
|
|
|
*10.3 |
(8) |
|
Supplemental Executive Retirement Plan II, dated as of December 30, 2004 (incorporated by reference to Exhibit 10.1
to the January 2005 8-K). |
|
|
|
|
|
|
|
|
|
|
*10.3 |
(9) |
|
Amendment to Deferred Compensation Plan II, dated as of December 21, 2005. |
|
|
|
|
|
|
|
|
|
|
*10.3 |
(10) |
|
Employment Agreement, dated September 16, 2005 between the Company and J. Terrence Lanni (incorporated by reference
to Exhibit 10.1 to the Companys Current Report on Form 8-K dated September 16, 2005 (the September 16, 2005 8-K)). |
|
|
|
|
|
|
|
|
|
|
*10.3 |
(11) |
|
Employment Agreement, dated September 16, 2005 between the Company and Robert H. Baldwin (incorporated by reference
to Exhibit 10.2 to the September 16, 2005 8-K). |
|
|
|
|
|
|
|
|
|
|
*10.3 |
(12) |
|
Employment Agreement, dated September 16, 2005 between the Company and John Redmond (incorporated by reference to
Exhibit 10.3 to the September 16, 2005 8-K). |
|
|
|
|
|
|
|
|
|
|
*10.3 |
(13) |
|
Employment Agreement, dated September 16, 2005 between the Company and James J. Murren (incorporated by reference to
Exhibit 10.4 to the September 16, 2005 8-K). |
|
|
|
|
|
|
|
|
|
|
*10.3 |
(14) |
|
Employment Agreement, dated September 16, 2005 between the Company and Gary N. Jacobs (incorporated by reference to
Exhibit 10.5 to the September 16, 2005 8-K). |
|
|
|
|
|
|
|
|
|
|
10.4 |
(1) |
|
Second Amended and Restated Joint Venture Agreement of Marina District
Development Company, dated as of August 31, 2000, between MAC, CORP. and
Boyd Atlantic City, Inc. (without exhibits) (incorporated by reference to
Exhibit 10.2 to the September 2000 10-Q). |
|
|
|
|
|
|
|
|
|
|
10.4 |
(2) |
|
Contribution and Adoption Agreement, dated as of December 13, 2000,
among Marina District Development Holding Co., LLC, MAC, CORP. and Boyd
Atlantic City, Inc. (incorporated by reference to Exhibit 10.4(15) to the
2000 10-K). |
|
|
|
|
|
|
|
|
|
|
10.4 |
(3) |
|
Amended and Restated Agreement of Joint Venture of Circus and Eldorado
Joint Venture by and between Eldorado Limited Liability Company and
Galleon, Inc. (incorporated by reference to Exhibit 3.3 to the Form S-4
Registration Statement of Circus and Eldorado Joint Venture and Silver
Legacy Capital Corp.Commission File No. 333-87202). |
|
|
|
|
|
|
|
|
|
|
10.4 |
(4) |
|
Amended and Restated Joint Venture Agreement, dated as of June 25,
2002, between Nevada Landing Partnership and RBG, L.P. (incorporated by
reference to Exhibit 10.1 to Mandalays Quarterly Report on Form 10-Q for
the fiscal quarter ended July 31, 2004.) |
|
|
|
|
|
|
|
|
|
|
10.4 |
(5) |
|
Amendment No.1 to Amended and Restated Joint Venture Agreement, dated
as of April 25, 2005, by and among Nevada Landing Partnership, an
Illinois general partnership, and RBG, L.P., an Illinois limited
partnership. |
|
|
|
|
|
|
|
|
|
|
10.4 |
(6) |
|
Amended and Restated Subscription and Shareholders Agreement, dated
June 19, 2004, among Pansy Ho, Grand Paradise Macau Limited, MGMM Macau,
Ltd., MGM MIRAGE Macau, Ltd., MGM MIRAGE and MGM Grand Paradise Limited
(formerly N.V. Limited) (incorporated by reference to Exhibit 10.1 to the
Companys Current Report on Form 8-K dated April 19, 2005). |
|
|
|
|
|
|
|
|
|
|
10.5 |
(1) |
|
Revised Development Agreement among the City of Detroit, The Economic
Development Corporation of the City of Detroit and MGM Grand Detroit, LLC
(incorporated by reference to Exhibit 10.10 to the June 2002 10-Q). |
|
|
|
|
|
|
|
|
|
|
10.5 |
(2) |
|
Revised Development Agreement effective August 2, 2002, by and among
the City of Detroit, The Economic Development Corporation of the City of
Detroit and Detroit Entertainment, L.L.C. (incorporated by reference to
Exhibit 10.61 of Mandalays Annual Report on Form 10-K for the year ended
January 31, 2005). |
|
|
|
|
|
|
|
|
|
|
10.6 |
(1) |
|
Agreement and Plan of Merger dated as of March 22, 2005 among Mandalay
Resort Group, MGM MIRAGE, Circus Circus Michigan, Inc., CCM Merger Inc.,
and CCM Merger Sub., Inc. (incorporated by reference to Exhibit 2.01 to
Mandalays Current Report on Form 8-K dated March 22, 2005). |
45
|
|
|
|
|
|
|
|
|
|
Exhibit |
|
|
|
Number |
|
Description |
|
|
|
10.6 (2) |
|
Letter Agreement, dated March 22, 2005, between MGM MIRAGE and CCM
Merger Inc. (incorporated by reference to Exhibit 10.2 of the Companys
Current Report on Form 8-K dated March 22, 2005). |
|
|
|
|
|
|
|
|
|
|
21 |
|
|
List of subsidiaries of the Company. |
|
|
|
|
|
|
|
|
|
|
23 |
|
|
Consent of Deloitte & Touche LLP. |
|
|
|
|
|
|
|
|
|
|
31.1 |
|
|
Certification of Chief Executive Officer of Periodic
Report Pursuant to Rule 13a 14(a) and Rule 15d 14(a). |
|
|
|
|
|
|
|
|
|
|
31.2 |
|
|
Certification of Chief Financial Officer of Periodic
Report Pursuant to Rule 13a 14(a) and Rule 15d 14(a). |
|
|
|
|
|
|
|
|
|
|
**32.1 |
|
|
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350. |
|
|
|
|
**32.2 |
|
|
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350. |
|
|
|
|
99 |
|
|
Description of Regulation and Licensing. |
|
|
|
* |
|
Management contract or compensatory plan or arrangement. |
|
** |
|
Exhibits 32.1 and 32.2 shall not be deemed filed with the Securities and Exchange
Commission, nor shall they be deemed incorporated by reference in any filing with the
Securities and Exchange Commission under the Securities Exchange Act of 1934 or the
Securities Act of 1933, whether made before or after the date hereof and irrespective of
any general incorporation language in any filings. |
46
MANAGEMENTS ANNUAL REPORT
ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Managements Responsibilities
Management is responsible for establishing and maintaining adequate internal
control over financial reporting for MGM MIRAGE and subsidiaries (the Company).
Objective of Internal Control Over Financial Reporting
In establishing adequate internal control over financial reporting, management has
developed and maintained a system of internal control, policies and procedures designed
to provide reasonable assurance that information contained in the accompanying
consolidated financial statements and other information presented in this annual report
is reliable, does not contain any untrue statement of a material fact or omit to state a
material fact, and fairly presents in all material respects the financial condition,
results of operations and cash flows of the Company as of and for the periods presented
in this annual report. Significant elements of the Companys internal control over
financial reporting include, for example:
|
|
Hiring skilled accounting personnel and training them appropriately; |
|
|
|
Written accounting policies; |
|
|
|
Written documentation of accounting systems and procedures; |
|
|
|
Segregation of incompatible duties; |
|
|
|
Internal audit function to monitor the effectiveness of the system of internal control; |
|
|
|
Oversight by an independent Audit Committee of the Board of Directors. |
Managements Evaluation
Management has evaluated the Companys internal control over financial reporting
using the criteria established in Internal ControlIntegrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission. As
permitted by the Securities and Exchange Commission,
managements evaluation as of December 31, 2005 excludes
Mandalay Resort Group (Mandalay) and the business units
acquired in the merger with Mandalay which closed on April 25, 2005. Such
businesses represent approximately 47% of the Companys total
assets as of December 31, 2005 and 29% of the Companys total revenues for the year ended December 31, 2005. Based on its
evaluation as of December 31, 2005, management believes that the Companys internal
control over financial reporting, excluding Mandalay, is effective in achieving the objectives described
above.
Report of Independent Registered Public Accounting Firm
Deloitte & Touche LLP audited the Companys consolidated financial statements as of
and for the period ended December 31, 2005 and issued their report thereon, which is
included in this annual report. Deloitte & Touche LLP has also issued an attestation
report on managements assessment and on the effectiveness of the Companys internal
control over financial reporting, excluding Mandalay, and such report is also included in this annual
report.
47
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
of MGM MIRAGE
We have audited managements assessment, included in the accompanying Managements
Annual Report on Internal Control Over Financial Reporting, that MGM MIRAGE and subsidiaries (the Company) maintained effective internal control over
financial reporting as of December 31, 2005, based on criteria established in Internal
ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission. As described in Managements Annual Report
on Internal Control Over Financial Reporting, management excluded
from their assessment the internal control over financial reporting
of Mandalay Resort Group (Mandalay) and the business
units acquired in the merger which closed on April 25, 2005. Such
businesses represent approximately 47% of the Companys total
assets as of December 31, 2005 and 29% of the Companys total
revenues for the year ended December 31, 2005. Accordingly, our audit did not include the internal control over financial reporting of Mandalay and the business units acquired in the merger. The Companys management is responsible for maintaining effective
internal control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting. Our responsibility is to express an opinion
on managements assessment and an opinion on the effectiveness of the Companys internal
control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective internal
control over financial reporting was maintained in all material respects. Our audit
included obtaining an understanding of internal control over financial reporting,
evaluating managements assessment, testing and evaluating the design and operating
effectiveness of internal control, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis
for our opinions.
A companys internal control over financial reporting is a process designed by, or
under the supervision of, the companys principal executive and principal financial
officers, or persons performing similar functions, and effected by the companys board
of directors, management, and other personnel to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and
(3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the companys assets that could have a
material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting,
including the possibility of collusion or improper management override of controls,
material misstatements due to error or fraud may not be prevented or detected on a
timely basis. Also, projections of any evaluation of the effectiveness of the internal
control over financial reporting to future periods are subject to the risk that the
controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
In our opinion, managements assessment that the Company maintained effective
internal control over financial reporting as of December 31, 2005, is fairly stated, in
all material respects, based on criteria established in Internal ControlIntegrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Also in our opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2005, based on
criteria established in Internal ControlIntegrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated financial statements and
financial statement schedule as of and for the year ended December 31, 2005 of the
Company and our report dated March 10, 2006 expressed an unqualified opinion on those
financial statements and financial statement schedule.
|
/s/ DELOITTE & TOUCHE LLP |
|
Las Vegas, Nevada |
March
10, 2006 |
48
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
of MGM MIRAGE
We have audited the accompanying consolidated balance sheets of MGM MIRAGE and subsidiaries (the Company) as of December 31, 2005 and 2004,
and the related consolidated statements of income, stockholders equity, and cash flows
for each of the three years in the period ended December 31, 2005. Our audits also
included the financial statement schedule of Valuation and Qualifying Accounts included
in Item 15(a)(2). These financial statements and the financial statement schedule are
the responsibility of the Companys management. Our responsibility is to express an
opinion on the financial statements and financial statement schedule based on our
audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 2005 and
2004, and the results of its operations and its cash flows for each of the three years
in the period ended December 31, 2005, in conformity with accounting principles
generally accepted in the United States of America. Also, in our opinion, such
financial statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material respects the
information set forth therein.
We have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the effectiveness of the Companys internal
control over financial reporting as of December 31, 2005, based on the criteria
established in Internal ControlIntegrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission and our report dated March 10,
2006 expressed an unqualified opinion on managements assessment of the effectiveness of
the Companys internal control over financial reporting and an unqualified opinion on
the effectiveness of the Companys internal control over financial reporting.
