UNITED STATESSECURITIES & EXCHANGE COMMISSION Washington, D.C. 20549
FORM 10-Q
For the transition period from to
Commission File No. 0-16760
MGM MIRAGE (Exact name of registrant as specified in its charter)
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ý Yes o No
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
MGM MIRAGE AND SUBSIDIARIESFORM 10-Q
I N D E X
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
MGM MIRAGE AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS (In thousands, except share data)
The accompanying notes are an integral part of these consolidated financial statements.
1
MGM MIRAGE AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts)(Unaudited)
2
MGM MIRAGE AND SUBIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)(Unaudited)
3
MGM MIRAGE AND SUBSIDIARIESCONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NOTE 1—ORGANIZATION AND BASIS OF PRESENTATION
MGM MIRAGE (the "Company"), formerly known as MGM Grand, Inc., is a Delaware corporation, incorporated on January 29, 1986. As of March 31, 2002, approximately 51% of the outstanding shares of the Company's common stock were owned by Tracinda Corporation, a Nevada corporation wholly owned by Kirk Kerkorian.
On May 31, 2000, the Company completed the acquisition (the "Mirage Acquisition") of Mirage Resorts, Incorporated ("Mirage"). Mirage, through wholly owned subsidiaries, owns and operates the following hotel, casino and entertainment resorts: Bellagio, a European-style luxury resort; The Mirage, a tropically-themed destination resort; Treasure Island at The Mirage, a Caribbean-themed hotel and casino resort; and the Boardwalk Hotel and Casino, all of which are located on the Las Vegas Strip. Mirage owns a 50% interest in the joint venture that owns and operates the Monte Carlo Resort & Casino, a palatial-style hotel and casino also located on the Las Vegas Strip. Mirage owns and operates Shadow Creek, an exclusive world-class golf course located approximately ten miles north of its Las Vegas Strip properties. Mirage also owns and operates the Golden Nugget, a hotel and casino in downtown Las Vegas, the Golden Nugget-Laughlin, located in Laughlin, Nevada and Beau Rivage, a beachfront resort located in Biloxi, Mississippi.
Through wholly owned subsidiaries, the Company owns and operates the MGM Grand Hotel and Casino ("MGM Grand Las Vegas"), a hotel, casino and entertainment complex, and New York-New York Hotel and Casino, a destination resort, both located on the Las Vegas Strip. The Company, through wholly owned subsidiaries, also owns and operates three resorts located in Primm, Nevada at the California/Nevada state line: Whiskey Pete's, Buffalo Bill's and the Primm Valley Resort (the "Primm Valley Resorts"), as well as two championship golf courses located near the Primm Valley Resorts.
The Company, through its wholly owned subsidiary, MGM Grand Detroit, Inc., and its local partners formed MGM Grand Detroit, LLC, to develop a hotel, casino and entertainment complex in Detroit, Michigan. On July 29, 1999, MGM Grand Detroit, LLC commenced gaming operations in an interim facility located directly off of the John C. Lodge Expressway in downtown Detroit.
A limited liability company owned 50-50 with Boyd Gaming Corporation is developing the Borgata, a hotel and casino resort on 27 acres at Renaissance Pointe, located in the Marina area of Atlantic City, New Jersey. The Company also owns approximately 95 development acres adjacent to the Borgata site.
Through its wholly owned subsidiary, MGM Grand Australia Pty Ltd., the Company owns and operates the MGM Grand Hotel and Casino in Darwin, Australia ("MGM Grand Australia"), which is located on 18 acres of beachfront property on the north central coast of Australia.
Through its wholly owned subsidiary, MGM Grand South Africa, Inc., the Company manages three permanent casinos and one interim casino in the Republic of South Africa. The Company receives management fees from its partner, Tsogo Sun Gaming & Entertainment, which is responsible for providing all project costs. The Company has entered into an agreement to sell its operations in South Africa. The transaction, which is subject to regulatory approval, is expected to be completed in the second quarter of 2002.
Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets," was issued in June 2001 and adopted by the Company on January 1, 2002. The statement provides that goodwill is no longer amortized effective January 1, 2002, but is instead reviewed for impairment within
4
six months of adoption of the statement and at least annually thereafter. The balance of goodwill at December 31, 2001 was $103 million. The Company does not expect to record an impairment charge against this balance. Goodwill amortization for the three months ended March 31, 2001 was approximately $357,000. Income before extraordinary item and net income for that three-month period, adjusted to exclude goodwill amortization, would have been approximately $85.0 million and $84.3 million, respectively.
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 consolidated financial statements and notes thereto included in the Company's Form 10-K for the year ended December 31, 2001.
In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (which include only normal recurring adjustments) necessary to present fairly the Company's financial position as of March 31, 2002, and the results of its operations for the three month periods ended March 31, 2002 and 2001. The results of operations for such periods are not necessarily indicative of the results to be expected for the full year.
