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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, 2006
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: o
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, 2006 (based on the closing price on the New York Stock Exchange
Composite Tape on June 30, 2006) was $5.1 billion. As of
February 23, 2007, 284,165,655 shares of Registrants Common Stock, $.01 par value, were outstanding.
Portions of the Registrants definitive Proxy Statement for its 2007 Annual Meeting of
Stockholders are incorporated by reference into Part III of this Form 10-K.
TABLE OF CONTENTS
PART I
ITEM 1. BUSINESS
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.
Overview
MGM MIRAGE is one of the largest gaming companies in the world and owns what we
believe to be 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 its wholly-owned subsidiaries. The
Company grew significantly in 2000 with the acquisition of Mirage Resorts, Incorporated
and in 2005 with the acquisition of Mandalay Resort Group (Mandalay).
Our Operating Casino Resorts
We have provided below certain information about our casino resorts as of December
31, 2006. Except as otherwise indicated, we wholly own and operate the resorts shown
below.
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Approximate |
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Number of 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 |
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Bellagio |
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3,933 |
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155,000 |
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2,365 |
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144 |
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MGM Grand Las Vegas (3) |
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5,803 |
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156,000 |
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2,611 |
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174 |
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Mandalay Bay (4) |
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4,756 |
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157,000 |
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2,010 |
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120 |
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The Mirage |
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3,044 |
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118,000 |
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2,063 |
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111 |
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Luxor |
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4,404 |
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100,000 |
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1,589 |
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89 |
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Treasure Island (TI) |
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2,885 |
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87,000 |
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1,726 |
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68 |
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New York-New York |
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2,024 |
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84,000 |
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1,850 |
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75 |
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Excalibur |
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3,990 |
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90,000 |
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1,887 |
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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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1,612 |
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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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2,350 |
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92 |
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Subtotal |
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37,605 |
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1,182,000 |
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20,063 |
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1,020 |
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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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2,816 |
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93 |
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Circus Circus Reno (Reno) |
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1,572 |
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69,000 |
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1,246 |
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47 |
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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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1,677 |
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68 |
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Gold Strike (Jean) (7) |
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811 |
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37,000 |
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740 |
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10 |
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Nevada Landing (Jean) (7) |
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303 |
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36,000 |
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727 |
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10 |
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Laughlin Properties (Laughlin) (8) |
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2,524 |
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102,000 |
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2,199 |
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72 |
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Railroad Pass (Henderson) |
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120 |
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13,000 |
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330 |
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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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2,840 |
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72 |
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Beau Rivage (Biloxi, Mississippi) (9) |
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1,740 |
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72,000 |
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2,048 |
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93 |
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Gold Strike (Tunica, Mississippi) |
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1,131 |
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50,000 |
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1,271 |
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56 |
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Borgata - 50% owned (Atlantic City, New Jersey) |
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1,971 |
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137,000 |
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4,068 |
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178 |
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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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1,111 |
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36 |
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Grand Total |
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52,129 |
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2,031,000 |
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41,136 |
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1,761 |
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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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Includes 759 rooms available for rent in Tower 1 and Tower 2 of The Signature
at MGM Grand. Tower 1 was completed in 2006 with a total of 576 units. Tower 2
was completed in late 2006 but is still in the closing process, and has 576 units.
Tower 3 will be completed in 2007, with 576 units. |
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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. In October 2006, we entered into
an agreement to sell the Primm Valley Resorts. |
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(7) |
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Gold Strike and Nevada Landing will be contributed to a joint venture that
will develop a mixed-use community in Jean, Nevada. Nevada Landing is expected to
close in April 2007. |
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(8) |
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Includes Colorado Belle and Edgewater. In October 2006, we entered into an
agreement to sell the Laughlin Properties. |
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(9) |
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Beau Rivage reopened in August 2006 after having been closed for one year due
to Hurricane Katrina. |
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 has earned the prestigious
Five Diamond award from the American Automobile Association (AAA) for the last six
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 AAAs Four Diamond award. The resorts guest rooms feature unique themes,
including: West Wing, an area offering boutique-style rooms; Skylofts, ultra-suites on
the 29th floor featuring the ultimate in personal service and recently
awarded a Five Diamond rating by AAA; 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, an AAA Five Diamond rating recipient,
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.
MGM Grand Las Vegas features the spectacular show KÀ, by Cirque du Soleil,
performed in a custom-designed theatre seating almost 2,000 guests. The MGM Grand
Garden is a special events center with a seating capacity of over 16,000 that provides a
venue for premier concerts, as well as championship boxing and other
special events.
The Signature at MGM Grand is a condominium-hotel development that will ultimately
feature three 576-unit towers. We own a 50% interest in the entity developing The
Signature at MGM Grand and once each tower is complete, we manage the tower as a hotel
for owners electing to rent their units. Tower 1 was completed in 2006, and unit sales
closed and hotel occupancy commenced in mid-2006. Tower 2 is complete and the majority
of unit sales are closed; hotel occupancy had commenced on a portion of the units at
December 31, 2006. Tower 3 will be completed in 2007.
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 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.
Mandalay Bay has an extensive pool and beach area, including a wave pool and Moorea, a
European-style ultra beach, as well as a 30,000 square-foot spa.
Included within Mandalay Bay is a Four Seasons Hotel with its own lobby,
restaurants and pool and spa, providing visitors with a luxury AAA Five-Diamond-rated
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.
Including the Conference Center and Mandalay Bays other convention areas, 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 Nike Golf and Urban Outfitters, restaurants by celebrity chefs
Pierro Selvaggio, Hubert Keller and Rick Moonen, and the burlesque
nightclub 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 which erupts every evening 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, Japonais, Fin,
Stack, Cravings, and Carnegie Deli. Several of these restaurants have been recently
opened or renovated. Entertainment at The Mirage is highlighted by Love, the newest
show from Cirque du Soleil and based on the works of the Beatles. The Mirage also
features Danny Gans, the renowned singer/impersonator, and headline entertainment.
Nightlife options at The Mirage include Jet, a 16,000 square-foot nightclub, and the
Beatles-themed lounge Revolution. 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, 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. The Luxor features headline entertainment, a show by the comedian
Carrot Top, and the adult dance revue Fantasy.
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. TI features several restaurants, including
Social House, 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. New
York-New York also features Zumanity by Cirque du Soleil.
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 travel easily among these resorts.
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Monte Carlo
Monte Carlo is located on the Las Vegas Strip adjacent to New York-New York. Monte
Carlo was recently awarded its first Four Diamond rating by AAA. 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 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.
In October 2006, we entered into an agreement to sell the Primm Valley Resorts for
$400 million, subject to regulatory approval and other customary closing conditions. We
expect the sale to be completed by the second quarter of 2007.
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 several restaurants, cocktail
lounges, and retail 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 and Nevada Landing
We refer to Gold Strike and Nevada Landing collectively as the Jean Properties.
Gold Strike 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 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.
In February 2007, we entered into an operating agreement with Jeanco Realty
Development, LLC, a venture owned by American Nevada Corporation and Diamond Resorts,
LLC, to form a 50/50 joint venture whose purpose is to develop a mixed-use community in
Jean, Nevada. We will contribute the Jean properties and the surrounding land to the
joint venture. We also determined in February 2007 that Nevada Landing would close in
April 2007.
The Laughlin Properties
The Laughlin Properties consist of Colorado Belle and Edgewater. 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 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.
In October 2006, we entered into an agreement to sell the Laughlin Properties for
$200 million, subject to regulatory approval and other customary closing conditions. We
expect the sale to be completed by the second quarter of 2007.
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 reopened in August 2006, after being closed for one year due to
Hurricane Katrina. Beau Rivage is located on a beachfront site where Interstate 110
meets the Gulf Coast in Biloxi, Mississippi. Beau Rivage features several new
restaurants including Olives, BR Prime and Jia, a 1,550-seat state-of-the-art theatre, a
state-of-the-art convention center, extensive pool and a world-class spa and salon.
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 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 recently expanded its gaming and non-gaming amenities, with additional
table games and slot machines, an expanded poker room and race book, and additional
restaurant, entertainment and other amenities. 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 $400 million project is
expected to be completed in early 2008. Neither project is expected to require
contributions from us, as existing operating cash flow and Borgatas recently
renegotiated bank credit facility are 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. The Primm Valley Golf
Club is not being sold as part of the transaction to sell the Primm Valley Resorts. We
also own Fallen Oak, a championship golf course also designed by Tom Fazio, located
approximately 20 miles from Beau Rivage. Fallen Oak opened in November 2006.
Future Development
The following sections discuss our current and potential development opportunities.
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. In addition, the projects discussed below involve risks and
uncertainties. For instance, the design, timing and costs of the projects may change
and are subject to risks attendant to large-scale projects.
CityCenter
We are developing CityCenter on the Las Vegas Strip, between Bellagio and Monte
Carlo. 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 approximately 2,700 luxury condominium and condominium-hotel
units in multiple towers.
We believe CityCenter will cost approximately $7 billion, excluding 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. CityCenter is located on a
67-acre site with a carrying value of approximately $1 billion. We expect CityCenter to
open in late 2009.
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Detroit, Michigan
MGM Grand Detroit, LLC has operated an interim casino facility in downtown Detroit
since July 1999. We are currently developing a permanent hotel-casino complex located
near the site of our interim facility.
The permanent complex is expected to open in late 2007 at a cost of approximately
$750 million, excluding license and land costs, and will feature a 400-room hotel,
100,000-square foot casino, numerous restaurant and entertainment amenities, and spa and
convention facilities. The permanent casino is located on a 25-acre site with a
carrying value of approximately $50 million. In addition, we recorded license rights
with a carrying value of $100 million as a result of MGM Grand
Detroits obligations to
the City of Detroit in connection with the permanent casino development agreement.
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
site and will feature at least 345 table games and 1,035 slots with room for significant
expansion. Other features will include approximately 600 rooms, suites and villas, a
luxurious spa, convertible convention space, a variety of dining destinations, and other
attractions. MGM Grand Macau is estimated to cost $850 million, excluding license and
land rights costs. The subconcession agreement, which allows MGM Grand Paradise Limited
to operate a casino in Macau, cost $200 million and the land rights agreement with the
government of Macau is estimated to cost $60 million. Construction of MGM Grand Macau
began in the second quarter of 2005 and the resort is anticipated to open in late 2007.
We have invested $266 million in the venture, and are committed to loaning the venture
up to an additional $9 million. The venture has obtained a $700 million bank credit
facility which, along with equity contributions and shareholder loans, is expected to be
sufficient 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. Subject to receipt of requisite New York State and
Bankruptcy Court approvals, we will assist in the development of the facility, including
providing project financing up to $190 million, 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. We believe, based on recent legislative changes, that our agreement
with respect to installations of VLTs at Aqueduct would extend past the expiration of
NYRAs current racing franchise and would be binding on any successor to NYRA in the
event NYRA is not granted a new racing franchise. NYRAs recent filing for
reorganization under Chapter 11 has introduced additional uncertainties, but we remain
committed to the development once these uncertainties are resolved.
Atlantic City, New Jersey
We own approximately 130 acres on Renaissance Pointe in Atlantic City, New Jersey.
We lease ten 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 developable 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
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. In January 2007, the Casino Advisory Panel recommended
that the first regional casino license should be awarded to Manchester. The Company
continues to evaluate potential opportunities in the United Kingdom.
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Mashantucket Pequot Tribal Nation
We have entered into a series of agreements to implement a strategic alliance with
the Mashantucket Pequot Tribal Nation (MPTN), which owns and operates Foxwoods Casino
Resort in Ledyard, Connecticut. Under the strategic alliance:
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We are consulting with MPTN in the development of a new $700 million casino
resort currently under construction adjacent to the existing Foxwoods casino
resort. The new resort will utilize the MGM Grand brand name and is scheduled
to open in Spring 2008. |
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We have formed a jointly owned company with MPTN Unity Gaming, LLC to
acquire or develop future gaming and non-gaming enterprises. We will provide a
loan of up to $200 million to finance a portion of MPTNs investment in joint
projects. |
Mubadala Development Company
We have signed a memorandum of understanding for a strategic relationship with
Mubadala Development Company of Abu Dhabi, U.A.E., to pursue non-gaming luxury hotel
development globally. The parties intend to create a joint venture to pursue the
developments, originally targeting locations in Abu Dhabi, Las Vegas and the United
Kingdom.
China
We have signed a memorandum of understanding with the Diaoyutai State Guesthouse in
Beijing, Peoples Republic of China, to form a joint venture to develop luxury
non-gaming hotels and resorts globally, initially targeting locations in the Peoples
Republic of China. We are in advanced negotiations on the definite agreement.
Operations
We operate primarily in one segment, the operation of casino resorts, which
includes offering gaming, hotel, dining, entertainment, retail and other resort
amenities. 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 a day, every day of the year, with the
exception of Grand Victoria which operates 22 hours a day, every day of the year. At
our wholly-owned resorts, our primary casino and hotel 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.
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We utilize technology to maximize revenue and efficiency in our operations. We are
in the process of implementing our Players Club program to the major Mandalay resorts.
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 and administrative
operations as well. Our hotel systems include yield management modules which allow us
to maximize occupancy and room rates. Additionally, these systems capture charges made
by our customers during their stay, including allowing customers 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 most of our major resorts, started in 2006
and continuing in 2007 and 2008, which we expect will enhance our guest service and
improve our yield management across our portfolio of resorts.
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 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.
Our Las Vegas Strip resorts also compete, in part, with each other. According to the
Las Vegas Convention and Visitors Authority, there were approximately 132,600 guestrooms
in Las Vegas at December 31, 2006, down slightly from approximately 133,200 rooms at
December 31, 2005. Las Vegas visitor volume was 38.9 million in 2006, up slightly from
the 38.6 million reported for 2005.
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.
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Outside Las Vegas, our other wholly-owned Nevada operations 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 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 casino resorts also compete for 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 gaming operations compete to a lesser extent with state-sponsored
lotteries, off-track wagering, card parlors, and other forms of legalized gaming in the
United States.
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, make
restaurant reservations and purchase show tickets. We also operate call centers to
allow customer contact by phone to make hotel and restaurant reservations and purchase
show tickets.
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.
Marketing efforts at Beau Rivage will benefit from the newly opened Fallen Oak golf
course just 20 minutes north of Beau Rivage.
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 though we feel it is important to selectively
operate in markets with stable regulatory environments; |
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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
operating results. |
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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.
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, 2006, we had approximately 56,800 full-time and 13,200 part-time
employees. At that date, we had collective bargaining contracts with unions covering
approximately 30,000 of our employees. We consider our employee relations to be good.
Our contract with the Culinary Union covering approximately 21,000 employees at most of
our Las Vegas Strip properties expires in May 2007; the contract covering employees at
MGM Grand does not expire in 2007. In addition, our contract with various unions
covering approximately 1,700 employees at MGM Grand Detroit expires in October 2007.
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.
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Forward-Looking Statements
(Cautionary Statements Under the Private Securities Litigation Reform Act of 1995)
This Form 10-K and our 2006 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, as well as 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 2006 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 (SEC). 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.
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, 2006, we had approximately
$13 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 senior credit facility 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,
2006, 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.
In addition, unsuitable activity on our part or on the part of our domestic or
foreign unconsolidated affiliates in any jurisdiction could have a negative impact
on our ability to continue operating in other jurisdictions. 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. Also, in 2006, Illinois passed legislation requiring a revenue-based
payment to a trust established for the benefit of the horse-racing industry in
Illinois. |
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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, which remained closed for a
year. See Managements Discussion and Analysis of Financial Condition and Results
of Operations Financial Statement Impact of Hurricane Katrina. |
|
|
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. |
|
|
Many of our customers travel by air. As a result, the cost and availability of
air service and the impact of any events which disrupt air travel, 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. |
13
|
|
Our joint venture for the construction and operation of a hotel-casino in Macau
S.A.R. involves significant risks. 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) potential political or economic instability; 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. |
|
|
Tracinda Corporation beneficially owned approximately 56% of our outstanding
common stock as of December 31, 2006. 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. |
14
Executive Officers of the Registrant
The following table sets forth, as of February 16, 2007, 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
|
|
|
63 |
|
|
Chairman and Chief Executive Officer |
James J. Murren
|
|
|
45 |
|
|
President, Chief Financial Officer, Treasurer and Director |
John T. Redmond
|
|
|
48 |
|
|
President and Chief Executive Officer of MGM Grand Resorts, LLC
and Director |
Robert H. Baldwin
|
|
|
56 |
|
|
President and Chief Executive Officer of Mirage Resorts,
Incorporated, President of CityCenter and Director |
Gary N. Jacobs
|
|
|
61 |
|
|
Executive Vice President, General Counsel, Secretary
and Director |
Daniel J. DArrigo
|
|
|
38 |
|
|
Senior Vice PresidentFinance |
Alan Feldman
|
|
|
48 |
|
|
Senior Vice PresidentPublic Affairs |
Bruce Gebhardt
|
|
|
58 |
|
|
Senior Vice PresidentGlobal Security |
Phyllis A. James
|
|
|
54 |
|
|
Senior Vice President and Senior Counsel |
Punam Mathur
|
|
|
46 |
|
|
Senior Vice PresidentCorporate Diversity and Community Affairs |
Cynthia Kiser Murphey
|
|
|
49 |
|
|
Senior Vice PresidentHuman Resources |
Shawn T. Sani
|
|
|
41 |
|
|
Senior Vice PresidentTaxes |
Robert C. Selwood
|
|
|
51 |
|
|
Senior Vice PresidentAccounting |
Bryan L. Wright |
|
|
43 |
|
|
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.
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.
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 Chairman of MGM Grand Detroit, LLC since
February 2000.
Mr. Baldwin has served as President and Chief Executive Officer of Mirage Resorts
since June 2000 and as President of CityCenter since March 2005. He was President and
Chief Executive Officer of Bellagio, LLC from June 1996 to March 2005.
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, Glaser, Fink, Jacobs, Weil & Shapiro, LLP, and
is currently of counsel to that firm.
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.
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.
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.
15
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.
Ms. Murphey has served as Senior Vice PresidentHuman Resources of the Company
since November 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.
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 and in other legal
capacities for Boyd Gaming Corporation from September 1993 to July 2001.
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.
These filings are also available on the SECs website at www.sec.gov. In addition,
the public may read and copy any materials that we file with the SEC at the SECs Public
Reference Room at 100 F Street, N.E., Washington, D.C. 20549 and may obtain information
on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
Our Corporate Governance Policies, the charter of our Audit Committee and our Code
of Business Conduct and Ethics and Conflict of Interest Policy, along with any
amendments or waivers to the Code, are available on our website under the Investor
Relations link. We will provide a copy of these documents without charge to any
stockholder upon receipt of a written request addressed to MGM MIRAGE, Attn: Corporate
Secretary, 3600 Las Vegas Boulevard South, Las Vegas, Nevada 89109.
Reference in this document to our website address does not constitute incorporation
by reference of the information contained on the website.
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.
16
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. 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.
|
|
|
|
|
|
|
|
|
Approximate |
|
|
|
Name and Location |
|
Acres |
|
|
Notes |
Las
Vegas, Nevada operations: |
|
|
|
|
|
|
Bellagio |
|
|
77 |
|
|
Two acres of the site are subject
to two ground leases that expire (giving effect to our renewal options) in 2019 and 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 |
|
|
20 |
|
|
|
Excalibur |
|
|
52 |
|
|
|
Monte Carlo |
|
|
25 |
|
|
|
Circus Circus Las Vegas |
|
|
69 |
|
|
Includes Slots-a-Fun. |
Shadow Creek Golf Course |
|
|
240 |
|
|
|
|
|
|
|
|
|
|
Other Nevada operations: |
|
|
|
|
|
|
Circus Circus Reno |
|
|
10 |
|
|
A portion of the site is subject to two ground leases, which expire in 2032 and 2033, respectively. |
Primm Valley Resorts |
|
|
143 |
|
|
Substantially all of this site is
leased under three ground leases that expire (giving effect to our renewal options) 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, Henderson, 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 renewal options) in 2049. |
Fallen Oak
Golf Course, Saucier, Mississippi |
|
|
508 |
|
|
|
Gold Strike, Tunica, Mississippi |
|
|
24 |
|
|
|
|
|
|
|
|
|
|
Other land: |
|
|
|
|
|
|
CityCenter Operations |
|
|
67 |
|
|
Future site of CityCenter. |
CityCenter Support |
|
|
15 |
|
|
Includes approximately 10 acres behind New York-New York, being used for project administration offices; approximately 2 acres adjacent to New York-New York, being used for the residential sales pavilion; and approximately 3 acres behind Monte Carlo, being used for a concrete batch plant and other construction staging. |
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 |
|
|
16 |
|
|
Immediately north of Buffalo Bills; this land will be sold along with the Primm Valley Resorts. |
Jean, Nevada |
|
|
61 |
|
|
Located adjacent to Gold Strike. |
Sloan, Nevada |
|
|
89 |
|
|
|
Stateline, California at Primm |
|
|
125 |
|
|
Adjacent to the Primm Valley Golf Club. |
Detroit, Michigan |
|
|
25 |
|
|
Future site of permanent MGM Grand Detroit casino. |
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 78 acres are suitable for development. |
We contributed approximately seven acres of land adjacent to MGM Grand Las Vegas to
the ventures that developed Towers 1 and 2, and are developing Tower 3, of The Signature
at MGM Grand Las Vegas. The land for each tower was, and still is for Tower 3,
collateralized for construction financing for the development. The financing for Tower
3 was for an amount up to $186 million; at December 31, 2006, the outstanding balance on
the Tower 3 financing was $101 million.