|
/s/ DELOITTE & TOUCHE LLP |
|
Las Vegas, Nevada |
March 10, 2006 |
49
MGM MIRAGE AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
At December 31, |
|
|
|
2005 |
|
|
2004 |
|
ASSETS |
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
377,933 |
|
|
$ |
435,128 |
|
Accounts receivable, net |
|
|
352,673 |
|
|
|
204,151 |
|
Inventories |
|
|
111,825 |
|
|
|
70,333 |
|
Deferred income taxes |
|
|
65,518 |
|
|
|
28,928 |
|
Prepaid expenses and other |
|
|
110,634 |
|
|
|
81,662 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
1,018,583 |
|
|
|
820,202 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
|
16,541,651 |
|
|
|
8,914,142 |
|
|
|
|
|
|
|
|
|
|
Other assets |
|
|
|
|
|
|
|
|
Investments in unconsolidated affiliates |
|
|
931,154 |
|
|
|
842,640 |
|
Goodwill and other intangible assets, net |
|
|
1,692,040 |
|
|
|
233,335 |
|
Deposits and other assets, net |
|
|
515,992 |
|
|
|
304,710 |
|
|
|
|
|
|
|
|
Total other assets |
|
|
3,139,186 |
|
|
|
1,380,685 |
|
|
|
|
|
|
|
|
|
|
$ |
20,699,420 |
|
|
$ |
11,115,029 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
265,601 |
|
|
$ |
198,050 |
|
Income taxes payable |
|
|
125,503 |
|
|
|
4,991 |
|
Current portion of long-term debt |
|
|
14 |
|
|
|
14 |
|
Accrued interest on long-term debt |
|
|
229,930 |
|
|
|
116,997 |
|
Other accrued liabilities |
|
|
913,520 |
|
|
|
607,925 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
1,534,568 |
|
|
|
927,977 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes |
|
|
3,378,371 |
|
|
|
1,802,008 |
|
Long-term debt |
|
|
12,355,433 |
|
|
|
5,458,848 |
|
Other long-term obligations |
|
|
195,976 |
|
|
|
154,492 |
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 12) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
|
|
|
|
|
|
Common stock, $.01 par value: authorized 600,000,000 shares,
issued 357,262,405 and 347,147,868 shares; outstanding
285,069,516 and 280,739,868 shares |
|
|
3,573 |
|
|
|
3,472 |
|
Capital in excess of par value |
|
|
2,586,587 |
|
|
|
2,346,329 |
|
Deferred compensation |
|
|
(3,618 |
) |
|
|
(10,878 |
) |
Treasury stock, at cost (72,192,889 and 66,408,000 shares) |
|
|
(1,338,394 |
) |
|
|
(1,110,551 |
) |
Retained earnings |
|
|
1,987,725 |
|
|
|
1,544,499 |
|
Accumulated other comprehensive loss |
|
|
(801 |
) |
|
|
(1,167 |
) |
|
|
|
|
|
|
|
Total stockholders equity |
|
|
3,235,072 |
|
|
|
2,771,704 |
|
|
|
|
|
|
|
|
|
|
$ |
20,699,420 |
|
|
$ |
11,115,029 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
50
MGM MIRAGE AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
Casino |
|
$ |
2,981,651 |
|
|
$ |
2,223,965 |
|
|
$ |
2,037,514 |
|
Rooms |
|
|
1,673,696 |
|
|
|
911,259 |
|
|
|
833,272 |
|
Food and beverage |
|
|
1,330,210 |
|
|
|
841,147 |
|
|
|
757,278 |
|
Entertainment |
|
|
428,606 |
|
|
|
270,799 |
|
|
|
255,995 |
|
Retail |
|
|
260,182 |
|
|
|
184,438 |
|
|
|
180,935 |
|
Other |
|
|
409,824 |
|
|
|
240,880 |
|
|
|
210,772 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,084,169 |
|
|
|
4,672,488 |
|
|
|
4,275,766 |
|
Less: Promotional allowances |
|
|
(602,202 |
) |
|
|
(434,384 |
) |
|
|
(413,023 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
6,481,967 |
|
|
|
4,238,104 |
|
|
|
3,862,743 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Casino |
|
|
1,536,611 |
|
|
|
1,101,892 |
|
|
|
1,050,397 |
|
Rooms |
|
|
472,592 |
|
|
|
248,166 |
|
|
|
235,899 |
|
Food and beverage |
|
|
816,570 |
|
|
|
482,079 |
|
|
|
436,929 |
|
Entertainment |
|
|
307,596 |
|
|
|
192,465 |
|
|
|
183,056 |
|
Retail |
|
|
169,667 |
|
|
|
118,470 |
|
|
|
115,235 |
|
Other |
|
|
244,023 |
|
|
|
146,177 |
|
|
|
130,720 |
|
General and administrative |
|
|
958,263 |
|
|
|
612,632 |
|
|
|
585,161 |
|
Corporate expense |
|
|
130,633 |
|
|
|
77,910 |
|
|
|
61,541 |
|
Preopening and start-up expenses |
|
|
15,752 |
|
|
|
10,276 |
|
|
|
29,266 |
|
Restructuring costs (credit) |
|
|
(59 |
) |
|
|
5,625 |
|
|
|
6,597 |
|
Property transactions, net |
|
|
36,880 |
|
|
|
8,665 |
|
|
|
(18,941 |
) |
Depreciation and amortization |
|
|
588,102 |
|
|
|
402,545 |
|
|
|
400,766 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,276,630 |
|
|
|
3,406,902 |
|
|
|
3,216,626 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from unconsolidated affiliates |
|
|
151,871 |
|
|
|
119,658 |
|
|
|
53,612 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
1,357,208 |
|
|
|
950,860 |
|
|
|
699,729 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-operating income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
12,110 |
|
|
|
5,664 |
|
|
|
4,078 |
|
Interest expense, net |
|
|
(656,159 |
) |
|
|
(378,386 |
) |
|
|
(337,586 |
) |
Non-operating items from unconsolidated affiliates |
|
|
(15,825 |
) |
|
|
(12,298 |
) |
|
|
(10,401 |
) |
Other, net |
|
|
(18,434 |
) |
|
|
(10,025 |
) |
|
|
(12,160 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(678,308 |
) |
|
|
(395,045 |
) |
|
|
(356,069 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes |
|
|
678,900 |
|
|
|
555,815 |
|
|
|
343,660 |
|
Provision for income taxes |
|
|
(235,644 |
) |
|
|
(205,959 |
) |
|
|
(113,387 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
443,256 |
|
|
|
349,856 |
|
|
|
230,273 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations, including gain (loss)
on disposal of $82,538 (2004) and $(6,735) (2003) |
|
|
|
|
|
|
94,207 |
|
|
|
16,075 |
|
Provision for income taxes |
|
|
|
|
|
|
(31,731 |
) |
|
|
(2,651 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62,476 |
|
|
|
13,424 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
443,256 |
|
|
$ |
412,332 |
|
|
$ |
243,697 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income per share of common stock |
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
1.56 |
|
|
$ |
1.25 |
|
|
$ |
0.77 |
|
Discontinued operations |
|
|
|
|
|
|
0.23 |
|
|
|
0.05 |
|
|
|
|
|
|
|
|
|
|
|
Net income per share |
|
$ |
1.56 |
|
|
$ |
1.48 |
|
|
$ |
0.82 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income per share of common stock |
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
1.50 |
|
|
$ |
1.21 |
|
|
$ |
0.76 |
|
Discontinued operations |
|
|
|
|
|
|
0.22 |
|
|
|
0.04 |
|
|
|
|
|
|
|
|
|
|
|
Net income per share |
|
$ |
1.50 |
|
|
$ |
1.43 |
|
|
$ |
0.80 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
51
MGM MIRAGE AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31, |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
443,256 |
|
|
$ |
412,332 |
|
|
$ |
243,697 |
|
Adjustments to reconcile net income to net cash provided by
operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
588,102 |
|
|
|
403,039 |
|
|
|
412,937 |
|
Amortizational
debt discounts, premiums and issuance costs |
|
|
5,791 |
|
|
|
31,217 |
|
|
|
35,826 |
|
Provision for doubtful accounts |
|
|
25,846 |
|
|
|
(3,522 |
) |
|
|
13,668 |
|
Property transactions, net |
|
|
36,880 |
|
|
|
8,661 |
|
|
|
(18,336 |
) |
Loss on early retirements of debt |
|
|
18,139 |
|
|
|
5,527 |
|
|
|
3,244 |
|
(Gain) loss on disposal of discontinued operations |
|
|
|
|
|
|
(82,538 |
) |
|
|
6,735 |
|
Income from unconsolidated affiliates |
|
|
(134,132 |
) |
|
|
(107,360 |
) |
|
|
(23,885 |
) |
Distributions from unconsolidated affiliates |
|
|
89,857 |
|
|
|
51,500 |
|
|
|
38,000 |
|
Deferred income taxes |
|
|
51,759 |
|
|
|
55,647 |
|
|
|
28,362 |
|
Tax benefit from stock option exercises |
|
|
94,083 |
|
|
|
38,911 |
|
|
|
9,505 |
|
Changes in current assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(68,159 |
) |
|
|
(48,533 |
) |
|
|
(14,330 |
) |
Inventories |
|
|
(7,017 |
) |
|
|
(8,557 |
) |
|
|
(2,205 |
) |
Income taxes receivable and payable |
|
|
8,058 |
|
|
|
14,891 |
|
|
|
(10,538 |
) |
Prepaid expenses and other |
|
|
10,830 |
|
|
|
1,109 |
|
|
|
(8,500 |
) |
Accounts payable and accrued liabilities |
|
|
75,404 |
|
|
|
72,392 |
|
|
|
53,971 |
|
Change in
Hurricane Katrina insurance receivable |
|
|
(46,275 |
) |
|
|
|
|
|
|
|
|
Other |
|
|
(9,626 |
) |
|
|
(15,469 |
) |
|
|
(27,339 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
1,182,796 |
|
|
|
829,247 |
|
|
|
740,812 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of Mandalay Resort Group, net of cash acquired |
|
|
(4,420,990 |
) |
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(759,949 |
) |
|
|
(702,862 |
) |
|
|
(550,232 |
) |
Proceeds from the sale of the Golden Nugget Subsidiaries and
MGM Grand Australia, net |
|
|
|
|
|
|
345,730 |
|
|
|
|
|
Hurricane Katrina insurance proceeds |
|
|
46,250 |
|
|
|
|
|
|
|
|
|
Dispositions of property and equipment |
|
|
7,828 |
|
|
|
32,978 |
|
|
|
56,614 |
|
Investments in unconsolidated affiliates |
|
|
(183,000 |
) |
|
|
(11,602 |
) |
|
|
(41,350 |
) |
Change in construction payable |
|
|
40,803 |
|
|
|
17,329 |
|
|
|
12,953 |
|
Other |
|
|
(33,759 |
) |
|
|
(29,326 |
) |
|
|
(33,673 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(5,302,817 |
) |
|
|
(347,753 |
) |
|
|
(555,688 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net borrowings (repayments) under bank credit facilities
with maturities of 90 days of less |
|
|
325,000 |
|
|
|
(1,574,489 |
) |
|
|
(285,087 |
) |
Borrowings under bank credit facilities with
maturities longer than 90 days |
|
|
4,400,000 |
|
|
|
|
|
|
|
|
|
Issuance of long-term debt |
|
|
880,156 |
|
|
|
1,528,957 |
|
|
|
600,000 |
|
Repayment of long-term debt |
|
|
(1,408,992 |
) |
|
|
(52,149 |
) |
|
|
(28,011 |
) |
Debt issuance costs |
|
|
(50,331 |
) |
|
|
(13,349 |
) |
|
|
(25,374 |
) |
Issuance of common stock |
|
|
145,761 |
|
|
|
135,910 |
|
|
|
36,254 |
|
Purchases of treasury stock |
|
|
(217,316 |
) |
|
|
(348,895 |
) |
|
|
(442,864 |
) |
Other |
|
|
(11,452 |
) |
|
|
(1,957 |
) |
|
|
(20,153 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
4,062,826 |
|
|
|
(325,972 |
) |
|
|
(165,235 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) for the year |
|
|
(57,195 |
) |
|
|
155,522 |
|
|
|
19,889 |
|
Cash related to discontinued operations |
|
|
|
|
|
|
|
|
|
|
(15,230 |
) |
Balance, beginning of year |
|
|
435,128 |
|
|
|
279,606 |
|
|
|
274,947 |
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year |
|
$ |
377,933 |
|
|
$ |
435,128 |
|
|
$ |
279,606 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow disclosures |
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid, net of amounts capitalized |
|
$ |
588,587 |
|
|
$ |
321,008 |
|
|
$ |
308,198 |
|
State, federal and foreign income taxes paid |
|
|
75,776 |
|
|
|
128,393 |
|
|
|
94,932 |
|
The accompanying notes are an integral part of these consolidated financial statements.
52
MGM MIRAGE AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(In thousands)
For the Years Ended December 31, 2005, 2004 and 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other |
|
|
|
|
|
|
Common Stock |
|
|
Capital in |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive |
|
|
Total |
|
|
|
Shares |
|
|
Par |
|
|
Excess of |
|
|
Deferred |
|
|
Treasury |
|
|
Retained |
|
|
Income |
|
|
Stockholders |
|
|
|
Outstanding |
|
|
Value |
|
|
Par Value |
|
|
Compensation |
|
|
Stock |
|
|
Earnings |
|
|
(Loss) |
|
|
Equity |
|
Balances, January 1, 2003 |
|
|
309,148 |
|
|
$ |
3,328 |
|
|
$ |
2,125,626 |
|
|
$ |
(27,034 |
) |
|
$ |
(317,432 |
) |
|
$ |
888,542 |
|
|
$ |
(8,886 |
) |
|
$ |
2,664,144 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
243,697 |
|
|
|
|
|
|
|
243,697 |
|
Currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,313 |
|
|
|
12,313 |
|
Derivative income from
unconsolidated affiliate, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,918 |
|
|
|
2,918 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
258,928 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancellation of restricted stock |
|
|
(20 |
) |
|
|
|
|
|
|
(54 |
) |
|
|
352 |
|
|
|
(298 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of stock options to
non-employees |
|
|
|
|
|
|
|
|
|
|
313 |
|
|
|
(313 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of deferred
compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,821 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,821 |
|
Issuance of common stock upon
exercise of stock options |
|
|
3,750 |
|
|
|
38 |
|
|
|
36,235 |
|
|
|
|
|
|
|
|
|
|
|
(19 |
) |
|
|
|
|
|
|
36,254 |
|
Purchases of treasury stock |
|
|
(26,686 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(442,864 |
) |
|
|
|
|
|
|
|
|
|
|
(442,864 |
) |
Tax benefit from stock option
exercises |
|
|
|
|
|
|
|
|
|
|
9,505 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,505 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2003 |
|
|
286,192 |
|
|
|
3,366 |
|
|
|
2,171,625 |
|
|
|
(19,174 |
) |
|
|
(760,594 |
) |
|
|
1,132,220 |
|
|
|
6,345 |
|
|
|
2,533,788 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
412,332 |
|
|
|
|
|
|
|
412,332 |
|
Currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,336 |
) |
|
|
(10,336 |
) |
Derivative income from
unconsolidated affiliate, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,824 |
|
|
|
2,824 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
404,820 |
|
Cancellation of restricted stock |
|
|
(64 |
) |
|
|
|
|
|
|
(64 |
) |
|
|
1,126 |
|
|
|
(1,062 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of deferred
compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,170 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,170 |
|
Issuance of common stock upon
exercise of stock options |
|
|
10,612 |
|
|
|
106 |
|
|
|
135,857 |
|
|
|
|
|
|
|
|
|
|
|
(53 |
) |
|
|
|
|
|
|
135,910 |
|
Purchases of treasury stock |
|
|
(16,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(348,895 |
) |
|
|
|
|
|
|
|
|
|
|
(348,895 |
) |
Tax benefit from stock option
exercises |
|
|
|
|
|
|
|
|
|
|
38,911 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38,911 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2004 |
|
|
280,740 |
|
|
|
3,472 |
|
|
|
2,346,329 |
|
|
|
(10,878 |
) |
|
|
(1,110,551 |
) |
|
|
1,544,499 |
|
|
|
(1,167 |
) |
|
|
2,771,704 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
443,256 |
|
|
|
|
|
|
|
443,256 |
|
Currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,631 |
) |
|
|
(1,631 |
) |
Derivative income from
unconsolidated affiliate, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,997 |
|
|
|
1,997 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
443,622 |
|
|
Cancellation of restricted stock |
|
|
(24 |
) |
|
|
|
|
|
|
|
|
|
|
422 |
|
|
|
(422 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of stock options to
non-employees |
|
|
|
|
|
|
|
|
|
|
485 |
|
|
|
(485 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of deferred
compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,323 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,323 |
|
Issuance of common stock upon
exercise of stock options |
|
|
10,115 |
|
|
|
101 |
|
|
|
145,690 |
|
|
|
|
|
|
|
|
|
|
|
(30 |
) |
|
|
|
|
|
|
145,761 |
|
Purchases of treasury stock |
|
|
(5,500 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(217,316 |
) |
|
|
|
|
|
|
|
|
|
|
(217,316 |
) |
Restricted shares turned in for
tax withholding |
|
|
(261 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,105 |
) |
|
|
|
|
|
|
|
|
|
|
(10,105 |
) |
Tax benefit from stock option
exercises |
|
|
|
|
|
|
|
|
|
|
94,083 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
94,083 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2005 |
|
|
285,070 |
|
|
$ |
3,573 |
|
|
$ |
2,586,587 |
|
|
$ |
(3,618 |
) |
|
$ |
(1,338,394 |
) |
|
$ |
1,987,725 |
|
|
$ |
(801 |
) |
|
$ |
3,235,072 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
53
MGM MIRAGE AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 ORGANIZATION
MGM
MIRAGE (the Company) is a Delaware corporation, incorporated on January 29,
1986. As of December 31, 2005, approximately 56% of the outstanding shares of the
Companys common stock were owned by Tracinda Corporation, a Nevada corporation wholly
owned by Kirk Kerkorian. MGM MIRAGE acts largely as a holding company and, through
wholly-owned subsidiaries, owns and/or operates casino resorts. On April 25, 2005, the
Company completed its merger with Mandalay Resort Group
(Mandalay) see Note 3.
