e10vq
UNITED STATES SECURITIES & EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2006
OR
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934 |
For
the transition period from 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 |
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer Identification No.) |
3600 Las Vegas Boulevard South, Las Vegas, Nevada 89109
(Address of principal executive offices Zip Code)
(702) 693-7120
(Registrants telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
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 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
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date.
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Class
Common Stock, $.01 par value
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Outstanding at August 7, 2006
283,292,018 shares |
MGM MIRAGE AND SUBSIDIARIES
FORM 10-Q
I N D E X
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
MGM MIRAGE AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
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June 30, |
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December 31, |
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2006 |
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2005 |
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ASSETS
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Current assets |
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Cash and cash equivalents |
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$ |
294,992 |
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$ |
377,933 |
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Accounts receivable, net |
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312,932 |
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352,673 |
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Inventories |
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118,144 |
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111,825 |
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Deferred income taxes |
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64,875 |
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65,518 |
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Prepaid expenses and other |
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114,918 |
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110,634 |
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Total current assets |
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905,861 |
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1,018,583 |
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Real estate under development |
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115,887 |
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Property and equipment, net |
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16,801,647 |
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16,541,651 |
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Other assets |
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Investments in unconsolidated affiliates |
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1,053,474 |
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931,154 |
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Goodwill |
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1,309,131 |
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1,314,561 |
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Other intangible assets, net |
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375,681 |
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377,479 |
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Deposits and other assets, net |
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509,979 |
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515,992 |
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Total other assets |
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3,248,265 |
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3,139,186 |
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$ |
21,071,660 |
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$ |
20,699,420 |
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LIABILITIES AND STOCKHOLDERS EQUITY
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Current liabilities |
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Accounts payable |
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$ |
366,812 |
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$ |
265,601 |
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Income taxes payable |
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8,822 |
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125,503 |
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Current portion of long-term debt |
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14 |
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Accrued interest on long-term debt |
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236,951 |
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229,930 |
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Other accrued liabilities |
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843,933 |
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913,520 |
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Total current liabilities |
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1,456,518 |
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1,534,568 |
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Deferred income taxes |
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3,345,368 |
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3,378,371 |
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Long-term debt |
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12,604,145 |
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12,355,433 |
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Other long-term obligations |
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200,236 |
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195,976 |
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Commitments and contingencies (Note 9) |
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Stockholders equity |
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Common stock, $.01 par value: authorized 600,000,000 shares;
issued 359,215,605 and 357,262,405 shares; outstanding
283,250,865 and 285,069,516 shares |
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3,592 |
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3,573 |
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Capital in excess of par value |
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2,675,169 |
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2,586,587 |
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Deferred compensation |
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(436 |
) |
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(3,618 |
) |
Treasury stock, at cost 75,964,740 and 72,192,889 shares |
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(1,490,775 |
) |
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(1,338,394 |
) |
Retained earnings |
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2,278,156 |
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1,987,725 |
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Accumulated other comprehensive loss |
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(313 |
) |
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(801 |
) |
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Total stockholders equity |
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3,465,393 |
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3,235,072 |
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$ |
21,071,660 |
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$ |
20,699,420 |
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The accompanying notes are an integral part of these consolidated financial statements.
1
MGM MIRAGE AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
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Three Months Ended |
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Six Months Ended |
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June 30, |
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June 30, |
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2006 |
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2005 |
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2006 |
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2005 |
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Revenues |
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Casino |
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$ |
796,373 |
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$ |
764,378 |
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$ |
1,643,338 |
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$ |
1,379,191 |
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Rooms |
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524,047 |
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455,761 |
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1,044,297 |
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729,815 |
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Food and beverage |
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387,527 |
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352,184 |
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774,266 |
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595,662 |
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Entertainment |
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105,457 |
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115,711 |
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205,110 |
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203,858 |
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Retail |
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72,336 |
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69,463 |
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138,903 |
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114,342 |
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Other |
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133,445 |
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106,973 |
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|
256,873 |
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|
167,808 |
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2,019,185 |
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1,864,470 |
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4,062,787 |
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3,190,676 |
|
Less: Promotional allowances |
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(152,002 |
) |
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(148,514 |
) |
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(317,071 |
) |
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(270,585 |
) |
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1,867,183 |
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1,715,956 |
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|
3,745,716 |
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2,920,091 |
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Expenses |
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Casino |
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412,710 |
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|
389,767 |
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|
857,789 |
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|
700,556 |
|
Rooms |
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|
141,484 |
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|
125,405 |
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|
278,611 |
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|
194,884 |
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Food and beverage |
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|
233,585 |
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|
220,466 |
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|
460,381 |
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|
|
354,777 |
|
Entertainment |
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|
76,740 |
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|
84,801 |
|
|
|
150,270 |
|
|
|
144,866 |
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Retail |
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|
47,391 |
|
|
|
45,233 |
|
|
|
92,887 |
|
|
|
74,817 |
|
Other |
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|
76,600 |
|
|
|
64,517 |
|
|
|
145,904 |
|
|
|
103,982 |
|
General and administrative |
|
|
276,602 |
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|
249,713 |
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|
|
546,606 |
|
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|
408,077 |
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Corporate expense |
|
|
38,579 |
|
|
|
31,651 |
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|
75,231 |
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|
|
58,442 |
|
Preopening and start-up expenses |
|
|
15,044 |
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|
|
3,897 |
|
|
|
21,225 |
|
|
|
6,421 |
|
Restructuring costs (credit) |
|
|
231 |
|
|
|
(4 |
) |
|
|
1,035 |
|
|
|
(70 |
) |
Property transactions, net |
|
|
12,575 |
|
|
|
1,793 |
|
|
|
36,044 |
|
|
|
5,996 |
|
Depreciation and amortization |
|
|
164,984 |
|
|
|
151,673 |
|
|
|
320,257 |
|
|
|
262,168 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,496,525 |
|
|
|
1,368,912 |
|
|
|
2,986,240 |
|
|
|
2,314,916 |
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
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|
|
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|
Income from unconsolidated affiliates |
|
|
57,081 |
|
|
|
30,885 |
|
|
|
92,635 |
|
|
|
65,930 |
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Operating income |
|
|
427,739 |
|
|
|
377,929 |
|
|
|
852,111 |
|
|
|
671,105 |
|
|
|
|
|
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|
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|
|
|
|
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|
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|
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Non-operating income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
3,027 |
|
|
|
5,319 |
|
|
|
5,772 |
|
|
|
7,016 |
|
Interest expense, net |
|
|
(195,345 |
) |
|
|
(167,348 |
) |
|
|
(392,731 |
) |
|
|
(268,816 |
) |
Non-operating items from unconsolidated affiliates |
|
|
(3,341 |
) |
|
|
(4,404 |
) |
|
|
(6,936 |
) |
|
|
(7,191 |
) |
Other, net |
|
|
(3,333 |
) |
|
|
(1,781 |
) |
|
|
(6,377 |
) |
|
|
(17,472 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(198,992 |
) |
|
|
(168,214 |
) |
|
|
(400,272 |
) |
|
|
(286,463 |
) |
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
228,747 |
|
|
|
209,715 |
|
|
|
451,839 |
|
|
|
384,642 |
|
Provision for income taxes |
|
|
(82,353 |
) |
|
|
(68,547 |
) |
|
|
(161,408 |
) |
|
|
(132,395 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
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Net income |
|
$ |
146,394 |
|
|
$ |
141,168 |
|
|
$ |
290,431 |
|
|
$ |
252,247 |
|
|
|
|
|
|
|
|
|
|
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Basic earnings per share of common stock |
|
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|
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Net income per share |
|
$ |
0.51 |
|
|
$ |
0.49 |
|
|
$ |
1.02 |
|
|
$ |
0.89 |
|
|
|
|
|
|
|
|
|
|
|
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|
|
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Diluted earnings per share of common stock |
|
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|
|
|
|
|
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|
|
|
|
|
|
|
|
Net income per share |
|
$ |
0.50 |
|
|
$ |
0.48 |
|
|
$ |
0.99 |
|
|
$ |
0.85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
2
MGM MIRAGE AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
|
2006 |
|
|
2005 |
|
Cash flows from operating activities |
|
|
|
|
|
|
|
|
Net income |
|
$ |
290,431 |
|
|
$ |
252,247 |
|
Adjustments to reconcile net income to net cash provided
by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
320,257 |
|
|
|
262,168 |
|
Amortization of debt discounts, premiums and issuance costs |
|
|
(1,138 |
) |
|
|
8,131 |
|
Provision for doubtful accounts |
|
|
30,357 |
|
|
|
15,761 |
|
Stock-based compensation |
|
|
40,818 |
|
|
|
3,799 |
|
Property transactions, net |
|
|
36,044 |
|
|
|
5,996 |
|
Loss on early extinguishment of debt |
|
|
|
|
|
|
18,139 |
|
Income from unconsolidated affiliates |
|
|
(80,556 |
) |
|
|
(56,332 |
) |
Distributions from unconsolidated affiliates |
|
|
62,584 |
|
|
|
43,039 |
|
Deferred income taxes |
|
|
(32,752 |
) |
|
|
(27,239 |
) |
Tax benefit from stock-based compensation |
|
|
|
|
|
|
60,833 |
|
Change in assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
5,318 |
|
|
|
(7,492 |
) |
Inventories |
|
|
(6,920 |
) |
|
|
(5,153 |
) |
Prepaid expenses and other |
|
|
(4,284 |
) |
|
|
13,168 |
|
Real estate under development |
|
|
(17,179 |
) |
|
|
|
|
Accounts payable and accrued liabilities |
|
|
(59,257 |
) |
|
|
(5,715 |
) |
Income taxes payable |
|
|
(112,830 |
) |
|
|
53,635 |
|
Hurricane Katrina insurance proceeds |
|
|
2,893 |
|
|
|
|
|
Change in Hurricane Katrina insurance receivable |
|
|
(34,261 |
) |
|
|
|
|
Other |
|
|
(21,474 |
) |
|
|
(16,060 |
) |
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
418,051 |
|
|
|
618,925 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
Acquisition of Mandalay Resort Group, net of cash acquired |
|
|
|
|
|
|
(4,427,085 |
) |
Capital expenditures |
|
|
(794,948 |
) |
|
|
(232,242 |
) |
Hurricane Katrina insurance proceeds |
|
|
113,947 |
|
|
|
|
|
Dispositions of property and equipment |
|
|
5,814 |
|
|
|
654 |
|
Investments in unconsolidated affiliates |
|
|
(62,655 |
) |
|
|
(177,000 |
) |
Change in construction payable |
|
|
98,100 |
|
|
|
(38,539 |
) |
Other |
|
|
(8,409 |
) |
|
|
(10,851 |
) |
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(648,151 |
) |
|
|
(4,885,063 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
Net borrowings (repayments) under bank credit
facilities maturities of 90 days or less |
|
|
(90,300 |
) |
|
|
1,200,000 |
|
Borrowings
under bank credit facilities maturities longer than 90 days |
|
|
3,500,000 |
|
|
|
3,500,000 |
|
Repayments under bank credit facilities maturities longer than 90 days |
|
|
(3,700,000 |
) |
|
|
|
|
Issuance of long-term debt |
|
|
750,000 |
|
|
|
500,000 |
|
Repayment of long-term debt |
|
|
(200,000 |
) |
|
|
(1,102,171 |
) |
Debt issuance costs |
|
|
(5,828 |
) |
|
|
(47,126 |
) |
Issuance of common stock |
|
|
28,066 |
|
|
|
97,554 |
|
Purchases of treasury stock |
|
|
(141,038 |
) |
|
|
|
|
Excess tax benefits from stock-based compensation |
|
|
18,361 |
|
|
|
|
|
Other |
|
|
(12,102 |
) |
|
|
(10,752 |
) |
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
147,159 |
|
|
|
4,137,505 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
|
|
|
|
|
|
Net decrease for the period |
|
|
(82,941 |
) |
|
|
(128,633 |
) |
Balance, beginning of period |
|
|
377,933 |
|
|
|
435,128 |
|
|
|
|
|
|
|
|
Balance, end of period |
|
$ |
294,992 |
|
|
$ |
306,495 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow disclosures |
|
|
|
|
|
|
|
|
Interest paid, net of amounts capitalized |
|
$ |
386,848 |
|
|
$ |
228,849 |
|
Federal, state and foreign income taxes paid, net of refunds |
|
|
286,786 |
|
|
|
41,684 |
|
The accompanying notes are an integral part of these consolidated financial statements.