17
Silver Legacy occupies approximately five 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, 2006, $160 million of
principal of the 10.125% mortgage notes were outstanding.
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, 2006, $555 million was outstanding under the bank credit facility.
Other than as described above, none of our other assets serve as collateral.
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.
ITEM 3. LEGAL PROCEEDINGS
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 was subject to final approval by
the Nevada Supreme Court. On April 11, 2006 the Nevada Supreme Court on its own motion
entered an order dismissing the appeal and cross-appeals as abandoned, and remanded the
case to the District Court to conduct any further proceedings necessary to effectuate
the parties settlement agreement. On January 23, 2007, the Nevada District Court
entered an order pursuant to stipulation of the parties that dismissed the case with
prejudice.
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 2006.
18
PART II
|
|
|
ITEM 5. |
|
MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Common Stock Information
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
2005 |
|
|
High |
|
Low |
|
High |
|
Low |
First quarter |
|
$ |
43.43 |
|
|
$ |
35.26 |
|
|
$ |
39.80 |
|
|
$ |
34.50 |
|
Second quarter |
|
|
46.15 |
|
|
|
38.13 |
|
|
|
42.98 |
|
|
|
32.58 |
|
Third quarter |
|
|
41.28 |
|
|
|
34.20 |
|
|
|
46.75 |
|
|
|
39.30 |
|
Fourth quarter |
|
|
59.52 |
|
|
|
39.28 |
|
|
|
44.75 |
|
|
|
35.30 |
|
There were approximately 3,864 record holders of our common stock as of February
16, 2007.
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.
Equity Compensation Plan Information
The following table includes information about our stock option plans at December
31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of securities |
|
|
|
|
|
Number of securities |
|
|
to be issued upon |
|
Weighted average per |
|
remaining available |
|
|
exercise of |
|
share 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 |
|
|
30,532 |
|
|
$ |
25.37 |
|
|
|
4,717 |
|
Our share repurchases are only conducted under repurchase programs approved by our
Board of Directors and publicly announced. There were no share repurchases during the
period from October 1, 2006 through December 31, 2006, other than approximately 3,000
shares surrendered by certain recipients of restricted shares, who elected to use a
portion of the shares on which restrictions lapsed in October 2006 to pay required
withholding taxes. At December 31, 2006 there were 8 million shares available for
purchase under the July 2004 repurchase program which allows for the repurchase of up to
20 million shares with no expiration.
19
ITEM 6. SELECTED FINANCIAL DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31, |
|
|
2006 |
|
2005 |
|
2004 |
|
2003 |
|
2002 |
|
|
(In thousands, except per share data) |
Net revenues |
|
$ |
7,175,956 |
|
|
$ |
6,128,843 |
|
|
$ |
4,001,804 |
|
|
$ |
3,657,662 |
|
|
$ |
3,552,404 |
|
Operating income |
|
|
1,758,248 |
|
|
|
1,330,065 |
|
|
|
932,613 |
|
|
|
684,879 |
|
|
|
727,742 |
|
Income from continuing operations |
|
|
635,996 |
|
|
|
435,366 |
|
|
|
345,209 |
|
|
|
226,719 |
|
|
|
283,484 |
|
Net income |
|
|
648,264 |
|
|
|
443,256 |
|
|
|
412,332 |
|
|
|
243,697 |
|
|
|
292,435 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
2.25 |
|
|
$ |
1.53 |
|
|
$ |
1.24 |
|
|
$ |
0.76 |
|
|
$ |
0.90 |
|
Net income per share |
|
|
2.29 |
|
|
|
1.56 |
|
|
|
1.48 |
|
|
|
0.82 |
|
|
|
0.93 |
|
|
Weighted average number of shares |
|
|
283,140 |
|
|
|
284,943 |
|
|
|
279,325 |
|
|
|
297,861 |
|
|
|
315,618 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
2.18 |
|
|
$ |
1.47 |
|
|
$ |
1.19 |
|
|
$ |
0.75 |
|
|
$ |
0.89 |
|
Net income per share |
|
|
2.22 |
|
|
|
1.50 |
|
|
|
1.43 |
|
|
|
0.80 |
|
|
|
0.91 |
|
|
Weighted average number of shares |
|
|
291,747 |
|
|
|
296,334 |
|
|
|
289,333 |
|
|
|
303,184 |
|
|
|
319,880 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At year-end |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
22,146,238 |
|
|
$ |
20,699,420 |
|
|
$ |
11,115,029 |
|
|
$ |
10,811,269 |
|
|
$ |
10,568,698 |
|
Total debt, including capital leases |
|
|
12,997,927 |
|
|
|
12,358,829 |
|
|
|
5,463,619 |
|
|
|
5,533,462 |
|
|
|
5,222,195 |
|
Stockholders equity |
|
|
3,849,549 |
|
|
|
3,235,072 |
|
|
|
2,771,704 |
|
|
|
2,533,788 |
|
|
|
2,664,144 |
|
Stockholders equity per share |
|
$ |
13.56 |
|
|
$ |
11.35 |
|
|
$ |
9.87 |
|
|
$ |
8.85 |
|
|
$ |
8.62 |
|
Number of shares outstanding |
|
|
283,909 |
|
|
|
285,070 |
|
|
|
280,740 |
|
|
|
286,192 |
|
|
|
309,148 |
|
The following events/transactions affect the year-to-year comparability of the selected
financial data presented above:
Discontinued Operations
|
|
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. |
|
|
In October 2006, we entered into agreements to sell the Primm Valley Resorts and the
Colorado Belle and Edgewater resorts in Laughlin, Nevada (the Laughlin Properties). |
The results of the above operations are classified as discontinued operations for all
periods presented.
Acquisitions
|
|
The Mandalay acquisition closed on April 25, 2005. |
Other
|
|
Beau Rivage was closed from August 2005 to August 2006 due to Hurricane Katrina. |
|
|
Beginning January 1, 2006, we began to recognize stock-based compensation in accordance
with Statement of Financial Accounting Standards, No. 123 (revised 2004), Share-Based
Payment (SFAS 123(R)). For the year ended December 31, 2006, incremental expense
resulting from the adoption of SFAS 123(R) was $70 million (pre-tax). |
|
|
During 2006, we began to recognize our share of profits from the sale of condominium
units at The Signature at MGM Grand. For the year ended December 31, 2006, we recognized
$117 million (pre-tax) of such income. |
|
|
In the fourth quarter of 2006 we recognized $86 million (pre-tax) of income for
insurance recoveries related to Hurricane Katrina. |
20
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Executive Overview
Current Operations
At December 31, 2006, our operations consisted of 23 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 and Slots-A-Fun. |
|
|
|
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 (the Laughlin Properties); Gold Strike and Nevada Landing in Jean,
Nevada (the Jean Properties); 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; Fallen Oak golf course in Saucier,
Mississippi; 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.
In October 2006, we agreed to sell the Primm Valley Resorts, not including the two
golf courses, and the Laughlin Properties. In February 2007, we entered into an
agreement to contribute the Jean Properties to a joint venture. See Other Factors
Affecting Liquidity.
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 expanded our portfolio of resorts on the Las Vegas Strip,
expanded our employee and customer bases significantly, and provided additional sites for
future development. These factors resulted in the recognition of certain intangible
assets and significant goodwill. 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. 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. 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. 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 customers, 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 or expanded Las Vegas resorts, 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 may 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. We market to different customer segments to manage our hotel
occupancy, such as targeting large conventions to ensure mid-week occupancy. 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
segments, such as business travelers or high-end gaming customers from a particular
country or region, can impact our results.
Overall Outlook
We believe we will continue to benefit in 2007 from the strategic capital
investments we have made in our resorts over the past several years. 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 allow us to charge premium prices for our
amenities. We expect to continue to re-invest in our core assets on a targeted basis in
2007.
In 2006, we completed many capital improvements at a variety of resorts, including:
|
|
|
New restaurants such as Stripsteak at Mandalay Bay, Social House at TI and Japonais at The Mirage. |
|
|
|
|
The Beatles-themed Cirque du Soleil show, Love, at The Mirage. |
|
|
|
|
Various other amenities such as re-designed restaurants and lounges, new
Starbucks outlets at several resorts, and slot machine upgrades at Mandalay
resorts. |
In addition to entertainment offerings and several restaurants, we have invested
heavily in our room product in the past few years. In 2007, we expect to complete a
suite remodel at Bellagio, and standard room remodels at Mandalay Bay, MGM Grand Las
Vegas and Excalibur. These improvements, along with other amenities and improvements
projected to open in 2007, are expected to lead to continued increases in REVPAR and
increased customer volumes in gaming areas, restaurants, shops, entertainment venues and
our other resort amenities.
We began recognizing our share of profits from condominium sales at The Signature
at MGM Grand in 2006 and will continue to do so in 2007. Sales of all units in Tower 1
and 87% of units in Tower 2 were sold and closed by the end of 2006. In 2007, we expect
to close on the remaining units in Tower 2 and most or all the Tower 3 units. In
addition to the income we will recognize in 2007 related to Towers 2 and 3, we have
begun to rent out units in Towers 1 and 2 for owners who have elected to participate in
the rental program. Rental of these units will provide additional revenues and also
provide additional customer volumes at MGM Grand Las Vegas.
In addition to the activity at our Las Vegas Strip resorts, we expect the permanent
MGM Grand Detroit casino resort to open in late 2007. The permanent facility will
feature a significantly larger casino and a 400-room hotel, as well as additional
restaurants and other amenities. Also, Beau Rivage re-opened in August 2006 and we
believe its operations, as well as additional income from insurance recoveries, will
benefit results in 2007. MGM Grand Macau is on target to open in the fourth quarter of
2007 and we are anticipating significant earnings from this venture once opened.
Financial Statement Impact of Hurricane Katrina
Beau Rivage closed in late August 2005 due to significant damage sustained as a
result of Hurricane Katrina and re-opened in August 2006. The Company maintained
insurance covering both property damage and business interruption as a result of the
storm. The deductible under this coverage was approximately $15 million, based on the
amount of damage incurred. Business interruption coverage covered lost profits and other
costs incurred during the period of closure and up to six months following the reopening
of the facility.
22
As of December 31, 2006, we had received interim insurance recoveries in excess of
the net book value of damaged assets and post-storm costs incurred. The costs incurred
to date were less than the anticipated business interruption proceeds. Therefore, all
post-storm costs and expected recoveries have been 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. Insurance recoveries received in excess of the amount of damaged assets
and post-storm costs incurred of $86 million have been recognized as income related to
property damage and included in Property transactions, net within the accompanying
consolidated statements of income.
Cash received for insurance recoveries are treated in the statement of cash flows
as cash flows from investing activities if the recoveries relate to property damage, and
cash flows from operations if the recoveries relate to business interruption. During
2006, we received $309 million in insurance recoveries. We classified $200 million as
investing cash flows related to property damage and $109 million as operating cash
flows.
Results of Operations
Summary Financial Results
The following table summarizes our financial results:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
|
|
|
Percentage |
|
|
|
|
|
Percentage |
|
|
|
|
2006 |
|
Change |
|
2005 |
|
Change |
|
2004 |
|
|
|
|
|
|
(In thousands, except per share data) |
|
|
| | | | |
Net revenues |
|
$ |
7,175,956 |
|
|
|
17 |
% |
|
$ |
6,128,843 |
|
|
|
53 |
% |
|
$ |
4,001,804 |
|
Operating income |
|
|
1,758,248 |
|
|
|
32 |
% |
|
|
1,330,065 |
|
|
|
43 |
% |
|
|
932,613 |
|
Income from continuing operations |
|
|
635,996 |
|
|
|
46 |
% |
|
|
435,366 |
|
|
|
26 |
% |
|
|
345,209 |
|
Net income |
|
|
648,264 |
|
|
|
46 |
% |
|
|
443,256 |
|
|
|
7 |
% |
|
|
412,332 |
|
Diluted income from continuing
operations per share |
|
$ |
2.18 |
|
|
|
48 |
% |
|
$ |
1.47 |
|
|
|
24 |
% |
|
$ |
1.19 |
|
Diluted net income per share |
|
|
2.22 |
|
|
|
48 |
% |
|
|
1.50 |
|
|
|
5 |
% |
|
|
1.43 |
|
References to same-store throughout Managements Discussion and Analysis exclude
the Mandalay resorts, Monte Carlo and Beau Rivage, including income from insurance
recoveries, for all periods. We owned 50% of Monte Carlo prior to the Mandalay
acquisition and acquired the other 50% in the Mandalay acquisition.
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 year ended
December 31, 2006, net revenue for these operations was $2.7 billion and
operating income was $657 million. For the eight months we owned the Mandalay
resorts in 2005, net revenue for these operations was $1.8 billion and operating
income was $426 million. |
|
|
|
|
Our 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. |
|
|
|
|
The overall positive economic environment in the United States since 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 labor contract covering employees at our Las Vegas Strip resorts since
mid-2002, which provides for significant annual wage and benefits increases
through mid-2007. |
|
|
|
|
The adoption of Statement of Financial Accounting Standards No. 123(R),
Share-Based Payment (SFAS 123(R)). We recorded $70 million of additional
stock compensation expense in 2006 as a result of adopting SFAS 123(R). Prior
to January 1, 2006, we did not recognize expense for employee stock options. |
|
|
|
|
The closure of Beau Rivage in August 2005 after Hurricane Katrina and
subsequent reopening in August 2006. As a result, operating income at Beau
Rivage was $104 million, $40 million, and $60 million in 2006, 2005 and 2004,
respectively. 2006 operating income includes income from insurance recoveries
of $86 million. |
|
|
|
|
Recognition of our share of profits from the closings of condominium units of
Tower 1 and Tower 2 of The Signature at MGM Grand. The venture records revenue
and cost of sales as units close. Tower 1 was completed in May 2006 and 100% of
unit sales had been recognized through December 31, 2006. Tower 2 was completed
in November 2006 and 87% of the unit sales for Tower 2 had been recognized
through December 31, 2006. For the year, we recognized income of approximately
$102 million related to our share of the ventures profits and $15 million of
deferred profit on land contributed to the venture. These amounts are classified
in Income from unconsolidated affiliates in the accompanying consolidated
statements of income. |
23
As a result of the above factors, our net revenues increased 17% in 2006, and 53%
in 2005. Operating margins were 25% in 2006 compared to 22% in 2005, and 23% in 2004.
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 |
|
|
|
|
|
|
2006 |
|
|
Change |
|
|
2005 |
|
|
Change |
|
|
2004 |
|
|
|
(In thousands) |
|
Net revenues |
|
$ |
7,175,956 |
|
|
|
17 |
% |
|
$ |
6,128,843 |
|
|
|
53 |
% |
|
$ |
4,001,804 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Casino and hotel operations |
|
|
3,813,386 |
|
|
|
15 |
% |
|
|
3,316,870 |
|
|
|
55 |
% |
|
|
2,138,644 |
|
General and administrative |
|
|
1,070,942 |
|
|
|
20 |
% |
|
|
889,806 |
|
|
|
57 |
% |
|
|
565,387 |
|
Corporate expense |
|
|
161,507 |
|
|
|
24 |
% |
|
|
130,633 |
|
|
|
68 |
% |
|
|
77,910 |
|
Preopening, restructuring and property transactions, net |
|
|
(3,583 |
) |
|
|
(107 |
)% |
|
|
52,714 |
|
|
|
118 |
% |
|
|
24,135 |
|
Depreciation and amortization |
|
|
629,627 |
|
|
|
12 |
% |
|
|
560,626 |
|
|
|
46 |
% |
|
|
382,773 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,671,879 |
|
|
|
15 |
% |
|
|
4,950,649 |
|
|
|
55 |
% |
|
|
3,188,849 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from unconsolidated affiliates |
|
|
254,171 |
|
|
|
67 |
% |
|
|
151,871 |
|
|
|
27 |
% |
|
|
119,658 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
$ |
1,758,248 |
|
|
|
32 |
% |
|
$ |
1,330,065 |
|
|
|
43 |
% |
|
$ |
932,613 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The 2006 and 2005 increase in net revenues resulted primarily from the addition of
Mandalay. Net revenues for 2006 includes a full year of operations for Mandalay resorts
and 2005 includes approximately 8 months of operations for Mandalay resorts. On a
same-store basis, net revenues increased 5% in 2006 on top of a 12% increase in 2005.
Additionally, net revenues increased significantly at many of our resorts in both 2006
and 2005 as a result of stronger year-over-year room pricing and increased volumes in
gaming and across all non-gaming areas. These trends were particularly prominent at
Bellagio, The Mirage and MGM Grand Las Vegas as a result of new and expanded amenities
at those resorts.
Operating income for 2006 increased 32% over 2005; same store operating income
increased 15%, partially due to the increases in revenues discussed above with continued
strong operating margins. In addition, we recognized income of $102 million from our
share of profits from The Signature at MGM Grand along with a $15 million gain on land
contributed to the venture. Partially offsetting these items was the $70 million of
incremental stock-based compensation expense. Excluding these items, same store
operating income increased 10%, with an operating margin of 22% in 2006 compared to 21%
in 2005.
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 24% in 2004.
Corporate expense increased as a percentage of revenue due primarily to merger
integration costs.
Operating margins in 2007 will be positively impacted by additional profits on the
sale of the remaining condominium units at The Signature at MGM Grand and any income
recognized for additional insurance recoveries related to Hurricane Katrina. Excluding
these items from both 2007 and 2006, we expect margins will remain relatively consistent
between periods.
Operating Results Detailed Revenue Information
The following table presents detail of our net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
|
|
|
|
Percentage |
|
|
|
|
|
|
Percentage |
|
|
|
|
|
|
2006 |
|
|
Change |
|
|
2005 |
|
|
Change |
|
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
Casino revenue, net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table games |
|
$ |
1,251,304 |
|
|
|
13 |
% |
|
$ |
1,107,337 |
|
|
|
18 |
% |
|
$ |
938,281 |
|
Slots |
|
|
1,770,176 |
|
|
|
13 |
% |
|
|
1,563,485 |
|
|
|
44 |
% |
|
|
1,083,979 |
|
Other |
|
|
108,958 |
|
|
|
16 |
% |
|
|
93,724 |
|
|
|
60 |
% |
|
|
58,492 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Casino revenue, net |
|
|
3,130,438 |
|
|
|
13 |
% |
|
|
2,764,546 |
|
|
|
33 |
% |
|
|
2,080,752 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-casino revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rooms |
|
|
1,991,477 |
|
|
|
22 |
% |
|
|
1,634,588 |
|
|
|
84 |
% |
|
|
889,443 |
|
Food and beverage |
|
|
1,483,914 |
|
|
|
17 |
% |
|
|
1,271,650 |
|
|
|
57 |
% |
|
|
807,535 |
|
Entertainment, retail and other |
|
|
1,190,904 |
|
|
|
17 |
% |
|
|
1,018,813 |
|
|
|
61 |
% |
|
|
634,412 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-casino revenue |
|
|
4,666,295 |
|
|
|
19 |
% |
|
|
3,925,051 |
|
|
|
68 |
% |
|
|
2,331,390 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,796,733 |
|
|
|
17 |
% |
|
|
6,689,597 |
|
|
|
52 |
% |
|
|
4,412,142 |
|
Less: Promotional allowances |
|
|
(620,777 |
) |
|
|
11 |
% |
|
|
(560,754 |
) |
|
|
37 |
% |
|
|
(410,338 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
7,175,956 |
|
|
|
17 |
% |
|
$ |
6,128,843 |
|
|
|
53 |
% |
|
$ |
4,001,804 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
On a same-store basis, table games revenue, including baccarat, increased 7% over
2005 with strong baccarat volume up 4% and a somewhat higher hold percentage. In
2005, table games revenue, including baccarat, was flat on a same-store basis. A 4%
increase in table games volume was offset by a slightly lower hold percentage. Hold
percentages were within our normal range for all three years presented.
On a same-store basis, slots revenue increased 3% in 2006 as a result of
significant increases at MGM Grand Las Vegas and TI. In addition, Mandalay Bay, Luxor
and Excalibur benefited from upgraded slot machines and the roll-out of our Players Club
loyalty program. In 2005, slots revenue increased 11% on a same-store basis. 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%.
Hotel revenue increased 22% in 2006 with a 3% increase in company-wide REVPAR. On
a same-store basis, hotel revenue increased 4% in 2006 over 2005 due to strong room
pricing. A 7% increase in same-store REVPAR was the result of ADR increasing from $164
in 2005 to $174 in 2006 and occupancy of 97% versus 96% in the prior year. In 2005,
hotel revenue increased 20% on a same-store basis. 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 12% to $157. The increase in REVPAR in
2005 was mainly rate-driven, as same-store occupancy was consistent at 96%.
Other non-gaming revenue increased 17% over prior year. Same-store entertainment
revenues increased 9% due to revenues generated from Love, the Beatles-themed Cirque du
Soleil show at The Mirage. In 2005, other non-gaming revenue increased significantly,
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
15% increase in same-store food and beverage revenue. We expect these increases to
continue in 2007, as we continue to invest in new amenities at our resorts, particularly
at Mandalay Bay, where among other new amenities we will complete a major pool area
renovation in mid-2007.