The Company owns and operates the following casino resorts in Las Vegas, Nevada:
Bellagio, MGM Grand Las Vegas, Mandalay Bay, The Mirage, Luxor, Treasure Island (TI),
New York-New York, Excalibur, Monte Carlo, Circus Circus Las Vegas and Slots-A-Fun. The
Boardwalk was closed in early 2006 in preparation for Project CityCenter (see below).
The Company owns three resorts in Primm, Nevada, at the California/Nevada state line
Whiskey Petes, Buffalo Bills and the Primm Valley Resort as well as two championship
golf courses located near the resorts. Other Nevada operations include Circus Circus
Reno, Colorado Belle and Edgewater in Laughlin, Gold Strike and Nevada Landing in Jean,
and Railroad Pass in Henderson. The Company has a 50% investment in Silver Legacy in
Reno, which is adjacent to Circus Circus Reno. In addition, the Company owns a 50%
interest in The Signature at MGM Grand, which is adjacent to MGM Grand Las Vegas. The
Signature at MGM Grand is a condominium-hotel development, with three towers currently
under construction. The Company also owns Shadow Creek, an exclusive world-class golf
course located approximately ten miles north of its Las Vegas Strip resorts.
The Company and its local partners own MGM Grand Detroit, LLC, which operates a
casino in an interim facility located in downtown Detroit, Michigan. The Company also
owns and operates two resorts in Mississippi Beau Rivage in Biloxi and Gold Strike
Tunica. Beau Rivage sustained significant damage in late August 2005 as a result of
Hurricane Katrina and has been closed since. The Company expects to reopen Beau Rivage
in stages beginning in the third quarter of 2006. The Company has 50% interests in two resorts outside of
Nevada Borgata and Grand Victoria. Borgata is a casino resort located on Renaissance
Point in the Marina area of Atlantic City, New Jersey. Boyd Gaming Corporation owns the
other 50% of Borgata and also operates the resort. The Company owns additional land
adjacent to Borgata, a portion of which consists of common roads, landscaping and master
plan improvements, a portion of which is being utilized for an expansion of Borgata, and
a portion of which is available for future development. Grand Victoria is a riverboat in
Elgin, Illinois that was previously owned by Mandalay. An affiliate of Hyatt Gaming owns
the other 50% of Grand Victoria and also operates the resort.
The Company owns 50% of MGM Grand Paradise Limited, a joint venture with Pansy Ho
Chiu-king formed to develop, build and operate a hotel-casino resort, MGM Grand Macau, in
Macau S.A.R. In April 2005, MGM Grand Paradise Limited obtained a subconcession allowing
it to conduct gaming operations. Construction of MGM Grand Macau, which is estimated to
cost approximately $1.1 billion including land and license
rights and preopening costs, began in the second quarter of 2005 and the resort is
anticipated to open in late 2007.
The Company owns 66 acres adjacent to Bellagio on which it is developing Project
CityCenter. Project CityCenter will feature a 4,000-room casino resort designed by
world-famous architect Cesar Pelli; two 400-room non-gaming boutique hotels, one of which
will be managed by luxury hotelier Mandarin Oriental; approximately 470,000 square feet
of retail shops, dining and entertainment venues; and approximately 2.3 million square
feet of residential space in over 2,900 luxury condominium and
condominium-hotel units in
multiple towers. The overall cost of Project CityCenter is estimated at approximately $7
billion, excluding preopening and land costs. After estimated proceeds of $2.5 billion
from the sale of residential units, net project cost is estimated at approximately $4.5
billion. Project City Center is expected to open in 2009.
Until July 2004, the Company owned and operated MGM Grand Australia and until
January 2004, the Company owned and operated the Golden Nugget Las Vegas in downtown Las
Vegas and the Golden Nugget Laughlin in Laughlin, Nevada. Until June 2003, the Company operated PLAYMGMMIRAGE.com, the Companys
online gaming website based in the Isle of Man. See Note 4 for further information
regarding these discontinued operations.
Until
2005, the Company held an indirect interest in Triangle Casino in
Bristol through its 25% ownership of Metro Casinos Limited, a United
Kingdom gaming company. Metro Casinos Limited sold the Triangle
Casino in 2005.
54
NOTE 2 SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION
Principles of consolidation. The consolidated financial statements include the
accounts of the Company and its subsidiaries. Investments in unconsolidated affiliates
which are 50% or less owned are accounted for under the equity method. All significant
intercompany balances and transactions have been eliminated in consolidation. The
Companys operations are primarily in one segment operation of casino resorts. Other
operations, and foreign operations, are not material.
Managements use of estimates. The consolidated financial statements have been
prepared in conformity with accounting principles generally accepted in the United
States of America. Those principles require the Companys management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Financial statement impact of Hurricane Katrina. The Company maintains insurance
covering both property damage and business interruption as a result of wind and flood
damage sustained at Beau Rivage. The deductible under this coverage is approximately
$15 million, based on the amount of damage incurred. Based on current estimates,
insurance proceeds are expected to exceed the net book value of damaged assets;
therefore, the Company will not record an impairment charge related to the storm and
upon ultimate settlement of the claim will likely record a gain. Damaged assets with a
net book value of $121 million have been written off, and a corresponding insurance
receivable has been recorded.
Business interruption coverage covers lost profits and other costs incurred during
the closure period and up to six months following the reopening of the facility.
Expected costs during the interruption period are less than the anticipated business
interruption proceeds; therefore, post-storm costs of $50 million through December 31,
2005 were offset by the expected recoveries and a corresponding insurance receivable was
recorded. Post-storm costs and expected recoveries are recorded net with General and
administrative expenses in the accompanying consolidated statements of income, except
for depreciation of non-damaged assets, which is classified as Depreciation and
amortization.
The insurance receivable is recorded within Deposits and other assets, net in the
accompanying consolidated balance sheets. Through December 31, 2005, the Company
received $46 million from its insurers, leaving a net receivable of $125 million at
December 31, 2005.
Cash and cash equivalents. Cash and cash equivalents include investments and
interest bearing instruments with maturities of three months or less at the date of
acquisition. Such investments are carried at cost which approximates market value.
Book overdraft balances resulting from the Companys cash management program are
recorded as accounts payable.
Accounts receivable and credit risk. Financial instruments that potentially
subject the Company to concentrations of credit risk consist principally of casino
accounts receivable. The Company issues markers to approved casino customers following
background checks and investigations of creditworthiness. At December 31, 2005, a
substantial portion of the Companys receivables were due from customers residing in
foreign countries. Business or economic conditions or other significant events in these
countries could affect the collectibility of such receivables.
Trade receivables, including casino and hotel receivables, are typically
non-interest bearing and are initially recorded at cost. Accounts are written off when
management deems the account to be uncollectible. Recoveries of accounts previously
written off are recorded when received. An estimated allowance for doubtful accounts is
maintained to reduce the Companys receivables to their carrying amount, which
approximates fair value. The allowance is estimated based on specific review of
customer accounts as well as historical collection experience and current economic and
business conditions. Management believes that as of December 31, 2005, no significant
concentrations of credit risk existed for which an allowance had not already been
recorded.
Inventories. Inventories consist of food and beverage, retail merchandise and
operating supplies, and are stated at the lower of cost or market. Cost is determined
primarily by the average cost method for food and beverage and supplies and the retail
inventory or specific identification methods for retail merchandise.
Property and equipment. Property and equipment are stated at cost. Gains or
losses on dispositions of property and equipment are included in the determination of
income. Maintenance costs are expensed as incurred. Property and equipment are
generally depreciated over the following estimated useful lives on a straight-line
basis:
|
|
|
|
|
Buildings and improvements |
|
|
30 to 45 years |
|
Land improvements |
|
|
10 to 20 years |
|
Furniture and fixtures |
|
|
3 to 10 years |
|
Equipment |
|
|
3 to 20 years |
|
55
We evaluate our property and equipment and other long-lived assets for impairment
in accordance with the Financial Accounting Standards Boards Statement of Financial
Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets. For assets to be disposed of, we recognize the asset to be sold at the lower
of carrying value or fair value less costs of disposal. Fair value for assets to be
disposed of is estimated based on comparable asset sales, offers received, or a
discounted cash flow model.
For assets to be held and used, we review fixed assets for impairment whenever
indicators of impairment exist. If an indicator of impairment exists, we compare the
estimated future cash flows of the asset, on an undiscounted basis, to the carrying
value of the asset. If the undiscounted cash flows exceed the carrying value, no
impairment is indicated. If the undiscounted cash flows do not exceed the carrying
value, then an impairment is measured based on fair value compared to carrying value,
with fair value typically based on a discounted cash flow model. If an asset is still
under development, future cash flows include remaining construction costs. For a
discussion of recognized impairment losses, see Note 16.
Capitalized interest. The interest cost associated with major development and
construction projects is capitalized and included in the cost of the project. When no
debt is incurred specifically for a project, interest is capitalized on amounts expended
on the project using the weighted-average cost of the Companys outstanding borrowings.
Capitalization of interest ceases when the project is substantially complete or
development activity is suspended for more than a brief period.
Goodwill and other intangible assets. Goodwill represents the excess of purchase
price over fair market value of net assets acquired in business combinations. Goodwill
and indefinite-lived intangible assets must be reviewed for impairment at least annually
and between annual test dates in certain circumstances. The Company performs its annual
impairment test for goodwill and indefinite-lived intangible assets in the fourth
quarter of each fiscal year. No impairments were indicated as a result of the annual
impairment reviews for goodwill and indefinite-lived intangible assets in 2005, 2004 or
2003.
Revenue recognition and promotional allowances. Casino revenue is the
aggregate net difference between gaming wins and losses, with liabilities recognized for
funds deposited by customers before gaming play occurs (casino front money) and for
chips in the customers possession (outstanding chip liability). Hotel, food and
beverage, entertainment and other operating revenues are recognized as services are
performed. Advance deposits on rooms and advance ticket sales are recorded as accrued
liabilities until services are provided to the customer.
Gaming revenues are recognized net of certain sales incentives, including discounts
and points earned in point-loyalty programs. The retail value of accommodations, food
and beverage, and other services furnished to guests without charge is included in gross
revenue and then deducted as promotional allowances. The estimated cost of providing
such promotional allowances is primarily included in casino expenses as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Rooms |
|
$ |
82,009 |
|
|
$ |
63,652 |
|
|
$ |
64,103 |
|
Food and beverage |
|
|
255,201 |
|
|
|
191,695 |
|
|
|
178,399 |
|
Other |
|
|
35,242 |
|
|
|
25,213 |
|
|
|
21,560 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
372,452 |
|
|
$ |
280,560 |
|
|
$ |
264,062 |
|
|
|
|
|
|
|
|
|
|
|
Advertising. The Company expenses advertising costs the first time the advertising
takes place. Advertising expense, which is generally included in general and
administrative expenses, was $99 million, $57 million and $54 million for 2005, 2004 and
2003, respectively.
Corporate expense. Corporate expense represents unallocated payroll and aircraft
costs, professional fees and various other expenses not directly related to the
Companys casino resort operations. In addition, corporate expense includes the costs
associated with the Companys evaluation and pursuit of new business opportunities,
which are expensed as incurred until development of a specific project has become
probable.
Preopening and start-up expenses. The Company accounts for costs incurred during
the preopening and start-up phases of operations in accordance with Statement of
Position 98-5, Reporting on the Costs of Start-up
Activities. Preopening and start-up
costs, including organizational costs, are expensed as incurred. Costs classified as
preopening and start-up expenses include payroll, outside services, advertising, and
other expenses related to new or start-up operations and new customer initiatives.
56
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Weighted-average common shares outstanding used
in the calculation of basic earnings per share |
|
|
284,943 |
|
|
|
279,325 |
|
|
|
297,861 |
|
Potential dilution from stock options and
restricted stock |
|
|
11,391 |
|
|
|
10,008 |
|
|
|
5,323 |
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common and common equivalent
shares used in the calculation of diluted earnings
per share |
|
|
296,334 |
|
|
|
289,333 |
|
|
|
303,184 |
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation. The Company has accounted for stock-based compensation,
including employee stock option plans, in accordance with Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees and the Financial Accounting
Standards Boards Interpretation No. 44, Accounting for Certain Transactions involving
Stock Compensation, an interpretation of APB Opinion No. 25, and has disclosed
supplemental information in accordance with Statement of Financial Accounting Standards
No. 123, Accounting for Stock-Based Compensation (SFAS 123), as amended by Statement
of Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation
Transition and Disclosure (SFAS 148). The Company has not incurred compensation
expense for employee stock options when the exercise price is at least 100% of the
market value of the Companys common stock on the date of grant. For disclosure
purposes, employee stock options have been measured at fair value using the
Black-Scholes option-pricing model and compensation has been assumed to be amortized
over the vesting periods of the options.
In December 2004, the Financial Accounting Standards Board issued SFAS No. 123
(revised 2004), Share-Based Payment (SFAS
123(R)). Under the original standard,
SFAS No. 123, companies had the option of recording stock options issued to employees at
fair value or intrinsic value, which generally leads to no expense being recorded. The
Company opted to use this intrinsic value method and make required disclosures of fair
value expense. SFAS 123(R) eliminates this intrinsic value
alternative. SFAS 123(R) was effective for the Company on
January 1, 2006, and all future share-based
payments must be recorded at fair value.
The Company has adopted nonqualified stock option plans and incentive stock option
plans which provide for the granting of stock options to eligible directors, officers
and employees. The plans are administered by the Compensation and Stock Option Committee
of the Board of Directors. Salaried officers, directors and other key employees of the
Company and its subsidiaries are eligible to receive options. The exercise price in
each instance is 100% of the fair market value of the Companys common stock on the date
of grant. The options have either 7-year or 10-year terms and in most cases are
exercisable in either four or five equal annual installments.