3
MGM MIRAGE AND SUBSIDIARIES
CONDENSED NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NOTE 1
ORGANIZATION AND BASIS OF PRESENTATION
Organization. MGM MIRAGE (the Company) is a Delaware corporation, incorporated on
January 29, 1986. As of June 30, 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 2.
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. Boardwalk was
closed in January 2006 in preparation for Project CityCenter (see below). The Company owns
three resorts in Primm, Nevada, at the California/Nevada state line Whiskey Petes, Buffalo
Bills and the Primm Valley Resort as well as two championship golf courses located near the
resorts. Other Nevada operations include Circus Circus Reno, Colorado Belle and Edgewater in
Laughlin, Gold Strike and Nevada Landing in Jean, and Railroad Pass in Henderson. The Company
has a 50% investment in Silver Legacy in Reno, which is adjacent to Circus Circus Reno. In
addition, the Company owns a 50% interest in the 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
currently in the closing process and two towers currently under construction. The Company
also owns Shadow Creek, an exclusive world-class golf course located approximately ten miles
north of its Las Vegas Strip resorts.
The Company and its local partners own MGM Grand Detroit, LLC, which operates a casino in
an interim facility located in downtown Detroit, Michigan. The Company also owns and operates
two resorts in Mississippi Beau Rivage in Biloxi and Gold Strike Tunica. Beau Rivage
sustained significant damage in late August 2005 as a result of Hurricane Katrina and has been
closed since. The Company expects to reopen Beau Rivage in stages beginning in the third
quarter of 2006. The Company has 50% interests in two resorts outside of Nevada Borgata and
Grand Victoria. Borgata is a casino resort located on Renaissance Point in the Marina area of
Atlantic City, New Jersey. Boyd Gaming Corporation owns the other 50% of Borgata and also
operates the resort. The Company owns additional land adjacent to Borgata, a portion of which
consists of common roads, landscaping and master plan improvements, a portion of which is
being utilized for an expansion of Borgata, and a portion of which is available for future
development. Grand Victoria is a riverboat in Elgin, Illinois an affiliate of Hyatt Gaming
owns the other 50% of Grand Victoria and also operates the resort.
The Company owns 50% of MGM Grand Paradise Limited, a joint venture with Pansy Ho
Chiu-king formed to develop, build and operate a hotel-casino resort, MGM Grand Macau, in
Macau S.A.R. MGM Grand Macau is estimated to cost approximately $1.1 billion, including land
and license rights and preopening costs, and the resort is anticipated to open in late 2007.
The Company owns 66 acres adjacent to Bellagio on which it is developing Project
CityCenter. Project CityCenter will feature a 4,000-room casino resort designed by
world-famous architect Cesar Pelli; two 400-room non-gaming boutique hotels, one of which will
be managed by luxury hotelier Mandarin Oriental; approximately 470,000 square feet of retail
shops, dining and entertainment venues; and approximately 2.3 million square feet of
residential space in approximately 2,800 luxury condominium and condominium-hotel units in multiple
towers. The overall cost of Project CityCenter is estimated at approximately $7 billion,
excluding preopening and land costs. After estimated proceeds of $2.5 billion from the sale
of residential units, net project cost is estimated at approximately $4.5 billion. Project
CityCenter is expected to open in late 2009.
4
Basis of presentation. As permitted by the rules and regulations of the Securities and
Exchange Commission, certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting principles have
been condensed or omitted. These consolidated financial statements should be read in
conjunction with the Companys 2005 annual consolidated financial statements and notes thereto
included in the Companys Annual Report on Form 10-K for the year ended December 31, 2005.
In the opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments which include only normal recurring adjustments necessary
to present fairly the Companys financial position as of June 30, 2006, the results of its
operations for the three and six month periods ended June 30, 2006 and 2005, and cash flows
for the six month periods ended June 30, 2006 and 2005. The results of operations for such
periods are not necessarily indicative of the results to be expected for the full year.
Certain reclassifications, which have no effect on previously reported net income, have been
made to the 2005 financial statements to conform to the 2006 presentation.
Point-loyalty programs. The Company operates two primary point-loyalty programs
Players Club and One Club. One Club is the point-loyalty program at Mandalay resorts, and
that program will be phased out in 2006 and 2007, with customers transferred into Players
Club.
In Players Club, customers earn points based on their slots play, which can be redeemed
for cash. The Company records a liability based on the points earned times the redemption
value and records a corresponding reduction in casino revenue since the awards earned are
cash. 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.
In One Club, customers earn points based on both their slots and table games play, with
slots play contributing to a points balance which can be redeemed for cash and both table
games and slots play contributing to a points balance which can be redeemed for
complimentaries. The Company records a liability based on the points earned times the
redemption value. For cash points, the redemption value is the cash value, and the offsetting
entry is a reduction in casino revenue. For complimentaries points, the redemption value is
based on the average departmental cost of the free rooms, food and beverage and other services
and estimated redemption patterns, and the offsetting entry is a casino operating expense.
The expiration of unused points results in a reduction of the liability.
Financial statement impact of Hurricane Katrina. The Company maintains insurance
covering both property damage and business interruption as a result of wind and flood damage
sustained at Beau Rivage. The deductible under this coverage is $15 million, based on the
amount of damage incurred. Based on current estimates, insurance proceeds are expected to
exceed the net book value of damaged assets and clean-up and demolition costs; therefore, the
Company has not recorded an impairment charge related to the storm and upon ultimate
settlement of the claim will likely record a gain. Damaged assets with a net book value of
$126 million have been written off, clean-up and demolition costs of $34 million have been
incurred, and a corresponding insurance receivable has been recorded.
Business interruption coverage covers lost profits and other costs incurred during the
construction period and up to six months following the re-opening of the facility. Expected
costs during the interruption period are less than the anticipated business interruption
proceeds; therefore, post-storm costs of $77 million through June 30, 2006 are being offset by
the expected recoveries and a corresponding insurance receivable has been recorded.
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.
5
The insurance receivable is recorded within Deposits and other assets, net in the
accompanying consolidated balance sheets. Through June 30, 2006, the Company has received
$163 million from its insurers, leaving a net receivable of $74 million at June 30, 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 proceeds 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 is treating subsequent proceeds up to the amount of the recorded receivable as being
related to business interruption, and therefore classifying these proceeds as an operating
cash flow. Proceeds in excess of the recorded receivable will be segregated between property
damage and business interruption based on the ultimate negotiation and resolution of the
claim.
Real estate under development. Real estate under development represents capitalized
costs of wholly-owned real estate projects to be sold, which consists entirely of condominium
and condominium-hotel developments. Real estate under development includes land, direct
construction and development costs, property taxes, interest and direct selling costs.
Indirect selling costs are expensed as incurred. Substantially all of the balance in real
estate under development at June 30, 2006 represents the cost balance of land upon which
development of condominium or condominium-hotel towers began in the first quarter of 2006.
NOTE 2 ACQUISITION
On April 25, 2005, the Company closed its merger with Mandalay under which the Company
acquired 100% of the outstanding common stock of Mandalay for $71 in cash for each share of
Mandalays common stock. The acquisition expands the Companys portfolio of resorts on the
Las Vegas Strip, provides additional sites for future development and expands the Companys
employee and customer bases significantly. These factors result in the recognition of certain
intangible assets, discussed below, and significant goodwill. The total merger consideration
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 Mandalays interest in 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 |
|
|
1,225,373 |
|
Other intangible assets |
|
|
245,940 |
|
Other assets |
|
|
340,930 |
|
Assumed liabilities, excluding long-term debt |
|
|
(602,127 |
) |
Deferred taxes |
|
|
(1,487,478 |
) |
|
|
|
|
|
|
$ |
7,266,516 |
|
|
|
|
|
6
The amount allocated to intangible assets includes existing Mandalay intangible assets
and the recognition of customer relationships with a value of $12 million and an estimated useful life
of five years and trade names and trademarks with a value of $234 million and an indefinite
life. Goodwill and indefinite-lived intangible assets are not amortized.