Operating Results Details of Certain Charges
Stock compensation expense is recorded within the department of the recipient of
the stock compensation award. In periods prior to January 1, 2006, such expense
consisted only of restricted stock amortization and expense associated with stock
options granted to non-employees. Beginning January 1, 2006, stock compensation expense
includes the cost of all stock-based awards to employees under SFAS
123(R).
The following table shows the amount of incremental compensation related to
employee stock-based awards included within each income statement expense caption:
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
2006 |
|
|
|
(in thousands) |
|
Casino |
|
$ |
13,659 |
|
Other operating departments |
|
|
5,319 |
|
General and administrative |
|
|
19,722 |
|
Corporate expense and other |
|
|
30,421 |
|
Income from discontinued operations |
|
|
1,267 |
|
|
|
|
|
|
|
$ |
70,388 |
|
|
|
|
|
Preopening and start-up expenses consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
CityCenter |
|
$ |
9,429 |
|
|
$ |
5,173 |
|
|
$ |
|
|
MGM Grand Macau |
|
|
5,057 |
|
|
|
1,914 |
|
|
|
|
|
MGM Grand Detroit |
|
|
3,313 |
|
|
|
503 |
|
|
|
|
|
The Signature at MGM Grand |
|
|
8,379 |
|
|
|
1,437 |
|
|
|
668 |
|
Love at The Mirage |
|
|
3,832 |
|
|
|
|
|
|
|
|
|
Jet nightclub at The Mirage |
|
|
|
|
|
|
1,891 |
|
|
|
|
|
Bellagio expansion |
|
|
|
|
|
|
665 |
|
|
|
3,805 |
|
KÀ |
|
|
|
|
|
|
1,871 |
|
|
|
3,655 |
|
Other |
|
|
6,352 |
|
|
|
2,298 |
|
|
|
2,148 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
36,362 |
|
|
$ |
15,752 |
|
|
$ |
10,276 |
|
|
|
|
|
|
|
|
|
|
|
25
Preopening and start-up expenses for CityCenter will continue to increase each year
as the project nears its expected completion in late 2009. MGM Grand Macau preopening
and start-up expenses relate to our share of that ventures preopening costs and will
increase significantly in 2007 as the project is expected to open in late 2007. MGM
Grand Detroit preopening and start-up expenses will also increase significantly in 2007
as the resort is expected to open in the fourth quarter of 2007. Preopening and
start-up costs for The Signature at MGM Grand relate to our costs associated with
preparing the towers for rental operations.
Restructuring costs (credit) consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
|
(In thousands) |
|
Contract termination costs |
|
$ |
|
|
|
$ |
|
|
|
$ |
3,693 |
|
Other |
|
|
1,035 |
|
|
|
(59 |
) |
|
|
1,932 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,035 |
|
|
$ |
(59 |
) |
|
$ |
5,625 |
|
|
|
|
|
|
|
|
|
|
|
There were no material restructuring activities in 2006 and 2005. At December 31,
2006, 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.
Property transactions, net consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
|
(In thousands) |
|
Impairment of assets to be disposed of |
|
$ |
40,865 |
|
|
$ |
22,651 |
|
|
$ |
473 |
|
Write-off of abandoned capital projects |
|
|
|
|
|
|
5,971 |
|
|
|
|
|
Demolition costs |
|
|
348 |
|
|
|
5,362 |
|
|
|
7,057 |
|
Insurance recoveries |
|
|
(86,016 |
) |
|
|
|
|
|
|
|
|
Other net losses on asset sales or disposals |
|
|
3,823 |
|
|
|
3,037 |
|
|
|
704 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(40,980 |
) |
|
$ |
37,021 |
|
|
$ |
8,234 |
|
|
|
|
|
|
|
|
|
|
|
Impairments in 2006 included $22 million related to the write-off of the tram
connecting Bellagio and Monte Carlo, including the stations at both resorts, in
preparation for construction of CityCenter. Other impairments related to assets being
replaced in connection with several smaller capital projects, primarily at MGM Grand Las
Vegas, Mandalay Bay and The Mirage, as well as the $4 million write-off of Luxors
investment in the Hairspray show. Insurance recoveries in 2006 relate to the interim
insurance recoveries received related to property damage from Hurricane Katrina in
excess of the book value of the damaged assets and post-storm costs incurred as of
December 31, 2006 see Financial Statement Impact of Hurricane Katrina.
In 2005, impairments related primarily to assets removed from service in connection
with capital projects at several resorts, including Bellagio, TI, The Mirage and
Mandalay Bay. The amounts recorded were based on the net book value of the disposed
assets. Demolition costs related primarily to room remodel activity at MGM Grand Las
Vegas and the new showroom at The Mirage.
Demolition costs in 2004 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, |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
|
(In thousands) |
|
Interest cost |
|
$ |
882,501 |
|
|
$ |
670,285 |
|
|
$ |
390,588 |
|
Less: Capitalized interest |
|
|
(122,140 |
) |
|
|
(29,527 |
) |
|
|
(23,005 |
) |
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
$ |
760,361 |
|
|
$ |
640,758 |
|
|
$ |
367,583 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest, net of amounts capitalized |
|
$ |
778,590 |
|
|
$ |
588,587 |
|
|
$ |
321,008 |
|
Weighted average total debt balance |
|
$12.7 billion |
|
$10.1 billion |
|
$5.5 billion |
End-of-year ratio of fixed-to-floating debt |
|
|
66/34 |
|
|
|
61/39 |
|
|
|
99/1 |
|
Weighted average interest rate |
|
|
7.1 |
% |
|
|
6.8 |
% |
|
|
7.3 |
% |
26
Interest costs increased in 2006 over 2005 due to higher average outstanding debt
due to a full year of debt outstanding related to the Mandalay acquisition, incremental
borrowings in 2006 to fund capital investments, and a slightly higher average interest
rate. Capitalized interest increased in 2006 as we continued to capitalize interest on
the CityCenter construction and our investment in MGM Grand Macau. The increase in our
weighted average interest rate was due to slightly higher market rates, which affects
our variable rate debt.
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 CityCenter
and our investment in MGM Grand Macau.
The following table summarizes information related to our income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
2006 |
|
2005 |
|
2004 |
|
|
(In thousands) |
Income from continuing operations before income tax |
|
$ |
977,926 |
|
|
$ |
667,085 |
|
|
$ |
548,810 |
|
Income tax provision |
|
|
341,930 |
|
|
|
231,719 |
|
|
|
203,601 |
|
Effective income tax rate |
|
|
35.0 |
% |
|
|
34.7 |
% |
|
|
37.1 |
% |
Cash paid for income taxes |
|
$ |
369,450 |
|
|
$ |
75,776 |
|
|
$ |
128,393 |
|
The effective income tax rate in 2006 was slightly higher than 2005. Tax reserves
that were no longer required, primarily due to guidance issued by the Internal Revenue
Service related to the deductibility of certain complimentaries, were reversed during
2006, but such reversal was less than the one-time tax benefit recognized in 2005 due to
the repatriation of foreign earnings from Australia see below.
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.
Cash paid for income taxes increased significantly in 2006 due primarily to the
payment of taxes on the gain on Mandalays sale of MotorCity Casino, taxable income
associated with the sales of units at the Signature at MGM Grand, and an increase in pre-tax income resulting
from the Mandalay merger and continued improvements in operating results.
In 2005, taxes paid were lower than 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.
27
Liquidity and Capital Resources
Cash Flows Summary
Our cash flows consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Net cash provided by operations |
|
$ |
1,241,952 |
|
|
$ |
1,182,796 |
|
|
$ |
829,247 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing cash flows: |
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(1,884,053 |
) |
|
|
(759,949 |
) |
|
|
(702,862 |
) |
Acquisition of Mandalay Resort Group, net |
|
|
|
|
|
|
(4,420,990 |
) |
|
|
|
|
Proceeds from the sale of subsidiaries, net |
|
|
|
|
|
|
|
|
|
|
345,730 |
|
Hurricane Katrina insurance proceeds |
|
|
199,963 |
|
|
|
46,250 |
|
|
|
|
|
Investments in unconsolidated affiliates |
|
|
(86,000 |
) |
|
|
(183,000 |
) |
|
|
(11,602 |
) |
Other |
|
|
117,663 |
|
|
|
14,872 |
|
|
|
20,981 |
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(1,652,427 |
) |
|
|
(5,302,817 |
) |
|
|
(347,753 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing cash flows: |
|
|
|
|
|
|
|
|
|
|
|
|
Net borrowing (repayment) under bank credit facilities |
|
|
(393,150 |
) |
|
|
4,725,000 |
|
|
|
(1,574,489 |
) |
Issuance of long-term debt |
|
|
1,500,000 |
|
|
|
880,156 |
|
|
|
1,528,957 |
|
Repayment of long-term debt |
|
|
(444,500 |
) |
|
|
(1,408,992 |
) |
|
|
(52,149 |
) |
Issuance of common stock |
|
|
89,113 |
|
|
|
145,761 |
|
|
|
135,910 |
|
Purchase of treasury stock |
|
|
(246,892 |
) |
|
|
(217,316 |
) |
|
|
(348,895 |
) |
Other |
|
|
5,453 |
|
|
|
(61,783 |
) |
|
|
(15,306 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
510,024 |
|
|
|
4,062,826 |
|
|
|
(325,972 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
$ |
99,549 |
|
|
$ |
(57,195 |
) |
|
$ |
155,522 |
|
|
|
|
|
|
|
|
|
|
|
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 as a result of higher operating
income offset by higher interest and tax payments tax payments in particular increased
to $369 million in 2006 versus $76 million in 2005. In addition, $109 million of
insurance recoveries has been reflected as operating cash inflows in 2006 and $90
million of spending on CityCenter residential projects has been reflected as operating
cash outflows in 2006. In 2006, the $48 million excess tax benefit from stock-based
compensation is included as cash flows from financing activities; in prior years, this
amount was included in operating cash flows.
At December 31, 2006 and 2005, we held cash and cash equivalents of $453 million
and $378 million, respectively. We require a certain amount of cash on hand to operate
our resorts. The amount required on hand increased in 2006 due to the reopening of Beau
Rivage and the implementation of ticket and ATM kiosks on our gaming floors, which
increase efficiency for customer transactions but require more cash on hand. 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.
Cash Flows Investing Activities
In 2006, we spent $1.4 billion, excluding capitalized interest on development
projects, including the non-residential components of CityCenter, the permanent MGM
Grand Detroit resort and the rebuilding of Beau Rivage. Remaining capital expenditures
of $500 million consisted of capital expenditures at existing resorts, including
spending on the new theatre and new restaurants at The Mirage, and capitalized interest.
Investments in unconsolidated affiliates of $86 million in the 2006 period represent
partial funding of a required loan, in an amount up to $100 million (including accrued
interest), to MGM Grand Macau. We are accounting for the loan as additional capital
investment due to the subordinated nature of our repayment rights under the loan. Also,
construction payables increased due to an increase in construction activity at
CityCenter, which is included in Other in the above table. Offsetting these
expenditures was $200 million in insurance proceeds related to Hurricane Katrina.
In 2005, capital expenditures were $760 million, and included room enhancements and
other projects at MGM Grand Las Vegas, expenditures for The Mirage theatre, and
preliminary expenditures for CityCenter and the permanent casino in Detroit. Also in
the 2005 period, we completed the acquisition of Mandalay, with net cash paid of $4.4
billion, and invested $183 million in MGM Grand Macau.
28
Capital expenditures in 2004 consisted of 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. 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.
Cash Flows Financing Activities
We borrowed net debt of $662 million in 2006. The increase in net debt was due
primarily to the level of capital expenditures, investments in unconsolidated affiliates
and share repurchases. At December 31, 2006 our senior credit facility had a balance of
$4.4 billion, with available liquidity of $2.6 billion. We had the following issuances
of senior notes in 2006:
|
|
|
In April 2006, we issued $500 million of 6.75% senior notes due 2013 and $250
million of 6.875% senior notes due 2016. |
|
|
|
In December 2006, we issued $750 million of 7.625% senior notes due 2017. |
In 2006, we repaid at their scheduled maturity our $200 million 6.45% senior notes
and our $245 million 7.25% senior notes.
Our primary financing activities in 2005 related to the Mandalay acquisition. The
cash purchase price of Mandalay 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 at their maturity $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. 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.
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%. |
In 2004, we repaid a net $1.6 billion on our bank credit facilities with the
proceeds from the above offerings.
Our share repurchases are only conducted under repurchase programs approved by our
Board of Directors and publicly announced. At December 31, 2006, we had 8 million
shares available for repurchase under the July 2004 authorization. Our share repurchase
activity was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
November 2003 authorization (16 million shares purchased) |
|
$ |
|
|
|
$ |
|
|
|
$ |
348,895 |
|
July 2004 authorization (6.5 million and 5.5 million shares purchased) |
|
|
246,892 |
|
|
|
217,316 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
246,892 |
|
|
$ |
217,316 |
|
|
$ |
348,895 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average price of shares repurchased |
|
$ |
37.98 |
|
|
$ |
39.51 |
|
|
$ |
21.80 |
|
We received $89 million, $146 million and $136 million in proceeds from the
exercise of employee stock options in the years ended December 31, 2006, 2005 and 2004,
respectively.
29
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 $4.5 billion revolving credit facility and a $2.5 billion term loan facility. As of
December 31, 2006, we had approximately $2.6 billion of available liquidity under our
senior credit facility.
All of our principal debt arrangements are guaranteed by each of our material
subsidiaries, excluding MGM Grand Detroit, LLC and our foreign subsidiaries. MGM Grand
Detroit is a guarantor under the senior credit facility, but only to the extent that MGM
Grand Detroit, LLC borrows under such facilities. None of our assets serve as
collateral for our principal debt arrangements.
Other Factors Affecting Liquidity
Long-term Debt Payable in 2007. We have a total of $1.4 billion in senior
notes and senior subordinated notes that we expect to repay at maturity in the second
and third quarters of 2007.
Distributions from The Signature at MGM Grand. Tower 1 of The Signature at
MGM Grand was completed in the second quarter of 2006. We received distributions
totaling $51 million related to Tower 1. Distributions for Tower 2 began in 2006 and as
of December 31, 2006, we had received $43 million of such distributions. We expect to
receive additional distributions on Tower 2, as well as Tower 3, in 2007. Tower 3 is
expected to be completed in April 2007 and closings will begin shortly thereafter.
Sale of Primm Valley Resorts and Laughlin Properties. In October 2006, we
entered into an agreement to sell Colorado Belle and Edgewater for $200 million and an
agreement to sell the Primm Valley Resorts for $400 million. We will use the net
proceeds from the sales to repay borrowings under our senior credit facility. Both
agreements are subject to regulatory approval and other customary closing conditions,
and we expect both sales to be completed by the second quarter of 2007, at which time we
expect to record substantial gains on both sales.
CityCenter. In November 2004 we announced a plan to develop a
multi-billion dollar urban metropolis, CityCenter, on the Las Vegas Strip between
Bellagio and Monte Carlo. 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 approximately 2,700 luxury condominium and condominium-hotel
units in multiple towers.
We believe CityCenter will cost approximately $7 billion, excluding 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. CityCenter is located on a
67-acre site with a carrying value of approximately $1 billion. We expect the project
to open in late 2009.
Detroit Permanent Casino. The permanent casino at MGM Grand Detroit is
expected to open in late 2007 at a cost of approximately $750 million, excluding license
and land costs, and will feature a 400-room hotel, 100,000-square foot casino, numerous
restaurant and entertainment amenities, and spa and convention facilities. The
permanent casino is located on a 25-acre site with a carrying value of approximately $50
million. In addition, we recorded license rights with a carrying value of $100 million
as a result of MGM Grand Detroits obligations to the City of Detroit in connection with
the permanent casino development agreement.
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 site and will feature at least 345 table games and 1,035
slots with room for significant expansion. Other features will include approximately
600 rooms, suites and villas, a luxurious spa, convention space, a variety of dining
destinations, and other attractions. MGM Grand Macau is estimated to cost approximately
$850 million, excluding license and land rights costs. The subconcession agreement,
which allows MGM Grand Paradise Limited to operate a casino in Macau, cost $200 million
and the land rights agreement with the government of Macau is estimated to cost $60
million. Construction of MGM Grand Macau began in the second quarter of 2005 and the
resort is anticipated to open in late 2007. We have invested $266 million in the
venture and are committed to loaning the venture up to an additional $9 million. The
venture has obtained a $700 million bank credit facility which, along with equity
contributions and shareholder loans, is expected to be sufficient to fund the
construction of MGM Grand Macau.
30
MGM Grand Paradise Limited recently announced that it has been engaged in
discussions with the Government of Macau S.A.R concerning the development of its second
major resort project in Macau to be located in Cotai. The site, scope and financing
related to this project are still being evaluated.
Beau Rivage Rebuilding. Beau Rivage reopened in August 2006. The resorts
guest rooms, casino floor and most public areas opened in August, and three restaurants
and the showroom opened in December. In addition, Fallen Oak, a Tom Fazio-designed golf
course, opened in November 2006.
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. Subject to receipt of
requisite New York State approvals, we will assist in the development of the facility,
including providing project financing up to $190 million, 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. We believe, based on recent legislative changes, that our
agreement with respect to installation of VLTs at Aqueduct would extend past the
expiration of NYRAs current racing franchise and would be binding on any successor to
NYRA in the event NYRA is not granted a new racing franchise. NYRAs recent filing for
reorganization under Chapter 11 has introduced additional uncertainties, but we remain
committed to the development once these uncertainties are resolved.
Mashantucket Pequot Tribal Nation. We have agreed to enter a strategic
alliance, subject to definitive agreements, with the Mashantucket Pequot Tribal Nation
(MPTN). The strategic alliance has several elements, one of which calls for the
creation of a 50/50 joint venture to seek future development opportunities. We have
agreed to provide a development subsidiary of MPTN with a loan of up to $200 million
intended to fund a portion of that subsidiarys matching investment in any future joint
development projects.
Jean Properties. We have entered into an operating agreement to form a
50/50 joint venture with Jeanco Realty Development, LLC. The venture will master plan
and develop a mixed-use community in Jean, Nevada. We will donate the Jean Properties
and surrounding land to the joint venture. The value of this contribution per the
operating agreement will be $150 million. We expect to receive a distribution of $55
million upon transfer of the Jean Properties and surrounding land to the venture, which
is subject to the venture obtaining necessary regulatory and other approvals, and $20
million no later than August 2008. Nevada Landing is expected to close in April 2007.
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 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, 2006, we had outstanding letters of credit totaling $59 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.
31
Commitments and Contractual Obligations
The following table summarizes our scheduled contractual commitments as of December
31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
2011 |
|
|
Thereafter |
|
|
|
(In millions) |
|
Long-term debt |
|
$ |
1,402 |
|
|
$ |
377 |
|
|
$ |
1,276 |
|
|
$ |
1,123 |
|
|
$ |
4,914 |
|
|
$ |
3,860 |
|
Estimated interest payments on
long-term debt (1) |
|
|
865 |
|
|
|
772 |
|
|
|
733 |
|
|
|
630 |
|
|
|
548 |
|
|
|
1,013 |
|
Capital leases |
|
|
2 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases (2) |
|
|
16 |
|
|
|
14 |
|
|
|
12 |
|
|
|
11 |
|
|
|
11 |
|
|
|
355 |
|
Long-term liabilities (3) |
|
|
116 |
|
|
|
5 |
|
|
|
54 |
|
|
|
5 |
|
|
|
2 |
|
|
|
17 |
|
Other purchase obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction commitments (4) |
|
|
1,012 |
|
|
|
249 |
|
|
|
30 |
|
|
|
3 |
|
|
|
|
|
|
|
100 |
|
Employment agreements |
|
|
134 |
|
|
|
74 |
|
|
|
40 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
Entertainment agreements (5) |
|
|
128 |
|
|
|
30 |
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (6) |
|
|
190 |
|
|
|
49 |
|
|
|
3 |
|
|
|
1 |
|
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,865 |
|
|
$ |
1,571 |
|
|
$ |
2,163 |
|
|
$ |
1,777 |
|
|
$ |
5,475 |
|
|
$ |
5,349 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Estimated interest payments on long-term debt are based on principal amounts
outstanding at December 31, 2006 and forecasted LIBOR rates for our bank credit
facility. |
|
(2) |
|
The majority of these amounts relate to ground leases for land in Primm,
Nevada. These lease obligations are included in the pending sale of the Primm Valley
Resorts. |
|
(3) |
|
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, 2006 and assumptions of retirement based
on plan provisions. |
|
(4) |
|
Included in construction commitments is $1 billion related to CityCenter.
While we have entered into a contract with a general contractor for the construction
of most of 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
CityCenter in 2007. |
|
(5) |
|
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. |
|
(6) |
|
The amount for 2007 includes approximately $88 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 2007 include tax payments and uncommitted capital spending on
CityCenter residential projects. Other significant investing uses of cash flow in 2007
include uncommitted capital expenditures, expected to be approximately $1.5 billion,
excluding capitalized interest and the residential components of CityCenter.
We plan to fund our contractual obligations and other estimated spending through a
combination of operating cash flow, 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 2006, 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.
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.