Certain reclassifications have been made to the 2001 financial statements to conform to the 2002 presentation, which have no effect on previously reported net income.
NOTE 2—LONG-TERM DEBT
Long-term debt consisted of the following:
Total interest incurred for the three-month periods ended March 31, 2002 and 2001 was $90 million and $122 million, respectively, of which $17 million and $24 million, respectively, was capitalized.
5
During January 2002, Moody's Investors Service lowered its rating on the Company's senior notes to one level below investment grade. As a result, substantially all of the Company's assets other than assets of its foreign subsidiaries and certain assets in use at MGM Grand Detroit were pledged as collateral for the Company's senior notes and the $2.0 billion and $800 million revolving credit facilities.
On April 5, 2002, the Company entered into an amendment to its $800 million revolving credit facility whereby the maturity date was extended to April 4, 2003 and the lending commitment was reduced to $600 million.
The Company has interest rate swap agreements designated as fair value hedges covering $650 million of its fixed rate debt due in 2005 and 2006 ($100 million of which were entered into during the first quarter of 2002). Under the terms of these agreements, the Company makes payments based on specified spreads over six-month LIBOR, and receives payments equal to the interest payments due on the fixed rate debt. The interest rate swap agreements qualify for the "shortcut" method allowed under Statement of Financial Accounting Standards No. 133, which allows an assumption of no ineffectiveness in the hedging relationship. As such, there is no income statement impact from changes in the fair value of the hedging instruments. Instead, the fair value of the instruments is recorded as an asset or liability on the Company's balance sheet, with an offsetting adjustment to the carrying value of the related debt. Other long-term obligations in the accompanying March 31, 2002 and December 31, 2001 balance sheets include $18 million and $13 million, respectively, representing the fair value of the interest rate swap agreements at those dates, with corresponding aggregate decreases in the carrying value of the Company's long-term debt. The Company received payments totaling $13 million during 2001 upon the termination of previous swap agreements. This amount was added to the carrying value of the Company's debt and is being amortized and recorded as a reduction in interest expense over the remaining life of that debt.
NOTE 3—INCOME PER SHARE OF COMMON STOCK
The weighted-average number of common and common equivalent shares used in the calculation of basic and diluted earnings per share consisted of the following:
NOTE 4—CONSOLIDATING CONDENSED FINANCIAL INFORMATION
The Company's subsidiaries (excluding MGM Grand Detroit, LLC and certain minor subsidiaries) have fully and unconditionally guaranteed, on a joint and several basis, payment of the $2.0 billion and $800 million (subsequently amended to $600 million) revolving credit facilities, the senior notes and debentures and the senior subordinated notes. Separate condensed financial statement information for
6
the subsidiary guarantors and non-guarantors as of March 31, 2002 and December 31, 2001 and for the three month periods ended March 31, 2002 and 2001 is as follows:
CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION
7
CONDENSED CONSOLIDATING STATEMENT OF INCOME INFORMATION
8
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations
Our consolidated results reflect a strong resurgence from post-September 11 lows at our Las Vegas Strip resorts as well as year-over-year improvement at MGM Grand Detroit and Beau Rivage, but are still below the results achieved in the first quarter of 2001. Net revenues fell to $1.02 billion from the $1.07 billion recorded in the prior-year quarter, and operating income fell from $236 million to $208 million.
Consolidated casino revenues were $567 million, a decrease of 1% from the $575 million recorded in the first quarter of 2001. Table game revenues were down by 5%, while other casino revenues improved by 2%. The reduction in table game revenues was attributable to a year-over-year reduction in table game volume, principally at our Las Vegas Strip resorts, while the increase in other casino revenues was due to year-over-year improvements in slot revenue at MGM Grand Detroit and Beau Rivage of 18% and 13%, respectively. MGM Grand Detroit benefited from expanded marketing programs and the continuing shift in volume away from a competitor casino in Windsor, Ontario attributable to traffic delays caused by increased border security. Beau Rivage benefited from the expansion in its slot floor during the second quarter of 2001, coupled with increased customer volumes associated with the April 2001 expansion of its buffet.
Consolidated room revenues were $209 million, a reduction of 11% from the $235 million achieved in the prior-year quarter. This reduction was concentrated on the Las Vegas Strip, where our resorts experienced a 3 percentage point decline in occupancy and a 9% decline in average room rate. While below the year-ago levels, these results represented substantial improvement from those achieved in the 2001 fourth quarter. We expect this improvement to continue into the second quarter of 2002.
Consolidated food and beverage, entertainment, retail and other revenues were $343 million in the 2002 first quarter, a 3% decline from the $355 million reported in the first quarter of 2001, consistent
9
with the decline in occupancy levels. This decline was also concentrated on the Las Vegas Strip, as our non-Strip resorts achieved a modest increase in these categories, led by strong performances at MGM Grand Detroit and Beau Rivage.