The operating results for Mandalay are included in the accompanying consolidated
statements of income from the date of the acquisition. The following unaudited pro forma
consolidated financial information for the Company has been prepared assuming the Mandalay
acquisition had occurred on January 1, 2005.
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
Six Months |
For the periods ended June 30, |
|
2005 |
|
2005 |
|
|
(In thousands, except |
|
|
per share amounts) |
Net revenues |
|
$ |
1,921,772 |
|
|
$ |
3,822,750 |
|
Operating income |
|
|
412,728 |
|
|
|
832,842 |
|
Net income |
|
|
142,314 |
|
|
|
273,716 |
|
Basic earning per share: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
0.50 |
|
|
$ |
0.96 |
|
Diluted earning per share: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
0.48 |
|
|
$ |
0.93 |
|
NOTE 3 INVESTMENTS IN UNCONSOLIDATED AFFILIATES
Investments in unconsolidated affiliates consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
|
(In thousands) |
|
Marina District Development Company Borgata (50%) |
|
$ |
457,727 |
|
|
$ |
461,211 |
|
Elgin Riverboat ResortRiverboat Casino Grand Victoria (50%) |
|
|
299,500 |
|
|
|
241,279 |
|
MGM Grand Paradise Limited Macau (50%) |
|
|
248,109 |
|
|
|
187,568 |
|
Circus and Eldorado Joint Venture Silver Legacy (50%) |
|
|
28,456 |
|
|
|
26,492 |
|
Other |
|
|
9,082 |
|
|
|
14,604 |
|
|
|
|
|
|
|
|
|
|
|
1,042,874 |
|
|
|
931,154 |
|
|
|
|
|
|
|
|
|
|
Turnberry/MGM Grand Towers The Signature at
MGM Grand (50%) |
|
|
10,600 |
|
|
|
(7,400 |
) |
|
|
|
|
|
|
|
|
|
$ |
1,053,474 |
|
|
$ |
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 $45
million, which will be treated as an additional investment in the venture.
The negative investment balance in The Signature at MGM Grand at December 31, 2005,
represented cumulative losses of the venture, and was classified as Other long-term
obligations in the accompanying consolidated balance sheets along with deferred income
related to the excess of proceeds received over carrying value of land the Company
transferred to the venture. Due to the recognition of profits on a
portion of the condominium units of Tower 1, which was
completed in May 2006, the investment balance is positive at June 30, 2006 and is classified
as Investments in unconsolidated affiliates in the accompanying consolidated balance
sheets.
The Company recorded its share of the results of operations of unconsolidated affiliates
as follows (including the Companys share of Monte Carlos results in 2005):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Six Months |
|
For the periods ended June 30, |
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
(In thousands) |
|
Income from unconsolidated affiliates |
|
$ |
57,081 |
|
|
$ |
30,885 |
|
|
$ |
92,635 |
|
|
$ |
65,930 |
|
Preopening and start-up expenses |
|
|
(2,425 |
) |
|
|
(2,338 |
) |
|
|
(5,143 |
) |
|
|
(2,407 |
) |
Non-operating items from unconsolidated affiliates |
|
|
(3,341 |
) |
|
|
(4,404 |
) |
|
|
(6,936 |
) |
|
|
(7,191 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
51,315 |
|
|
$ |
24,143 |
|
|
$ |
80,556 |
|
|
$ |
56,332 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
NOTE 4 LONG-TERM DEBT
Long-term debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
|
(In thousands) |
|
Senior credit facility |
|
$ |
4,484,700 |
|
|
$ |
4,775,000 |
|
$200 million 6.45% senior notes, repaid at maturity in 2006 |
|
|
|
|
|
|
200,223 |
|
$244.5 million 7.25% senior notes, due 2006, net |
|
|
242,946 |
|
|
|
240,353 |
|
$710 million 9.75% senior subordinated notes, due 2007, net |
|
|
708,850 |
|
|
|
708,223 |
|
$200 million 6.75% senior notes, due 2007, net |
|
|
195,070 |
|
|
|
192,977 |
|
$492.2 million 10.25% senior subordinated notes, due 2007, net |
|
|
516,940 |
|
|
|
527,879 |
|
$180.4 million 6.75% senior notes, due 2008, net |
|
|
174,044 |
|
|
|
172,238 |
|
$196.2 million 9.5% senior notes, due 2008, net |
|
|
209,859 |
|
|
|
212,895 |
|
$226.3 million 6.5% senior notes, due 2009, net |
|
|
228,241 |
|
|
|
228,518 |
|
$1.05 billion 6% senior notes, due 2009, net |
|
|
1,054,596 |
|
|
|
1,055,232 |
|
$297.6 million 9.375% senior subordinated notes, due 2010, net |
|
|
322,354 |
|
|
|
325,332 |
|
$825 million 8.5% senior notes, due 2010, net |
|
|
822,951 |
|
|
|
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 |
|
|
133,628 |
|
|
|
133,725 |
|
$550 million 6.75% senior notes, due 2012 |
|
|
550,000 |
|
|
|
550,000 |
|
$150 million 7.625% senior subordinated debentures, due 2013, net |
|
|
155,670 |
|
|
|
155,978 |
|
$500 million 6.75% senior notes, due 2013 |
|
|
500,000 |
|
|
|
|
|
$525 million 5.875% senior notes, due 2014, net |
|
|
522,720 |
|
|
|
522,604 |
|
$875 million 6.625% senior notes, due 2015, net |
|
|
879,791 |
|
|
|
879,989 |
|
$250 million 6.875% senior notes, due 2016 |
|
|
250,000 |
|
|
|
|
|
$100 million 7.25% senior debentures, due 2017, net |
|
|
83,117 |
|
|
|
82,699 |
|
Floating rate convertible senior debentures due 2033 |
|
|
8,472 |
|
|
|
8,472 |
|
$150 million 7% debentures due 2036, net |
|
|
155,931 |
|
|
|
155,961 |
|
$4.3 million 6.7% debentures, due 2096 |
|
|
4,265 |
|
|
|
4,265 |
|
Other notes |
|
|
|
|
|
|
179 |
|
|
|
|
|
|
|
|
|
|
|
12,604,145 |
|
|
|
12,355,447 |
|
Less: Current portion |
|
|
|
|
|
|
(14 |
) |
|
|
|
|
|
|
|
|
|
$ |
12,604,145 |
|
|
$ |
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 for the three month periods ended June 30, 2006 and 2005 was $223
million and $174 million, respectively, of which $28 million and $7 million, respectively, was
capitalized. Total interest incurred for the six month periods ended June 30, 2006 and 2005
was $439 million and $279 million, respectively, of which $46 million and $10 million,
respectively, was capitalized.
At June 30, 2006, the senior credit facility had total capacity of $7.0 billion. The
senior credit facility matures in 2010 and consists of a $5.5 billion revolving credit
facility and $1.5 billion term loan facility. At June 30, 2006, the Company had approximately
$2.5 billion of available borrowing capacity under the senior credit facility.
In February 2006, the Company repaid the $200 million 6.45% senior notes at their
maturity 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, both through a Rule 144A offering. As required by
the indenture, the Company has initiated exchange offers to exchange the Rule 144A notes for
notes registered under the Securities Act of 1933. The proceeds were used to repay
outstanding borrowings under the senior credit facility.
8
In the 2005 six month period, the Company recorded a net $19 million loss on early
retirement of debt, classified as Other, net in the accompanying consolidated statements of
income. The February 2005 redemption of the Companys 6.875% senior notes due February 2008
resulted in a loss of $20 million. The May 2005 tender offer for several issuances of
Mandalays senior notes resulted in a net gain of $1 million.
The Companys long-term debt obligations contain customary covenants requiring the
Company to maintain certain financial ratios. At June 30, 2006, the Company was required to
maintain a maximum leverage ratio (debt to EBITDA, as defined) of 6.75:1 and a maximum senior
leverage ratio of 5.75:1. Also at June 30, 2006, the Company was required to maintain a
minimum coverage ratio (EBITDA to interest charges, as defined) of 2.0:1. At June 30, 2006,
the Companys leverage, senior leverage and interest coverage ratios were 5.4:1, 4.5:1 and
2.7:1, respectively.
NOTE 5 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Six Months |
|
For the periods ended June 30, |
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Weighted-average common shares outstanding
(used in the calculation of basic earnings per share) |
|
|
284,285 |
|
|
|
285,546 |
|
|
|
284,239 |
|
|
|
284,031 |
|
Potential dilution from stock options
and restricted stock |
|
|
8,677 |
|
|
|
11,179 |
|
|
|
8,629 |
|
|
|
11,654 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common and common equivalent shares
(used in the calculation of diluted earnings per share) |
|
|
292,962 |
|
|
|
296,725 |
|
|
|
292,868 |
|
|
|
295,685 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 6 COMPREHENSIVE INCOME
Comprehensive income consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Six Months |
|
For the periods ended June 30, |
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Net income |
|
$ |
146,394 |
|
|
$ |
141,168 |
|
|
$ |
290,431 |
|
|
$ |
252,247 |
|
Currency translation adjustment |
|
|
388 |
|
|
|
(831 |
) |
|
|
485 |
|
|
|
(1,152 |
) |
Derivative income from unconsolidated
affiliate, net of tax |
|
|
|
|
|
|
393 |
|
|
|
3 |
|
|
|
1,005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
146,782 |
|
|
$ |
140,730 |
|
|
$ |
290,919 |
|
|
$ |
252,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 7 STOCKHOLDERS EQUITY
Stock repurchases. In the six months ended June 30, 2006, the Company repurchased 3.5
million shares of common stock at a total cost of $141 million, leaving 11 million shares
available under a July 2004 authorization. The Company did not repurchase any shares in the
six months ended June 30, 2005.