32
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, 2006 and 2005, approximately 48% and 44%, 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, 2006 and 2005, approximately 37% and 42%, 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, |
|
|
2006 |
|
2005 |
|
2004 |
|
|
(In thousands) |
Casino accounts receivable |
|
$ |
248,044 |
|
|
$ |
221,873 |
|
|
$ |
174,713 |
|
Allowance for doubtful casino accounts receivable |
|
|
83,327 |
|
|
|
68,768 |
|
|
|
57,111 |
|
Allowance as a percentage of casino accounts receivable |
|
|
34 |
% |
|
|
31 |
% |
|
|
33 |
% |
Median age of casino accounts receivable |
|
46 days |
|
39 days |
|
33 days |
Percentage of casino accounts outstanding over 180 days |
|
|
21 |
% |
|
|
19 |
% |
|
|
15 |
% |
The allowance for doubtful accounts as a percentage of casino accounts receivable
has increased slightly in the current year due to aging of accounts. At December 31,
2006, a 100 basis-point change in the allowance for doubtful accounts as a percentage of
casino accounts receivable would change net income by $1.6 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.
33
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.
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.
See Results of Operations for discussion of write-downs and impairments recorded
in 2006, 2005 and 2004. In October 2006, we entered into agreements to sell Primm
Valley Resorts and Laughlin Properties. 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
exceeded the carrying value, therefore no impairment was indicated. Other than the
above items, we are not aware of events or circumstances through December 31, 2006 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.
At December 31, 2006, we had $144 million of deferred tax assets and $3.5 billion
of deferred tax liabilities. Except for certain New Jersey state net operating losses,
certain other New Jersey state deferred tax assets, a foreign tax credit carryforward
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, 2006 related to the New Jersey deferred tax assets, the
foreign tax credit carryforward and foreign deferred tax assets were $6 million, $2
million and $2 million, respectively.
34
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. In addition, resolution
of uncertainties may occur upon the issuance of specific IRS guidance on the issue. 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. See also Recently Issued Accounting Standards
Uncertain Tax Positions.
In the third quarter of 2006, we reversed tax reserves of $6 million that were no
longer required based upon guidance issued by the IRS during the quarter related to the
deductibility of certain complimentaries, resulting in a 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 in the final stages of auditing our 2001 and 2002 tax returns and has
initiated an audit of the 2003 and 2004 tax returns. The tax returns for subsequent
years are also subject to possible future examination. The statutes of limitation for
assessing tax have expired on all years prior to 2001.
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. Any future adjustments to the acquired Mirage Resorts and Mandalay tax
reserves will be recorded as an adjustment to goodwill.
Stock-based Compensation
We account for stock-based compensation in accordance with SFAS 123(R). We measure
fair value of share-based awards using the Black-Scholes model. There are several
management assumptions required to determine the inputs into the Black-Scholes model.
We have determined that our volatility and expected term assumptions can significantly
impact the fair value of stock-based awards. The extent of the impact will depend, in
part, on the extent of stock-based awards in any given year. In 2006, we granted 1.9
million stock appreciation rights with a total fair value of $28 million. In 2005, we
granted 14.6 million stock options and stock appreciation rights with a total fair value
of $186 million.
For 2006 awards, a 10% change in the volatility assumption (33% for 2006; for
sensitivity analysis, volatility was assumed to be 30% and 36%) would have resulted in a
$1.8 million, or 6%, change in fair value. A 10% change in the expected term assumption
(4.1 years for 2006; for sensitivity analysis, expected term was assumed to be 3.7 years
and 4.5 years) would have resulted in a $1.5 million,
or 5%, change in fair value. These changes in fair value would have been
recognized over the five-year vesting period of such awards. It
should be noted change that a
change in the expected term would cause other changes, since the risk-free rate and
volatility assumptions are specific to the term; we did not attempt to adjust those
assumptions in performing the sensitivity analysis above.
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 for 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.
35
The determination of the fair value of acquired assets and assumed liabilities in
the Mandalay acquisition required us to make certain fair value estimates, primarily
related to land, property and equipment and intangible assets. These estimates require
significant judgment and include 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.
Recently Issued Accounting Standards
Uncertain Tax Positions
In July 2006, the Financial Accounting Standards Board issued Interpretation No.
48, Accounting for Uncertainty in Income Taxes an Interpretation of FASB Statement
No. 109, (FIN 48). FIN 48 requires that tax positions be assessed using a two-step
process. A tax position is recognized if it meets a more likely than not threshold
and is measured at the largest amount of benefit that is greater than 50 percent likely
of being realized. Uncertain tax positions must be reviewed at each balance sheet date.
Liabilities recorded as a result of this analysis must generally be recorded separately
from any current or deferred income tax accounts, and are classified based on the time
until expected payment.
FIN 48 also requires additional disclosures related to uncertain tax positions,
including a reconciliation of changes in the beginning and ending aggregate amounts of
liability recorded for uncertain tax positions. FIN 48 is effective for fiscal years
beginning after December 15, 2006.
Upon adoption of FIN 48 in the first quarter of 2007, we expect to record an
adjustment to stockholders equity as a cumulative effect of change in accounting
principle and a reclassification between deferred income taxes and other accrued
liabilities. We have completed an initial evaluation of the impact of
the adoption of FIN 48 and determined that adoption will not have a
material impact on our financial position or results of operations.
Materiality of Financial Statement Misstatements
In September 2006, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 108 (SAB 108), which documents the SEC staffs views regarding
the process of quantifying financial statement misstatements. Under SAB 108, we must
evaluate the materiality of an identified unadjusted error by considering the impact of
both the current year error and the cumulative error, if applicable. This also means
that both the impact on the current period income statement and the period-end balance
sheet must be considered.
SAB 108 is effective for fiscal years ending after November 15, 2006. Any past
adjustments required to be recorded as a result of adopting SAB 108 are recorded as a
cumulative effect adjustment to the opening balance of retained earnings. The adoption
of SAB 108 had no impact on our financial position or results of operations.
Planned Major Maintenance Activities
In September 2006, the Financial Accounting Standards Board issued FASB Staff
Position No. AUG AIR-1, Accounting for Planned Major Maintenance Activities, (FSP AUG
AIR-1). FSP AUG AIR-1 prohibits the use of the accrue-in-advance method of
accounting for planned major maintenance activities, previously one of four acceptable
methods included in the AICPA Industry Audit Guide for Airlines. FSP AUG AIR-1 is
effective for fiscal years beginning after December 15, 2006.
We do not believe the adoption of FSP AUG AIR-1 will have any impact on our
financial position or results of operations. We expense planned major maintenance
activities at our operating resorts as incurred. For our corporate aircraft, we apply
the deferral method of accounting to planned engine overhauls; the deferral method is
one of the three remaining acceptable methods included in the Industry Audit Guide for
Airlines. Under the deferral method, the cost of each engine overhaul is capitalized
and amortized over the estimated period to the next required overhaul.
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, 2006, long-term fixed rate borrowings represented approximately
66% of our total borrowings. Based on December 31, 2006 debt levels, an assumed 100
basis-point change in LIBOR would cause our annual interest cost to change by
approximately $44 million.
36
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 50 to 78
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, 2006. 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 48 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 49 of this Form 10-K.
Changes in Internal Control over Financial Reporting
During the quarter ended December 31, 2006, we had the following changes in our
internal control over financial reporting that materially affected, or are reasonably
likely to affect, our internal control over financial reporting, all of which relate to
changes made at Mandalay resorts since our acquisition of Mandalay in April 2005:
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We implemented a new slot accounting system and the Players Club
point-loyalty program at the major Mandalay resorts; |
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We consolidated the accounts payable processing functions at most Mandalay
resorts into our existing shared services function; |
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We added accounting and finance staff to many of the Mandalay resorts,
adopting our legacy practices of having 1) a chief financial officer at each
resort, 2) functional controllers over the different revenue areas at each
resort, and 3) financial analysis staff at each resort. |
In addition to the above significant changes, we made other changes to systems,
policies and processes that were not considered significant. For instance, Mandalay
historically used the same general ledger accounting system as we did, but we modified
the Mandalay chart of accounts to make it consistent with ours. We also changed
Mandalays banking structure to fit with our legacy structure, including moving bank
accounts to a consolidated vendor. We did not consider these changes, or changes of a
similar nature, to be significant since they are relatively routine when integrating a
significant acquisition such as Mandalay.
There were no other 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.
37
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
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 and
Corporate Governance in our definitive Proxy Statement for our 2007 Annual Meeting of
Stockholders, which we expect to file with the Securities and Exchange Commission on or
about April 9, 2007 (the Proxy Statement).
ITEM 11. EXECUTIVE COMPENSATION
We incorporate by reference the information appearing under Executive and Director
Compensation and Other Information and Corporate Governance Compensation Committee
Interlocks and Insider Participation, and Compensation Committee Report in the Proxy
Statement.
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ITEM 12. |
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS |
We incorporate by reference the information appearing under Equity Compensation
Plan Information in Item 5 of this Form 10-K, and under Principal Stockholders and
Election of Directors in the Proxy Statement.
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ITEM 13. |
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE |
We incorporate by reference the information appearing under Transactions with
Related Persons and Corporate Governance in the Proxy Statement.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
We incorporate by reference the information appearing under Selection of
Independent Registered Public Accounting Firm 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, 2006 and 2005 |
Years Ended December 31, 2006, 2005 and 2004 |
Consolidated Statements of Income |
Consolidated Statements of Cash Flows |
Consolidated Statements of Stockholders Equity |
Notes to Consolidated Financial Statements |
|
(a)(2). Financial Statement Schedule. |
|
Years Ended December 31, 2006, 2005 and 2004 |
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.
38
(a)(3). Exhibits.
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Exhibit |
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Number |
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Description |
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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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)). |
|
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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, relating to a change in name of the
Company (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)). |
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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, relating to an increase in the
authorized shares of common stock (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). |
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|
|
3(7)
|
|
Amended and Restated Bylaws of the Company, effective
August 8, 2006 (incorporated by reference to Exhibit 3 to the Companys
Current Report on Form 8-K dated August 8, 2006). |
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|
4(1)
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|
Indenture dated July 21, 1993, by and between Mandalay
and First Interstate Bank of Nevada, N.A., as Trustee with respect to
$150 million aggregate principal amount of 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). |
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4(2)
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|
Indenture, dated February 1, 1996, by and between
Mandalay and First Interstate Bank of Nevada, N.A., as Trustee (the
Mandalay February 1996 Indenture) (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)
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|
Supplemental Indenture, dated as of November 15, 1996, by
and between Mandalay and Wells Fargo Bank (Colorado), N.A., (successor to
First Interstate Bank of Nevada, N.A.), as Trustee, to the Mandalay
February 1996 Indenture, with respect to $150 million aggregate principal
amount of 6.70% Senior Notes due 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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4(4)
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|
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). |
39
|
|
|
Exhibit |
|
|
Number |
|
Description |
4(5)
|
|
Indenture, dated November 15, 1996, by and between
Mandalay and Wells Fargo Bank (Colorado), N.A., as Trustee (the Mandalay
November 1996 Indenture) (incorporated by reference to Exhibit 4(e) to
the Mandalay October 1996 10-Q). |
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|
4(6)
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|
Supplemental Indenture, dated as of November 15, 1996, to
the Mandalay November 1996 Indenture, with respect to $150 million
aggregate principal amount of 7.0% Senior Notes due 2036 (incorporated by
reference to the Mandalay October 1996 10-Q). |
|
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|
4(7)
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|
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(8)
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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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4(9)
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Supplemental Indenture, dated as of August 1, 1997, to
the MRI 1997 Indenture, with respect to $200 million aggregate principal
amount of 6.75% Notes due 2007 and $100 million aggregate principal
amount of 7.25% Debentures due 2017 (incorporated by reference to Exhibit
4.2 to the MRI June 1997 10-Q). |
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4(10)
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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). |
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4(11)
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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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4(12)
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Supplemental Indenture, dated as of February 4, 1998, to
the MRI 1998 Indenture, with respect to $200 million aggregate principal
amount of 6.75% Notes due 2008 (incorporated by reference to Exhibit 4(f)
to the MRI 1997 10-K). |
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4(13)
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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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4(14)
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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, with respect to $710 million aggregate
principal amount of 9.75% Senior Subordinated Notes due 2007
(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(15)
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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(16)
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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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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). |
40
|
|
|
Exhibit |
|
|
Number |
|
Description |
4(19)
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|
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,
with respect to $850 million aggregate principal amount of 8.5% Senior
Notes due 2010 (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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4(20)
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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)
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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(22)
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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, with
respect to $400 million aggregate principal amount of 8.375% Senior
Subordinated Notes due 2011 (incorporated by reference to Exhibit 4 to
the Companys Current Report on Form 8-K dated January 18, 2001). |
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4(23)
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|
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(24)
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|
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(25)
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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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4(26)
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|
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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4(27)
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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, with respect
to $1,050 million 6% Senior Notes due 2009 (incorporated by reference to
Exhibit 4.1 to the Companys Current Report on Form 8-K dated September
11, 2003). |
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4(28)
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|
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(29)
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|
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, with respect to $525 million
5.875% Senior Notes due 2014 (incorporated by reference to Exhibit 4.1 to
the Companys Current Report on Form 8-K, dated February 27, 2004). |
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4(30)
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|
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, with respect to $550
million 6.75% Senior Notes due 2012 (incorporated by reference to Exhibit
4.1 to the Companys Current Report on Form 8-K dated August 25, 2004). |
41
|
|
|
Exhibit |
|
|
Number |
|
Description |
4(31)
|
|
Indenture, dated June 20, 2005, among MGM MIRAGE,
certain subsidiaries of MGM MIRAGE, and U.S. Bank National Association,
with respect to $500 million aggregate principal amount of 6.625% Senior
Notes due 2015 (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(32)
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|
Supplemental Indenture, dated September 9, 2005, among
MGM MIRAGE, certain subsidiaries of MGM MIRAGE, and U.S. Bank National
Association, with respect to $375 million aggregate principal amount of
6.625% Senior Notes due 2015 (incorporated by reference to Exhibit 4.1 to
the Companys Current Report on Form 8-K dated September 9, 2005). |
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4(33)
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|
Indenture, dated April 5, 2006, among MGM MIRAGE,
certain subsidiaries of MGM MIRAGE, and U.S. Bank National Association,
with respect to $500 million aggregate principal amount of 6.75% Senior
Notes due 2013 and $250 million original principal amount of 6.875%
Senior Notes due 2016 (incorporated by reference to Exhibit 4.1 to the
Companys Current Report on Form 8-K dated April 5, 2006 (the April 2006
8-K)). |
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4(34)
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Registration Rights Agreement, dated April 5, 2006,
among MGM MIRAGE, certain subsidiaries of MGM MIRAGE, and certain initial
purchases parties thereto (incorporated by reference to Exhibit 4.2 to
the April 2006 8-K). |
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4(35)
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Indenture dated as of December 21, 2006, 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 December 21, 2006 (the December 2006
8-K)). |
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4(36)
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|
Supplemental Indenture dated as of December 21, 2006, by
and among MGM MIRAGE, certain subsidiaries of MGM MIRAGE, and U.S. Bank
National Association, with respect to $750 million aggregate principal
amount of 7.625% Senior Notes due 2017 (incorporated by reference to
Exhibit 4.2 to the December 2006 8-K). |
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10.1(1)
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|
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)
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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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10.1(3)
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|
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(4)
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|
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(5)
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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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10.1(6)
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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)). |
42
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Exhibit |
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|
Number |
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Description |
10.1(7)
|
|
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). |
|
|
|
10.1(8)
|
|
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(9)
|
|
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(10)
|
|
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(11)
|
|
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(12)
|
|
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(13)
|
|
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(14)
|
|
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(15)
|
|
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). |
|
|
|
10.1(16)
|
|
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(17)
|
|
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). |
43
|
|
|
Exhibit |
|
|
Number |
|
Description |
10.1(18)
|
|
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(19)
|
|
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(20)
|
|
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(21)
|
|
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(22)
|
|
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(23)
|
|
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(24)
|
|
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(25)
|
|
Fifth Amended and Restated Loan Agreement dated as of October 3,
2006, by and among MGM MIRAGE, as borrower; MGM Grand Detroit, LLC, as
co-borrower; the Lenders and Co-Documentation Agents named therein; Bank
of America, N.A., as Administrative Agent; the Royal Bank of Scotland
PLC, as Syndication Agent; Bank of America Securities LLC and The Royal
Bank of Scotland PLC, as Joint Lead Arrangers; and Bank of America
Securities LLC, The Royal Bank of Scotland PLC, J.P. Morgan Securities
Inc., Citibank North America, Inc. and Deutsche Bank Securities Inc. as
Joint Book Managers (incorporated by reference to Exhibit 10 to the
Companys Current Report on Form 8-K dated October 3, 2006). |
|
|
|
10.1(26)
|
|
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(27)
|
|
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. (incorporated by reference to
Exhibit 10.1(30) to the Companys Annual report on Form 10-K for the year
ended December 31, 2005 (the 2005 10-K)). |
44
|
|
|
Exhibit |
|
|
Number |
|
Description |
10.1(28)
|
|
Guaranty Agreement, dated July 19, 2006, 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 C, 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 9, 2006 (incorporated by reference
to Appendix A to the Companys 2006 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). |
|
|
|
*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 (incorporated by reference to Exhibit 10.3(9) to the
2005 10-K). |
45
|
|
|
Exhibit |
|
|
Number |
|
Description |
*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 (incorporated by reference to Exhibit 10.4(5) to the 2005
10-K). |
|
|
|
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). |
|
|
|
10.4(7)
|
|
Amendment Agreement to the Subscription and Shareholders Agreement,
dated January 20, 2007, 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). |
|
|
|
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)
|
|
Purchase Agreement dated October 13, 2006, by and among Mandalay Resort
Group, as seller, Edgewater Hotel Corporation, Colorado Belle Corporation,
and Aces High Management, LLC, as purchaser (incorporated by reference to
the Companys Current Report on Form 8-K dated October 13, 2006). |
46
|
|
|
Exhibit |
|
|
Number |
|
Description |
10.6(2)
|
|
Purchase Agreement dated October 31, 2006, by and among New York-New
York Hotel & Casino, LLC, as seller, PRMA Land Development Company, The
Primadonna Company LLC, and Herbst Gaming Inc., as purchaser (incorporated
by reference to the Companys Current Report on Form 8-K dated October 31,
2006). |
|
|
|
10.6(3)
|
|
Operating Agreement of Jeanco, LLC, dated February 9, 2007,
(incorporated by reference to Exhibit 10 to the Companys Current Report
on Form 8-K dated February 9, 2007). |
|
|
|
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. |
47
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. Based on its
evaluation as of December 31, 2006, management believes that the Companys internal
control over financial reporting 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, 2006 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 and such report is also included in this annual report.
48
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, 2006, based on criteria established
in Internal
ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission. 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, 2006, 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, 2006, 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, 2006 of the
Company and our report dated February 28, 2007 expressed an unqualified opinion on those
financial statements and financial statement schedule and included an explanatory
paragraph regarding the adoption of Statement of Financial Accounting
Standards No. 123(R),
Share-Based Payment.
/s/ DELOITTE & TOUCHE LLP
Las Vegas, Nevada
February 28, 2007
49
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, 2006 and 2005, and the related
consolidated statements of income, stockholders equity, and cash flows for each of the
three years in the period ended December 31, 2006. Our audits also included the
financial statement schedule of Valuation and Qualifying Accounts included in Item
15(a)(2). These financial statements and 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 MGM MIRAGE and subsidiaries as of December
31, 2006 and 2005, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 2006, 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.
As discussed in Note 14 to the consolidated financial statements, on January 1,
2006, the Company adopted the provisions of Statement of Financial Accounting Standards
No. 123(R), Share-Based Payment.