As of December 31, 2005, the aggregate number of stock options available for grant
was 6.5 million. A summary of the status of the Companys stock option plans is
presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
Average |
|
|
|
|
|
|
Average |
|
|
|
Shares |
|
|
Exercise |
|
|
Shares |
|
|
Exercise |
|
|
Shares |
|
|
Exercise |
|
|
|
(000s) |
|
|
Price |
|
|
(000s) |
|
|
Price |
|
|
(000s) |
|
|
Price |
|
Outstanding at beginning of year |
|
|
30,728 |
|
|
$ |
14.16 |
|
|
|
41,735 |
|
|
$ |
13.69 |
|
|
|
28,646 |
|
|
$ |
13.59 |
|
Granted |
|
|
14,625 |
|
|
|
35.26 |
|
|
|
551 |
|
|
|
22.93 |
|
|
|
17,382 |
|
|
|
13.05 |
|
Exercised |
|
|
(10,115 |
) |
|
|
14.43 |
|
|
|
(10,612 |
) |
|
|
12.79 |
|
|
|
(3,750 |
) |
|
|
9.67 |
|
Terminated |
|
|
(631 |
) |
|
|
22.28 |
|
|
|
(946 |
) |
|
|
13.85 |
|
|
|
(543 |
) |
|
|
16.39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year |
|
|
34,607 |
|
|
|
22.85 |
|
|
|
30,728 |
|
|
|
14.16 |
|
|
|
41,735 |
|
|
|
13.68 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of year |
|
|
9,291 |
|
|
|
14.33 |
|
|
|
14,979 |
|
|
|
14.50 |
|
|
|
17,671 |
|
|
|
13.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57
The following table summarizes information about stock options outstanding at December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding |
|
|
Options Exercisable |
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
|
Number |
|
|
Remaining |
|
|
Average |
|
|
Number |
|
|
Average |
|
|
|
Outstanding |
|
|
Contractual |
|
|
Exercise |
|
|
Exercisable |
|
|
Exercise |
|
Range of Exercise Prices |
|
(000s) |
|
|
Life (Years) |
|
|
Price |
|
|
(000s) |
|
|
Price |
|
$5.49 - $6.66 |
|
|
826 |
|
|
|
2.5 |
|
|
$ |
6.65 |
|
|
|
826 |
|
|
$ |
6.65 |
|
$8.30 - $12.35 |
|
|
732 |
|
|
|
3.6 |
|
|
|
11.32 |
|
|
|
732 |
|
|
|
11.32 |
|
$12.58 - $18.87 |
|
|
18,111 |
|
|
|
6.8 |
|
|
|
14.20 |
|
|
|
7,596 |
|
|
|
15.31 |
|
$20.08 - $27.22 |
|
|
578 |
|
|
|
8.0 |
|
|
|
22.89 |
|
|
|
137 |
|
|
|
22.03 |
|
$34.05 - $45.64 |
|
|
14,360 |
|
|
|
6.7 |
|
|
|
35.27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,607 |
|
|
|
6.6 |
|
|
|
22.85 |
|
|
|
9,291 |
|
|
|
14.33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Had the Company accounted for these plans under the fair value method allowed by
SFAS 123, the Companys net income and earnings per share would have been reduced to
recognize the fair value of employee stock options. The following are required
disclosures under SFAS 123 and SFAS 148:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
(In thousands, except per share amounts) |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
As reported |
|
$ |
443,256 |
|
|
$ |
412,332 |
|
|
$ |
243,697 |
|
Stock-based compensation under SFAS 123 |
|
|
(47,934 |
) |
|
|
(22,963 |
) |
|
|
(43,310 |
) |
|
|
|
|
|
|
|
|
|
|
Pro forma |
|
$ |
395,322 |
|
|
$ |
389,369 |
|
|
$ |
200,387 |
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
As reported |
|
$ |
1.56 |
|
|
$ |
1.48 |
|
|
$ |
0.82 |
|
Stock-based compensation under SFAS 123 |
|
|
(0.17 |
) |
|
|
(0.09 |
) |
|
|
(0.15 |
) |
|
|
|
|
|
|
|
|
|
|
Pro forma |
|
$ |
1.39 |
|
|
$ |
1.39 |
|
|
$ |
0.67 |
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
As reported |
|
$ |
1.50 |
|
|
$ |
1.43 |
|
|
$ |
0.80 |
|
Stock-based compensation under SFAS 123 |
|
|
(0.17 |
) |
|
|
(0.08 |
) |
|
|
(0.14 |
) |
|
|
|
|
|
|
|
|
|
|
Pro forma |
|
$ |
1.33 |
|
|
$ |
1.35 |
|
|
$ |
0.66 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
assumptions used in the Black-Scholes model: |
|
|
|
|
|
|
|
|
|
|
|
|
Expected volatility |
|
|
37 |
% |
|
|
42 |
% |
|
|
42 |
% |
Expected life |
|
4.3 years |
|
5.0 years |
|
5.0 years |
Expected dividend yield |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
Risk-free interest rate |
|
|
3.8 |
% |
|
|
3.4 |
% |
|
|
3.2 |
% |
Weighted average fair value of options granted |
|
$ |
12.73 |
|
|
$ |
9.55 |
|
|
$ |
5.32 |
|
Reported net income includes $5 million, net of tax, of amortization of restricted
stock and non-employee stock option compensation for each of the years ended December
31, 2005, 2004 and 2003.
Currency translation. The Company accounts for currency translation in accordance
with Statement of Financial Accounting Standards No. 52, Foreign Currency Translation.
Balance sheet accounts are translated at the exchange rate in effect at each balance
sheet date. Income statement accounts are translated at the average rate of exchange
prevailing during the period. Translation adjustments resulting from this process are
charged or credited to other comprehensive loss.
Comprehensive income. Comprehensive income includes net income and all other
non-stockholder changes in equity, or other comprehensive income. Elements of the
Companys other comprehensive income are reported in the accompanying consolidated
statement of stockholders equity, and the cumulative balance of these elements
consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
At December 31, |
|
|
|
2005 |
|
|
2004 |
|
|
|
(In thousands) |
|
Derivative loss from unconsolidated affiliate, net |
|
$ |
134 |
|
|
$ |
(1,863 |
) |
Foreign currency translation adjustments |
|
|
(935 |
) |
|
|
696 |
|
|
|
|
|
|
|
|
|
|
$ |
(801 |
) |
|
$ |
(1,167 |
) |
|
|
|
|
|
|
|
Reclassifications. The consolidated financial statements for prior years reflect
certain reclassifications, which have no effect on previously reported net income, to
conform to the current year presentation.
58
NOTE 3 ACQUISITION
On April 25, 2005, the Company closed its merger with Mandalay under which the
Company acquired 100% of the outstanding common stock of Mandalay for $71 in cash for
each share of Mandalays common stock. The acquisition expands the Companys portfolio
of resorts on the Las Vegas Strip, provides additional sites for future development and
expands the Companys employee and customer bases significantly. These factors result
in the recognition of certain intangible assets, discussed below, and significant
goodwill. The total acquisition cost included (in thousands):
|
|
|
|
|
Cash
consideration for Mandalays outstanding shares and stock options |
|
$ |
4,831,944 |
|
Estimated
fair value of Mandalays long-term debt |
|
|
2,849,225 |
|
Transaction costs and expenses and other |
|
|
111,944 |
|
|
|
|
|
|
|
|
7,793,113 |
|
Less: Net proceeds from the sale of MotorCity Casino |
|
|
(526,597 |
) |
|
|
|
|
|
|
$ |
7,266,516 |
|
|
|
|
|
Cash paid, net of cash acquired, was $4.4 billion. The transaction was accounted
for as a purchase and, accordingly, the purchase price was allocated to the underlying
assets acquired and liabilities assumed based upon their estimated fair values at the
date of the acquisition. The purchase price allocation is preliminary and may be
adjusted up to one year after the acquisition. In particular, the Company is still
evaluating certain customer relationship intangible assets related to individual and
group hotel reservations as well as gaming loyalty program members.
The following table sets forth the preliminary allocation of purchase price (in
thousands):
|
|
|
|
|
Current assets (including cash of $134,245) |
|
$ |
414,326 |
|
Property and equipment |
|
|
7,180,936 |
|
Goodwill |
|
|
1,230,804 |
|
Other intangible assets |
|
|
245,940 |
|
Other assets |
|
|
283,931 |
|
Assumed liabilities, excluding long-term debt |
|
|
(602,338 |
) |
Deferred taxes |
|
|
(1,487,083 |
) |
|
|
|
|
|
|
$ |
7,266,516 |
|
|
|
|
|
The amount allocated to intangible assets includes the recognition of customer
lists with an estimated value of $12 million and an estimated useful life of five years
and trade names and trademarks with an estimated value of $234 million and an indefinite
life. Goodwill and indefinite-lived intangible assets are not amortized.
The operating results for Mandalay are included in the accompanying consolidated
statements of income from the date of the acquisition. The following unaudited pro
forma consolidated financial information for the Company has been prepared assuming the
Mandalay acquisition had occurred on January 1, 2004.
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2005 |
|
|
2004 |
|
|
|
(In thousands, except per share amounts) |
|
Net revenues |
|
$ |
7,384,626 |
|
|
$ |
6,903,004 |
|
Operating income |
|
|
1,519,500 |
|
|
|
1,423,324 |
|
Income from continuing operations |
|
|
465,087 |
|
|
|
415,625 |
|
Net income |
|
|
465,087 |
|
|
|
478,101 |
|
Basic earnings per share: |
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
1.63 |
|
|
$ |
1.49 |
|
Net income |
|
|
1.63 |
|
|
|
1.71 |
|
Diluted earnings per share: |
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
1.57 |
|
|
$ |
1.44 |
|
Net income |
|
|
1.57 |
|
|
|
1.65 |
|
NOTE 4 DISCONTINUED OPERATIONS
In June 2003, the Company ceased operations of PLAYMGMMIRAGE.com, its online gaming
website (Online). In January 2004, the Company completed the sale of the Golden
Nugget Las Vegas in downtown Las Vegas and the Golden Nugget Laughlin in Laughlin,
Nevada (the Golden Nugget Subsidiaries), with net proceeds to the Company of $210
million. In July 2004, the Company completed the sale of the subsidiaries that owned
and operated MGM Grand Australia with net proceeds to the Company of $136 million.
59
The results of the Golden Nugget Subsidiaries, Online and MGM Grand Australia
are classified as discontinued operations in the accompanying consolidated statements of
income for all periods presented. Net revenues of discontinued operations were $45
million and $231 million, respectively, for the years ended December 31, 2004 and 2003.
Included in income from discontinued operations is an allocation of interest expense
based on the ratio of the net assets of the discontinued operations to the total
consolidated net assets and debt of the Company. Interest allocated to discontinued
operations was $2 million and $9 million for the years ended December 31, 2004 and 2003,
respectively. Included in discontinued operations for the year ended December 31, 2003
is a loss on disposal of Online of $7 million relating primarily to unrecoverable costs
of computer hardware and software. Included in the tax benefit from discontinued
operations for the year ended December 31, 2003 is $2 million of previously unrecognized
tax benefits relating to prior year operating losses of Online. Included in
discontinued operations for the year ended December 31, 2004 is a gain on the sale of
the Golden Nugget Subsidiaries of $8 million and a gain on sale of MGM Grand Australia
of $74 million.
NOTE 5 ACCOUNTS RECEIVABLE, NET
Accounts receivable consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
At December 31, |
|
|
|
2005 |
|
|
2004 |
|
|
|
(In thousands) |
|
Casino |
|
$ |
221,873 |
|
|
$ |
174,713 |
|
Hotel |
|
|
173,049 |
|
|
|
61,084 |
|
Other |
|
|
35,021 |
|
|
|
28,114 |
|
|
|
|
|
|
|
|
|
|
|
429,943 |
|
|
|
263,911 |
|
Less: Allowance for doubtful accounts |
|
|
(77,270 |
) |
|
|
(59,760 |
) |
|
|
|
|
|
|
|
|
|
$ |
352,673 |
|
|
$ |
204,151 |
|
|
|
|
|
|
|
|
NOTE 6 PROPERTY AND EQUIPMENT, NET
Property and equipment consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
At December 31, |
|
|
|
2005 |
|
|
2004 |
|
|
|
(In thousands) |
|
Land |
|
$ |
8,018,301 |
|
|
$ |
4,089,106 |
|
Buildings, building improvements and land improvements |
|
|
7,595,257 |
|
|
|
4,228,138 |
|
Furniture, fixtures and equipment |
|
|
2,695,746 |
|
|
|
2,235,766 |
|
Construction in progress |
|
|
607,447 |
|
|
|
299,148 |
|
|
|
|
|
|
|
|
|
|
|
18,916,751 |
|
|
|
10,852,158 |
|
Less: Accumulated depreciation and amortization |
|
|
(2,375,100 |
) |
|
|
(1,938,016 |
) |
|
|
|
|
|
|
|
|
|
$ |
16,541,651 |
|
|
$ |
8,914,142 |
|
|
|
|
|
|
|
|
NOTE 7 INVESTMENTS IN UNCONSOLIDATED AFFILIATES
The Company has investments in unconsolidated affiliates accounted for under the
equity method. Under the equity method, carrying value is adjusted for the Companys
share of the investees earnings and losses, as well as capital contributions to and
distributions from these companies. Investments in unconsolidated affiliates consisted
of the following:
|
|
|
|
|
|
|
|
|
|
|
At December 31, |
|
|
|
2005 |
|
|
2004 |
|
|
|
(In thousands) |
|
Marina District Development Company Borgata (50%) |
|
$ |
461,211 |
|
|
$ |
405,322 |
|
Elgin Riverboat Resort-Riverboat Casino-Grand Victoria (50%) |
|
|
241,279 |
|
|
|
|
|
MGM Grand Paradise Limited Macau (50%) |
|
|
187,568 |
|
|
|
3,002 |
|
Circus and Eldorado Joint Venture Silver Legacy (50%) |
|
|
26,492 |
|
|
|
|
|
Victoria Partners Monte Carlo (50% in 2004) |
|
|
|
|
|
|
424,683 |
|
Other |
|
|
14,604 |
|
|
|
9,633 |
|
|
|
|
|
|
|
|
|
|
|
931,154 |
|
|
|
842,640 |
|
Turnberry/MGM Grand Towers The Signature at
MGM Grand (50%) |
|
|
(7,400 |
) |
|
|
(3,231 |
) |
|
|
|
|
|
|
|
|
|
$ |
923,754 |
|
|
$ |
839,409 |
|
|
|
|
|
|
|
|
60
The negative investment balances in The Signature at MGM Grand, which represents
cumulative losses of the venture, are classified as Other long-term liabilities in the
accompanying consolidated balance sheets along with deferred income of $16 million
related to the excess of equity credit over carrying value of land the Company
contributed to the venture. The income will be recognized when the venture recognizes
the profits on the sale of each towers units.
Differences between the Companys venture-level equity and investment balances are
as follows:
|
|
|
|
|
|
|
|
|
|
|
At December 31, |
|
|
|
2005 |
|
|
2004 |
|
|
|
(In thousands) |
|
Venture-level equity |
|
$ |
603,015 |
|
|
$ |
419,035 |
|
Fair value adjustments |
|
|
264,814 |
|
|
|
361,102 |
|
Capitalized interest |
|
|
52,689 |
|
|
|
45,099 |
|
Other adjustments |
|
|
3,236 |
|
|
|
14,173 |
|
|
|
|
|
|
|
|
|
|
$ |
923,754 |
|
|
$ |
839,409 |
|
|
|
|
|
|
|
|
The fair value adjustments at December 31, 2005 include $90 million related to
Borgata, which was assigned to land, $210 million related to Grand Victoria, which has
been assigned to goodwill on a preliminary basis, and a $35 million credit related to
Silver Legacy, which was assigned to long-term assets and long-term debt and is being
amortized accordingly. The amount related to Grand Victoria is subject to adjustment as
the Mandalay purchase price allocation is preliminary. See Note 3 for further
information. At December 31, 2004, fair value adjustments included the amount related
to Borgata and an amount related to Monte Carlo which was assigned to land. Amounts
related to capitalized interest are amortized over the life of the related building.