9
NOTE 8 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:
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Six Months |
|
For the periods ended June 30, |
|
2006 |
|
|
2006 |
|
|
|
(In thousands, except
per share amounts) |
|
Incremental stock-based compensation under
SFAS123(R) |
|
$ |
16,460 |
|
|
$ |
38,322 |
|
Less: Amounts capitalized |
|
|
(275 |
) |
|
|
(616 |
) |
|
|
|
|
|
|
|
Reduction of income before income taxes |
|
$ |
16,185 |
|
|
$ |
37,706 |
|
|
|
|
|
|
|
|
Reduction in net income |
|
$ |
10,520 |
|
|
$ |
24,509 |
|
|
|
|
|
|
|
|
Reduction in basic earning per share |
|
$ |
0.04 |
|
|
$ |
0.09 |
|
|
|
|
|
|
|
|
Reduction in diluted earnings per share |
|
$ |
0.04 |
|
|
$ |
0.08 |
|
|
|
|
|
|
|
|
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 $18 million of excess tax
benefits classified as a financing cash inflow would have been classified as an operating cash
inflow.
10
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 lapse 50% on the third anniversary date after the grant and 50% on the fourth
anniversary date after the grant.
As of June 30, 2006, the aggregate number of share-based awards available for grant under
the omnibus plan was 5.2 million. A summary of activity under the Companys share-based
payment plans for the six months ended June 30, 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 |
|
|
1,514 |
|
|
|
42.87 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(1,953 |
) |
|
|
14.37 |
|
|
|
|
|
|
|
|
|
Forfeited or expired |
|
|
(269 |
) |
|
|
28.08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2006 |
|
|
34,117 |
|
|
|
24.26 |
|
|
|
6.1 |
|
|
$ |
564,147 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at June 30, 2006 |
|
|
13,553 |
|
|
|
18.18 |
|
|
|
5.6 |
|
|
$ |
306,508 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total intrinsic value of stock options and stock appreciation rights exercised during
the six month periods ended June 30, 2006 and 2005 was $54 million and $161 million,
respectively. The total income tax benefits from stock option exercises during the six month
periods ended June 30, 2006 and 2005 were $19 million and $57 million, respectively. As of
June 30, 2006, there was a total of $103 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 3.0 years. As noted earlier, the Company is recognizing expense
for awards granted prior to January 1, 2006 on an accelerated basis, so a disproportionate
share of the unamortized expense will be recognized in the first
12 months of this weighted-average period.
Restricted stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Average |
|
|
Shares |
|
Grant-Date |
|
|
(000s) |
|
Fair Value |
Nonvested at January 1, 2006 |
|
|
834 |
|
|
$ |
17.59 |
|
Granted |
|
|
|
|
|
|
|
|
Vested |
|
|
(818 |
) |
|
|
17.59 |
|
Forfeited |
|
|
(4 |
) |
|
|
17.62 |
|
|
|
|
|
|
|
|
|
|
Nonvested at June 30, 2006 |
|
|
12 |
|
|
|
17.45 |
|
|
|
|
|
|
|
|
|
|
11
During the six months ended June 30, 2006, restrictions lapsed with respect to 818,000
shares with a total fair value of $34 million. During the six months ended June 30, 2005,
restrictions lapsed with respect to 840,000 shares with a total fair value of $33 million. In
the six month periods ended June 30, 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 277,000 and 258,000 shares, respectively, were surrendered
in the six month periods ended June 30, 2006 and 2005, respectively. As of June 30, 2006,
there was less than $1 million of unamortized compensation related to restricted stock, all of
which will be recognized in 2006.
Recognition of compensation cost. The following table shows information about
compensation cost recognized:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Six Months |
|
For the periods ended June 30, |
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Compensation cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and stock appreciation rights |
|
$ |
16,510 |
|
|
$ |
19 |
|
|
$ |
38,422 |
|
|
$ |
39 |
|
Restricted stock |
|
|
1,178 |
|
|
|
1,880 |
|
|
|
3,012 |
|
|
|
3,760 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total compensation cost |
|
|
17,688 |
|
|
|
1,899 |
|
|
|
41,434 |
|
|
|
3,799 |
|
Less: Compensation cost capitalized |
|
|
(275 |
) |
|
|
|
|
|
|
(616 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation cost recognized as expense |
|
|
17,413 |
|
|
|
1,899 |
|
|
|
40,818 |
|
|
|
3,799 |
|
Less: Related tax benefit |
|
|
(5,779 |
) |
|
|
(215 |
) |
|
|
(13,616 |
) |
|
|
(584 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense, net of tax benefit |
|
$ |
11,634 |
|
|
$ |
1,684 |
|
|
$ |
27,202 |
|
|
$ |
3,215 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
Six Months |
For the periods ended June 30, |
|
2006 |
|
2005 |
|
2006 |
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
Expected volatility |
|
|
33 |
% |
|
|
37 |
% |
|
|
33 |
% |
|
|
37 |
% |
Expected term |
|
4.1 years |
|
4.3 years |
|
4.1 years |
|
4.4 years |
Expected dividend yield |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
Risk-free interest rate |
|
|
4.9 |
% |
|
|
3.8 |
% |
|
|
4.9 |
% |
|
|
3.8 |
% |
Forfeiture rate |
|
|
4.6 |
% |
|
|
0 |
% |
|
|
4.6 |
% |
|
|
0 |
% |
Weighted-average fair value of options granted |
|
$ |
14.89 |
|
|
$ |
12.42 |
|
|
$ |
14.65 |
|
|
$ |
12.57 |
|
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 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:
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Six Months |
|
For the periods ended June 30, |
|
2005 |
|
|
2005 |
|
|
|
(In thousands, except
per share amounts) |
|
Net income |
|
|
|
|
|
|
|
|
As reported |
|
$ |
141,168 |
|
|
$ |
252,247 |
|
Incremental stock-based compensation under
SFAS 123, net of tax benefit |
|
|
(12,168 |
) |
|
|
(16,350 |
) |
|
|
|
|
|
|
|
Pro forma |
|
$ |
129,000 |
|
|
$ |
235,897 |
|
|
|
|
|
|
|
|
Basic earnings per share |
|
|
|
|
|
|
|
|
As reported |
|
$ |
0.49 |
|
|
$ |
0.89 |
|
|
|
|
|
|
|
|
Pro forma |
|
$ |
0.45 |
|
|
$ |
0.83 |
|
|
|
|
|
|
|
|
Diluted earning per share |
|
|
|
|
|
|
|
|
As reported |
|
$ |
0.48 |
|
|
$ |
0.85 |
|
|
|
|
|
|
|
|
Pro forma |
|
$ |
0.43 |
|
|
$ |
0.80 |
|
|
|
|
|
|
|
|
12
NOTE 9
COMMITMENTS AND CONTINGENCIES
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. Recent legislative changes will allow the Company to operate the VLTs past
the expiration date of the current NYRA franchise agreement.
United Kingdom. In November 2003, the Company entered into an agreement with Newcastle
United PLC to create a 50-50 joint venture which would build a major new mixed-use
development, including a regional casino, on a site adjacent to Newcastle Uniteds football
stadium. The Company made an equity investment of £5 million ($9 million based on exchange
rates at June 30, 2006). The agreement is cancelable, and the equity investment refundable,
if certain conditions are not met within specified time frames, including obtaining a regional
casino license and regulatory approvals, and the implementation of an acceptable tax regime.
The Signature at MGM Grand. In 2004, the venture obtained construction financing for up
to $210 million for the development of Tower 1. The Company has provided a guaranty for up to
50% of the interest and principal obligations on the construction financing. The remaining 50%
of interest and principal obligations is guaranteed by affiliates of the ventures other
member. These affiliates and the Company have also jointly and severally provided a
completion guaranty.
In 2005, the venture obtained construction financing for up to $230 million for the
development of Tower 2. The Company has provided a guaranty for up to 50% of the interest and
principal obligations on the construction financing, with such guaranty decreasing by 50%
relative to the principal when construction is 50% complete. The remaining 50% of interest
and principal obligations is guaranteed by affiliates of the ventures other investor. These
affiliates and the Company have also jointly and severally provided a completion guaranty. At
June 30, 2006, the Company had a liability for its guaranty obligations for Towers 1 and 2 of
approximately $2 million, classified in Other long-term obligations in the accompanying
consolidated balance sheets.
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 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 investment in any future
joint development projects.
NOTE 10 PROPERTY TRANSACTIONS, NET
Net property transactions consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Six Months |
|
For the periods ended June 30, |
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Write-downs and impairments |
|
$ |
10,179 |
|
|
$ |
|
|
|
$ |
33,645 |
|
|
$ |
|
|
Demolition costs |
|
|
184 |
|
|
|
1,155 |
|
|
|
198 |
|
|
|
4,265 |
|
Net losses on sale or disposal of fixed assets |
|
|
2,212 |
|
|
|
638 |
|
|
|
2,201 |
|
|
|
1,731 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
12,575 |
|
|
$ |
1,793 |
|
|
$ |
36,044 |
|
|
$ |
5,996 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Write-downs and impairments in 2006 includes $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 Project CityCenter. Project CityCenter will feature a
state-of-the-art people mover system that will reconnect Bellagio with Monte Carlo, with the
stations at each resort completely redesigned as well. Other write-downs 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.
During 2005, demolition costs relate primarily to room remodel activity at MGM Grand Las
Vegas and construction of a new showroom at The Mirage.