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, 2006, based on the criteria
established in Internal ControlIntegrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission and our report dated February 28,
2007 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
February 28, 2007
50
MGM MIRAGE AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
At December 31, |
|
|
|
2006 |
|
|
2005 |
|
ASSETS |
Current assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
452,944 |
|
|
$ |
377,933 |
|
Accounts receivable, net |
|
|
362,921 |
|
|
|
352,673 |
|
Inventories |
|
|
118,459 |
|
|
|
111,825 |
|
Income tax receivable |
|
|
18,619 |
|
|
|
|
|
Deferred income taxes |
|
|
68,046 |
|
|
|
65,518 |
|
Prepaid expenses and other |
|
|
124,414 |
|
|
|
110,634 |
|
Assets held for sale |
|
|
369,348 |
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
1,514,751 |
|
|
|
1,018,583 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate under development |
|
|
188,433 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
|
17,241,860 |
|
|
|
16,541,651 |
|
|
|
|
|
|
|
|
|
|
Other assets |
|
|
|
|
|
|
|
|
Investments in unconsolidated affiliates |
|
|
1,092,257 |
|
|
|
931,154 |
|
Goodwill |
|
|
1,300,747 |
|
|
|
1,314,561 |
|
Other intangible assets, net |
|
|
367,200 |
|
|
|
377,479 |
|
Deposits and other assets, net |
|
|
440,990 |
|
|
|
515,992 |
|
|
|
|
|
|
|
|
Total other assets |
|
|
3,201,194 |
|
|
|
3,139,186 |
|
|
|
|
|
|
|
|
|
|
$ |
22,146,238 |
|
|
$ |
20,699,420 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
182,154 |
|
|
$ |
156,373 |
|
Construction payable |
|
|
234,486 |
|
|
|
109,228 |
|
Income taxes payable |
|
|
|
|
|
|
125,503 |
|
Current portion of long-term debt |
|
|
|
|
|
|
14 |
|
Accrued interest on long-term debt |
|
|
232,957 |
|
|
|
229,930 |
|
Other accrued liabilities |
|
|
958,244 |
|
|
|
913,520 |
|
Liabilities related to assets held for sale |
|
|
40,259 |
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
1,648,100 |
|
|
|
1,534,568 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes |
|
|
3,441,157 |
|
|
|
3,378,371 |
|
Long-term debt |
|
|
12,994,869 |
|
|
|
12,355,433 |
|
Other long-term obligations |
|
|
212,563 |
|
|
|
195,976 |
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 12) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
|
|
|
|
|
|
Common stock, $.01 par value: authorized 600,000,000 shares,
issued 362,886,027 and 357,262,405 shares; outstanding
283,909,000 and 285,069,516 shares |
|
|
3,629 |
|
|
|
3,573 |
|
Capital in excess of par value |
|
|
2,806,636 |
|
|
|
2,586,587 |
|
Deferred compensation |
|
|
|
|
|
|
(3,618 |
) |
Treasury stock, at cost (78,977,027 and 72,192,889 shares) |
|
|
(1,597,120 |
) |
|
|
(1,338,394 |
) |
Retained earnings |
|
|
2,635,989 |
|
|
|
1,987,725 |
|
Accumulated other comprehensive income (loss) |
|
|
415 |
|
|
|
(801 |
) |
|
|
|
|
|
|
|
Total stockholders equity |
|
|
3,849,549 |
|
|
|
3,235,072 |
|
|
|
|
|
|
|
|
|
|
$ |
22,146,238 |
|
|
$ |
20,699,420 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
51
MGM MIRAGE AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
Casino |
|
$ |
3,130,438 |
|
|
$ |
2,764,546 |
|
|
$ |
2,080,752 |
|
Rooms |
|
|
1,991,477 |
|
|
|
1,634,588 |
|
|
|
889,443 |
|
Food and beverage |
|
|
1,483,914 |
|
|
|
1,271,650 |
|
|
|
807,535 |
|
Entertainment |
|
|
459,540 |
|
|
|
426,175 |
|
|
|
268,595 |
|
Retail |
|
|
278,695 |
|
|
|
253,214 |
|
|
|
181,630 |
|
Other |
|
|
452,669 |
|
|
|
339,424 |
|
|
|
184,187 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,796,733 |
|
|
|
6,689,597 |
|
|
|
4,412,142 |
|
Less: Promotional allowances |
|
|
(620,777 |
) |
|
|
(560,754 |
) |
|
|
(410,338 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
7,175,956 |
|
|
|
6,128,843 |
|
|
|
4,001,804 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Casino |
|
|
1,612,992 |
|
|
|
1,422,472 |
|
|
|
1,028,351 |
|
Rooms |
|
|
539,442 |
|
|
|
454,082 |
|
|
|
237,837 |
|
Food and beverage |
|
|
902,278 |
|
|
|
782,372 |
|
|
|
462,864 |
|
Entertainment |
|
|
333,619 |
|
|
|
305,799 |
|
|
|
191,256 |
|
Retail |
|
|
179,929 |
|
|
|
164,189 |
|
|
|
116,556 |
|
Other |
|
|
245,126 |
|
|
|
187,956 |
|
|
|
101,780 |
|
General and administrative |
|
|
1,070,942 |
|
|
|
889,806 |
|
|
|
565,387 |
|
Corporate expense |
|
|
161,507 |
|
|
|
130,633 |
|
|
|
77,910 |
|
Preopening and start-up expenses |
|
|
36,362 |
|
|
|
15,752 |
|
|
|
10,276 |
|
Restructuring costs (credit) |
|
|
1,035 |
|
|
|
(59 |
) |
|
|
5,625 |
|
Property transactions, net |
|
|
(40,980 |
) |
|
|
37,021 |
|
|
|
8,234 |
|
Depreciation and amortization |
|
|
629,627 |
|
|
|
560,626 |
|
|
|
382,773 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,671,879 |
|
|
|
4,950,649 |
|
|
|
3,188,849 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from unconsolidated affiliates |
|
|
254,171 |
|
|
|
151,871 |
|
|
|
119,658 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
1,758,248 |
|
|
|
1,330,065 |
|
|
|
932,613 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-operating income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
11,192 |
|
|
|
12,037 |
|
|
|
5,663 |
|
Interest expense, net |
|
|
(760,361 |
) |
|
|
(640,758 |
) |
|
|
(367,583 |
) |
Non-operating items from unconsolidated affiliates |
|
|
(16,063 |
) |
|
|
(15,825 |
) |
|
|
(12,298 |
) |
Other, net |
|
|
(15,090 |
) |
|
|
(18,434 |
) |
|
|
(9,585 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(780,322 |
) |
|
|
(662,980 |
) |
|
|
(383,803 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes |
|
|
977,926 |
|
|
|
667,085 |
|
|
|
548,810 |
|
Provision for income taxes |
|
|
(341,930 |
) |
|
|
(231,719 |
) |
|
|
(203,601 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
635,996 |
|
|
|
435,366 |
|
|
|
345,209 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations, including a gain
on disposal of $82,538 in 2004 |
|
|
18,473 |
|
|
|
11,815 |
|
|
|
101,212 |
|
Provision for income taxes |
|
|
(6,205 |
) |
|
|
(3,925 |
) |
|
|
(34,089 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
12,268 |
|
|
|
7,890 |
|
|
|
67,123 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
648,264 |
|
|
$ |
443,256 |
|
|
$ |
412,332 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income per share of common stock |
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
2.25 |
|
|
$ |
1.53 |
|
|
$ |
1.24 |
|
Discontinued operations |
|
|
0.04 |
|
|
|
0.03 |
|
|
|
0.24 |
|
|
|
|
|
|
|
|
|
|
|
Net income per share |
|
$ |
2.29 |
|
|
$ |
1.56 |
|
|
$ |
1.48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income per share of common stock |
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
2.18 |
|
|
$ |
1.47 |
|
|
$ |
1.19 |
|
Discontinued operations |
|
|
0.04 |
|
|
|
0.03 |
|
|
|
0.24 |
|
|
|
|
|
|
|
|
|
|
|
Net income per share |
|
$ |
2.22 |
|
|
$ |
1.50 |
|
|
$ |
1.43 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
52
MGM MIRAGE AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
648,264 |
|
|
$ |
443,256 |
|
|
$ |
412,332 |
|
Adjustments to reconcile net income to net cash provided by
operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
653,919 |
|
|
|
588,102 |
|
|
|
403,039 |
|
Amortization of debt discounts, premiums and issuance costs |
|
|
(3,096 |
) |
|
|
5,791 |
|
|
|
31,217 |
|
Provision for doubtful accounts |
|
|
47,950 |
|
|
|
25,846 |
|
|
|
(3,522 |
) |
Stock-based compensation |
|
|
73,626 |
|
|
|
7,323 |
|
|
|
7,170 |
|
Property transactions, net |
|
|
(41,135 |
) |
|
|
36,880 |
|
|
|
8,661 |
|
Loss on early retirements of debt |
|
|
|
|
|
|
18,139 |
|
|
|
5,527 |
|
(Gain) loss on disposal of discontinued operations |
|
|
|
|
|
|
|
|
|
|
(82,538 |
) |
Income from unconsolidated affiliates |
|
|
(229,295 |
) |
|
|
(134,132 |
) |
|
|
(107,360 |
) |
Distributions from unconsolidated affiliates |
|
|
212,477 |
|
|
|
89,857 |
|
|
|
51,500 |
|
Deferred income taxes |
|
|
59,764 |
|
|
|
51,759 |
|
|
|
55,647 |
|
Tax benefit from stock option exercises |
|
|
|
|
|
|
94,083 |
|
|
|
38,911 |
|
Changes in current assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(65,467 |
) |
|
|
(68,159 |
) |
|
|
(48,533 |
) |
Inventories |
|
|
(10,431 |
) |
|
|
(7,017 |
) |
|
|
(8,557 |
) |
Income taxes receivable and payable |
|
|
(129,929 |
) |
|
|
8,058 |
|
|
|
14,891 |
|
Prepaid expenses and other |
|
|
(21,921 |
) |
|
|
10,830 |
|
|
|
1,109 |
|
Accounts payable and accrued liabilities |
|
|
111,559 |
|
|
|
75,404 |
|
|
|
72,392 |
|
Increase in real estate under development |
|
|
(89,724 |
) |
|
|
|
|
|
|
|
|
Hurricane Katrina insurance recoveries |
|
|
108,786 |
|
|
|
|
|
|
|
|
|
Change in Hurricane Katrina insurance receivable |
|
|
(46,581 |
) |
|
|
(46,275 |
) |
|
|
|
|
Other |
|
|
(36,814 |
) |
|
|
(16,949 |
) |
|
|
(22,639 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
1,241,952 |
|
|
|
1,182,796 |
|
|
|
829,247 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(1,884,053 |
) |
|
|
(759,949 |
) |
|
|
(702,862 |
) |
Acquisition of Mandalay Resort Group, net of cash acquired |
|
|
|
|
|
|
(4,420,990 |
) |
|
|
|
|
Proceeds from the sale of the Golden Nugget Subsidiaries and
MGM Grand Australia, net |
|
|
|
|
|
|
|
|
|
|
345,730 |
|
Hurricane Katrina insurance recoveries |
|
|
199,963 |
|
|
|
46,250 |
|
|
|
|
|
Dispositions of property and equipment |
|
|
11,375 |
|
|
|
7,828 |
|
|
|
32,978 |
|
Investments in unconsolidated affiliates |
|
|
(86,000 |
) |
|
|
(183,000 |
) |
|
|
(11,602 |
) |
Change in construction payable |
|
|
125,258 |
|
|
|
40,803 |
|
|
|
17,329 |
|
Other |
|
|
(18,970 |
) |
|
|
(33,759 |
) |
|
|
(29,326 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(1,652,427 |
) |
|
|
(5,302,817 |
) |
|
|
(347,753 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net borrowings (repayments) under bank credit
facilities maturities of 90 days or less |
|
|
756,850 |
|
|
|
325,000 |
|
|
|
(1,574,489 |
) |
Borrowings
under bank credit facilities maturities
longer than 90 days |
|
|
7,000,000 |
|
|
|
4,400,000 |
|
|
|
|
|
Repayments under bank credit facilities maturities
longer than 90 days |
|
|
(8,150,000 |
) |
|
|
|
|
|
|
|
|
Issuance of long-term debt |
|
|
1,500,000 |
|
|
|
880,156 |
|
|
|
1,528,957 |
|
Repayment of long-term debt |
|
|
(444,500 |
) |
|
|
(1,408,992 |
) |
|
|
(52,149 |
) |
Debt issuance costs |
|
|
(28,383 |
) |
|
|
(50,331 |
) |
|
|
(13,349 |
) |
Issuance of common stock |
|
|
89,113 |
|
|
|
145,761 |
|
|
|
135,910 |
|
Purchases of treasury stock |
|
|
(246,892 |
) |
|
|
(217,316 |
) |
|
|
(348,895 |
) |
Excess tax benefits from stock-based compensation |
|
|
47,330 |
|
|
|
|
|
|
|
|
|
Other |
|
|
(13,494 |
) |
|
|
(11,452 |
) |
|
|
(1,957 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
510,024 |
|
|
|
4,062,826 |
|
|
|
(325,972 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) for the year |
|
|
99,549 |
|
|
|
(57,195 |
) |
|
|
155,522 |
|
Cash related to discontinued operations |
|
|
(24,538 |
) |
|
|
|
|
|
|
|
|
Balance, beginning of year |
|
|
377,933 |
|
|
|
435,128 |
|
|
|
279,606 |
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year |
|
$ |
452,944 |
|
|
$ |
377,933 |
|
|
$ |
435,128 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow disclosures |
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid, net of amounts capitalized |
|
$ |
778,590 |
|
|
$ |
588,587 |
|
|
$ |
321,008 |
|
State, federal and foreign income taxes paid, net of refunds |
|
|
369,450 |
|
|
|
75,776 |
|
|
|
128,393 |
|
The accompanying notes are an integral part of these consolidated financial statements.
53
MGM MIRAGE AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(In thousands)
For the Years Ended December 31, 2006, 2005 and 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2004 |
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,170 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,170 |
|
Tax benefit from stock-based
compensation |
|
|
|
|
|
|
|
|
|
|
38,911 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38,911 |
|
Cancellation of restricted stock |
|
|
(64 |
) |
|
|
|
|
|
|
(64 |
) |
|
|
1,126 |
|
|
|
(1,062 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
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 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,323 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,323 |
|
Tax benefit from stock-based
compensation |
|
|
|
|
|
|
|
|
|
|
94,083 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
94,083 |
|
Cancellation of restricted stock |
|
|
(24 |
) |
|
|
|
|
|
|
|
|
|
|
422 |
|
|
|
(422 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
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 |
) |
Other |
|
|
|
|
|
|
|
|
|
|
485 |
|
|
|
(485 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2005 |
|
|
285,070 |
|
|
|
3,573 |
|
|
|
2,586,587 |
|
|
|
(3,618 |
) |
|
|
(1,338,394 |
) |
|
|
1,987,725 |
|
|
|
(801 |
) |
|
|
3,235,072 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
648,264 |
|
|
|
|
|
|
|
648,264 |
|
Currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,213 |
|
|
|
1,213 |
|
Derivative income from
unconsolidated affiliate, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
649,480 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
71,186 |
|
|
|
3,238 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74,424 |
|
Tax benefit from stock-based
compensation |
|
|
|
|
|
|
|
|
|
|
60,209 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60,209 |
|
Cancellation of restricted stock |
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
70 |
|
|
|
(70 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock upon
exercise of stock options |
|
|
5,623 |
|
|
|
56 |
|
|
|
89,057 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89,113 |
|
Purchases of treasury stock |
|
|
(6,500 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(246,892 |
) |
|
|
|
|
|
|
|
|
|
|
(246,892 |
) |
Restricted shares turned in for
tax withholding |
|
|
(280 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,764 |
) |
|
|
|
|
|
|
|
|
|
|
(11,764 |
) |
Other |
|
|
|
|
|
|
|
|
|
|
(403 |
) |
|
|
310 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(93 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2006 |
|
|
283,909 |
|
|
$ |
3,629 |
|
|
$ |
2,806,636 |
|
|
$ |
|
|
|
$ |
(1,597,120 |
) |
|
$ |
2,635,989 |
|
|
$ |
415 |
|
|
$ |
3,849,549 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
54
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, 2006, 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
Company owns three resorts in Primm, Nevada, at the California/Nevada state line
Whiskey Petes, Buffalo Bills and the Primm Valley Resort (the Primm Valley Resorts)
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 (the Jean Properties), 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 entity
developing The Signature at MGM Grand, which is adjacent to MGM Grand Las Vegas. The
Signature is a condominium-hotel development, with one tower open, one tower completed
and in the closing process, and a final tower 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.
In October 2006, the Company entered into an agreement to sell Colorado Belle and
Edgewater (the Laughlin Properties) for $200 million, and an agreement to sell the
Primm Valley Resorts, not including the two golf courses, for $400 million. The Company
expects to complete the sale of the Laughlin Properties and Primm
Valley Resorts by the
second quarter of 2007. Both agreements are subject to regulatory approval and other
customary closing conditions. See Note 4 for further information regarding these
discontinued operations.
In February 2007, the Company entered into an agreement to form a 50/50 joint
venture whose purpose is to develop a mixed-use community in Jean, Nevada. The Company
will contribute the Jean Properties and surrounding land to the venture. Nevada Landing
is expected to close in April 2007. See Note 21 for further discussion.
The Company and its local partners own MGM Grand Detroit, LLC, which operates a
casino in an interim facility located in downtown Detroit, Michigan. MGM Grand Detroit,
LLC is currently developing a permanent casino facility, expected to open in late 2007
at a cost of approximately $750 million, excluding license and land costs. The permanent
casino is located on a 25-acre site with a carrying value of approximately $50 million.
In addition, the Company recorded license rights with a carrying value of $100 million
as a result of MGM Grand Detroits obligations to the City of Detroit in connection with
the permanent casino development agreement. The Company also owns and operates two
resorts in Mississippi Beau Rivage in Biloxi and Gold Strike-Tunica. Beau Rivage
reopened in August 2006, after having been closed due to damage sustained as a result of
Hurricane Katrina in 2005. 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. Grand Victoria is a riverboat in
Elgin, Illinois 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 that is constructing and will operate a hotel-casino resort, MGM Grand Macau,
in Macau S.A.R. MGM Grand Macau is estimated to cost approximately $850 million,
excluding license and land rights costs. The subconcession agreement, which allows MGM
Grand Paradise Limited to operate a casino in Macau, cost $200 million and the land
rights agreement with the government of Macau is estimated to cost $60 million. The
resort is anticipated to open in late 2007.
The Company is developing CityCenter on the Las Vegas Strip, between Bellagio and
Monte Carlo. 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 approximately 2,700 luxury condominium and condominium-hotel
units in multiple towers. The overall cost of CityCenter is estimated at approximately
$7 billion, excluding 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.
CityCenter is located on a 67-acre site with a carrying value of approximately $1
billion. CityCenter is expected to open in late 2009.
55
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 and do not meet the consolidation criteria of Financial
Accounting Standards Board Interpretation No. 46(R) (as amended), Consolidation of
Various Interest Entities an Interpretation of ARB No. 51 (FIN 46(R)), 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 maintained 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 was $15 million,
based on the amount of damage incurred. The net book value of damaged assets was $126
million and the Company incurred $34 million in clean-up and demolition costs.
Business interruption coverage covered lost profits and other costs incurred during
the construction period and up to six months following the re-opening of the facility.
Costs during the interruption period were less than the anticipated business
interruption proceeds. As of December 31, 2006, the Company had received insurance
recoveries of $355 million. This amount is in excess of the net book value of damaged
assets, clean-up and demolition costs, and post-storm costs of $99 million incurred
through December 31, 2006. 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. The excess non-refundable insurance recoveries have
been recognized as income related to property damage and have therefore been classified
as Property transactions, net in the accompanying consolidated statements of income.
The Company has treated these amounts as related to property damage based on its current
estimate of the total claim for property damage and business interruption compared to
the recoveries received to date. Insurance recoveries of $10 million were submitted to
the Company under reservation of rights and have therefore been deferred and included in
Other accrued liabilities in the accompanying consolidated balance sheet as of
December 31, 2006.
Insurance proceeds are classified in the statement of cash flows based on the
coverage the proceeds relate to; however, the Companys insurance policy includes
undifferentiated coverage for both property damage and business interruption. The
Company treated insurance recoveries as being related to property damage, and therefore
classified the proceeds as an investing cash flow, until the full $160 million of
damaged assets and demolition costs were recovered. The Company treated additional
recoveries up to the amount of the post-storm costs incurred as being related to
business interruption, and therefore classified these proceeds as an operating cash
flow. As explained above, the insurance recoveries in excess of the damaged assets,
demolition costs, and post-storm costs have been treated as related to property damage
and are therefore classified as investing cash flows in the accompanying consolidated
statement of cash flows.
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, 2006, 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, 2006, 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.
56
Real estate under development. Real estate under development represents
capitalized costs of wholly-owned real estate projects to be sold, which consist
entirely of condominium and condominium-hotel developments. Real estate under
development includes land, direct construction and development costs, and capitalized
property taxes and interest.
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 |
|
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 17.
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 2006, 2005 or
2004 .
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, |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
|
(In thousands) |
|
Rooms |
|
$ |
91,799 |
|
|
$ |
74,022 |
|
|
$ |
57,091 |
|
Food and beverage |
|
|
296,866 |
|
|
|
229,892 |
|
|
|
176,092 |
|
Other |
|
|
34,439 |
|
|
|
31,733 |
|
|
|
22,826 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
423,104 |
|
|
$ |
335,647 |
|
|
$ |
256,009 |
|
|
|
|
|
|
|
|
|
|
|
57
Revenue for residential sales is deferred until closing occurs, which is when
title, possession and other attributes of ownership have been transferred to the buyer
and the Company is not obligated to perform activities after the sale. Prior to closing,
customer deposits are treated as liabilities. Costs associated with residential sales
are also deferred, except for indirect selling costs and general and administrative
expense, which are expensed as incurred. For the year ended December 31, 2006, the
Company expensed $6 million of such costs; no such costs were incurred in 2005 or 2004.
Capitalized costs will be charged to cost of sales upon closing based on relative sales
value to the project as a whole.
Point-loyalty programs. The Company operates various point-loyalty programs. The
Companys primary point-loyalty program, in operation at its major resorts, is Players
Club. In Players Club, customers earn points based on their slots play, which can be
redeemed for cash or free play at any of the Companys participating resorts. The
Company records a liability based on the points earned times the redemption value and
records a corresponding reduction in casino revenue. The expiration of unused points
results in a reduction of the liability. Customers overall level of table games and
slots play is also tracked and used by management in awarding discretionary
complimentaries free rooms, food and beverage and other services for which no
accrual is recorded. Other loyalty programs at the Companys resorts generally operate
in a similar manner, though they generally are available only to customers at the
individual resorts. At December 31, 2006 and 2005, the total company-wide liability for
point-loyalty programs was $47 million and $43 million, respectively, including amounts
classified as liabilities related to assets held for sale.