The Company recorded its share of the results of operations of the unconsolidated
affiliates as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
(In thousands) |
|
Income from unconsolidated affiliates |
|
$ |
151,871 |
|
|
$ |
119,658 |
|
|
$ |
53,612 |
|
Preopening and start-up expenses |
|
|
(1,914 |
) |
|
|
|
|
|
|
(19,326 |
) |
Non-operating items from unconsolidated affiliates |
|
|
(15,825 |
) |
|
|
(12,298 |
) |
|
|
(10,401 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
134,132 |
|
|
$ |
107,360 |
|
|
$ |
23,885 |
|
|
|
|
|
|
|
|
|
|
|
Summarized balance sheet information of the unconsolidated affiliates is as follows:
|
|
|
|
|
|
|
|
|
|
|
At December 31, |
|
|
2005 |
|
2004 |
|
|
(In thousands) |
Current assets |
|
$ |
220,708 |
|
|
$ |
129,009 |
|
Property and other assets, net |
|
|
2,008,912 |
|
|
|
1,392,436 |
|
Current liabilities |
|
|
213,135 |
|
|
|
106,111 |
|
Long-term debt and other liabilities |
|
|
871,173 |
|
|
|
530,458 |
|
Equity |
|
|
1,145,312 |
|
|
|
884,876 |
|
Summarized results of operations of the unconsolidated affiliates are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
(In thousands) |
|
Net revenues |
|
$ |
1,243,465 |
|
|
$ |
966,642 |
|
|
$ |
551,669 |
|
Operating expenses, except preopening expenses |
|
|
(938,972 |
) |
|
|
(721,998 |
) |
|
|
(441,526 |
) |
Preopening and start-up expenses |
|
|
(3,829 |
) |
|
|
|
|
|
|
(39,186 |
) |
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
300,664 |
|
|
|
244,644 |
|
|
|
70,957 |
|
Interest expense |
|
|
(35,034 |
) |
|
|
(34,698 |
) |
|
|
(21,700 |
) |
Other non-operating income (expense) |
|
|
1,435 |
|
|
|
9,789 |
|
|
|
4,297 |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
267,065 |
|
|
$ |
219,735 |
|
|
$ |
53,554 |
|
|
|
|
|
|
|
|
|
|
|
61
NOTE 8 GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
and other intangible assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
At December 31, |
|
|
|
2005 |
|
|
2004 |
|
|
|
(In thousands) |
|
Goodwill: |
|
|
|
|
|
|
|
|
Mandalay acquisition (2005) |
|
$ |
1,230,804 |
|
|
$ |
|
|
Mirage
Resorts acquisition (2000) |
|
|
76,342 |
|
|
|
76,342 |
|
Other |
|
|
7,415 |
|
|
|
7,415 |
|
|
|
|
|
|
|
|
|
|
|
1,314,561 |
|
|
|
83,757 |
|
|
|
|
|
|
|
|
Indefinite-lived intangible assets: |
|
|
|
|
|
|
|
|
Detroit development rights |
|
|
100,056 |
|
|
|
115,056 |
|
Trademarks, license rights and other |
|
|
251,754 |
|
|
|
17,554 |
|
|
|
|
|
|
|
|
|
|
|
351,810 |
|
|
|
132,610 |
|
|
|
|
|
|
|
|
|
Other
intangible assets, net |
|
|
25,669 |
|
|
|
16,968 |
|
|
|
|
|
|
|
|
|
|
$ |
1,692,040 |
|
|
$ |
233,335 |
|
|
|
|
|
|
|
|
Goodwill related to the Mandalay acquisition was primarily assigned to Mandalay
Bay, Luxor, Excalibur and Gold Strike Tunica. Goodwill related to the
Mirage Resorts
acquisition was assigned to Bellagio, The Mirage and TI. Other goodwill relates to the
Companys 2003 acquisition of majority interests in the entities that operate the
nightclubs Light and Caramel, located in Bellagio, and Mist, located in TI. Changes in
the recorded balances of goodwill are as follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2005 |
|
|
2004 |
|
|
|
(In thousands) |
|
Balance, beginning of period |
|
$ |
83,757 |
|
|
$ |
118,434 |
|
Goodwill acquired during the period |
|
|
1,230,804 |
|
|
|
|
|
Currency translation adjustment |
|
|
|
|
|
|
(992 |
) |
Goodwill assigned to discontinued operations |
|
|
|
|
|
|
(33,267 |
) |
Other |
|
|
|
|
|
|
(418 |
) |
|
|
|
|
|
|
|
Balance, end of the period |
|
$ |
1,314,561 |
|
|
$ |
83,757 |
|
|
|
|
|
|
|
|
The Companys indefinite-lived intangible assets consist primarily of development
rights in Detroit and trademarks. The Companys finitelived intangible assets
consist primarily of customer lists amortized over five years, lease acquisition costs
amortized over the life of the related leases, and certain license rights amortized over
their contractual life.
NOTE 9 OTHER ACCRUED LIABILITIES
Other accrued liabilities consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
At December 31, |
|
|
|
2005 |
|
|
2004 |
|
|
|
(In thousands) |
|
Payroll and related |
|
$ |
297,946 |
|
|
$ |
162,943 |
|
Advance deposits and ticket sales |
|
|
120,830 |
|
|
|
65,810 |
|
Casino outstanding chip liability |
|
|
100,621 |
|
|
|
85,086 |
|
Casino front money deposits |
|
|
71,768 |
|
|
|
67,621 |
|
Other gaming related accruals |
|
|
78,921 |
|
|
|
50,186 |
|
Taxes, other than income taxes |
|
|
68,632 |
|
|
|
47,311 |
|
Other |
|
|
174,802 |
|
|
|
128,968 |
|
|
|
|
|
|
|
|
|
|
$ |
913,520 |
|
|
$ |
607,925 |
|
|
|
|
|
|
|
|
62
NOTE 10 LONG-TERM DEBT
Long-term debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
At December 31, |
|
|
|
2005 |
|
|
2004 |
|
|
|
(In thousands) |
|
Senior credit facility |
|
$ |
4,775,000 |
|
|
$ |
50,000 |
|
$300 million 6.95% senior notes, repaid at maturity in 2005 |
|
|
|
|
|
|
300,087 |
|
$176.4 million 6.625% senior notes, repaid at maturity in 2005 |
|
|
|
|
|
|
176,096 |
|
$200 million
6.45% senior notes, repaid at maturity in February 2006 |
|
|
200,223 |
|
|
|
|
|
$244.5 million 7.25% senior notes, due 2006, net |
|
|
240,353 |
|
|
|
235,511 |
|
$710 million 9.75% senior subordinated notes, due 2007, net |
|
|
708,223 |
|
|
|
706,968 |
|
$200 million 6.75% senior notes, due 2007, net |
|
|
192,977 |
|
|
|
189,115 |
|
$492.2 million 10.25% senior subordinated notes, due 2007, net |
|
|
527,879 |
|
|
|
|
|
$180.4 million 6.75% senior notes, due 2008, net |
|
|
172,238 |
|
|
|
168,908 |
|
$196.2 million 9.5% senior notes, due 2008, net |
|
|
212,895 |
|
|
|
|
|
$200 million 6.875% senior notes, redeemed in 2005 |
|
|
|
|
|
|
199,095 |
|
$226.3 million 6.5% senior notes, due 2009, net |
|
|
228,518 |
|
|
|
|
|
$1.05 billion 6% senior notes, due 2009, net |
|
|
1,055,232 |
|
|
|
1,056,453 |
|
$297.6 million 9.375% senior subordinated notes, due 2010, net |
|
|
325,332 |
|
|
|
|
|
$825 million 8.5% senior notes, due 2010, net |
|
|
822,705 |
|
|
|
822,214 |
|
$400 million 8.375% senior subordinated notes, due 2011 |
|
|
400,000 |
|
|
|
400,000 |
|
$132.4 million 6.375% senior notes, due 2011, net |
|
|
133,725 |
|
|
|
|
|
$550 million 6.75% senior notes, due 2012 |
|
|
550,000 |
|
|
|
550,000 |
|
$150 million 7.625% senior subordinated debentures, due 2013, net |
|
|
155,978 |
|
|
|
|
|
$525 million 5.875% senior notes, due 2014, net |
|
|
522,604 |
|
|
|
522,301 |
|
$875 million 6.625% senior notes, due 2015, net |
|
|
879,989 |
|
|
|
|
|
$100 million 7.25% senior debentures, due 2017, net |
|
|
82,699 |
|
|
|
81,919 |
|
Floating rate convertible senior debentures due 2033 |
|
|
8,472 |
|
|
|
|
|
$150 million 7% debentures due 2036, net |
|
|
155,961 |
|
|
|
|
|
$4.3 million 6.7% debentures, due 2096 |
|
|
4,265 |
|
|
|
|
|
Other notes |
|
|
179 |
|
|
|
195 |
|
|
|
|
|
|
|
|
|
|
|
12,355,447 |
|
|
|
5,458,862 |
|
Less: Current portion |
|
|
(14 |
) |
|
|
(14 |
) |
|
|
|
|
|
|
|
|
|
$ |
12,355,433 |
|
|
$ |
5,458,848 |
|
|
|
|
|
|
|
|
Total interest incurred during 2005, 2004 and 2003 was $686 million, $401 million
and $353 million, respectively, of which $30 million, $23 million and $15 million,
respectively, was capitalized.
At December 31, 2005, the senior credit facility had total capacity of $7.0
billion. The senior credit facility matures in 2010 and consists of a $5.5 billion
revolving credit facility and $1.5 billion term loan facility. The current senior
credit facility was made available upon the closing of the Mandalay merger, and replaced
the Companys previous $2.5 billion senior credit facility.
Interest on the senior credit facility is based on the bank reference rate or
Eurodollar rate. The Companys borrowing rate on the senior credit facility was
approximately 5.3% at December 31, 2005 and 3.3% at December 31, 2004. Stand-by letters
of credit totaling $53 million were outstanding as of December 31, 2005, thereby
reducing the availability under the senior credit facility. At
December 31, 2005, the Company had approximately $2.2 billion of
available borrowings under the senior credit facility.
In June 2005, the Company issued $500 million of 6.625% senior notes due 2015 and
in September 2005, the Company issued an additional $375 million of 6.625% senior notes
due 2015. In 2004, the Company issued $525 million of 5.875% senior notes due 2014, $550
million of 6.75% senior notes due 2012, and $450 million of 6% senior notes due 2009.
The proceeds of the above offerings were used to reduce outstanding borrowings under the
Companys senior credit facility.
63
In May 2005, the Company initiated a tender offer for several issuances of
Mandalays senior notes and senior subordinated notes totaling $1.5 billion, as required
by the change of control provisions contained in the respective indentures. Holders of
$155 million of Mandalays senior notes and senior subordinated notes redeemed their
holdings, resulting in a gain on early retirement of debt of $1 million, classified as
Other, net in the accompanying consolidated statements of income. Holders of
Mandalays floating rate convertible senior debentures with a principal amount of $394
million had the right to redeem the debentures for $566 million through June 30, 2005.
$388 million of principal of the convertible senior debentures were tendered for
redemption and redeemed for $558 million.
In February 2005, the Company redeemed all of its outstanding 6.875% senior notes
due February 2008 at the present value of future interest payments plus accrued interest
at the date of redemption. The Company recorded a loss on retirement of debt of $20
million in the first quarter of 2005, classified as Other, net in the accompanying
consolidated statements of income. As a result of the redemption of the February 2008
senior notes and the repayment of the $300 million 6.95% senior notes that matured in
February 2005, the Company applied for, and received, release of collateral under its
senior credit facility and all of its senior notes. Therefore, the Companys senior
credit facility and senior notes are now unsecured.
In August 2003, the Companys Board of Directors authorized the repurchase of up to
$100 million of the Companys public debt securities. Subsequently, the Company
repurchased $25 million of its senior notes and recorded a loss on early retirement of
debt of $3 million related to repurchase premiums and unamortized debt issue costs. In
2004, the Company repurchased an additional $49 million of its senior notes for $52
million. This resulted in a loss on early retirement of debt of $6 million related to
repurchase premiums and unamortized debt issuance costs. The losses in both periods are
classified as Other, net in the accompanying consolidated statements of income. In
December 2004, the Companys Board of Directors renewed its authorization for up to $100
million of additional debt securities.
The Company attempts to limit its exposure to interest rate risk by managing the
mix of its long-term fixed rate borrowings and short-term borrowings under its bank
credit facilities. In the past, the Company has also utilized interest rate swap agreements
to manage this risk. At December 31, 2005, the Company had no outstanding interest rate
swaps. All of the Companys interest rate swaps have met the criteria for using the
shortcut method allowed under Statement of Financial Accounting Standards No. 133.
The amounts received for the termination of past interest rate swaps, including the last
$100 million swap terminated in May 2005, have been added to the carrying value of the
related debt obligations and are being amortized and recorded as a reduction of interest
expense over the remaining life of that debt.
The Company and each of its material subsidiaries, excluding MGM Grand Detroit, LLC
and the Companys foreign subsidiaries, are directly liable for or unconditionally
guarantee the senior credit facility, senior notes, senior debentures, and senior
subordinated notes. MGM Grand Detroit, LLC is a guarantor under the senior credit
facility, but only to the extent that the proceeds of borrowings under such facilities
are made available to MGM Grand Detroit, LLC. See Note 18 for consolidating condensed
financial information of the subsidiary guarantors and non-guarantors.
The Companys long-term debt obligations contain customary covenants requiring the
Company to maintain certain financial ratios. At December 31, 2005, the Company was
required to maintain a maximum leverage ratio (debt to EBITDA, as
defined) of 7.25:1 and
a maximum senior leverage ratio of 5.75:1. Also at December 31, 2005, the Company was
required to maintain a minimum coverage ratio (EBITDA to interest charges, as defined)
of 2.0:1. As of December 31, 2005, the Companys leverage, senior leverage and interest
coverage ratios were 5.4:1, 4.5:1 and 2.9:1, respectively.
Maturities of the Companys long-term debt as of December 31, 2005 are as follows:
|
|
|
|
|
|
|
(In thousands) |
|
Years ending December 31, |
|
|
|
|
2006 |
|
$ |
444,526 |
|
2007 |
|
|
1,402,260 |
|
2008 |
|
|
376,649 |
|
2009 |
|
|
1,276,358 |
|
2010 |
|
|
5,897,584 |
|
Thereafter |
|
|
2,892,571 |
|
|
|
|
|
|
|
|
12,289,948 |
|
Debt premiums |
|
|
63,315 |
|
Swap deferred gain |
|
|
2,184 |
|
|
|
|
|
|
|
$ |
12,355,447 |
|
|
|
|
|
64
Amounts
due in 2006 that were refinanced, or are intended to be refinanced, through available capacity under the
Companys senior credit facility have been excluded from current liabilities in the
accompanying consolidated balance sheet.
The estimated fair value of the Companys long-term debt at December 31, 2005 was
approximately $12.5 billion, versus its book value of $12.4 billion. At December 31,
2004, the estimated fair value of the Companys long-term debt was approximately $5.9
billion, versus its book value of $5.5 billion. The estimated fair value of the
Companys public debt securities was based on quoted market prices on or about December
31, 2005 and 2004. The estimated fair value of the Companys senior credit facility was
assumed to approximate book value due to the short-term nature of the borrowings.
NOTE 11 INCOME TAXES
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes (SFAS 109). SFAS 109
requires the recognition of deferred income tax assets, net of applicable reserves,
related to net operating loss carryforwards and certain temporary differences. The
standard requires recognition of a future tax benefit to the extent that realization of
such benefit is more likely than not. Otherwise, a valuation allowance is applied.