13
NOTE 11 CONSOLIDATING CONDENSED FINANCIAL INFORMATION
The Companys subsidiaries (excluding MGM Grand Detroit, LLC and certain minor
subsidiaries) have fully and unconditionally guaranteed, on a joint and several basis, payment
of the senior credit facility, the senior notes and the senior subordinated notes. Separate
condensed financial statement information for the subsidiary guarantors and non-guarantors as
of June 30, 2006 and December 31, 2005 and for the three and six month periods ended June 30,
2006 and 2005 is as follows:
CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2006 |
|
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Elimination |
|
|
Consolidated |
|
|
|
(In thousands) |
|
Current assets |
|
$ |
81,095 |
|
|
$ |
798,087 |
|
|
$ |
26,679 |
|
|
$ |
|
|
|
$ |
905,861 |
|
Real estate under development |
|
|
|
|
|
|
115,887 |
|
|
|
|
|
|
|
|
|
|
|
115,887 |
|
Property and equipment, net |
|
|
|
|
|
|
16,497,689 |
|
|
|
315,930 |
|
|
|
(11,972 |
) |
|
|
16,801,647 |
|
Investments in subsidiaries |
|
|
15,337,197 |
|
|
|
249,333 |
|
|
|
|
|
|
|
(15,586,530 |
) |
|
|
|
|
Investments in unconsolidated affiliates |
|
|
127,902 |
|
|
|
968,237 |
|
|
|
299,500 |
|
|
|
(342,165 |
) |
|
|
1,053,474 |
|
Other non-current assets |
|
|
88,528 |
|
|
|
2,002,764 |
|
|
|
103,499 |
|
|
|
|
|
|
|
2,194,791 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
15,634,722 |
|
|
$ |
20,631,997 |
|
|
$ |
745,608 |
|
|
$ |
(15,940,667 |
) |
|
$ |
21,071,660 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
$ |
240,188 |
|
|
$ |
1,160,454 |
|
|
$ |
55,876 |
|
|
$ |
|
|
|
$ |
1,456,518 |
|
Intercompany accounts |
|
|
(1,572,130 |
) |
|
|
1,436,940 |
|
|
|
135,190 |
|
|
|
|
|
|
|
|
|
Deferred income taxes |
|
|
3,345,368 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,345,368 |
|
Long-term debt |
|
|
10,153,908 |
|
|
|
2,430,537 |
|
|
|
19,700 |
|
|
|
|
|
|
|
12,604,145 |
|
Other non-current liabilities |
|
|
1,995 |
|
|
|
148,313 |
|
|
|
49,928 |
|
|
|
|
|
|
|
200,236 |
|
Stockholders equity |
|
|
3,465,393 |
|
|
|
15,455,753 |
|
|
|
484,914 |
|
|
|
(15,940,667 |
) |
|
|
3,465,393 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
15,634,722 |
|
|
$ |
20,631,997 |
|
|
$ |
745,608 |
|
|
$ |
(15,940,667 |
) |
|
$ |
21,071,660 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2005 |
|
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Elimination |
|
|
Consolidated |
|
|
|
(In thousands) |
|
Current assets |
|
$ |
89,153 |
|
|
$ |
885,991 |
|
|
$ |
43,439 |
|
|
$ |
|
|
|
$ |
1,018,583 |
|
Property and equipment, net |
|
|
7,113 |
|
|
|
16,373,113 |
|
|
|
173,397 |
|
|
|
(11,972 |
) |
|
|
16,541,651 |
|
Investments in subsidiaries |
|
|
14,569,623 |
|
|
|
183,208 |
|
|
|
|
|
|
|
(14,752,831 |
) |
|
|
|
|
Investments in unconsolidated affiliates |
|
|
127,902 |
|
|
|
904,138 |
|
|
|
241,279 |
|
|
|
(342,165 |
) |
|
|
931,154 |
|
Other non-current assets |
|
|
86,011 |
|
|
|
2,018,809 |
|
|
|
103,212 |
|
|
|
|
|
|
|
2,208,032 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
14,879,802 |
|
|
$ |
20,365,259 |
|
|
$ |
561,327 |
|
|
$ |
(15,106,968 |
) |
|
$ |
20,699,420 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
$ |
345,195 |
|
|
$ |
1,148,306 |
|
|
$ |
41,067 |
|
|
$ |
|
|
|
$ |
1,534,568 |
|
Intercompany accounts |
|
|
(1,794,833 |
) |
|
|
1,726,415 |
|
|
|
68,418 |
|
|
|
|
|
|
|
|
|
Deferred income taxes |
|
|
3,378,371 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,378,371 |
|
Long-term debt |
|
|
9,713,754 |
|
|
|
2,641,679 |
|
|
|
|
|
|
|
|
|
|
|
12,355,433 |
|
Other non-current liabilities |
|
|
2,243 |
|
|
|
143,733 |
|
|
|
50,000 |
|
|
|
|
|
|
|
195,976 |
|
Stockholders equity |
|
|
3,235,072 |
|
|
|
14,705,126 |
|
|
|
401,842 |
|
|
|
(15,106,968 |
) |
|
|
3,235,072 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
14,879,802 |
|
|
$ |
20,365,259 |
|
|
$ |
561,327 |
|
|
$ |
(15,106,968 |
) |
|
$ |
20,699,420 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, 2006 |
|
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Elimination |
|
|
Consolidated |
|
|
|
(In thousands) |
|
Net revenues |
|
$ |
|
|
|
$ |
1,753,276 |
|
|
$ |
113,907 |
|
|
$ |
|
|
|
$ |
1,867,183 |
|
Equity in subsidiaries earnings |
|
|
431,345 |
|
|
|
39,901 |
|
|
|
|
|
|
|
(471,246 |
) |
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Casino and hotel operations |
|
|
4,902 |
|
|
|
921,682 |
|
|
|
61,926 |
|
|
|
|
|
|
|
988,510 |
|
General and administrative |
|
|
4,777 |
|
|
|
259,029 |
|
|
|
12,796 |
|
|
|
|
|
|
|
276,602 |
|
Corporate expense |
|
|
11,678 |
|
|
|
26,901 |
|
|
|
|
|
|
|
|
|
|
|
38,579 |
|
Preopening and start-up expenses |
|
|
119 |
|
|
|
14,241 |
|
|
|
684 |
|
|
|
|
|
|
|
15,044 |
|
Restructuring costs |
|
|
|
|
|
|
231 |
|
|
|
|
|
|
|
|
|
|
|
231 |
|
Property transactions, net |
|
|
3,394 |
|
|
|
9,178 |
|
|
|
3 |
|
|
|
|
|
|
|
12,575 |
|
Depreciation and amortization |
|
|
684 |
|
|
|
161,063 |
|
|
|
3,237 |
|
|
|
|
|
|
|
164,984 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,554 |
|
|
|
1,392,325 |
|
|
|
78,646 |
|
|
|
|
|
|
|
1,496,525 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from unconsolidated affiliates |
|
|
|
|
|
|
51,750 |
|
|
|
5,331 |
|
|
|
|
|
|
|
57,081 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
405,791 |
|
|
|
452,602 |
|
|
|
40,592 |
|
|
|
(471,246 |
) |
|
|
427,739 |
|
Interest income (expense), net |
|
|
(178,949 |
) |
|
|
(13,402 |
) |
|
|
33 |
|
|
|
|
|
|
|
(192,318 |
) |
Other, net |
|
|
890 |
|
|
|
(7,855 |
) |
|
|
291 |
|
|
|
|
|
|
|
(6,674 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
227,732 |
|
|
|
431,345 |
|
|
|
40,916 |
|
|
|
(471,246 |
) |
|
|
228,747 |
|
Provision for income taxes |
|
|
(81,338 |
) |
|
|
|
|
|
|
(1,015 |
) |
|
|
|
|
|
|
(82,353 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
146,394 |
|
|
$ |
431,345 |
|
|
$ |
39,901 |
|
|
$ |
(471,246 |
) |
|
$ |
146,394 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, 2005 |
|
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Elimination |
|
|
Consolidated |
|
|
|
(In thousands) |
|
Net revenues |
|
$ |
|
|
|
$ |
1,606,254 |
|
|
$ |
109,702 |
|
|
$ |
|
|
|
$ |
1,715,956 |
|
Equity in subsidiaries earnings |
|
|
343,429 |
|
|
|
31,477 |
|
|
|
|
|
|
|
(374,906 |
) |
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Casino and hotel operations |
|
|
|
|
|
|
872,955 |
|
|
|
57,234 |
|
|
|
|
|
|
|
930,189 |
|
General and administrative |
|
|
|
|
|
|
236,303 |
|
|
|
13,410 |
|
|
|
|
|
|
|
249,713 |
|
Corporate expense |
|
|
2,874 |
|
|
|
28,777 |
|
|
|
|
|
|
|
|
|
|
|
31,651 |
|
Preopening and start-up expenses |
|
|
|
|
|
|
3,897 |
|
|
|
|
|
|
|
|
|
|
|
3,897 |
|
Restructuring costs (credit) |
|
|
|
|
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
(4 |
) |
Property transactions, net |
|
|
|
|
|
|
1,491 |
|
|
|
302 |
|
|
|
|
|
|
|
1,793 |
|
Depreciation and amortization |
|
|
606 |
|
|
|
144,670 |
|
|
|
6,397 |
|
|
|
|
|
|
|
151,673 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,480 |
|
|
|
1,288,089 |
|
|
|
77,343 |
|
|
|
|
|
|
|
1,368,912 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from unconsolidated affiliates |
|
|
|
|
|
|
26,033 |
|
|
|
4,852 |
|
|
|
|
|
|
|
30,885 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
339,949 |
|
|
|
375,675 |
|
|
|
37,211 |
|
|
|
(374,906 |
) |
|
|
377,929 |
|
Interest income (expense), net |
|
|
(131,488 |
) |
|
|
(31,563 |
) |
|
|
1,022 |
|
|
|
|
|
|
|
(162,029 |
) |
Other, net |
|
|
|
|
|
|
(6,287 |
) |
|
|
102 |
|
|
|
|
|
|
|
(6,185 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
208,461 |
|
|
|
337,825 |
|
|
|
38,335 |
|
|
|
(374,906 |
) |
|
|
209,715 |
|
Provision for income taxes |
|
|
(67,293 |
) |
|
|
|
|
|
|
(1,254 |
) |
|
|
|
|
|
|
(68,547 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
141,168 |
|
|
$ |
337,825 |
|
|
$ |
37,081 |
|
|
$ |
(374,906 |
) |
|
$ |
141,168 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, 2006 |
|
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Elimination |
|
|
Consolidated |
|
|
|
(In thousands) |
|
Net revenues |
|
$ |
|
|
|
$ |
3,516,716 |
|
|
$ |
229,000 |
|
|
$ |
|
|
|
$ |
3,745,716 |
|
Equity in subsidiaries earnings |
|
|
848,153 |
|
|
|
84,266 |
|
|
|
|
|
|
|
(932,419 |
) |
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Casino and hotel operations |
|
|
10,705 |
|
|
|
1,850,188 |
|
|
|
124,949 |
|
|
|
|
|
|
|
1,985,842 |
|
General and administrative |
|
|
11,413 |
|
|
|
508,018 |
|
|
|
27,175 |
|
|
|
|
|
|
|
546,606 |
|
Corporate expense |
|
|
23,443 |