Mandalay operated its own loyalty program, One Club, which was largely phased out
through 2006 and early 2007. In One Club, customers earned points based on both their
slots and table games play through July 2006, with slots play contributing to a points
balance which could be redeemed for cash and both table games and slots play
contributing to a points balance which could be redeemed for complimentaries. After
July 2006, customers stopped earning points which could be redeemed for complimentaries.
The Company recorded a liability based on the points earned times the redemption value.
For cash points, the redemption value was the cash value, and the offsetting entry was
a reduction in casino revenue. For complimentaries points, the redemption value was
based on the average departmental cost of the free rooms, food and beverage and other
services and estimated redemption patterns, and the offsetting entry was a casino
operating expense.
Advertising. The Company expenses advertising costs the first time the advertising
takes place. Advertising expense of continuing operations, which is generally included
in general and administrative expenses, was $119 million, $98 million and $52 million
for 2006, 2005 and 2004, 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.
Property transactions, net. The Company classifies transactions related to
long-lived assets such as write-downs and impairments, demolition costs, and normal
gains and losses on the sale of fixed assets as Property transactions, net in the
accompanying consolidated statements of income. See Note 17 for a detailed discussion
of these amounts.
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, |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
|
(In thousands) |
|
Weighted-average common shares outstanding used in
the calculation of basic earnings per share |
|
|
283,140 |
|
|
|
284,943 |
|
|
|
279,325 |
|
Potential dilution from stock options and restricted stock |
|
|
8,607 |
|
|
|
11,391 |
|
|
|
10,008 |
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common and common equivalent
shares used in the calculation of
diluted earnings per share |
|
|
291,747 |
|
|
|
296,334 |
|
|
|
289,333 |
|
|
|
|
|
|
|
|
|
|
|
58
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, |
|
|
|
2006 |
|
|
2005 |
|
|
|
(In thousands) |
|
Derivative loss from unconsolidated affiliate, net |
|
$ |
137 |
|
|
$ |
134 |
|
Foreign currency translation adjustments |
|
|
278 |
|
|
|
(935 |
) |
|
|
|
|
|
|
|
|
|
$ |
415 |
|
|
$ |
(801 |
) |
|
|
|
|
|
|
|
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.
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 expanded the Companys portfolio
of resorts on the Las Vegas Strip, provided additional sites for future development and
expanded the Companys employee and customer bases significantly. These factors
resulted 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.
The following table sets forth the allocation of purchase price (in thousands):
|
|
|
|
|
Current assets (including cash of $134,245) |
|
$ |
413,502 |
|
Property and equipment |
|
|
7,130,376 |
|
Goodwill |
|
|
1,221,990 |
|
Other intangible assets |
|
|
245,940 |
|
Other assets |
|
|
340,930 |
|
Assumed liabilities, excluding long-term debt |
|
|
(591,113 |
) |
Deferred taxes |
|
|
(1,495,109 |
) |
|
|
|
|
|
|
$ |
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.
59
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 |
|
$ |
6,977,609 |
|
|
$ |
6,509,886 |
|
Operating income |
|
|
1,488,013 |
|
|
|
1,399,092 |
|
Income from continuing operations |
|
|
454,365 |
|
|
|
407,176 |
|
Net income |
|
|
465,539 |
|
|
|
479,455 |
|
Basic earnings per share: |
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
1.59 |
|
|
$ |
1.46 |
|
Net income |
|
|
1.63 |
|
|
|
1.72 |
|
Diluted earnings per share: |
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
1.53 |
|
|
$ |
1.41 |
|
Net income |
|
|
1.57 |
|
|
|
1.66 |
|
NOTE 4 DISCONTINUED OPERATIONS
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. 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. In October 2006, the Company entered into an agreement to sell the Laughlin
Properties for $200 million, and an agreement to sell the Primm Valley Resorts, not
including the two golf courses, for $400 million. Both agreements are subject to
regulatory approval and other customary closing conditions. These resorts had a combined
carrying value of approximately $329 million, including assigned goodwill, at December
31, 2006.
The results of the Laughlin Properties, Primm Valley Resorts, the Golden Nugget
Subsidiaries, and MGM Grand Australia are classified as discontinued operations in the
accompanying consolidated statements of income for all periods presented, as applicable.
Net revenues of discontinued operations were $412 million, $353 million, and $281
million, respectively, for the years ended December 31, 2006, 2005 and 2004. 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 $18
million, $15 million and $13 million for the years ended December 31, 2006, 2005 and
2004, respectively. The cash flows of discontinued operations are included with the
cash flows of continuing operations in the accompanying consolidated statements of cash
flows.
The following table summarizes the assets and liabilities of discontinued
operations (the Laughlin Properties and Primm Valley Resorts) as of December 31, 2006,
included as assets held for sale and liabilities related to assets held for sale in the
accompanying consolidated balance sheet:
|
|
|
|
|
|
|
At December 31, |
|
|
|
2006 |
|
|
|
(In thousands) |
|
Cash |
|
$ |
24,538 |
|
Accounts receivable, net |
|
|
3,203 |
|
Inventories |
|
|
3,196 |
|
Prepaid expenses and other |
|
|
8,141 |
|
|
|
|
|
Total current assets |
|
|
39,078 |
|
Property and equipment, net |
|
|
316,332 |
|
Goodwill |
|
|
5,000 |
|
Other assets, net |
|
|
8,938 |
|
|
|
|
|
Total assets |
|
|
369,348 |
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
|
6,622 |
|
Other current liabilities |
|
|
29,142 |
|
|
|
|
|
Total current liabilities |
|
|
35,764 |
|
Other long-term obligations |
|
|
4,495 |
|
|
|
|
|
Total liabilities |
|
|
40,259 |
|
|
|
|
|
|
|
|
|
|
Net assets |
|
$ |
329,089 |
|
|
|
|
|
60
NOTE 5 ACCOUNTS RECEIVABLE, NET
Accounts receivable consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
At December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
|
(In thousands) |
|
Casino |
|
$ |
248,044 |
|
|
$ |
221,873 |
|
Hotel |
|
|
175,770 |
|
|
|
173,049 |
|
Other |
|
|
29,131 |
|
|
|
35,021 |
|
|
|
|
|
|
|
|
|
|
|
452,945 |
|
|
|
429,943 |
|
Less: Allowance for doubtful accounts |
|
|
(90,024 |
) |
|
|
(77,270 |
) |
|
|
|
|
|
|
|
|
|
$ |
362,921 |
|
|
$ |
352,673 |
|
|
|
|
|
|
|
|
NOTE 6 PROPERTY AND EQUIPMENT, NET
Property and equipment consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
At December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
|
(In thousands) |
|
Land |
|
$ |
7,905,430 |
|
|
$ |
8,018,301 |
|
Buildings, building improvements and land improvements |
|
|
7,869,972 |
|
|
|
7,595,257 |
|
Furniture, fixtures and equipment |
|
|
2,954,921 |
|
|
|
2,695,746 |
|
Construction in progress |
|
|
1,306,770 |
|
|
|
607,447 |
|
|
|
|
|
|
|
|
|
|
|
20,037,093 |
|
|
|
18,916,751 |
|
Less: Accumulated depreciation and amortization |
|
|
(2,795,233 |
) |
|
|
(2,375,100 |
) |
|
|
|
|
|
|
|
|
|
$ |
17,241,860 |
|
|
$ |
16,541,651 |
|
|
|
|
|
|
|
|
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, |
|
|
|
2006 |
|
|
2005 |
|
|
|
(In thousands) |
|
Marina
District Development Company Borgata (50%) |
|
$ |
454,354 |
|
|
$ |
461,211 |
|
Elgin Riverboat Resort-Riverboat Casino Grand Victoria (50%) |
|
|
300,151 |
|
|
|
241,279 |
|
MGM Grand
Paradise Limited Macau (50%) |
|
|
285,038 |
|
|
|
187,568 |
|
Circus and
Eldorado Joint Venture Silver Legacy (50%) |
|
|
31,258 |
|
|
|
26,492 |
|
Other |
|
|
9,795 |
|
|
|
14,604 |
|
|
|
|
|
|
|
|
|
|
|
1,080,596 |
|
|
|
931,154 |
|
|
|
|
|
|
|
|
|
|
Turnberry/MGM Grand Towers The Signature at
MGM Grand (50%) |
|
|
11,661 |
|
|
|
(7,400 |
) |
|
|
|
|
|
|
|
|
|
$ |
1,092,257 |
|
|
$ |
923,754 |
|
|
|
|
|
|
|
|
The Companys investment in MGM Grand Paradise Limited consists of equity and
subordinated debt. The Company is committed to loaning the venture up to an additional
$9 million, which will be treated as an additional investment in the venture.
As of December 31, 2006, The Signature at MGM Grand had closed sales on all the
units of Tower 1 and a portion of the units in Tower 2. The Companys share of the
profits from these transactions totaled $102 million for the year ended December 31,
2006. The Company also recognized a $15 million gain in 2006 on land contributed to the
venture for Towers 1 and 2. As of December 31, 2006 and 2005, the Company had deferred
income related to its land contributions of $9 million and $16 million, respectively,
which is classified as Other long-term obligations in the accompanying consolidated
balance sheets. As of December 31, 2005 the Company had a negative investment balance
due to cumulative distributions exceeding the book value of land contributed. Therefore,
the investment balance in 2005 was classified in Other long-term obligations.
61
Differences between the Companys venture-level equity and investment balances are
as follows:
|
|
|
|
|
|
|
|
|
|
|
At December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
|
(In thousands) |
|
Venture-level equity |
|
$ |
698,587 |
|
|
$ |
603,015 |
|
Fair value adjustments |
|
|
321,814 |
|
|
|
264,814 |
|
Capitalized interest |
|
|
68,806 |
|
|
|
52,689 |
|
Other adjustments |
|
|
3,050 |
|
|
|
3,236 |
|
|
|
|
|
|
|
|
|
|
$ |
1,092,257 |
|
|
$ |
923,754 |
|
|
|
|
|
|
|
|
The fair value adjustments at December 31, 2006 include a $90 million increase for
Borgata, related to land, a $267 million increase for Grand Victoria, related to
indefinite-lived gaming license rights, and a $35 million reduction for Silver Legacy
related to long-term assets and long-term debt. The adjustments for Borgata and Grand
Victoria are not being amortized; the adjustments for Silver Legacy are being amortized
based on the useful lives of the related assets and liabilities.
The Company recorded its share of the results of operations of the unconsolidated
affiliates as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
|
(In thousands) |
|
Income from unconsolidated affiliates |
|
$ |
254,171 |
|
|
$ |
151,871 |
|
|
$ |
119,658 |
|
Preopening and start-up expenses |
|
|
(8,813 |
) |
|
|
(1,914 |
) |
|
|
|
|
Non-operating items from unconsolidated affiliates |
|
|
(16,063 |
) |
|
|
(15,825 |
) |
|
|
(12,298 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
229,295 |
|
|
$ |
134,132 |
|
|
$ |
107,360 |
|
|
|
|
|
|
|
|
|
|
|
Summarized balance sheet information of the unconsolidated affiliates is as follows:
|
|
|
|
|
|
|
|
|
|
|
At December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
|
(In thousands) |
|
Current assets |
|
$ |
281,766 |
|
|
$ |
220,708 |
|
Property and other assets, net |
|
|
2,227,570 |
|
|
|
2,008,912 |
|
Current liabilities |
|
|
248,931 |
|
|
|
213,135 |
|
Long-term debt and other liabilities |
|
|
1,009,565 |
|
|
|
871,173 |
|
Equity |
|
|
1,250,840 |
|
|
|
1,145,312 |
|
Summarized results of operations of the unconsolidated affiliates are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
|
(In thousands) |
|
Net revenues |
|
$ |
2,020,523 |
|
|
$ |
1,243,465 |
|
|
$ |
966,642 |
|
Operating expenses, except preopening expenses |
|
|
(1,536,253 |
) |
|
|
(938,972 |
) |
|
|
(721,998 |
) |
Preopening and start-up expenses |
|
|
(12,285 |
) |
|
|
(1,352 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
471,985 |
|
|
|
303,141 |
|
|
|
244,644 |
|
Interest expense |
|
|
(37,898 |
) |
|
|
(35,034 |
) |
|
|
(34,698 |
) |
Other non-operating income (expense) |
|
|
2,462 |
|
|
|
1,435 |
|
|
|
9,789 |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
436,549 |
|
|
$ |
269,542 |
|
|
$ |
219,735 |
|
|
|
|
|
|
|
|
|
|
|
62
NOTE 8 GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
At December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
|
(In thousands) |
|
Goodwill: |
|
|
|
|
|
|
|
|
Mandalay acquisition (2005) |
|
$ |
1,216,990 |
|
|
$ |
1,230,804 |
|
Mirage Resorts acquisition (2000) |
|
|
76,342 |
|
|
|
76,342 |
|
Other |
|
|
7,415 |
|
|
|
7,415 |
|
|
|
|
|
|
|
|
|
|
$ |
1,300,747 |
|
|
$ |
1,314,561 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indefinite-lived intangible assets: |
|
|
|
|
|
|
|
|
Detroit development rights |
|
$ |
100,056 |
|
|
$ |
100,056 |
|
Trademarks, license rights and other |
|
|
247,346 |
|
|
|
251,754 |
|
|
|
|
|
|
|
|
|
|
|
347,402 |
|
|
|
351,810 |
|
Other intangible assets, net |
|
|
19,798 |
|
|
|
25,669 |
|
|
|
|
|
|
|
|
|
|
$ |
367,200 |
|
|
$ |
377,479 |
|
|
|
|
|
|
|
|
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, |
|
|
|
2006 |
|
|
2005 |
|
|
|
(In thousands) |
|
Balance, beginning of period |
|
$ |
1,314,561 |
|
|
$ |
83,757 |
|
Goodwill acquired during the period |
|
|
|
|
|
|
1,230,804 |
|
Finalization of the Mandalay purchase price allocation |
|
|
(8,814 |
) |
|
|
|
|
Goodwill assigned to discontinued operations |
|
|
(5,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
Balance, end of the period |
|
$ |
1,300,747 |
|
|
$ |
1,314,561 |
|
|
|
|
|
|
|
|
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, |
|
|
|
2006 |
|
|
2005 |
|
|
|
(In thousands) |
|
Payroll and related |
|
$ |
304,924 |
|
|
$ |
297,946 |
|
Advance deposits and ticket sales |
|
|
163,121 |
|
|
|
120,830 |
|
Casino outstanding chip liability |
|
|
89,574 |
|
|
|
100,621 |
|
Casino front money deposits |
|
|
71,918 |
|
|
|
71,768 |
|
Other gaming related accruals |
|
|
76,739 |
|
|
|
78,921 |
|
Taxes, other than income taxes |
|
|
66,827 |
|
|
|
68,632 |
|
Other |
|
|
185,141 |
|
|
|
174,802 |
|
|
|
|
|
|
|
|
|
|
$ |
958,244 |
|
|
$ |
913,520 |
|
|
|
|
|
|
|
|
63
NOTE 10 LONG-TERM DEBT
Long-term debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
At December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
|
(In thousands) |
|
Senior credit facility |
|
$ |
4,381,850 |
|
|
$ |
4,775,000 |
|
$200 million 6.45% senior notes, repaid at maturity in 2006 |
|
|
|
|
|
|
200,223 |
|
$244.5 million 7.25% senior notes, repaid at maturity in 2006 |
|
|
|
|
|
|
240,353 |
|
$710 million 9.75% senior subordinated notes, due 2007, net |
|
|
709,477 |
|
|
|
708,223 |
|
$200 million 6.75% senior notes, due 2007, net |
|
|
197,279 |
|
|
|
192,977 |
|
$492.2 million 10.25% senior subordinated notes, due 2007, net |
|
|
505,704 |
|
|
|
527,879 |
|
$180.4 million 6.75% senior notes, due 2008, net |
|
|
175,951 |
|
|
|
172,238 |
|
$196.2 million 9.5% senior notes, due 2008, net |
|
|
206,733 |
|
|
|
212,895 |
|
$226.3 million 6.5% senior notes, due 2009, net |
|
|
227,955 |
|
|
|
228,518 |
|
$1.05 billion 6% senior notes, due 2009, net |
|
|
1,053,942 |
|
|
|
1,055,232 |
|
$297.6 million 9.375% senior subordinated notes, due 2010, net |
|
|
319,277 |
|
|
|
325,332 |
|
$825 million 8.5% senior notes, due 2010, net |
|
|
823,197 |
|
|
|
822,705 |
|
$400 million 8.375% senior subordinated notes, due 2011 |
|
|
400,000 |
|
|
|
400,000 |
|
$132.4 million 6.375% senior notes, due 2011, net |
|
|
133,529 |
|
|
|
133,725 |
|
$550 million 6.75% senior notes, due 2012 |
|
|
550,000 |
|
|
|
550,000 |
|
$150 million 7.625% senior subordinated debentures, due 2013, net |
|
|
155,351 |
|
|
|
155,978 |
|
$500 million 6.75% senior notes due 2013 |
|
|
500,000 |
|
|
|
|
|
$525 million 5.875% senior notes, due 2014, net |
|
|
522,839 |
|
|
|
522,604 |
|
$875 million 6.625% senior notes, due 2015, net |
|
|
879,592 |
|
|
|
879,989 |
|
$250 million 6.875% senior notes due 2016 |
|
|
250,000 |
|
|
|
|
|
$100 million 7.25% senior debentures, due 2017, net |
|
|
83,556 |
|
|
|
82,699 |
|
$750 million 7.625% senior notes due 2017 |
|
|
750,000 |
|
|
|
|
|
Floating rate convertible senior debentures due 2033 |
|
|
8,472 |
|
|
|
8,472 |
|
$150 million 7% debentures due 2036, net |
|
|
155,900 |
|
|
|
155,961 |
|
$4.3 million 6.7% debentures, due 2096 |
|
|
4,265 |
|
|
|
4,265 |
|
Other notes |
|
|
|
|
|
|
179 |
|
|
|
|
|
|
|
|
|
|
|
12,994,869 |
|
|
|
12,355,447 |
|
Less: Current portion |
|
|
|
|
|
|
(14 |
) |
|
|
|
|
|
|
|
|
|
$ |
12,994,869 |
|
|
$ |
12,355,433 |
|
|
|
|
|
|
|
|
Amounts due within one year of the balance sheet date are classified as long-term
in the accompanying consolidated balance sheets because the Company has both the intent
and ability to repay these amounts with available borrowings under the senior credit
facility.
Total interest incurred during 2006, 2005 and 2004 was $900 million, $686 million
and $404 million, respectively, of which $122 million, $30 million and $23 million,
respectively, was capitalized and $18 million, $15 million, and $13 million,
respectively, was allocated to discontinued operations.
In October 2006, the Company entered into an amended and restated senior credit
facility. The initial total capacity of the senior credit facility remains at $7
billion, with the maturity extended to 2011. The Company has the ability to solicit
additional lender commitments to increase the capacity to $8 billion. The components of
the senior credit facility also changed, with the term loan facility increasing to $2.5
billion and the revolving credit facility decreasing to $4.5 billion. 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 6.5% at
December 31, 2006 and 5.3% at December 31, 2005. Stand-by letters of credit totaling
$59 million were outstanding as of December 31, 2006, thereby reducing the availability
under the senior credit facility. At December 31, 2006, the Company had approximately
$2.6 billion of available borrowings under the senior credit facility.
In February 2006, the Company repaid the $200 million 6.45% senior notes at their
maturity. In October 2006, the Company repaid the $244.5 million 7.25% senior notes at
their maturity. The Company repaid both issuances of senior notes with borrowings under
the senior credit facility.
In April 2006, the Company issued $500 million of 6.75% senior notes due 2013 and
$250 million of 6.875% senior notes due 2016. In December 2006, the Company issued $750
million of 7.625% senior notes due 2017. The proceeds of the April 2006 and December
2006 issuances were used to repay outstanding borrowings under the senior credit
facility.
64
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.
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.
In August 2003, the Companys Board of Directors authorized the repurchase of up to
$100 million of the Companys public debt securities. In 2004, the Company repurchased
$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 loss is 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, 2006, 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 MGM Grand Detroit, LLC borrows under such
facilities. See Note 19 for consolidating condensed financial information of the
subsidiary guarantors and non-guarantors. None of the Companys assets serve as
collateral for its senior credit facility, senior notes, or other long-term debt.
The Companys long-term debt obligations contain customary covenants requiring the
Company to maintain certain financial ratios. At December 31, 2006, the Company was
required to maintain a maximum leverage ratio (debt to EBITDA, as defined) of 6.5:1 and
a minimum coverage ratio (EBITDA to interest charges, as defined) of 2.0:1. As of
December 31, 2006, the Companys leverage and interest coverage ratios were 5.0:1 and
2.8:1, respectively.