Consolidated operating expenses (before preopening and corporate expense) were $800 million in the first quarter of 2002 versus $821 million in the prior-year quarter. Expense reductions were in line with the reductions in revenue as, excluding a fairly significant increase in depreciation expense, operating margins were consistent across the two periods. Depreciation expense increased by 8%, from $96 million in the 2001 first quarter to $103 million in the first quarter of 2002. This increase is primarily due to the acceleration of depreciation of certain assets expected to be replaced at New York-New York in connection with future significant enhancements to the property's casino, restaurant and entertainment venues. Additionally, depreciation increased as a result of the April 2001 opening of the Mirage Events Center.
Interest expense, net of amounts capitalized, was $73 million in the first quarter of 2002 versus $98 million in the 2001 first quarter. Interest cost was down by $32 million, or 26%, while interest capitalized was down by $7 million, or 29%. The decrease in interest cost was due to lower debt levels, a significant reduction in interest rates under our credit facilities and, to a lesser extent, savings associated with interest rate swaps. The decline in interest capitalized was principally due to the reduction in our weighted average interest rate.
Liquidity and Capital Resources
As of March 31, 2002 and December 31, 2001, we held cash and cash equivalents of $212 million and $209 million, respectively. Cash provided by operating activities for the first three months of 2002 was $218 million, compared with $217 million for the comparable period of 2001.
Capital expenditures for the first three months of 2002 were $54 million. These expenditures related to general property improvements at our resorts, including the recently completed room refurbishment program at The Mirage, as well as pre-construction activities associated with ongoing development projects, including capitalized interest, principally in Atlantic City. In addition, we made $37 million of capital contributions to the Borgata joint venture during the quarter, which were our last scheduled contributions until shortly before the resort's anticipated mid-2003 opening.
We repaid $151 million of bank debt during the first quarter of 2002. On April 5, 2002, we entered into an amendment to our $800 million revolving credit facility whereby the maturity date was extended to April 4, 2003 and the lending commitment was reduced to $600 million. Giving effect to this commitment reduction, we had approximately $640 million of available liquidity under our bank credit facilities as of March 31, 2002.
We intend to focus on utilizing available free cash flow to reduce indebtedness, as well as to finance our ongoing operations and any future share repurchases and investments. We expect to finance operations, capital expenditures and existing debt obligations through cash flow from operations, cash on hand, bank credit facilities and, depending on market conditions, public offerings of securities under our shelf registration statement, which had $790 million of remaining capacity as of March 31, 2002.
Market Risk
Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates and commodity prices. Our primary exposure to market risk is interest rate risk associated with our long-term debt. We attempt to limit our exposure to interest rate risk by managing the mix of our long-term fixed rate borrowings and short-term borrowings under our bank credit facilities and commercial paper program. Since the Mirage acquisition was completed on May 31, 2000, we have issued $1.25 billion of long-term fixed rate debt
10
and reduced outstanding bank credit facility borrowings by $2.35 billion. As a result, as of March 31, 2002, long-term fixed rate borrowings represented approximately 63% of our total borrowings. We have entered into interest rate swap agreements designated as fair value hedges covering $650 million of our fixed rate debt. Under the terms of the agreements, we make payments based on specified spreads over six-month LIBOR, and receive payments equal to the interest payments due on the fixed rate debt. Giving effect to these agreements, our fixed rate and floating rate borrowings represent approximately 51% and 49%, respectively, of total borrowings.
The following table provides information about our interest rate swaps:
Safe Harbor Provision
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. Certain information included in this report contains statements that are forward-looking, such as statements relating to plans for future expansion and other business development activities, as well as other capital spending, financing sources, the effects of regulation (including gaming and tax regulations) and competition. Such forward-looking information involves important risks and uncertainties that could significantly affect anticipated results in the future and, accordingly, such results may differ from those expressed in any forward-looking statements made by or on behalf of the Company. These risks and uncertainties include, but are not limited to, those relating to competition, development and construction activities, dependence on existing management, leverage and debt service (including sensitivity to fluctuations in interest rates), domestic or international economic conditions (including sensitivity to fluctuations in foreign currencies), pending or future legal proceedings, changes in federal or state tax laws or the administration of such laws, changes in gaming laws or regulations (including the legalization of gaming in certain jurisdictions) and application for licenses and approvals under applicable jurisdictional laws and regulations (including gaming laws and regulations).
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We incorporate by reference the information appearing under "Market Risk" in Item 2 of this Form 10-Q.
11
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
The Company filed the following Current Report on Form 8-K during the quarter ended March 31, 2002:
Current Report on Form 8-K, dated February 13, 2002, filed by the Company on February 27, 2002, in which events under Item 2, Acquisition and Disposition of Assets, and Item 7, Financial Statements and Exhibits, were reported.
12
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.
13
QuickLinks