|
|
|
51,788 |
|
|
|
|
|
|
|
|
|
|
|
75,231 |
|
Preopening and start-up expenses |
|
|
277 |
|
|
|
19,671 |
|
|
|
1,277 |
|
|
|
|
|
|
|
21,225 |
|
Restructuring costs |
|
|
|
|
|
|
1,035 |
|
|
|
|
|
|
|
|
|
|
|
1,035 |
|
Property transactions, net |
|
|
3,394 |
|
|
|
32,649 |
|
|
|
1 |
|
|
|
|
|
|
|
36,044 |
|
Depreciation and amortization |
|
|
1,499 |
|
|
|
312,604 |
|
|
|
6,154 |
|
|
|
|
|
|
|
320,257 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,731 |
|
|
|
2,775,953 |
|
|
|
159,556 |
|
|
|
|
|
|
|
2,986,240 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from unconsolidated affiliates |
|
|
|
|
|
|
76,377 |
|
|
|
16,258 |
|
|
|
|
|
|
|
92,635 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
797,422 |
|
|
|
901,406 |
|
|
|
85,702 |
|
|
|
(932,419 |
) |
|
|
852,111 |
|
Interest
income (expense), net |
|
|
(348,484 |
) |
|
|
(38,611 |
) |
|
|
136 |
|
|
|
|
|
|
|
(386,959 |
) |
Other, net |
|
|
842 |
|
|
|
(14,642 |
) |
|
|
487 |
|
|
|
|
|
|
|
(13,313 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
449,780 |
|
|
|
848,153 |
|
|
|
86,325 |
|
|
|
(932,419 |
) |
|
|
451,839 |
|
Provision for income taxes |
|
|
(159,349 |
) |
|
|
|
|
|
|
(2,059 |
) |
|
|
|
|
|
|
(161,408 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
290,431 |
|
|
$ |
848,153 |
|
|
$ |
84,266 |
|
|
$ |
(932,419 |
) |
|
$ |
290,431 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, 2005 |
|
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Elimination |
|
|
Consolidated |
|
|
|
(In thousands) |
|
Net revenues |
|
$ |
|
|
|
$ |
2,696,689 |
|
|
$ |
223,402 |
|
|
$ |
|
|
|
$ |
2,920,091 |
|
Equity in subsidiaries earnings |
|
|
627,590 |
|
|
|
66,987 |
|
|
|
|
|
|
|
(694,577 |
) |
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Casino and hotel operations |
|
|
|
|
|
|
1,456,696 |
|
|
|
117,186 |
|
|
|
|
|
|
|
1,573,882 |
|
General and administrative |
|
|
|
|
|
|
379,801 |
|
|
|
28,276 |
|
|
|
|
|
|
|
408,077 |
|
Corporate expense |
|
|
6,863 |
|
|
|
51,579 |
|
|
|
|
|
|
|
|
|
|
|
58,442 |
|
Preopening and start-up expenses |
|
|
|
|
|
|
6,421 |
|
|
|
|
|
|
|
|
|
|
|
6,421 |
|
Restructuring costs (credit) |
|
|
|
|
|
|
(70 |
) |
|
|
|
|
|
|
|
|
|
|
(70 |
) |
Property transactions, net |
|
|
|
|
|
|
5,692 |
|
|
|
304 |
|
|
|
|
|
|
|
5,996 |
|
Depreciation and amortization |
|
|
977 |
|
|
|
247,779 |
|
|
|
13,412 |
|
|
|
|
|
|
|
262,168 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,840 |
|
|
|
2,147,898 |
|
|
|
159,178 |
|
|
|
|
|
|
|
2,314,916 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from unconsolidated affiliates |
|
|
|
|
|
|
61,078 |
|
|
|
4,852 |
|
|
|
|
|
|
|
65,930 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
619,750 |
|
|
|
676,856 |
|
|
|
69,076 |
|
|
|
(694,577 |
) |
|
|
671,105 |
|
Interest
income (expense), net |
|
|
(218,017 |
) |
|
|
(44,989 |
) |
|
|
1,206 |
|
|
|
|
|
|
|
(261,800 |
) |
Other, net |
|
|
(19,500 |
) |
|
|
(5,100 |
) |
|
|
(63 |
) |
|
|
|
|
|
|
(24,663 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
382,233 |
|
|
|
626,767 |
|
|
|
70,219 |
|
|
|
(694,577 |
) |
|
|
384,642 |
|
Provision for income taxes |
|
|
(129,986 |
) |
|
|
|
|
|
|
(2,409 |
) |
|
|
|
|
|
|
(132,395 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
252,247 |
|
|
$ |
626,767 |
|
|
$ |
67,810 |
|
|
$ |
(694,577 |
) |
|
$ |
252,247 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, 2006 |
|
|
|
|
|
|
Guarantor |
|
Non-Guarantor |
|
|
|
|
|
|
Parent |
|
Subsidiaries |
|
Subsidiaries |
|
Elimination |
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
(In thousands) |
Net cash provided by (used in) operating activities |
|
$ |
(575,883 |
) |
|
$ |
916,682 |
|
|
$ |
77,252 |
|
|
$ |
|
|
|
$ |
418,051 |
|
Net cash provided by (used in) investing activities |
|
|
5,300 |
|
|
|
(525,440 |
) |
|
|
(125,727 |
) |
|
|
(2,284 |
) |
|
|
(648,151 |
) |
Net cash provided by (used in) financing activities |
|
|
564,929 |
|
|
|
(456,946 |
) |
|
|
36,892 |
|
|
|
2,284 |
|
|
|
147,159 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, 2005 |
|
|
|
|
|
|
Guarantor |
|
Non-Guarantor |
|
|
|
|
|
|
Parent |
|
Subsidiaries |
|
Subsidiaries |
|
Elimination |
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
(In thousands) |
Net cash provided by (used in) operating activities |
|
$ |
(181,632 |
) |
|
$ |
740,512 |
|
|
$ |
60,045 |
|
|
$ |
|
|
|
$ |
618,925 |
|
Net cash used in investing activities |
|
|
(4,587,820 |
) |
|
|
(292,843 |
) |
|
|
(2,210 |
) |
|
|
(2,190 |
) |
|
|
(4,885,063 |
) |
Net cash provided by (used in) financing activities |
|
|
4,761,697 |
|
|
|
(421,781 |
) |
|
|
(204,601 |
) |
|
|
2,190 |
|
|
|
4,137,505 |
|
16
Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations
Overview
At June 30, 2006, our primary 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.
Boardwalk closed in early 2006 in preparation for
Project CityCenter see Other Factors Affecting
Liquidity. |
|
|
|
Other domestic:
|
|
The Primm Valley Resorts (Whiskey Petes, Buffalo
Bills and Primm Valley Resort) in Primm, Nevada;
Circus Circus Reno and Silver Legacy (50% owned) in
Reno, Nevada; Colorado Belle and Edgewater in Laughlin,
Nevada; Gold Strike and Nevada Landing in Jean, Nevada;
Railroad Pass in Henderson, Nevada; MGM Grand Detroit;
Beau Rivage in Biloxi, Mississippi and Gold Strike
Tunica in Tunica, Mississippi; Borgata (50% owned) in
Atlantic City, New Jersey; and Grand Victoria (50%
owned) in Elgin, Illinois. |
Other operations include the Shadow Creek golf course in North Las Vegas; two golf
courses at Primm Valley; a 50% investment in The Signature at MGM Grand, a condominium-hotel
development in Las Vegas; and a 50% investment in MGM Grand Paradise Limited, which is
constructing a casino resort in Macau.
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 Motor City Casino in Detroit, Michigan.
The Mandalay acquisition expands our portfolio of resorts on the Las Vegas Strip,
provides additional sites for future development and expands our employee and customer bases
significantly. These factors result in the recognition of certain intangible assets and
significant goodwill. We did not incur any significant employee termination costs or other
exit costs in connection with the Mandalay acquisition.
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 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 that 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
high-end gaming customers, which can cause variability in our results. Key performance
indicators related to revenue are:
17
|
|
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. |
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 can affect the results of any interim period, including the timing of major Las Vegas
conventions, the amount and timing of marketing and special events for our high-end customers,
and the level of play during major holidays, including New Year and Chinese New Year. Our
results do not depend on key individual customers, though our success in marketing to customer
groups, such as convention customers, or the financial health of customer groups, such as
business travelers or high-end gaming customers from a particular country or region, can
impact our results.
Financial Results
The following discussion is based on our consolidated financial statements for the three
and six months ended June 30, 2006 and 2005. References to same-store results exclude the
Mandalay resorts and Monte Carlo for all periods. Same-store results also exclude Beau Rivage
and Boardwalk for all periods. On a consolidated basis, the most important factors and trends
contributing to our operating performance for the period were:
|
|
The addition of Mandalays resorts on April 25, 2005.
For the three months ended June 30, 2006, net revenue for the
Mandalay resorts was $732 million and operating income was
$180 million, compared to net revenue of $524 million and
operating income of $131 million in the 2005 quarter. For
the six months ended June 30, 2006, net revenue for the
Mandalay resorts was $1.5 billion and operating income was
$357 million, compared to net revenue of $524 million and
operating income of $131 million in 2005. |
|
|
|
The closure of Beau Rivage in August 2005 as a result of
Hurricane Katrina. Beau Rivage earned operating income of
$20 million for the three months ended June 30, 2005 and $35
million for the six months ended June 30, 2005. |
|
|
|
The adoption of Statement of Financial Accounting
Standards No. 123(R), Share-Based Payment (SFAS 123(R)).