Maturities of the Companys long-term debt as of December 31, 2006 are as follows:
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Years ending December
31, |
|
|
|
2007 |
|
$ |
1,402,233 |
|
2008 |
|
|
376,663 |
|
2009 |
|
|
1,276,330 |
|
2010 |
|
|
1,122,556 |
|
2011 |
|
|
4,914,210 |
|
Thereafter |
|
|
3,860,169 |
|
|
|
|
|
|
|
|
12,952,161 |
|
Debt premiums |
|
|
41,705 |
|
Swap deferred gain |
|
|
1,003 |
|
|
|
|
|
|
|
$ |
12,994,869 |
|
|
|
|
|
65
The estimated fair value of the Companys long-term debt at December 31, 2006 was
approximately $13 billion, consistent with its book value. At December 31, 2005, the
estimated fair value of the Companys long-term debt was approximately $12.5 billion,
versus its book value of $12.4 billion. The estimated fair value of the Companys
public debt securities was based on quoted market prices on or about December 31, 2006
and 2005. 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, |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
|
(In thousands) |
|
Continuing operations |
|
$ |
341,930 |
|
|
$ |
231,719 |
|
|
$ |
203,601 |
|
Discontinued operations |
|
|
6,205 |
|
|
|
3,925 |
|
|
|
34,089 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
348,135 |
|
|
$ |
235,644 |
|
|
$ |
237,690 |
|
|
|
|
|
|
|
|
|
|
|
The income tax provision attributable to income from continuing operations before
income taxes is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
|
(In thousands) |
|
Currentfederal |
|
$ |
328,068 |
|
|
$ |
218,901 |
|
|
$ |
197,954 |
|
Deferredfederal |
|
|
8,152 |
|
|
|
4,164 |
|
|
|
(9,048 |
) |
|
|
|
|
|
|
|
|
|
|
Provision for federal income taxes |
|
|
336,220 |
|
|
|
223,065 |
|
|
|
188,906 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currentstate |
|
|
3,920 |
|
|
|
5,252 |
|
|
|
2,851 |
|
Deferredstate |
|
|
1,432 |
|
|
|
6,811 |
|
|
|
11,420 |
|
|
|
|
|
|
|
|
|
|
|
Provision for state income taxes |
|
|
5,352 |
|
|
|
12,063 |
|
|
|
14,271 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currentforeign |
|
|
(72 |
) |
|
|
(2,979 |
) |
|
|
424 |
|
Deferredforeign |
|
|
430 |
|
|
|
(430 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for foreign income taxes |
|
|
358 |
|
|
|
(3,409 |
) |
|
|
424 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
341,930 |
|
|
$ |
231,719 |
|
|
$ |
203,601 |
|
|
|
|
|
|
|
|
|
|
|
A reconciliation of the federal income tax statutory rate and the Companys effective tax rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
2006 |
|
2005 |
|
2004 |
Federal income tax statutory rate |
|
|
35.0 |
% |
|
|
35.0 |
% |
|
|
35.0 |
% |
State income tax (net of federal benefit) |
|
|
0.4 |
|
|
|
1.2 |
|
|
|
1.7 |
|
Reversal of reserves for prior tax years |
|
|
(0.8 |
) |
|
|
|
|
|
|
(1.0 |
) |
Foreign earnings repatriation benefit of
American Job Creation Act of 2004 |
|
|
|
|
|
|
(1.5 |
) |
|
|
|
|
Tax credits |
|
|
(0.6 |
) |
|
|
(1.3 |
) |
|
|
(0.6 |
) |
Permanent and other items |
|
|
1.0 |
|
|
|
1.3 |
|
|
|
2.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35.0 |
% |
|
|
34.7 |
% |
|
|
37.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
66
The major tax-effected components of the Companys net deferred tax liability are as follows:
|
|
|
|
|
|
|
|
|
|
|
At December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
|
(In thousands) |
|
Deferred tax assetsfederal and state |
|
|
|
|
|
|
|
|
Bad debt reserve |
|
$ |
35,454 |
|
|
$ |
32,490 |
|
Deferred compensation |
|
|
39,039 |
|
|
|
31,230 |
|
Net operating loss carryforward |
|
|
5,705 |
|
|
|
7,253 |
|
Preopening and start-up costs |
|
|
5,006 |
|
|
|
3,801 |
|
Accruals, reserves and other |
|
|
34,316 |
|
|
|
33,413 |
|
Investments in unconsolidated affiliates |
|
|
|
|
|
|
265 |
|
Long-term debt |
|
|
6,338 |
|
|
|
20,902 |
|
Stock-based compensation |
|
|
23,662 |
|
|
|
2,262 |
|
Tax credits |
|
|
2,491 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
152,011 |
|
|
|
131,616 |
|
Less: Valuation allowance |
|
|
(8,308 |
) |
|
|
(5,734 |
) |
|
|
|
|
|
|
|
|
|
|
143,703 |
|
|
|
125,882 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilitiesfederal and state |
|
|
|
|
|
|
|
|
Property and equipment |
|
|
(3,385,984 |
) |
|
|
(3,350,365 |
) |
Investments in unconsolidated affiliates |
|
|
(31,839 |
) |
|
|
|
|
Intangibles |
|
|
(98,991 |
) |
|
|
(88,800 |
) |
|
|
|
|
|
|
|
|
|
|
(3,516,814 |
) |
|
|
(3,439,165 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred taxesforeign |
|
|
2,144 |
|
|
|
2,027 |
|
Less: Valuation allowance |
|
|
(2,144 |
) |
|
|
(1,597 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
430 |
|
|
|
|
|
|
|
|
Net deferred tax liability |
|
$ |
(3,373,111 |
) |
|
$ |
(3,312,853 |
) |
|
|
|
|
|
|
|
For federal income tax purposes, the Company has a foreign tax credit carryforward
of $2 million that will expire in 2015 if not utilized.
For state income tax purposes, the Company has a New Jersey net operating loss
carryforward of $98 million, which equates to a deferred tax asset of $6 million, after
federal tax effect, and before valuation allowance. The New Jersey net operating loss
carryforwards began to expire in 2005.
At December 31, 2006, 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, a valuation allowance of $2 million on the foreign tax credit, 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, 2006.
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.
67
At December 31, 2006, 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, |
|
|
|
|
|
|
|
|
2007 |
|
$ |
16,367 |
|
|
$ |
1,800 |
|
2008 |
|
|
13,796 |
|
|
|
808 |
|
2009 |
|
|
11,792 |
|
|
|
296 |
|
2010 |
|
|
10,928 |
|
|
|
300 |
|
2011 |
|
|
10,706 |
|
|
|
92 |
|
Thereafter |
|
|
354,956 |
|
|
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments |
|
$ |
418,545 |
|
|
|
3,296 |
|
|
|
|
|
|
|
|
|
Less: Amounts representing interest |
|
|
|
|
|
|
(238 |
) |
|
|
|
|
|
|
|
|
Total obligations under capital leases |
|
|
|
|
|
|
3,058 |
|
Less: Amounts due within one year |
|
|
|
|
|
|
(1,610 |
) |
|
|
|
|
|
|
|
|
Amounts due after one year |
|
|
|
|
|
$ |
1,448 |
|
|
|
|
|
|
|
|
|
The majority of the operating lease amounts relate to ground leases for land in
Primm, Nevada. These lease obligations are included in the pending sale of the Primm
Valley Resorts. 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,
including rental expense of discontinued operations, was $29 million, $28 million and
$13 million for the years ended December 31, 2006, 2005 and 2004, 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
for certain litigation related to the permanent casino process, of which $2.5 million
had been paid as of December 31, 2006. In April 2005, the Sixth Court of Appeals ruled
on all outstanding aspects of the Lac Vieux-related litigation, including approving the
settlement agreement among Lac Vieux, MotorCity Casino and Greektown Casino, dismissing
Lac Vieuxs request for a reselection process for the subsidiarys MGM Grand Detroits
casino franchise and lifting the injunction prohibiting the City and the casino
developers from commencing construction of the permanent hotel-casino complexes. At
December 31, 2006 the Company has an accrual of $2.5 million for the remaining
litigation subject to the indemnification. In addition to the above obligations, the
Company began paying the City of Detroit 2% of gaming revenues beginning January 1,
2006.
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.
Subject to receipt of requisite New York State approvals, the Company will assist in the
development of the facility, including providing project financing up to $190 million,
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. The Company believes
that its agreement with respect to installation of VLTs at Aqueduct would extend past
the expiration of NYRAs current racing franchise and would be binding on any successor
to NYRA in the event NYRA is not granted a new racing franchise. NYRAs recent filing
for reorganization under Chapter 11 has introduced additional uncertainties, but the
Company remains committed to the development once these uncertainties are resolved.
68
The Signature at MGM Grand. The Company provided guarantees for the debt financing
on Towers 1, 2 and 3 of The Signature at MGM Grand. The loan amounts for Towers 1 and 2
have been completely repaid as of December 31, 2006, relieving the Companys guaranty
obligation for Towers 1 and 2. The Companys obligation on Tower 3 generally provides
for a guaranty of 50% of the principal and interest, with the 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. The Company and the affiliates have also jointly and severally provided a
completion guaranty.
The maximum borrowings allowed for Tower 3 is $186 million. At December 31, 2006,
the Company had recorded a guaranty obligation liability of $1 million for Tower 3,
classified in Other long-term obligations 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, 2006, 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.
Mashantucket Pequot Tribal Nation. The Company has agreed to enter a strategic
alliance, subject to definitive agreements, with the Mashantucket Pequot Tribal Nation
(MPTN). The strategic alliance has several elements, one of which calls for the
creation of a 50/50 joint venture to seek future development opportunities. The Company
has agreed to provide a development subsidiary of MPTN with a loan of up to $200 million
intended to fund a portion of that subsidiarys matching investment in any future joint
development projects.
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. 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, |
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
November 2003 authorization (16 million
shares purchased) |
|
$ |
|
|
|
$ |
|
|
|
$ |
348,895 |
|
July 2004 authorization (6.5 million and
5.5 million shares purchased) |
|
|
246,892 |
|
|
|
217,316 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
246,892 |
|
|
$ |
217,316 |
|
|
$ |
348,895 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average price of shares repurchased |
|
$ |
37.98 |
|
|
$ |
39.51 |
|
|
$ |
21.80 |
|
At December 31, 2006, the Company had 8 million shares available for repurchase
under the July 2004 authorization.
69
NOTE 14 STOCK-BASED COMPENSATION
Adoption of SFAS 123(R). Effective January 1, 2006, the Company accounts for
stock-based compensation in accordance with Statement of Financial Accounting Standards
No. 123 (revised 2004), Share-Based Payment (SFAS 123(R)). The Company previously
accounted for stock-based compensation 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 disclosed supplemental
information in accordance with Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation (SFAS 123). Under these standards, the
Company did not incur compensation expense for employee stock options when the exercise
price was at least 100% of the market value of the Companys common stock on the date of
grant. SFAS 123(R) requires that all stock-based compensation, including shares and
share-based awards to employees, be valued at fair value. The Company measures fair
value of share-based awards using the Black-Scholes model.
Under SFAS 123(R), compensation is attributed to the periods of associated service.
For awards granted prior to January 1, 2006, such expense is being recognized on an
accelerated basis since that is the method the Company previously applied in its
supplemental disclosures. Beginning with awards granted on January 1, 2006, such
expense is being recognized on a straight-line basis over the vesting period of the
awards. Forfeitures are estimated at the time of grant, with such estimate updated
periodically and with actual forfeitures recognized currently to the extent they differ
from the estimate.
The Company adopted SFAS 123(R) by applying the modified-prospective transition
method. Under this method, the Company began applying the valuation and other criteria
of SFAS 123(R) on January 1, 2006, and began 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) was as follows, due to the incremental
compensation cost recognized for employee stock options and stock appreciation rights:
|
|
|
|
|
|
|
Year Ended |
|
|
|
December 31, |
|
|
|
2006 |
|
|
|
(In thousands, except |
|
|
|
per share amounts) |
|
Incremental stock-based compensation under SFAS123(R) |
|
$ |
71,186 |
|
Less: Amounts capitalized |
|
|
(798 |
) |
|
|
|
|
Total stock-based compensation recognized as expense |
|
$ |
70,388 |
|
|
|
|
|
Recorded in continuing operations |
|
$ |
69,121 |
|
|
|
|
|
Recorded in discontinued operations |
|
$ |
1,267 |
|
|
|
|
|
|
|
|
|
|
Reduction of income from continuing operations |
|
$ |
45,090 |
|
|
|
|
|
Reduction in net income |
|
$ |
45,914 |
|
|
|
|
|
Reduction in
basic earnings per share |
|
$ |
0.16 |
|
|
|
|
|
Reduction in diluted earnings per share |
|
$ |
0.16 |
|
|
|
|
|
In addition, SFAS 123(R) requires the excess tax benefits from stock option
exercises tax deductions in excess of compensation cost recognized to be classified
as a financing activity. Previously, all tax benefits from stock option exercises were
classified as operating activities. Had the Company not adopted SFAS 123(R), the $48
million of excess tax benefits classified as a financing cash inflow would have been
classified as an operating cash inflow.
70
\
Information about the Companys share-based awards. The Company adopted an omnibus
incentive plan in 2005 which allows for the granting of stock options, stock appreciation
rights, restricted stock, and other stock-based awards to eligible directors, officers
and employees. The plans are administered by the Compensation and Stock Option Committee
(the Committee) of the Board of Directors. Salaried officers, directors and other key
employees of the Company and its subsidiaries are eligible to receive awards. The
Committee has discretion under the omnibus plan regarding which type of awards to grant,
the vesting and service requirements, exercise price and other conditions, in all cases
subject to certain limits, including:
|
|
|
The omnibus plan allowed for the issuance of up to 20 million shares or
share-based awards; |
|
|
|
|
For stock options and stock appreciation rights, the exercise price of the
award must equal the fair market value of the stock on the date of grant and the
maximum term of such an award is ten years. |
To date, the Committee has only awarded stock options and stock appreciation rights
under the omnibus plan. The Companys practice has been to issue new shares upon the
exercise of stock options. Under the Companys previous plans, the Committee had issued
stock options and restricted stock. Stock options and stock appreciation rights granted
under all plans generally have either 7-year or 10-year terms, and in most cases are
exercisable in either four or five equal annual installments. Restrictions on restricted
shares granted under a previous plan lapsed 50% on the third anniversary date after the
grant and 50% on the fourth anniversary date after the grant.
As of December 31, 2006, the aggregate number of share-based awards available for
grant under the omnibus plan was 4.7 million. A summary of activity under the Companys
share-based payment plans for the year ended December 31, 2006 is presented below:
Stock options and stock appreciation rights
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Average |
|
|
Aggregate |
|
|
|
|
|
|
|
Average |
|
|
Remaining |
|
|
Intrinsic |
|
|
|
Shares |
|
|
Exercise |
|
|
Contractual |
|
|
Value |
|
|
|
(000s) |
|
|
Price |
|
|
Term |
|
|
($000s) |
|
Outstanding at January 1, 2006 |
|
|
34,825 |
|
|
$ |
22.93 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
1,914 |
|
|
|
42.54 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(5,623 |
) |
|
|
15.85 |
|
|
|
|
|
|
|
|
|
Forfeited or expired |
|
|
(584 |
) |
|
|
27.95 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2006 |
|
|
30,532 |
|
|
|
25.37 |
|
|
|
5.6 |
|
|
$ |
976,050 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at December 31, 2006 |
|
|
29,615 |
|
|
|
25.27 |
|
|
|
5.6 |
|
|
$ |
921,203 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2006 |
|
|
10,602 |
|
|
|
18.89 |
|
|
|
5.2 |
|
|
$ |
407,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total intrinsic value of stock options and stock appreciation rights exercised
during the year ended December 31, 2006, 2005 and 2004 was $166 million, $256 million,
and $115 million, respectively. The Company received proceeds from the exercise of
employee stock options of $89 million, $146 million and $136 million for the years ended
December 31, 2006, 2005 and 2004, respectively. The total income tax benefits from stock
option exercises during the year ended December 31, 2006, 2005 and 2004 were $56 million,
$89 million and $39 million, respectively. As of December 31, 2006, there was a total of
$99 million of unamortized compensation related to stock options and stock appreciation
rights, which cost is expected to be recognized over a weighted-average period of 2.3
years.
Restricted stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
|
|
Shares |
|
|
Grant-Date |
|
|
|
(000s) |
|
|
Fair Value |
|
Nonvested at January 1, 2006 |
|
|
834 |
|
|
$ |
17.59 |
|
Granted |
|
|
|
|
|
|
|
|
Vested |
|
|
(830 |
) |
|
|
17.59 |
|
Forfeited |
|
|
(4 |
) |
|
|
17.62 |
|
|
|
|
|
|
|
|
|
Nonvested at December 31, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71
During the year ended December 31, 2006, restrictions lapsed with respect to 830,000
shares with a total fair value of $15 million. During the year ended December 31, 2005,
restrictions lapsed with respect to 852,000 shares with a total fair value of $15
million. In the year ended December 31, 2006 and 2005, certain recipients of restricted
shares elected to use a portion of the shares in which restrictions lapsed to pay
required withholding taxes. Approximately 280,000 and 261,000 shares, respectively, were
surrendered in the years ended December 31, 2006 and 2005. As of December 31, 2006,
there was no unamortized compensation related to restricted stock.
Recognition of compensation cost. The following table shows information about
compensation cost recognized:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Compensation cost: |
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and stock appreciation rights |
|
$ |
71,386 |
|
|
$ |
139 |
|
|
$ |
78 |
|
Restricted stock |
|
|
3,038 |
|
|
|
7,184 |
|
|
|
7,092 |
|
|
|
|
|
|
|
|
|
|
|
Total compensation cost |
|
|
74,424 |
|
|
|
7,323 |
|
|
|
7,170 |
|
Less: Compensation cost capitalized |
|
|
(798 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation cost recognized as expense |
|
|
73,626 |
|
|
|
7,323 |
|
|
|
7,170 |
|
Less: Related tax benefit |
|
|
(24,901 |
) |
|
|
(1,204 |
) |
|
|
(1,326 |
) |
|
|
|
|
|
|
|
|
|
|
Compensation expense, net of tax benefit |
|
$ |
48,725 |
|
|
$ |
6,119 |
|
|
$ |
5,844 |
|
|
|
|
|
|
|
|
|
|
|
Compensation cost for stock options and stock appreciation rights was based on the
fair value of each award, measured by applying the Black-Scholes model on the date of
grant, using the following weighted-average assumptions (assumptions in 2005 were used to
compute the pro forma compensation for disclosure purposes only):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
2006 |
|
2005 |
|
2004 |
|
|
|
|
|
|
(In thousands) |
|
|
|
|
Expected volatility |
|
|
33 |
% |
|
|
37 |
% |
|
|
42 |
% |
Expected term |
|
4.1 years |
|
4.3 years |
|
5.0 years |
Expected dividend yield |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
Risk-free interest rate |
|
|
4.9 |
% |
|
|
3.8 |
% |
|
|
3.4 |
% |
Forfeiture rate |
|
|
4.6 |
% |
|
|
0 |
% |
|
|
0 |
% |
Weighted-average fair value of options granted |
|
$ |
14.50 |
|
|
$ |
12.73 |
|
|
$ |
9.55 |
|
Expected volatility is based in part on historical volatility and in part on implied
volatility based on traded options on the Companys stock. The expected term considers
the contractual term of the option as well as historical exercise and forfeiture
behavior. The risk-free interest rate is based on the rates in effect on the grant date
for US Treasury instruments with maturities matching the relevant expected term of the
award.
Pro forma disclosures. Had the Company accounted for these plans during 2005 and
2004 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, as follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2005 |
|
|
2004 |
|
|
|
(In thousands) |
|
Net income |
|
|
|
|
|
|
|
|
As reported |
|
$ |
443,256 |
|
|
$ |
412,332 |
|
Incremental stock-based compensation under
SFAS 123, net of tax benefit |
|
|
(47,934 |
) |
|
|
(22,963 |
) |
|
|
|
|
|
|
|
Pro forma |
|
$ |
395,322 |
|
|
$ |
389,369 |
|
|
|
|
|
|
|
|
Basic earnings per share |
|
|
|
|
|
|
|
|
As reported |
|
$ |
1.56 |
|
|
$ |
1.48 |
|
|
|
|
|
|
|
|
Pro forma |
|
$ |
1.39 |
|
|
$ |
1.39 |
|
|
|
|
|
|
|
|
Diluted
earnings per share |
|
|
|
|
|
|
|
|
As reported |
|
$ |
1.50 |
|
|
$ |
1.43 |
|
|
|
|
|
|
|
|
Pro forma |
|
$ |
1.33 |
|
|
$ |
1.35 |
|
|
|
|
|
|
|
|
72
NOTE 15 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 $189 million in 2006, $161
million in 2005 and $86 million in 2004 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 $24 million and $28 million at December 31, 2006 and 2005, respectively 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 $27 million in 2006, $19 million in 2005 and $12 million in
2004.
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 2006 and 2005 and $1 million in 2004.
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 $7 million in 2006, $6 million in 2005 and $5 million in 2004.
NOTE 16 RESTRUCTURING COSTS
Restructuring costs (credit) consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
|
(In thousands) |
|
Contract termination costs |
|
$ |
|
|
|
$ |
|
|
|
$ |
3,693 |
|
Other |
|
|
1,035 |
|
|
|
(59 |
) |
|
|
1,932 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,035 |
|
|
$ |
(59 |
) |
|
$ |
5,625 |
|
|
|
|
|
|
|
|
|
|
|
There were no material restructuring activities in 2006 and 2005. At December 31,
2006, there were no material restructuring accruals as 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.