The income tax provision attributable to continuing operations and discontinued
operations is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
(In thousands) |
|
Continuing operations |
|
$ |
235,644 |
|
|
$ |
205,959 |
|
|
$ |
113,387 |
|
Discontinued operations |
|
|
|
|
|
|
31,731 |
|
|
|
2,651 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
235,644 |
|
|
$ |
237,690 |
|
|
$ |
116,038 |
|
|
|
|
|
|
|
|
|
|
|
The income tax provision attributable to income from continuing operations before
income taxes is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
(In thousands) |
|
Currentfederal |
|
$ |
224,850 |
|
|
$ |
200,419 |
|
|
$ |
68,760 |
|
Deferredfederal |
|
|
2,140 |
|
|
|
(9,155 |
) |
|
|
40,142 |
|
|
|
|
|
|
|
|
|
|
|
Provision for federal income taxes |
|
|
226,990 |
|
|
|
191,264 |
|
|
|
108,902 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currentstate |
|
|
5,252 |
|
|
|
2,851 |
|
|
|
5,167 |
|
Deferredstate |
|
|
6,811 |
|
|
|
11,420 |
|
|
|
(682 |
) |
|
|
|
|
|
|
|
|
|
|
Provision for state income taxes |
|
|
12,063 |
|
|
|
14,271 |
|
|
|
4,485 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currentforeign |
|
|
(2,979 |
) |
|
|
424 |
|
|
|
|
|
Deferredforeign |
|
|
(430 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for foreign income taxes |
|
|
(3,409 |
) |
|
|
424 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
235,644 |
|
|
$ |
205,959 |
|
|
$ |
113,387 |
|
|
|
|
|
|
|
|
|
|
|
A
reconciliation of the federal income tax statutory rate and the Companys effective tax rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
Federal income tax statutory rate |
|
|
35.0 |
% |
|
|
35.0 |
% |
|
|
35.0 |
% |
State income tax (net of federal benefit) |
|
|
1.2 |
|
|
|
1.7 |
|
|
|
0.8 |
|
Reversal of reserves for prior tax years |
|
|
|
|
|
|
(1.0 |
) |
|
|
(3.9 |
) |
Foreign
earnings repatriation benefit of American Job Creation Act of
2004 |
|
|
(1.5 |
) |
|
|
|
|
|
|
|
|
Tax credits |
|
|
(1.2 |
) |
|
|
(0.6 |
) |
|
|
(0.8 |
) |
Permanent
and other items, net |
|
|
1.2 |
|
|
|
2.0 |
|
|
|
1.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34.7 |
% |
|
|
37.1 |
% |
|
|
33.0 |
% |
|
|
|
|
|
|
|
|
|
|
65
The major tax effected components of the Companys net deferred tax liability are as follows:
|
|
|
|
|
|
|
|
|
|
|
At December 31, |
|
|
|
2005 |
|
|
2004 |
|
|
|
(In thousands) |
|
Deferred tax assetsfederal and state |
|
|
|
|
|
|
|
|
Bad debt reserve |
|
$ |
32,490 |
|
|
$ |
25,168 |
|
Deferred compensation |
|
|
31,230 |
|
|
|
25,131 |
|
Net operating loss carryforward |
|
|
7,253 |
|
|
|
8,569 |
|
Preopening and start-up costs |
|
|
3,801 |
|
|
|
4,305 |
|
Accruals, reserves and other |
|
|
35,675 |
|
|
|
37,152 |
|
Investments in unconsolidated affiliates |
|
|
265 |
|
|
|
(130,059 |
) |
Long-term debt |
|
|
20,902 |
|
|
|
(18,548 |
) |
|
|
|
|
|
|
|
|
|
|
131,616 |
|
|
|
(48,282 |
) |
Less: Valuation allowance |
|
|
(5,734 |
) |
|
|
(5,608 |
) |
|
|
|
|
|
|
|
|
|
|
125,882 |
|
|
|
(53,890 |
) |
|
|
|
|
|
|
|
Deferred tax liabilitiesfederal and state |
|
|
|
|
|
|
|
|
Property and equipment |
|
|
(3,350,365 |
) |
|
|
(1,710,006 |
) |
Intangibles |
|
|
(88,800 |
) |
|
|
1,966 |
|
Unremitted earnings of foreign subsidiary |
|
|
|
|
|
|
(11,150 |
) |
|
|
|
|
|
|
|
|
|
|
(3,439,165 |
) |
|
|
(1,719,190 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred taxesforeign |
|
|
2,027 |
|
|
|
1,660 |
|
Less: Valuation allowance |
|
|
(1,597 |
) |
|
|
(1,660 |
) |
|
|
|
|
|
|
|
|
|
|
430 |
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability |
|
$ |
(3,312,853 |
) |
|
$ |
(1,773,080 |
) |
|
|
|
|
|
|
|
For U.S. federal income tax return purposes, the Company has a net operating loss
carryforward of $2 million, which will begin to expire in 2012. For state income tax
purposes, the Company has a New Jersey net operating loss carryforward of $112 million,
which equates to a deferred tax asset of $7 million, after federal tax effect, and
before valuation allowance. The New Jersey net operating loss carryforwards began to
expire in 2005.
At December 31, 2005, there is a $6 million valuation allowance provided on certain
New Jersey state net operating loss carryforwards and other New Jersey state deferred
tax assets and a $2 million valuation allowance related to certain foreign deferred tax
assets because management believes these assets do not meet the more likely than not
criteria for recognition under SFAS 109. Management believes all other deferred tax
assets are more likely than not to be realized because of the future reversal of
existing taxable temporary differences and expected future taxable income. Accordingly,
there are no other valuation allowances provided at December 31, 2005.
As anticipated, the United States Treasury issued guidance during 2005 that
clarified provisions of the American Job Creation Act of 2004 (the Act) that provide
for a special one-time deduction of 85 percent on certain repatriated earnings of
foreign subsidiaries. This guidance clarified for the Company that the planned
repatriation of the net proceeds of its Australia operations would qualify for the
one-time deduction. Consequently, the Company repatriated the net proceeds during 2005
and secured the benefits of the deduction. Since the Company provided deferred
taxes in 2004 on the basis that the net proceeds would be repatriated without the benefit of the
one-time deduction, a tax benefit of $10 million was recorded in 2005 to reflect the
benefit of the Act. The Company considered the earnings of its Australia operations
permanently reinvested prior to the sale of such operations in 2004.
NOTE 12 COMMITMENTS AND CONTINGENCIES
Leases. The Company leases real estate and various equipment under operating and,
to a lesser extent, capital lease arrangements. Certain real estate leases provide for
escalation of rent based upon a specified price index and/or based upon periodic
appraisals.
66
At December 31, 2005, the Company was obligated under non-cancelable operating
leases and capital leases to make future minimum lease payments as follows:
|
|
|
|
|
|
|
|
|
|
|
Operating |
|
|
Capital |
|
|
|
Leases |
|
|
Leases |
|
|
|
(In thousands) |
|
Years ending December 31, |
|
|
|
|
|
|
|
|
2006 |
|
$ |
13,462 |
|
|
$ |
1,979 |
|
2007 |
|
|
11,370 |
|
|
|
1,448 |
|
2008 |
|
|
9,447 |
|
|
|
512 |
|
2009 |
|
|
8,728 |
|
|
|
126 |
|
2010 |
|
|
8,263 |
|
|
|
|
|
Thereafter |
|
|
337,989 |
|
|
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments |
|
$ |
389,259 |
|
|
|
4,065 |
|
|
|
|
|
|
|
|
|
Less: Amounts representing interest |
|
|
|
|
|
|
(683 |
) |
|
|
|
|
|
|
|
|
Total obligations under capital leases |
|
|
|
|
|
|
3,382 |
|
Less: Amounts due within one year |
|
|
|
|
|
|
(1,584 |
) |
|
|
|
|
|
|
|
|
Amounts due after one year |
|
|
|
|
|
$ |
1,798 |
|
|
|
|
|
|
|
|
|
The current and long-term obligations under capital leases are included in
Other accrued liabilities and Other long-term
obligations, respectively, in
the accompanying consolidated balance sheets. Rental expense for operating leases was
$23 million, $19 million and $19 million for the years ended December 31, 2005, 2004 and
2003, respectively.
Detroit Development Agreement. Under the August 2002 revised development agreement
with the City of Detroit, MGM Grand Detroit, LLC and the Company are subject to certain
obligations in exchange for the ability to develop a permanent casino complex. The
Company recorded an intangible asset (development rights, deemed to have an indefinite
life) in connection with its obligations under the revised development agreement.
Outstanding obligations include continued letter of credit support for $50 million of
bonds issued by the Economic Development Corporation of the City of Detroit, which
mature in 2009. In addition, the City required an indemnification of up to $20 million
related to the Lac Vieux and certain other litigation, of which $2.5 million had been
paid as of December 31, 2005. In addition to the above obligations, the Company will
pay the City of Detroit 2% of gaming revenues (1% if annual revenues do not exceed $400
million) beginning January 1, 2006.
Until April 2005, the ability to construct the permanent casino facility was
subject to resolution of the Lac Vieux litigation. In April 2005, the 6th
Circuit Court of Appeals ruled on the three pending appeals, approved the settlement
agreement between Lac Vieux and the two other Detroit casino developers, dismissed Lac
Vieuxs request for a reselection process for our subsidiarys casino franchise and
lifted the injunction prohibiting the City and the Detroit developers from commencing
construction of the permanent hotel and casino complexes. As a result of the resolution
of the Lac Vieux litigation and the current status of the other
litigation to which the indemnification relates, the Company determined that the necessary accrual for the
indemnification to the City was $2.5 million, and recorded a reduction in accrued
liabilities and a corresponding reduction in the development rights intangible asset.
The Company has acquired the land and begun construction on the permanent casino
facility. The permanent facility is expected to open in late 2007 at a cost of $765
million, including land and preopening costs, and will feature a 400-room hotel,
100,000-square foot casino, numerous restaurant and entertainment amenities, and spa and
convention facilities. The complete design, timing and cost of the permanent facility
are at a preliminary stage, and are subject to risks attendant to large-scale projects.
Macau. In connection with its investment in MGM Grand Paradise Limited, the
Company has committed to loan the entity up to $100 million, which will be accounted for
as an additional element of the Companys investment in the venture.
New York Racing Association. The Company has entered into a definitive agreement
with the New York Racing Association (NYRA) to manage video lottery terminals (VLTs)
at NYRAs Aqueduct horseracing facility in metropolitan New York. The Company will
assist in the development of the approximately $170 million facility, including
providing project financing, and will manage the facility for a term of five years
(extended automatically if the financing provided by the Company is not fully repaid)
for a fee. Recent legislative changes will allow the Company to operate the VLTs past
the expiration date of the current NYRA franchise agreement.
67
United Kingdom. In November 2003, the Company entered into an agreement with
Newcastle United PLC to create a 50-50 joint venture, which would build a major new
mixed-use development, including a regional casino, on a site adjacent to Newcastle
Uniteds football stadium. The Company made an equity investment of £5 million ($8.6
million based on exchange rates at December 31, 2005). The agreement is cancelable, and
the equity investment is refundable, if certain conditions are not met within specified
time frames, including obtaining a regional casino license and regulatory approvals, and
the implementation of an acceptable tax regime.
The Company had an agreement with the Earls Court and Olympia Group, which operates
large trade show facilities in London, to develop an entertainment
and gaming facility. In 2005, the agreement was terminated and the Company received a refund of its £1.75
million deposit ($3.2 million).
The Signature at MGM Grand. In 2004, the venture obtained construction financing
for up to $210 million for the development of Tower 1. The Company has provided a
guaranty for up to 50% of the interest and principal obligations on the construction
financing. The remaining 50% of interest and principal obligations is guaranteed by
affiliates of the ventures other member. These affiliates and the Company have also
jointly and severally provided a completion guaranty.
In 2005, the venture obtained construction financing for up to $230 million for the
development of Tower 2. The Company has provided a guaranty for up to 50% of the
interest and principal obligations on the construction financing, with such guaranty
decreasing by 50% relative to the principal when construction is 50% complete. The
remaining 50% of interest and principal obligations is guaranteed by affiliates of the
ventures other investor. These affiliates and the Company have also jointly and
severally provided a completion guaranty. The Company recorded the value of its
guaranty obligations for Towers 1 and 2, approximately $3 million, in Other long-term
liabilities in the accompanying consolidated balance sheets.
Other guarantees. The Company is party to various guarantee contracts in the
normal course of business, which are generally supported by letters of credit issued by
financial institutions. The Companys senior credit facility limits the amount of
letters of credit that can be issued to $250 million, and the amount of available
borrowings under the senior credit facility is reduced by any outstanding letters of
credit. At December 31, 2005, the Company had provided a $50 million letter of credit
to support the Economic Development Corporation of the City of Detroit bonds referred to
above, which are a liability of the Company.
Litigation. The Company is a party to various legal proceedings, most of which
relate to routine matters incidental to its business. Management does not believe that
the outcome of such proceedings will have a material adverse effect on the Companys
financial position or results of operations.
NOTE 13 STOCKHOLDERS EQUITY
Stock split. In May 2005, the Company completed a 2-for-1 stock split effected in
the form of a 100% stock dividend. The additional shares were issued on May 18, 2005 to
stockholders of record on May 4, 2005. All share and per share data in the accompanying
financial statements and notes thereto have been restated for all periods presented to
reflect the 100% stock dividend.
Stock repurchases. Share repurchases are only conducted under repurchase programs
approved by the Board of Directors and publicly announced. Share repurchase activity
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
(In thousands) |
|
August 2001 authorization (2.8 million shares purchased) |
|
$ |
|
|
|
$ |
|
|
|
$ |
36,034 |
|
February 2003 authorization (20 million shares purchased) |
|
|
|
|
|
|
|
|
|
|
335,911 |
|
November 2003 authorization (16 million and 4 million
shares purchased) |
|
|
|
|
|
|
348,895 |
|
|
|
70,919 |
|
July 2004 authorization (5.5 million shares purchased) |
|
|
217,316 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
217,316 |
|
|
$ |
348,895 |
|
|
$ |
442,864 |
|
|
|
|
|
|
|
|
|
|
|
Average price of shares repurchased |
|
$ |
39.51 |
|
|
$ |
21.80 |
|
|
$ |
16.59 |
|
At December 31, 2005, we had 14.5 million shares available for repurchase under the
July 2004 authorization.
68
Restricted stock. In May 2002, the Board of Directors approved a restricted stock
plan. The plan allowed for the issuance of up to 2 million shares of Company common
stock to certain key employees. The restrictions on selling 50% of
these shares lapsed on
the third anniversary date from the grant date and the restrictions
lapse on the remaining 50% on the fourth anniversary date
after the grant date. Through December 31, 2005, 1,806,000 shares were issued, with an
aggregate value of $32 million. This amount was recorded as deferred compensation in
the accompanying consolidated balance sheets and is being amortized to operating expenses
on a straight-line basis through the period in which the restrictions fully lapse.
Amortization of deferred compensation was $7 million, $7 million and $8 million for the
years ended December 31, 2005, 2004 and 2003, respectively. In November 2002, the Board
of Directors determined that no more awards would be granted under the plan.
Through December 31, 2005, restrictions on 852,000 shares have lapsed and 120,000
shares were cancelled before the restrictions had lapsed, leaving 834,000 restricted
shares outstanding, all of which will become unrestricted in 2006. In 2005, certain
recipients of restricted shares elected to use a portion of the shares on which
restrictions lapsed in 2005 to pay required withholding taxes. Approximately 261,000
shares were surrendered, and became treasury shares, as a result of these elections.