We recorded $16 million and $38 million of additional stock
compensation expense in the three and six month periods ended
June 30, 2006, respectively, as a result of adopting SFAS
123(R). We adopted SFAS 123(R) using the
modified-prospective transition method and began applying the
valuation and other criteria to stock options granted
beginning January 1, 2006. Under the modified-prospective
method, we are recognizing expense for the unvested portion
of previously issued grants based on the valuation and
attribution methods originally used to calculate the pro
forma disclosures. Prior to January 1, 2006, we did not
recognize expense for employee stock options. |
|
|
|
Recognition of our share of profits from the completion
of Tower 1 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 profits on
a portion of the condominium units was recognized in the second quarter and the
remainder will be recognized in the third quarter. For the
quarter ended June 30, 2006, we recognized income of
approximately $28 million related to units closed and the pro
rata recognition of deferred profit on land contributed to
the venture. Such income is classified in Income from
unconsolidated affiliates in the accompanying consolidated
statements of income. |
18
Our net revenue increased 9% in the second quarter over the prior year quarter. On a
same-store basis, revenue growth was 4% in the quarter. We achieved modest REVPAR growth
against difficult prior year comparisons, increases in food and beverage revenue and solid
casino results. Benefiting the second quarter 2006 revenue results was a higher table games
hold percentage than the prior year.
Our operating income in 2006 increased 13% for the quarter to $428 million, due to the
addition of Mandalay, the positive revenue trends described above, and increased operating
margins. Operating income comparisons were negatively affected by the $16 million of
additional stock compensation expense in the second quarter of 2006 and the closure of Beau
Rivage. In addition, we incurred higher preopening and start-up expenses, restructuring and
property transactions in the current year $28 million versus $6 million. Operating income
was positively impacted by the profit recognition on Tower 1 of The Signature at MGM Grand.
Our operating margin was 23% in the 2006 quarter versus 22% in the 2005 quarter.
Net income increased 4% over the 2005 quarter. Increased operating income was offset in
part by higher interest expense resulting from the Mandalay merger.
Trends for the six month periods were very similar to those noted above for the second
quarter. Table games hold percentages were more comparable between periods, but trends in
volume and pricing indicators were otherwise in line with the second quarter trends, as were
trends in profitability.
Operating Results Detailed Revenue Information
The following table presents details of our net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
|
|
|
|
Percentage |
|
|
|
|
|
|
|
|
|
|
Percentage |
|
|
|
|
|
|
2006 |
|
|
Change |
|
|
2005 |
|
|
2006 |
|
|
Change |
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
Casino revenue, net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table games |
|
$ |
305,496 |
|
|
|
4 |
% |
|
$ |
294,402 |
|
|
$ |
650,537 |
|
|
|
16 |
% |
|
$ |
558,509 |
|
Slots |
|
|
464,932 |
|
|
|
4 |
% |
|
|
445,869 |
|
|
|
934,122 |
|
|
|
20 |
% |
|
|
776,410 |
|
Other |
|
|
25,945 |
|
|
|
8 |
% |
|
|
24,107 |
|
|
|
58,679 |
|
|
|
33 |
% |
|
|
44,272 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Casino revenue, net |
|
|
796,373 |
|
|
|
4 |
% |
|
|
764,378 |
|
|
|
1,643,338 |
|
|
|
19 |
% |
|
|
1,379,191 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-casino revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rooms |
|
|
524,047 |
|
|
|
15 |
% |
|
|
455,761 |
|
|
|
1,044,297 |
|
|
|
43 |
% |
|
|
729,815 |
|
Food and beverage |
|
|
387,527 |
|
|
|
10 |
% |
|
|
352,184 |
|
|
|
774,266 |
|
|
|
30 |
% |
|
|
595,662 |
|
Entertainment, retail and other |
|
|
311,238 |
|
|
|
7 |
% |
|
|
292,147 |
|
|
|
600,886 |
|
|
|
24 |
% |
|
|
486,008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-casino revenue |
|
|
1,222,812 |
|
|
|
11 |
% |
|
|
1,100,092 |
|
|
|
2,419,449 |
|
|
|
34 |
% |
|
|
1,811,485 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,019,185 |
|
|
|
8 |
% |
|
|
1,864,470 |
|
|
|
4,062,787 |
|
|
|
27 |
% |
|
|
3,190,676 |
|
Less: Promotional allowances |
|
|
(152,002 |
) |
|
|
2 |
% |
|
|
(148,514 |
) |
|
|
(317,071 |
) |
|
|
17 |
% |
|
|
(270,585 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,867,183 |
|
|
|
9 |
% |
|
$ |
1,715,956 |
|
|
$ |
3,745,716 |
|
|
|
28 |
% |
|
$ |
2,920,091 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On a same-store basis, table games revenue increased 9% in the second quarter, as
baccarat volume was very strong, and hold percentages were higher in the current year, near
the top of the Companys normal range compared to the mid-point of the range in 2005. Slots
revenue increased 4% on a same-store basis. These increases are similar to those experienced
for the six month periods as well.
Non-casino revenue increased in 2006 primarily due to modest increases in room rates in
all customer segments, as well as the focus on increasing occupancy to drive visitor volume in
other operating areas, particularly at the Mandalay resorts. In the second quarter of 2006,
same-store REVPAR was $152, up 3% from the prior year quarter. REVPAR at our Las Vegas Strip
resorts was $172 in the 2006 quarter on a same-store basis, an increase of 3%. On a six-month
basis, the same-store REVPAR increase is also 3% company-wide, but same-store hotel revenue
increased 5% as we had 50,000 more rooms available in the 2006 period.
19
Food and beverage revenue increased 4% on a same-store basis in the second quarter,
generally consistent with the increase in occupied rooms and also benefiting from new
restaurants at The Mirage. Entertainment revenue decreased 2% in the
quarter on a same-store basis a 5% decrease excluding
revenues from the recently opened Love show at The Mirage
due to increased competition from new shows and nightclubs in Las Vegas.
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
stock options and stock appreciation rights awarded to employees.
The following table shows the amount of incremental compensation related to employee
stock options and stock appreciation rights included within each income statement expense
caption:
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Six Months |
|
For the periods ended June 30, |
|
2006 |
|
|
2006 |
|
|
|
(In thousands) |
|
Casino |
|
$ |
3,297 |
|
|
$ |
6,984 |
|
Other operating departments |
|
|
1,605 |
|
|
|
3,722 |
|
General and administrative |
|
|
4,777 |
|
|
|
11,413 |
|
Corporate expense and other |
|
|
6,506 |
|
|
|
15,587 |
|
|
|
|
|
|
|
|
|
|
$ |
16,185 |
|
|
$ |
37,706 |
|
|
|
|
|
|
|
|
Preopening and start-up expenses were $15 million in the 2006 quarter versus $4 million
in 2005, and included amounts related primarily to The Signature at MGM Grand, the Love show
at The Mirage, Project CityCenter and Borgatas expansion. For the six month periods,
preopening and start-up expenses were $21 million in 2006 compared to $6 million in 2005,
consisting of largely the same components.
Property transactions, net consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Six Months |
|
For the periods ended June 30, |
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Write-downs and impairments |
|
$ |
10,179 |
|
|
$ |
|
|
|
$ |
33,645 |
|
|
$ |
|
|
Demolition costs |
|
|
184 |
|
|
|
1,155 |
|
|
|
198 |
|
|
|
4,265 |
|
Net losses on sale or disposal of fixed assets |
|
|
2,212 |
|
|
|
638 |
|
|
|
2,201 |
|
|
|
1,731 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
12,575 |
|
|
$ |
1,793 |
|
|
$ |
36,044 |
|
|
$ |
5,996 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Write-downs and impairments in 2006 includes $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 Project CityCenter. Project CityCenter will feature a
state-of-the-art people mover system that will reconnect Bellagio with Monte Carlo, with the
stations at each resort completely redesigned as well. Other write-downs 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.
During 2005, demolition costs related primarily to room remodel activity at MGM Grand Las
Vegas and construction of the new showroom at The Mirage.
Non-operating Results
Net interest expense increased to $195 million in the 2006 second quarter from $167
million in the 2005 period due primarily to the additional debt outstanding after the Mandalay
acquisition. For the six month periods, net interest expense increased from $269 million in
2005 to $393 million in 2006. In the 2005 six months, Other, net includes a $20 million
loss on early retirement of debt related to the early redemption of our 6.875% senior notes
due 2008, and $7 million of income from the favorable resolution of a pre-acquisition
contingency related to the Mirage Resorts acquisition.
20
Liquidity and Capital Resources
Cash Flows Operating Activities
Operating cash flow was $418 million for the six months ended June 30, 2006, a decrease
from $619 million in the prior year period. This decrease was expected, despite the increased
operating income in the period, due to higher interest payments resulting from the debt
financing for the Mandalay merger and higher tax payments, including a $112 million tax
payment for the gain on Mandalays sale of Motor City Casino, which was sold in April 2005.
In addition, the prior year results include a $61 million tax benefit from stock compensation.
Under SFAS 123(R), the current year benefit is shown partially in operating activities and partially in financing activities. At June 30, 2006, we held cash and cash equivalents of $295 million.
Cash Flows Investing Activities
Capital expenditures in the six months ended June 30, 2006 primarily consisted of the
following, excluding capitalized interest:
|
|
|
Project CityCenter $231 million; |
|
|
|
|
The permanent casino in Detroit $140 million; |
|
|
|
|
Beau Rivage $228 million. |
Remaining 2006 capital expenditures consisted of capital expenditures at existing
resorts, including spending on the new theatre and new restaurants at The Mirage. Investments
in unconsolidated affiliates of $63 million in the 2006 period primarily represent partial
funding of a required loan, in an amount up to $100 million, 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. Offsetting these expenditures was $114 million in insurance
proceeds related to Hurricane Katrina.
In 2005, capital expenditures were $232 million, and included room enhancements and other
projects at MGM Grand Las Vegas and spending on the Mirage theatre. Also in the 2005 period,
we completed the acquisition of Mandalay, with net cash paid of $4.4 billion, and invested
$177 million in MGM Grand Macau.
Cash Flows Financing Activities
In the six months ended June 30, 2006, we borrowed net debt of $260 million, with net
repayments of $290 million under our senior credit facility and the repayment of $200 million
of senior notes at their scheduled maturity offset by the April 2006 issuance of $500 million
of 6.75% senior notes due 2013 and $250 million of 6.875% senior notes due 2016. The increase
in net debt was due primarily to the level of capital expenditures, share repurchases and the
$112 million tax payment for the Motor City casino gain. At June 30, 2006 our senior credit
facility had a balance of $4.5 billion, with available liquidity of $2.5 billion.