73
NOTE 17 PROPERTY TRANSACTIONS, NET
Property transactions, net consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
|
(In thousands) |
|
Impairment of assets to be disposed of |
|
$ |
40,865 |
|
|
$ |
22,651 |
|
|
$ |
473 |
|
Write-off of abandoned capital projects |
|
|
|
|
|
|
5,971 |
|
|
|
|
|
Demolition costs |
|
|
348 |
|
|
|
5,362 |
|
|
|
7,057 |
|
Insurance recoveries |
|
|
(86,016 |
) |
|
|
|
|
|
|
|
|
Other net losses on asset sales or disposals |
|
|
3,823 |
|
|
|
3,037 |
|
|
|
704 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(40,980 |
) |
|
$ |
37,021 |
|
|
$ |
8,234 |
|
|
|
|
|
|
|
|
|
|
|
Impairments in 2006 included $22 million related to the write-off of the tram
connecting Bellagio and Monte Carlo, including the stations at both resorts, in
preparation for construction of CityCenter. Other impairments related to assets being
replaced in connection with several smaller capital projects, primarily at MGM Grand Las
Vegas, Mandalay Bay and The Mirage, as well as the $4 million write-off of Luxors
investment in the Hairspray show. Insurance recoveries in 2006 relate to the interim
insurance recoveries received related to property damage from Hurricane Katrina in
excess of the book value of the damaged assets and post-storm costs incurred as of
December 31, 2006. See Note 2 under Financial statement impact of Hurricane Katrina
for further discussion.
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. Demolition costs related primarily to room remodel activity at
MGM Grand Las Vegas and the new showroom at The Mirage.
Demolition costs in 2004 primarily relate to the Bellagio room remodel and
expansion projects and the KÀ theatre at MGM Grand Las Vegas.
NOTE 18 RELATED PARTY TRANSACTIONS
Borgata leases 10 acres from the Company on a long-term basis for use in its
current operations and for its expansion, and nine acres from the Company on a
short-term basis for surface parking. Total payments received from Borgata under these
lease agreements were $6 million, $4 million, and $1 million for the years ended
December 31, 2006, 2005, and 2004, respectively.
Prior to the Mandalay merger the Company made payments to Monte Carlo for lost
business as a result of closing the tram between Bellagio and Monte Carlo in preparation
for the Bellagio expansion. These payments totaled $1 million and $4 million in 2005 and
2004, respectively.
The Company pays legal fees to a firm affiliated with the Companys general
counsel. Payments to the firm totaled $8 million, $13 million, and $4 million for the
years ended December 31, 2006, 2005, and 2004, respectively. At December 31, 2006, the
Company owed the firm $5 million.
The Company has occasionally chartered aircraft from its majority shareholder,
Tracinda, and pays Tracinda at market rates. Payments to Tracinda for the use of its
aircraft totaled $2 million for the year ended December 31, 2006; amounts in 2005 and
2004 were not material.
74
NOTE 19 CONDENSED CONSOLIDATING 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. The guarantor subsidiaries are 100% owned. Separate
condensed financial statement information for the subsidiary guarantors and
non-guarantors as of December 31, 2006 and 2005 and for the years ended December 31,
2006, 2005 and 2004 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the Year Ended December 31, 2006 |
|
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Elimination |
|
|
Consolidated |
|
|
|
(In thousands) |
|
Balance Sheet |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
$ |
95,361 |
|
|
$ |
1,369,711 |
|
|
$ |
49,679 |
|
|
$ |
|
|
|
$ |
1,514,751 |
|
Real estate under development |
|
|
|
|
|
|
188,433 |
|
|
|
|
|
|
|
|
|
|
|
188,433 |
|
Property and equipment, net |
|
|
|
|
|
|
16,797,263 |
|
|
|
456,569 |
|
|
|
(11,972 |
) |
|
|
17,241,860 |
|
Investments in subsidiaries |
|
|
16,563,917 |
|
|
|
300,560 |
|
|
|
|
|
|
|
(16,864,477 |
) |
|
|
|
|
Investments in unconsolidated affiliates |
|
|
|
|
|
|
792,106 |
|
|
|
300,151 |
|
|
|
|
|
|
|
1,092,257 |
|
Other non-current assets |
|
|
94,188 |
|
|
|
1,911,362 |
|
|
|
103,387 |
|
|
|
|
|
|
|
2,108,937 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
16,753,466 |
|
|
$ |
21,359,435 |
|
|
$ |
909,786 |
|
|
$ |
(16,876,449 |
) |
|
$ |
22,146,238 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
$ |
227,743 |
|
|
$ |
1,364,472 |
|
|
$ |
55,885 |
|
|
$ |
|
|
|
$ |
1,648,100 |
|
Intercompany accounts |
|
|
(1,478,207 |
) |
|
|
1,339,654 |
|
|
|
138,553 |
|
|
|
|
|
|
|
|
|
Deferred income taxes |
|
|
3,441,157 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,441,157 |
|
Long-term debt |
|
|
10,712,047 |
|
|
|
2,173,972 |
|
|
|
108,850 |
|
|
|
|
|
|
|
12,994,869 |
|
Other long-term obligations |
|
|
1,177 |
|
|
|
161,458 |
|
|
|
49,928 |
|
|
|
|
|
|
|
212,563 |
|
Stockholders equity |
|
|
3,849,549 |
|
|
|
16,319,879 |
|
|
|
556,570 |
|
|
|
(16,876,449 |
) |
|
|
3,849,549 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
16,753,466 |
|
|
$ |
21,359,435 |
|
|
$ |
909,786 |
|
|
$ |
(16,876,449 |
) |
|
$ |
22,146,238 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
$ |
|
|
|
$ |
6,714,659 |
|
|
$ |
461,297 |
|
|
$ |
|
|
|
$ |
7,175,956 |
|
Equity in subsidiaries earnings |
|
|
1,777,144 |
|
|
|
167,262 |
|
|
|
|
|
|
|
(1,944,406 |
) |
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Casino and hotel operations |
|
|
19,251 |
|
|
|
3,543,026 |
|
|
|
251,109 |
|
|
|
|
|
|
|
3,813,386 |
|
General and administrative |
|
|
20,713 |
|
|
|
993,732 |
|
|
|
56,497 |
|
|
|
|
|
|
|
1,070,942 |
|
Corporate expense |
|
|
40,151 |
|
|
|
121,356 |
|
|
|
|
|
|
|
|
|
|
|
161,507 |
|
Preopening and start-up expenses |
|
|
523 |
|
|
|
32,526 |
|
|
|
3,313 |
|
|
|
|
|
|
|
36,362 |
|
Restructuring costs |
|
|
|
|
|
|
1,035 |
|
|
|
|
|
|
|
|
|
|
|
1,035 |
|
Property transactions, net |
|
|
10,872 |
|
|
|
(51,853 |
) |
|
|
1 |
|
|
|
|
|
|
|
(40,980 |
) |
Depreciation and amortization |
|
|
2,398 |
|
|
|
611,045 |
|
|
|
16,184 |
|
|
|
|
|
|
|
629,627 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
93,908 |
|
|
|
5,250,867 |
|
|
|
327,104 |
|
|
|
|
|
|
|
5,671,879 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from unconsolidated affiliates |
|
|
|
|
|
|
218,063 |
|
|
|
36,108 |
|
|
|
|
|
|
|
254,171 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
1,683,236 |
|
|
|
1,849,117 |
|
|
|
170,301 |
|
|
|
(1,944,406 |
) |
|
|
1,758,248 |
|
Interest expense, net |
|
|
(708,902 |
) |
|
|
(40,407 |
) |
|
|
140 |
|
|
|
|
|
|
|
(749,169 |
) |
Other, net |
|
|
(1,978 |
) |
|
|
(29,962 |
) |
|
|
787 |
|
|
|
|
|
|
|
(31,153 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before
income taxes |
|
|
972,356 |
|
|
|
1,778,748 |
|
|
|
171,228 |
|
|
|
(1,944,406 |
) |
|
|
977,926 |
|
Provision for income taxes |
|
|
(312,288 |
) |
|
|
(25,676 |
) |
|
|
(3,966 |
) |
|
|
|
|
|
|
(341,930 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
660,068 |
|
|
|
1,753,072 |
|
|
|
167,262 |
|
|
|
(1,944,406 |
) |
|
|
635,996 |
|
Discontinued operations |
|
|
(11,804 |
) |
|
|
24,072 |
|
|
|
|
|
|
|
|
|
|
|
12,268 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
648,264 |
|
|
$ |
1,777,144 |
|
|
$ |
167,262 |
|
|
$ |
(1,944,406 |
) |
|
$ |
648,264 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of Cash Flows |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
$ |
(896,346 |
) |
|
$ |
1,984,375 |
|
|
$ |
153,923 |
|
|
$ |
|
|
|
$ |
1,241,952 |
|
Net cash provided by (used in) investing activities |
|
|
5,300 |
|
|
|
(1,369,878 |
) |
|
|
(283,241 |
) |
|
|
(4,608 |
) |
|
|
(1,652,427 |
) |
Net cash provided by (used in) financing activities |
|
|
874,485 |
|
|
|
(503,801 |
) |
|
|
134,732 |
|
|
|
4,608 |
|
|
|
510,024 |
|
75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 long-term obligations |
|
|
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 |
|
$ |
|
|
|
$ |
5,687,750 |
|
|
$ |
441,093 |
|
|
$ |
|
|
|
$ |
6,128,843 |
|
Equity in subsidiaries earnings |
|
|
1,228,651 |
|
|
|
152,107 |
|
|
|
|
|
|
|
(1,380,758 |
) |
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Casino and hotel operations |
|
|
|
|
|
|
3,082,987 |
|
|
|
233,883 |
|
|
|
|
|
|
|
3,316,870 |
|
General and administrative |
|
|
|
|
|
|
834,166 |
|
|
|
55,640 |
|
|
|
|
|
|
|
889,806 |
|
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 |
|
|
|
|
|
|
36,587 |
|
|
|
434 |
|
|
|
|
|
|
|
37,021 |
|
Depreciation and amortization |
|
|
2,390 |
|
|
|
531,586 |
|
|
|
26,650 |
|
|
|
|
|
|
|
560,626 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,187 |
|
|
|
4,617,352 |
|
|
|
317,110 |
|
|
|
|
|
|
|
4,950,649 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from unconsolidated affiliates |
|
|
|
|
|
|
120,330 |
|
|
|
31,541 |
|
|
|
|
|
|
|
151,871 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
1,212,464 |
|
|
|
1,342,835 |
|
|
|
155,524 |
|
|
|
(1,380,758 |
) |
|
|
1,330,065 |
|
Interest expense, net |
|
|
(517,617 |
) |
|
|
(112,506 |
) |
|
|
1,402 |
|
|
|
|
|
|
|
(628,721 |
) |
Other, net |
|
|
(14,293 |
) |
|
|
(20,005 |
) |
|
|
39 |
|
|
|
|
|
|
|
(34,259 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
680,554 |
|
|
|
1,210,324 |
|
|
|
156,965 |
|
|
|
(1,380,758 |
) |
|
|
667,085 |
|
Provision for income taxes |
|
|
(227,374 |
) |
|
|
|
|
|
|
(4,345 |
) |
|
|
|
|
|
|
(231,719 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
453,180 |
|
|
|
1,210,324 |
|
|
|
152,620 |
|
|
|
(1,380,758 |
) |
|
|
435,366 |
|
Discontinued operations |
|
|
(9,924 |
) |
|
|
17,814 |
|
|
|
|
|
|
|
|
|
|
|
7,890 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
443,256 |
|
|
$ |
1,228,138 |
|
|
$ |
152,620 |
|
|
$ |
(1,380,758 |
) |
|
$ |
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 |
|
76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2004 |
|
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
|
Elimination |
|
Consolidated |
|
|
|
(In thousands) |
|
Statement of Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
$ |
|
|
|
$ |
3,579,862 |
|
|
$ |
421,942 |
|
|
$ |
|
|
|
$ |
4,001,804 |
|
Equity in subsidiaries earnings |
|
|
948,143 |
|
|
|
117,686 |
|
|
|
|
|
|
|
(1,065,829 |
) |
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Casino and hotel operations |
|
|
|
|
|
|
1,927,258 |
|
|
|
211,386 |
|
|
|
|
|
|
|
2,138,644 |
|
General and administrative |
|
|
|
|
|
|
505,662 |
|
|
|
59,725 |
|
|
|
|
|
|
|
565,387 |
|
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 |
) |
|
|
9,400 |
|
|
|
355 |
|
|
|
|
|
|
|
8,234 |
|
Depreciation and amortization |
|
|
1,039 |
|
|
|
351,457 |
|
|
|
30,277 |
|
|
|
|
|
|
|
382,773 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,635 |
|
|
|
2,873,964 |
|
|
|
303,250 |
|
|
|
|
|
|
|
3,188,849 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from unconsolidated affiliates |
|
|
|
|
|
|
119,658 |
|
|
|
|
|
|
|
|
|
|
|
119,658 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
936,508 |
|
|
|
943,242 |
|
|
|
118,692 |
|
|
|
(1,065,829 |
) |
|
|
932,613 |
|
Interest expense, net |
|
|
(311,825 |
) |
|
|
(49,129 |
) |
|
|
(966 |
) |
|
|
|
|
|
|
(361,920 |
) |
Other, net |
|
|
162 |
|
|
|
(22,092 |
) |
|
|
47 |
|
|
|
|
|
|
|
(21,883 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before
income taxes |
|
|
624,845 |
|
|
|
872,021 |
|
|
|
117,773 |
|
|
|
(1,065,829 |
) |
|
|
548,810 |
|
Provision for income taxes |
|
|
(203,900 |
) |
|
|
|
|
|
|
299 |
|
|
|
|
|
|
|
(203,601 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
420,945 |
|
|
|
872,021 |
|
|
|
118,072 |
|
|
|
(1,065,829 |
) |
|
|
345,209 |
|
Discontinued operations |
|
|
(8,613 |
) |
|
|
17,317 |
|
|
|
58,419 |
|
|
|
|
|
|
|
67,123 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
412,332 |
|
|
$ |
889,338 |
|
|
$ |
176,491 |
|
|
$ |
(1,065,829 |
) |
|
$ |
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 |
) |
77
NOTE 20 SELECTED QUARTERLY FINANCIAL RESULTS (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter |
|
|
First |
|
Second |
|
Third |
|
Fourth |
|
Total |
|
|
(In thousands, except per share amounts) |
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
$ |
1,774,368 |
|
|
$ |
1,760,508 |
|
|
$ |
1,795,042 |
|
|
$ |
1,846,038 |
|
|
$ |
7,175,956 |
|
Operating income |
|
|
413,353 |
|
|
|
417,422 |
|
|
|
419,397 |
|
|
|
508,076 |
|
|
|
1,758,248 |
|
Income from continuing operations |
|
|
139,762 |
|
|
|
143,341 |
|
|
|
153,765 |
|
|
|
199,128 |
|
|
|
635,996 |
|
Net income |
|
|
144,037 |
|
|
|
146,394 |
|
|
|
156,262 |
|
|
|
201,571 |
|
|
|
648,264 |
|
Basic income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
0.49 |
|
|
$ |
0.50 |
|
|
$ |
0.55 |
|
|
$ |
0.70 |
|
|
$ |
2.25 |
|
Net income |
|
|
0.51 |
|
|
|
0.51 |
|
|
|
0.55 |
|
|
|
0.71 |
|
|
|
2.29 |
|
Diluted income per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
0.48 |
|
|
$ |
0.49 |
|
|
$ |
0.53 |
|
|
$ |
0.68 |
|
|
$ |
2.18 |
|
Net income |
|
|
0.49 |
|
|
|
0.50 |
|
|
|
0.54 |
|
|
|
0.69 |
|
|
|
2.22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
$ |
1,145,067 |
|
|
$ |
1,624,474 |
|
|
$ |
1,700,802 |
|
|
$ |
1,658,500 |
|
|
$ |
6,128,843 |
|
Operating income |
|
|
290,109 |
|
|
|
369,488 |
|
|
|
330,578 |
|
|
|
339,890 |
|
|
|
1,330,065 |
|
Income from continuing operations |
|
|
110,919 |
|
|
|
137,891 |
|
|
|
89,932 |
|
|
|
96,624 |
|
|
|
435,366 |
|
Net income |
|
|
111,079 |
|
|
|
141,168 |
|
|
|
93,210 |
|
|
|
97,799 |
|
|
|
443,256 |
|
Basic income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
0.39 |
|
|
$ |
0.48 |
|
|
$ |
0.31 |
|
|
$ |
0.34 |
|
|
$ |
1.53 |
|
Net income |
|
|
0.39 |
|
|
|
0.49 |
|
|
|
0.33 |
|
|
|
0.34 |
|
|
|
1.56 |
|
Diluted income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
0.38 |
|
|
$ |
0.46 |
|
|
$ |
0.30 |
|
|
$ |
0.33 |
|
|
$ |
1.47 |
|
Net income |
|
|
0.38 |
|
|
|
0.48 |
|
|
|
0.31 |
|
|
|
0.33 |
|
|
|
1.50 |
|
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. Quarterly financial results for the first, second, and third
quarters of 2006 and all four quarters in 2005 have been restated to reflect
discontinued operations related to the pending sales of Primm Valley Resorts and the
Laughlin Properties.
As disclosed in Note 2, Beau Rivage closed in August 2005 due to damage sustained
from Hurricane Katrina and re-opened one year later. In addition, we recorded income from
insurance recoveries of $86 million, pre-tax, in the fourth quarter of 2006. The impact
on diluted net income per share of the insurance recoveries was $0.19 for the fourth
quarter and full year of 2006.
NOTE 21 SUBSEQUENT EVENT
In
February 2007, the Company entered into an operating agreement to form a 50/50
joint venture with Jeanco Realty Development, LLC. The venture will master plan and
develop a mixed-use community in Jean, Nevada. The Company will contribute the Jean
Properties and surrounding land to the joint venture. Nevada Landing is expected to close
in April 2007.
78
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: February 28, 2007
|
|
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
J. Terrence Lanni
|
|
Chairman and Chief Executive
Officer
(Principal Executive Officer)
|
|
February 28, 2007 |
|
|
|
|
|
/s/ James J. Murren
James J. Murren
|
|
President, Chief Financial Officer,
Treasurer and Director
(Principal Financial and
Accounting Officer)
|
|
February 28, 2007 |
|
|
|
|
|
/s/ John T. Redmond
|
|
President and Chief Executive Officer
|
|
February 28, 2007 |
|
|
MGM
Grand Resorts, LLC and Director |
|
|
|
|
|
|
|
/s/ Robert H. Baldwin
|
|
President and Chief Executive Officer
|
|
February 28, 2007 |
|
|
Mirage
Resorts, Incorporated, President
CityCenter and Director |
|
|
|
|
|
|
|
/s/ Gary N. Jacobs
Gary N. Jacobs
|
|
Executive Vice President, General
Counsel, Secretary and Director
|
|
February 28, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
Director
|
|
|
79
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
|
|
|
|
/s/ Willie D. Davis
|
|
Director
|
|
February 28, 2007 |
|
|
|
|
|
|
|
|
|
|
/s/ Alexander M. Haig, Jr.
|
|
Director
|
|
February 28, 2007 |
|
|
|
|
|
|
|
|
|
|
/s/ Alexis M. Herman
|
|
Director
|
|
February 28, 2007 |
|
|
|
|
|
|
|
|
|
|
/s/ Roland Hernandez
|
|
Director
|
|
February 28, 2007 |
|
|
|
|
|
|
|
|
|
|
/s/ Kirk Kerkorian
|
|
Director
|
|
February 28, 2007 |
|
|
|
|
|
|
|
|
|
|
/s/ Anthony Mandekic
|
|
Director
|
|
February 28, 2007 |
|
|
|
|
|
|
|
|
|
|
/s/ Rose McKinney-James
|
|
Director
|
|
February 28, 2007 |
|
|
|
|
|
|
|
|
|
|
/s/ Ronald M. Popeil
|
|
Director
|
|
February 28, 2007 |
|
|
|
|
|
|
|
|
|
|
/s/ Melvin B. Wolzinger
|
|
Director
|
|
February 28, 2007 |
|
|
|
|
|
80
MGM MIRAGE
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions |
|
|
|
|
|
Deductions |
|
|
|
|
Balance at |
|
Provision for |
|
from |
|
Write-offs, |
|
related to |
|
Balance at |
|
|
Beginning of |
|
Doubtful |
|
Mandalay |
|
net of |
|
Discontinued |
|
End of |
Description |
|
Period |
|
Accounts |
|
Acquisition |
|
Recoveries |
|
Operations |
|
Period |
Allowance for Doubtful Accounts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2006 |
|
$ |
77,270 |
|
|
$ |
47,950 |
|
|
$ |
|
|
|
$ |
(34,658 |
) |
|
$ |
(538 |
) |
|
$ |
90,024 |
|
Year Ended December 31, 2005 |
|
|
59,760 |
|
|
|
25,846 |
|
|
|
14,423 |
|
|
|
(22,759 |
) |
|
|
|
|
|
|
77,270 |
|
Year Ended December 31, 2004 |
|
|
79,087 |
|
|
|
(3,629 |
) |
|
|
|
|
|
|
(15,698 |
) |
|
|
|
|
|
|
59,760 |
|
81
INDEX TO EXHIBITS
|
|
|
Exhibit |
|
|
Number |
|
Description |
10.1(28)
|
|
Guaranty Agreement, dated July 19, 2006, by MGM MIRAGE in favor of Bank of A |