NOTE 14 EMPLOYEE BENEFIT PLANS
Employees of the Company who are members of various unions are covered by
union-sponsored, collectively bargained, multi-employer health and welfare and defined
benefit pension plans. The Company recorded an expense of $161 million in 2005, $86
million in 2004 and $77 million in 2003 under such plans. The plans sponsors have not
provided sufficient information to permit the Company to determine its share of unfunded
vested benefits, if any.
The Company is self-insured for most health care benefits for its non-union
employees. The liability for claims filed and estimates of claims incurred but not
reported is included in Other accrued liabilities in the accompanying consolidated
balance sheets.
The Company has retirement savings plans under Section 401(k) of the Internal
Revenue Code for eligible employees. The plans allow employees to defer, within
prescribed limits, up to 30% of their income on a pre-tax basis through contributions to
the plans. The Company matches, within prescribed limits, a portion of eligible
employees contributions. In the case of certain union employees, the Company
contributions to the plan are based on hours worked. The Company recorded charges for
401(k) contributions of $19 million in 2005, $12 million in 2004 and $10 million in
2003.
The Company maintains a nonqualified deferred retirement plan for certain key
employees. The plan allows participants to defer, on a pre-tax basis, a portion of their
salary and bonus and accumulate tax deferred earnings, plus investment earnings on the
deferred balances, as a retirement fund. Participants receive a Company match of up to
4% of salary, net of any Company match received under the Companys 401(k) plan. All
employee deferrals vest immediately. The Company matching contributions vest ratably
over a three-year period. The Company recorded charges for matching contributions of $2
million in 2005, $1 million in 2004 and $2 million in 2003.
The Company implemented a supplemental executive retirement plan (SERP) for
certain key employees effective January 1, 2001. The SERP is a nonqualified plan under
which the Company makes quarterly contributions which are intended to provide a
retirement benefit that is a fixed percentage of a participants estimated final
five-year average annual salary, up to a maximum of 65%. Company contributions and
investment earnings on the contributions are tax-deferred and accumulate as a retirement
fund. Employees do not make contributions under this plan. A portion of the Company
contributions and investment earnings thereon vests after three years of SERP
participation and the remaining portion vests after both five years of SERP
participation and 10 years of continuous service. The Company recorded expense under
this plan of $6 million in 2005, $5 million in 2004 and $5 million in 2003.
Mandalay sponsored a defined benefit pension plan (the Mandalay SERP) under which
certain key employees earned supplemental pension benefits based upon their respective
years of service, compensation and tier category set out in the plan document. The
Mandalay SERP was terminated in July 2005 and lump-sum payouts to the plan participants
in the aggregate amount of $145 million were made. In purchase accounting, all
previously recognized amounts related to the SERP were eliminated and a liability was
recorded at the value of the lump-sum payouts as of the date of the merger,
approximately $146 million. Related investments intended to fund the Mandalay SERP of
$96 million were liquidated in July 2005 and used to fund a portion of the lump-sum
payouts.
69
NOTE 15 RESTRUCTURING COSTS
Restructuring costs (credit) consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
(In thousands) |
|
Contract termination costs |
|
$ |
|
|
|
$ |
3,693 |
|
|
$ |
4,049 |
|
Siegfried & Roy show closure The Mirage |
|
|
|
|
|
|
|
|
|
|
1,623 |
|
Other |
|
|
(59 |
) |
|
|
1,932 |
|
|
|
925 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(59 |
) |
|
$ |
5,625 |
|
|
$ |
6,597 |
|
|
|
|
|
|
|
|
|
|
|
There were no material restructuring activities in 2005. At December 31, 2005,
there were no material restructuring accruals. All material restructuring costs have
been fully paid or otherwise resolved.
In 2004, restructuring costs include $3 million for contract termination costs
related to the Aqua restaurant at Bellagio and $2 million of workforce reduction costs
at MGM Grand Detroit as a result of the Companys efforts to minimize the impact of a
gaming tax increase in Michigan.
In 2003, restructuring costs included $2 million related to the closure of the
Siegfried & Roy show, primarily for severance costs of employees involved in the shows
production. Also, the Company terminated a restaurant lease and closed two marketing
offices, resulting in $4 million of contract termination charges. Other severance of $1
million in 2003 related primarily to restructuring of table games staffing at several
resorts.
NOTE 16 PROPERTY TRANSACTIONS, NET
Property transactions, net consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
(In thousands) |
|
Impairment of assets to be disposed of |
|
$ |
22,651 |
|
|
$ |
473 |
|
|
$ |
7,172 |
|
Write-off of abandoned capital projects |
|
|
5,971 |
|
|
|
|
|
|
|
|
|
Demolition costs |
|
|
5,362 |
|
|
|
7,057 |
|
|
|
6,614 |
|
Gain on sale of North Las Vegas land |
|
|
|
|
|
|
|
|
|
|
(36,776 |
) |
Other net losses on asset sales or disposals |
|
|
2,896 |
|
|
|
1,135 |
|
|
|
4,049 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
36,880 |
|
|
$ |
8,665 |
|
|
$ |
(18,941 |
) |
|
|
|
|
|
|
|
|
|
|
In 2005, recognized impairments relate primarily to assets removed from service in
connection with new capital projects at several resorts, including Bellagio, TI, The
Mirage and Mandalay Bay. The amount of the impairments was based on the net book value
of the disposed assets. Abandoned projects included individually insignificant projects
at several resorts. Demolition costs related primarily to room remodel activity at MGM
Grand Las Vegas and the new showroom at The Mirage.
In 2004, there were no material unusual property transactions. In 2003, the
Company sold 315 acres of land in North Las Vegas, Nevada near Shadow Creek for
approximately $55 million, which resulted in a pretax gain of approximately $37 million.
Also in 2003, the Company recorded write-downs and impairments of assets abandoned or
replaced with new construction, primarily at MGM Grand Las Vegas in preparation for new
restaurants and the KÀ theatre. Demolition costs in 2004 and 2003 relate primarily to
preparation for the Bellagio standard room remodel, Bellagio
expansion and the KÀ theatre
at MGM Grand Las Vegas.
70
NOTE 17 RELATED PARTY TRANSACTIONS
The Companys related party transactions consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
(In thousands) |
|
Revenue from related parties |
|
$ |
1,081 |
|
|
$ |
635 |
|
|
$ |
871 |
|
|
|
|
|
|
|
|
|
|
|
Related
party payments: |
|
|
|
|
|
|
|
|
|
|
|
|
Professional fees |
|
$ |
12,757 |
|
|
$ |
4,084 |
|
|
$ |
1,551 |
|
License payments |
|
|
|
|
|
|
1,000 |
|
|
|
1,000 |
|
Other |
|
|
1,866 |
|
|
|
248 |
|
|
|
469 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
14,623 |
|
|
$ |
5,332 |
|
|
$ |
3,020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transactions with unconsolidated affiliates: |
|
|
|
|
|
|
|
|
|
|
|
|
Rent payments from Borgata |
|
$ |
3,620 |
|
|
$ |
1,208 |
|
|
$ |
1,060 |
|
|
|
|
|
|
|
|
|
|
|
Net reimbursements from Borgata
Renaissance Pointe costs |
|
$ |
522 |
|
|
$ |
575 |
|
|
$ |
9,969 |
|
|
|
|
|
|
|
|
|
|
|
Rent
payments from The Signature at MGM Grand |
|
$ |
770 |
|
|
$ |
785 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
Rent payments from Silver Legacy |
|
$ |
40 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
Tram payments to Monte Carlo |
|
$ |
1,021 |
|
|
$ |
3,950 |
|
|
$ |
3,876 |
|
|
|
|
|
|
|
|
|
|
|
Borgata leases 10 acres from the Company on a long-term basis for use in its
current operations and for its expansion. Additionally Borgata leases nine acres from
the Company on a short-term basis for surface parking. The net reimbursements from
Borgata are related to Borgatas responsibility for a portion of the master plan
improvements at Renaissance Pointe and the Companys responsibility for environmental
cleanup costs incurred by Borgata. The rent payments from The
Signature of MGM Grand are for the sales office, which is located
inside MGM Grand Las Vegas. The tram payments to Monte Carlo were compensation
for lost business as a result of closing the tram between Bellagio and Monte Carlo in
preparation for the Bellagio expansion.
Primarily
all of the professional fees paid to related parties were for legal fees to a firm
affiliated with the Companys general counsel and a former
director of the Company. At December 31, 2005, the Company owed the
firm $3.1 million.
71
NOTE 18 CONSOLIDATING CONDENSED FINANCIAL INFORMATION
The Companys subsidiaries (excluding MGM Grand Detroit, LLC and certain minor
subsidiaries) have fully and unconditionally guaranteed, on a joint and several basis,
payment of the senior credit facility, and the senior and senior subordinated
notes of the Company and its subsidiaries. Separate condensed financial statement information for the subsidiary guarantors
and non-guarantors as of December 31, 2005 and 2004 and for the years ended December 31,
2005, 2004 and 2003 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the Year Ended December 31, 2005 |
|
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Elimination |
|
|
Consolidated |
|
|
|
(In thousands) |
|
Balance Sheet |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
$ |
89,153 |
|
|
$ |
885,991 |
|
|
$ |
43,439 |
|
|
$ |
|
|
|
$ |
1,018,583 |
|
Property and equipment, net |
|
|
7,113 |
|
|
|
16,373,113 |
|
|
|
173,397 |
|
|
|
(11,972 |
) |
|
|
16,541,651 |
|
Investments in subsidiaries |
|
|
14,569,623 |
|
|
|
183,208 |
|
|
|
|
|
|
|
(14,752,831 |
) |
|
|
|
|
Investments in unconsolidated affiliates |
|
|
127,902 |
|
|
|
904,138 |
|
|
|
241,279 |
|
|
|
(342,165 |
) |
|
|
931,154 |
|
Other non-current assets |
|
|
86,011 |
|
|
|
2,018,809 |
|
|
|
103,212 |
|
|
|
|
|
|
|
2,208,032 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
14,879,802 |
|
|
$ |
20,365,259 |
|
|
$ |
561,327 |
|
|
$ |
(15,106,968 |
) |
|
$ |
20,699,420 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
$ |
345,195 |
|
|
$ |
1,148,306 |
|
|
$ |
41,067 |
|
|
$ |
|
|
|
$ |
1,534,568 |
|
Intercompany accounts |
|
|
(1,794,833 |
) |
|
|
1,726,415 |
|
|
|
68,418 |
|
|
|
|
|
|
|
|
|
Deferred income taxes |
|
|
3,378,371 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,378,371 |
|
Long-term debt |
|
|
9,713,754 |
|
|
|
2,641,679 |
|
|
|
|
|
|
|
|
|
|
|
12,355,433 |
|
Other non-current liabilities |
|
|
2,243 |
|
|
|
143,733 |
|
|
|
50,000 |
|
|
|
|
|
|
|
195,976 |
|
Stockholders equity |
|
|
3,235,072 |
|
|
|
14,705,126 |
|
|
|
401,842 |
|
|
|
(15,106,968 |
) |
|
|
3,235,072 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
14,879,802 |
|
|
$ |
20,365,259 |
|
|
$ |
561,327 |
|
|
$ |
(15,106,968 |
) |
|
$ |
20,699,420 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
$ |
|
|
|
$ |
6,040,874 |
|
|
$ |
441,093 |
|
|
$ |
|
|
|
$ |
6,481,967 |
|
Equity in subsidiaries earnings |
|
|
1,237,919 |
|
|
|
152,107 |
|
|
|
|
|
|
|
(1,390,026 |
) |
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Casino and hotel operations |
|
|
|
|
|
|
3,313,176 |
|
|
|
233,883 |
|
|
|
|
|
|
|
3,547,059 |
|
General and administrative |
|
|
|
|
|
|
902,623 |
|
|
|
55,640 |
|
|
|
|
|
|
|
958,263 |
|
Corporate expense |
|
|
13,797 |
|
|
|
116,836 |
|
|
|
|
|
|
|
|
|
|
|
130,633 |
|
Preopening and start-up expenses |
|
|
|
|
|
|
15,249 |
|
|
|
503 |
|
|
|
|
|
|
|
15,752 |
|
Restructuring costs (credit) |
|
|
|
|
|
|
(59 |
) |
|
|
|
|
|
|
|
|
|
|
(59 |
) |
Property transactions, net |
|
|
|
|
|
|
36,446 |
|
|
|
434 |
|
|
|
|
|
|
|
36,880 |
|
Depreciation and amortization |
|
|
2,390 |
|
|
|
559,062 |
|
|
|
26,650 |
|
|
|
|
|
|
|
588,102 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,187 |
|
|
|
4,943,333 |
|
|
|
317,110 |
|
|
|
|
|
|
|
5,276,630 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from unconsolidated affiliates |
|
|
|
|
|
|
120,330 |
|
|
|
31,541 |
|
|
|
|
|
|
|
151,871 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
1,221,732 |
|
|
|
1,369,978 |
|
|
|
155,524 |
|
|
|
(1,390,026 |
) |
|
|
1,357,208 |
|
Interest expense, net |
|
|
(532,884 |
) |
|
|
(112,567 |
) |
|
|
1,402 |
|
|
|
|
|
|
|
(644,049 |
) |
Other, net |
|
|
(14,293 |
) |