We repurchased 3.5 million shares of our common stock in the six month ended June 30,
2006 at a cost of $141 million, leaving 11 million shares available under our current share
repurchase authorization. We received proceeds of $28 million from the exercise of stock
options in the six months ended June 30, 2006.
Other Factors Affecting Liquidity
Distributions from The Signature at MGM Grand. Tower 1 of The Signature at MGM Grand was
completed in the second quarter of 2006. Tower 2 is expected to be completed in the fourth
quarter of 2006. We expect to receive distributions totaling in excess of $100 million from
the profits on sale of these two towers condominium units in
2006 and early 2007. Through June 30, 2006, we had received
$4 million of such distributions.
Long-term Debt Payable in 2006. We repaid $200 million of long-term debt at maturity in
February 2006 with available borrowings under our senior credit facility. Another $245
million of long-term debt matures later in 2006.
Project CityCenter. In November 2004 we announced a plan to develop a multi-billion
dollar urban metropolis, Project CityCenter, on 66 acres of land on the Las Vegas Strip,
between Bellagio and Monte Carlo. Project CityCenter will feature a 4,000-room casino resort
designed by world-famous architect Cesar Pelli; two 400-room boutique hotels, one of which
will be managed by luxury hotelier Mandarin Oriental; approximately
470,000 square feet of retail shops, dining and entertainment venues; and approximately 2.3
million square feet of residential space in approximately 2,800 luxury condominium and
condominium-hotel units in multiple towers.
21
As currently contemplated, we believe Project CityCenter will cost approximately $7
billion, excluding preopening and land costs. After estimated proceeds of $2.5 billion from
the sale of residential units, we believe the net project cost will be approximately $4.5
billion. We expect the project to open in late 2009. The complete design, timing and cost of
Project CityCenter are still subject to change, and are subject to risks attendant to
large-scale projects.
Detroit Permanent Casino. The permanent casino at MGM Grand Detroit is expected to open
in late 2007 at a cost of $765 million, including land and preopening costs, and will
feature a 400-room hotel, 100,000-square foot casino, numerous restaurant and entertainment
amenities, and spa and convention facilities. The complete design, timing and cost of the
permanent facility are still subject to change, and are subject to risks attendant to
large-scale projects.
MGM Grand Macau. We own 50% of MGM Grand Paradise
Limited, an entity which is
developing, and will operate, MGM Grand Macau, a hotel-casino resort in Macau S.A.R. Pansy Ho
Chiu-king owns the other 50% of MGM Grand Paradise Limited. MGM Grand Macau will be located
on a prime waterfront site and will feature at least 345 table games and 1,035 slots with room
for significant expansion. Other features will include a 600-room hotel, a luxurious spa,
convention space, a variety of dining destinations, and other attractions.
Construction of MGM Grand Macau, which is estimated to cost $1.1 billion including license and
land rights and preopening costs, began in the second quarter of 2005 and the resort is
anticipated to open in late 2007. The complete design, timing and cost of the project are
still subject to change, and are subject to the risks attendant to large-scale projects. We
have invested $235 million in the venture and are committed to loaning the venture up to an
additional $45 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.
Beau Rivage Rebuilding. We are in the process of rebuilding Beau Rivage. Damage was
extensive on the main levels of the resort, largely destroying the casino floor and gaming
equipment, the resorts restaurants, the retail area and a portion of the parking garage.
There was also damage, though to a lesser extent, in the hotel tower. We expect to reopen the
resort in stages beginning in the third quarter of 2006. When fully reopened, Beau Rivage
will include 1,740 guestrooms, over 2,000 slot machines and 90 table games, new and restored
restaurants, a state-of-the-art convention center, and pool and spa amenities.
We believe that a large portion of the costs to rebuild Beau Rivage will be covered under
our insurance policies. However, we cannot determine the exact amount of reimbursement until
we submit our claims and receive notice of approval from our insurers. It is also uncertain
as to the timing of such reimbursements, and we have been funding the rebuilding costs in
advance of receiving reimbursements from our insurers.
New York Racing Association. We have entered into a definitive agreement with the New
York Racing Association (NYRA) to manage video lottery terminals (VLTs) at NYRAs Aqueduct
horseracing facility in metropolitan New York. 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. Recent
legislative changes will allow us to operate the VLTs past the expiration date of the current
NYRA franchise agreement.
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 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 investment in any future
joint development projects.
22
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 position 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. We are currently analyzing the impact of FIN 48. Any changes to our recorded liabilities
will be recorded as a cumulative effect adjustment to the opening balance of retained
earnings.
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 variable rate 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 June 30, 2006, long-term fixed rate borrowings represented approximately 64% of our
total borrowings. Assuming a 100 basis-point change in LIBOR at June 30, 2006, our annual
interest cost would change by approximately $45 million.
Forward-looking Statements
(Cautionary Statements Under the Private Securities Litigation Reform Act of 1995)
This Form 10-Q contains 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-K, Annual Reports to
Stockholders, Forms 8-K, press releases and other materials we release to the public. Any or
all of our forward-looking statements in this Form 10-Q 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-Q
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. 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.
23
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We incorporate by reference the information appearing under Market Risk in Part I, Item
2 of this Form 10-Q.
Item 4. 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 June 30, 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.
During the quarter ended June 30, 2006, there were no changes in our internal control
over financial reporting that materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting. In making our assessment of changes in
internal control over financial reporting as of June 30, 2006, we have excluded the Mandalay
operations. These operations represent approximately 45% of our total assets at June 30, 2006
and approximately 39% of our total net revenues for the quarter ended June 30, 2006. We
intend to disclose any material changes in internal control over financial reporting at the
Mandalay operations in the first annual assessment of internal control over financial
reporting in which we are required to include Mandalay, which will be as of December 31, 2006.
24
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
For a complete description of the facts and circumstances surrounding material litigation
we are a party to, see our Annual Report on Form 10-K for the year ended December 31, 2005.
There have been no significant developments in any of the cases disclosed in our Form 10-K
in the six months ended June 30, 2006.
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 1A. Risk Factors
A complete description of certain factors that may affect our future results and risk
factors is set forth in our Annual Report on Form 10-K for the year ended December 31, 2005.
There have been no material changes to those factors in the six months ended June 30, 2006.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Our share repurchases are only conducted under repurchase programs approved by our Board
of Directors and publicly announced. The following table includes information about our share
repurchases for the quarter ended June 30, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Purchased |
|
Maximum |
|
|
Total |
|
Average |
|
As Part of a |
|
Shares Still |
|
|
Shares |
|
Price Per |
|
Publicly-Announced |
|
Available for |
|
|
Purchased |
|
Share |
|
Program |
|
Repurchase |
April 1 April 30, 2006 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
13,500,000 |
(1) |
May 1 May 31, 2006 |
|
|
1,500,000 |
|
|
|
41.47 |
|
|
|
1,500,000 |
|
|
|
12,000,000 |
(1) |
June 1 June 30, 2006 |
|
|
1,000,000 |
|
|
|
40.35 |
|
|
|
1,000,000 |
|
|
|
11,000,000 |
(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,500,000 |
|
|
|
|
|
|
|
2,500,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The July 2004 repurchase program was announced in July 2004 for up to 20
million shares with no expiration. |
The amounts in the above table exclude approximately 277,000 shares surrendered by
certain recipients of restricted shares who elected to use a portion of the shares on which
restrictions lapsed in June 2006 to pay required withholding taxes.
25
Item 4. Submission of Matters to a Vote of Security Holders
|
(a) |
|
The Companys 2006 Annual Meeting of Stockholders was held on May 9, 2006. |
|
|
(c) |
|
At the Annual Meeting, the following individuals were elected to serve
one-year terms as members of the Board of Directors: |
|
|
|
|
|
|
|
|
|
Name |
|
Shares Voted For |
|
Shares Withheld |
James D. Aljian |
|
|
241,713,711 |
|
|
|
32,441,258 |
|
Robert H. Baldwin |
|
|
238,976,457 |
|
|
|
35,178,512 |
|
Willie D. Davis |
|
|
244,052,605 |
|
|
|
30,102,364 |
|
Alexander M. Haig, Jr. |
|
|
243,699,211 |
|
|
|
30,455,758 |
|
Alexis Herman |
|
|
270,854,337 |
|
|
|
3,300,632 |
|
Roland Hernandez |
|
|
270,795,593 |
|
|
|
3,359,376 |
|
Gary N. Jacobs |
|
|
240,849,818 |
|
|
|
33,305,151 |
|
Kirk Kerkorian |
|
|
243,591,418 |
|
|
|
30,563,551 |
|
J. Terrence Lanni |
|
|
243,150,203 |
|
|
|
31,004,766 |
|
Rose McKinney-James |
|
|
271,004,310 |
|
|
|
3,150,659 |
|
James J. Murren |
|
|
239,541,890 |
|
|
|
34,613,079 |
|
Ronald M. Popeil |
|
|
270,962,222 |
|
|
|
3,192,747 |
|
John T. Redmond |
|
|
241,038,009 |
|
|
|
33,116,960 |
|
Melvin B. Wolzinger |
|
|
270,971,647 |
|
|
|
3,183,322 |
|
Additionally, a proposal to approve the Companys Amended and Restated Annual
Performance-Based Incentive Plan for Executive Officers was approved, by a vote of 265,492,674
shares in favor, 8,318,402 shares opposed, and 343,893 shares abstaining.
Additionally, a proposal to ratify the selection of Deloitte & Touche LLP to serve as the
Companys independent registered public accounting firm for the year ending December 31, 2006
was approved, by a vote of 273,793,922 shares in favor, 58,782 shares opposed and 302,265
shares abstaining.
Item 6. Exhibits
|
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. |
26
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
|
|
|
|
|
|
MGM MIRAGE
|
|
Date: August 9, 2006 |
By: |
/s/ J. TERRENCE LANNI
|
|
|
|
J. Terrence Lanni |
|
|
|
Chairman and Chief Executive Officer
(Principal Executive Officer) |
|
|
|
|
|
Date: August 9, 2006 |
|
/s/ JAMES J. MURREN
|
|
|
|
James J. Murren |
|
|
|
President, Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer) |
|
|
27