|
|
(20,005 |
) |
|
|
39 |
|
|
|
|
|
|
|
(34,259 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
674,555 |
|
|
|
1,237,406 |
|
|
|
156,965 |
|
|
|
(1,390,026 |
) |
|
|
678,900 |
|
Provision for income taxes |
|
|
(231,299 |
) |
|
|
|
|
|
|
(4,345 |
) |
|
|
|
|
|
|
(235,644 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
443,256 |
|
|
$ |
1,237,406 |
|
|
$ |
152,620 |
|
|
$ |
(1,390,026 |
) |
|
$ |
443,256 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of Cash Flows |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
$ |
(449,590 |
) |
|
$ |
1,471,372 |
|
|
$ |
161,014 |
|
|
$ |
|
|
|
$ |
1,182,796 |
|
Net cash provided by (used in) investing activities |
|
|
(4,587,820 |
) |
|
|
(618,007 |
) |
|
|
(93,687 |
) |
|
|
(3,303 |
) |
|
|
(5,302,817 |
) |
Net cash provided by (used in) financing activities |
|
|
5,043,152 |
|
|
|
(732,145 |
) |
|
|
(251,484 |
) |
|
|
3,303 |
|
|
|
4,062,826 |
|
72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the Year Ended December 31, 2004 |
|
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Elimination |
|
|
Consolidated |
|
|
|
(In thousands) |
|
Balance Sheet |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
$ |
48,477 |
|
|
$ |
541,537 |
|
|
$ |
230,188 |
|
|
$ |
|
|
|
$ |
820,202 |
|
Property and equipment, net |
|
|
8,266 |
|
|
|
8,820,342 |
|
|
|
97,506 |
|
|
|
(11,972 |
) |
|
|
8,914,142 |
|
Investments in subsidiaries |
|
|
8,830,922 |
|
|
|
192,290 |
|
|
|
|
|
|
|
(9,023,212 |
) |
|
|
|
|
Investments in unconsolidated affiliates |
|
|
127,902 |
|
|
|
1,056,903 |
|
|
|
|
|
|
|
(342,165 |
) |
|
|
842,640 |
|
Other non-current assets |
|
|
67,672 |
|
|
|
346,201 |
|
|
|
124,172 |
|
|
|
|
|
|
|
538,045 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
9,083,239 |
|
|
$ |
10,957,273 |
|
|
$ |
451,866 |
|
|
$ |
(9,377,349 |
) |
|
$ |
11,115,029 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
$ |
132,279 |
|
|
$ |
726,581 |
|
|
$ |
69,117 |
|
|
$ |
|
|
|
$ |
927,977 |
|
Intercompany accounts |
|
|
(231,630 |
) |
|
|
206,698 |
|
|
|
24,932 |
|
|
|
|
|
|
|
|
|
Deferred income taxes |
|
|
1,802,008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,802,008 |
|
Long-term debt |
|
|
4,607,118 |
|
|
|
851,730 |
|
|
|
|
|
|
|
|
|
|
|
5,458,848 |
|
Other non-current liabilities |
|
|
1,760 |
|
|
|
102,595 |
|
|
|
50,137 |
|
|
|
|
|
|
|
154,492 |
|
Stockholders equity |
|
|
2,771,704 |
|
|
|
9,069,669 |
|
|
|
307,680 |
|
|
|
(9,377,349 |
) |
|
|
2,771,704 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
9,083,239 |
|
|
$ |
10,957,273 |
|
|
$ |
451,866 |
|
|
$ |
(9,377,349 |
) |
|
$ |
11,115,029 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
$ |
|
|
|
$ |
3,816,162 |
|
|
$ |
421,942 |
|
|
$ |
|
|
|
$ |
4,238,104 |
|
Equity in subsidiaries earnings |
|
|
955,995 |
|
|
|
117,686 |
|
|
|
|
|
|
|
(1,073,681 |
) |
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Casino and hotel operations |
|
|
|
|
|
|
2,077,863 |
|
|
|
211,386 |
|
|
|
|
|
|
|
2,289,249 |
|
General and administrative |
|
|
|
|
|
|
552,907 |
|
|
|
59,725 |
|
|
|
|
|
|
|
612,632 |
|
Corporate expense |
|
|
11,988 |
|
|
|
65,922 |
|
|
|
|
|
|
|
|
|
|
|
77,910 |
|
Preopening and start-up expenses |
|
|
129 |
|
|
|
10,147 |
|
|
|
|
|
|
|
|
|
|
|
10,276 |
|
Restructuring costs |
|
|
|
|
|
|
4,118 |
|
|
|
1,507 |
|
|
|
|
|
|
|
5,625 |
|
Property transactions, net |
|
|
(1,521 |
) |
|
|
9,831 |
|
|
|
355 |
|
|
|
|
|
|
|
8,665 |
|
Depreciation and amortization |
|
|
1,039 |
|
|
|
371,229 |
|
|
|
30,277 |
|
|
|
|
|
|
|
402,545 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,635 |
|
|
|
3,092,017 |
|
|
|
303,250 |
|
|
|
|
|
|
|
3,406,902 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from unconsolidated affiliates |
|
|
|
|
|
|
119,658 |
|
|
|
|
|
|
|
|
|
|
|
119,658 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
944,360 |
|
|
|
961,489 |
|
|
|
118,692 |
|
|
|
(1,073,681 |
) |
|
|
950,860 |
|
Interest expense, net |
|
|
(322,627 |
) |
|
|
(49,129 |
) |
|
|
(966 |
) |
|
|
|
|
|
|
(372,722 |
) |
Other, net |
|
|
162 |
|
|
|
(22,532 |
) |
|
|
47 |
|
|
|
|
|
|
|
(22,323 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before
income taxes |
|
|
621,895 |
|
|
|
889,828 |
|
|
|
117,773 |
|
|
|
(1,073,681 |
) |
|
|
555,815 |
|
Provision for income taxes |
|
|
(206,258 |
) |
|
|
|
|
|
|
299 |
|
|
|
|
|
|
|
(205,959 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
415,637 |
|
|
|
889,828 |
|
|
|
118,072 |
|
|
|
(1,073,681 |
) |
|
|
349,856 |
|
Discontinued operations |
|
|
(3,305 |
) |
|
|
7,362 |
|
|
|
58,419 |
|
|
|
|
|
|
|
62,476 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
412,332 |
|
|
$ |
897,190 |
|
|
$ |
176,491 |
|
|
$ |
(1,073,681 |
) |
|
$ |
412,332 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of Cash Flows |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
$ |
(351,000 |
) |
|
$ |
1,038,957 |
|
|
$ |
141,290 |
|
|
$ |
|
|
|
$ |
829,247 |
|
Net cash provided by (used in) investing activities |
|
|
(20,325 |
) |
|
|
(448,995 |
) |
|
|
125,856 |
|
|
|
(4,289 |
) |
|
|
(347,753 |
) |
Net cash provided by (used in) financing activities |
|
|
381,467 |
|
|
|
(599,480 |
) |
|
|
(112,248 |
) |
|
|
4,289 |
|
|
|
(325,972 |
) |
73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2003 |
|
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Elimination |
|
|
Consolidated |
|
|
|
(In thousands) |
|
Statement of Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
$ |
|
|
|
$ |
3,466,394 |
|
|
$ |
396,349 |
|
|
$ |
|
|
|
$ |
3,862,743 |
|
Equity in subsidiaries earnings |
|
|
646,997 |
|
|
|
110,528 |
|
|
|
|
|
|
|
(757,525 |
) |
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Casino and hotel operations |
|
|
|
|
|
|
1,956,900 |
|
|
|
195,336 |
|
|
|
|
|
|
|
2,152,236 |
|
General and administrative |
|
|
|
|
|
|
534,082 |
|
|
|
51,079 |
|
|
|
|
|
|
|
585,161 |
|
Corporate expense |
|
|
5,892 |
|
|
|
55,649 |
|
|
|
|
|
|
|
|
|
|
|
61,541 |
|
Preopening and start-up expenses |
|
|
105 |
|
|
|
28,711 |
|
|
|
450 |
|
|
|
|
|
|
|
29,266 |
|
Restructuring costs |
|
|
248 |
|
|
|
6,349 |
|
|
|
|
|
|
|
|
|
|
|
6,597 |
|
Property transactions, net |
|
|
363 |
|
|
|
(19,855 |
) |
|
|
551 |
|
|
|
|
|
|
|
(18,941 |
) |
Depreciation and amortization |
|
|
1,081 |
|
|
|
367,030 |
|
|
|
32,655 |
|
|
|
|
|
|
|
400,766 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,689 |
|
|
|
2,928,866 |
|
|
|
280,071 |
|
|
|
|
|
|
|
3,216,626 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from unconsolidated affiliates |
|
|
|
|
|
|
53,612 |
|
|
|
|
|
|
|
|
|
|
|
53,612 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
639,308 |
|
|
|
701,668 |
|
|
|
116,278 |
|
|
|
(757,525 |
) |
|
|
699,729 |
|
Interest expense, net |
|
|
(278,122 |
) |
|
|
(53,378 |
) |
|
|
(2,008 |
) |
|
|
|
|
|
|
(333,508 |
) |
Other, net |
|
|
(6,134 |
) |
|
|
(16,427 |
) |
|
|
|
|
|
|
|
|
|
|
(22,561 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before
income taxes |
|
|
355,052 |
|
|
|
631,863 |
|
|
|
114,270 |
|
|
|
(757,525 |
) |
|
|
343,660 |
|
Provision for income taxes |
|
|
(109,645 |
) |
|
|
|
|
|
|
(3,742 |
) |
|
|
|
|
|
|
(113,387 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
245,407 |
|
|
|
631,863 |
|
|
|
110,528 |
|
|
|
(757,525 |
) |
|
|
230,273 |
|
Discontinued operations |
|
|
(1,710 |
) |
|
|
6,585 |
|
|
|
8,549 |
|
|
|
|
|
|
|
13,424 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
243,697 |
|
|
$ |
638,448 |
|
|
$ |
119,077 |
|
|
$ |
(757,525 |
) |
|
$ |
243,697 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of Cash Flows |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
$ |
(306,665 |
) |
|
$ |
904,743 |
|
|
$ |
142,681 |
|
|
$ |
53 |
|
|
$ |
740,812 |
|
Net cash provided by (used in) investing activities |
|
|
(5,000 |
) |
|
|
(525,983 |
) |
|
|
(20,658 |
) |
|
|
(4,047 |
) |
|
|
(555,688 |
) |
Net cash provided by (used in) financing activities |
|
|
310,575 |
|
|
|
(385,004 |
) |
|
|
(94,800 |
) |
|
|
3,994 |
|
|
|
(165,235 |
) |
74
NOTE 19 SELECTED QUARTERLY FINANCIAL RESULTS (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter |
|
|
First |
|
Second |
|
Third |
|
Fourth |
|
Total |
|
|
(In thousands, except per share amounts) |
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
$ |
1,204,135 |
|
|
$ |
1,715,956 |
|
|
$ |
1,808,243 |
|
|
$ |
1,753,633 |
|
|
$ |
6,481,967 |
|
Operating income |
|
|
293,176 |
|
|
|
377,929 |
|
|
|
339,999 |
|
|
|
346,104 |
|
|
|
1,357,208 |
|
Income from continuing operations |
|
|
111,079 |
|
|
|
141,168 |
|
|
|
93,210 |
|
|
|
97,799 |
|
|
|
443,256 |
|
Net income |
|
|
111,079 |
|
|
|
141,168 |
|
|
|
93,210 |
|
|
|
97,799 |
|
|
|
443,256 |
|
Basic income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
0.39 |
|
|
$ |
0.49 |
|
|
$ |
0.33 |
|
|
$ |
0.34 |
|
|
$ |
1.56 |
|
Net income |
|
|
0.39 |
|
|
|
0.49 |
|
|
|
0.33 |
|
|
|
0.34 |
|
|
|
1.56 |
|
Diluted income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
0.38 |
|
|
$ |
0.48 |
|
|
$ |
0.31 |
|
|
$ |
0.33 |
|
|
$ |
1.50 |
|
Net income |
|
|
0.38 |
|
|
|
0.48 |
|
|
|
0.31 |
|
|
|
0.33 |
|
|
|
1.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
$ |
1,066,436 |
|
|
$ |
1,072,525 |
|
|
$ |
1,036,396 |
|
|
$ |
1,062,747 |
|
|
$ |
4,238,104 |
|
Operating income |
|
|
254,666 |
|
|
|
260,597 |
|
|
|
222,357 |
|
|
|
213,240 |
|
|
|
950,860 |
|
Income from continuing operations |
|
|
97,140 |
|
|
|
101,663 |
|
|
|
76,167 |
|
|
|
74,886 |
|
|
|
349,856 |
|
Net income |
|
|
105,848 |
|
|
|
104,717 |
|
|
|
126,881 |
|
|
|
74,886 |
|
|
|
412,332 |
|
Basic income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
0.34 |
|
|
$ |
0.36 |
|
|
$ |
0.28 |
|
|
$ |
0.27 |
|
|
$ |
1.25 |
|
Net income |
|
|
0.37 |
|
|
|
0.37 |
|
|
|
0.46 |
|
|
|
0.27 |
|
|
|
1.48 |
|
Diluted income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
0.33 |
|
|
$ |
0.35 |
|
|
$ |
0.27 |
|
|
$ |
0.26 |
|
|
$ |
1.21 |
|
Net income |
|
|
0.36 |
|
|
|
0.36 |
|
|
|
0.45 |
|
|
|
0.26 |
|
|
|
1.43 |
|
Because income per share amounts are calculated using the weighted average number
of common and dilutive common equivalent shares outstanding during each quarter, the sum
of the per share amounts for the four quarters may not equal the total income per share
amounts for the year.
75
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
|
|
|
|
|
MGM MIRAGE |
|
|
|
|
|
|
|
By:
|
|
/s/ J. Terrence Lanni |
|
|
|
|
|
|
|
|
|
J. Terrence Lanni, Chairman and Chief Executive Officer
|
|
|
|
|
(Principal Executive Officer) |
|
|
|
|
|
|
|
By:
|
|
/s/ James J. Murren |
|
|
|
|
|
|
|
|
|
James J. Murren, President, Chief Financial Officer
and Treasurer |
|
|
|
|
(Principal Financial and Accounting Officer) |
|
|
Dated:
March 13, 2006
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
|
|
|
|
/s/
J. Terrence Lanni
|
|
Chairman and Chief Executive Officer
|
|
March 13, 2006 |
J. Terrence Lanni
|
|
(Principal Executive Officer) |
|
|
|
|
|
|
|
/s/ James J. Murren
|
|
President, Chief Financial Officer,
|
|
March 13, 2006 |
James J. Murren
|
|
Treasurer and Director
(Principal Financial and Accounting Officer) |
|
|
|
|
|
|
|
/s/ John T. Redmond
|
|
President and Chief Executive Officer
|
|
March 13, 2006 |
John T. Redmond
|
|
MGM Grand Resorts, LLC and Director |
|
|
|
|
|
|
|
/s/ Robert H. Baldwin
|
|
President and Chief Executive Officer
|
|
March 13, 2006 |
Robert H. Baldwin
|
|
Mirage Resorts, Incorporated, President |
|
|
|
|
Project CityCenter and Director |
|
|
|
|
|
|
|
/s/ Gary N. Jacobs
|
|
Executive Vice President, General
|
|
March 13, 2006 |
Gary N. Jacobs
|
|
Counsel, Secretary and Director |
|
|
|
|
|
|
|
/s/ James D. Aljian
|
|
Director
|
|
March 13, 2006 |
James D. Aljian
|
|
|
|
|
76
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
|
|
|
|
/s/ Willie D. Davis
|
|
Director
|
|
March 13, 2006 |
Willie D. Davis
|
|
|
|
|
|
|
|
|
|
/s/ Alexander M. Haig, Jr.
|
|
Director
|
|
March 13, 2006 |
Alexander M. Haig, Jr.
|
|
|
|
|
|
|
|
|
|
/s/ Alexis M. Herman
|
|
Director
|
|
March 13, 2006 |
Alexis M. Herman
|
|
|
|
|
|
|
|
|
|
/s/ Roland Hernandez
|
|
Director
|
|
March 13, 2006 |
Roland Hernandez
|
|
|
|
|
|
|
|
|
|
/s/ Kirk Kerkorian
|
|
Director
|
|
March 13, 2006 |
Kirk Kerkorian |
|
|
|
|
|
|
|
|
|
/s/ Rose McKinney-James
|
|
Director
|
|
March 13, 2006 |
Rose McKinney-James
|
|
|
|
|
|
|
|
|
|
/s/ Ronald M. Popeil
|
|
Director
|
|
March 13, 2006 |
Ronald M. Popeil
|
|
|
|
|
|
|
|
|
|
/s/ Danny M. Wade
|
|
Director
|
|
March 13, 2006 |
Daniel M. Wade
|
|
|
|
|
|
|
|
|
|
/s/ Melvin B. Wolzinger
|
|
Director
|
|
March 13, 2006 |
Melvin B. Wolzinger
|
|
|
|
|
77
MGM MIRAGE
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
(In thousands)