mgm mirage final valuation - mark e. moore
TRANSCRIPT
Abstract Financial
Presents An Overall Valuation
of:
MGM MIRAGE
Dan Brooks [email protected]
Michael Dearden [email protected]
Kara Walker [email protected]
Melanie Johnson [email protected]
2
Table of Contents Executive Summary…………………….…….………………….…3 Business and Industry Analysis Business Analysis……………………………….…………..6 Five Forces Model………………………………..………....7 Key Success Factors……………………………………..10 Competitive Advantage Analysis…………….…12 Accounting Analysis……………………..…………………....13 Accounting Analysis Steps…………………...…....14 Key Accounting Ratios……………………………….…22 Ratio Analysis and Forecast Financials……….…25 Financial Ratio Analysis……………………………..25 Forecast Analysis………………………………..………40 Valuation Analysis Method of Comparables……………………………….43 Discounted Cash Flow Model………………………..47 Discounted Residual Income Model…………..….48 Abnormal Earning Growth Model…………..…..49 Appendix………………………………………………………………..50
3
Executive Summary
Investment Recommendaton: MGM MIRAGE (NYSE): MGG
SELL (due to overvaluation) Date: April 1, 2005
52 week price change 39.61 - 79.60 EPS Forecast for years end 2004(A) 2005(E) 2006(E) 2007(E)Revenue (2004) 4.71BMarket Capitalization 10.44 B EPS $2.42 $2.76 $2.78 $2.79
Shares Outstanding 157,396,176 Valuation Ratio Comparison MGM Mirage Industry AverageTrailing P/E 29.08 26.01
Dividend Yield N/A Forward P/E 21.05 23.443-month Avg. Daily Trading Volume 989,773 Forward PEG 1.79 1.88Percent Institutional Ownership 39.50% M/B 3.54 3.04
Book Value per share (mrq) 19.88 Ratio Based ValuationsROE (2004) 14.66% Market Price at 4/1/05 $70.38ROA (2004) 3.65% Trailing P/E $62.94Est. 5 year EPS growth rate 1.77% Forward P/E $78.29
Forward PEG $73.78Dividend Yield N/A
Cost of Capital Estimates Beta Ke R^2 M/B $60.44Ke Estimated 5.45% Intrinsic Valuation5-yr Beta 0.6992 5.31% 0.1006 Discounted Dividends N/A3-yr Beta 0.1104 3.54% 0.0026 Free Cash Flows $65.432-yr Beta 0.7479 5.45% 0.0482 Residual Income $34.15Published Beta 0.71 Abnormal Earnings Growth $34.16
Long-Run Residual Income Perpetuity $69.20Kd 5.15% Ford Epic Valuation $31.22WACC (before tax) 5.23%
*MGM Mirage
* S&P 500 *MGM Mirage *Harrah’s Entertainment Inc *Caesar’s Entertainment Inc
4
Executive Summary
We valued MGG as of April 1, 2005 with a recommendation of hold, without
purchase. Upon calculations of intrinsic values, we have concluded that MGG stock
is in fact worth $34.15. MGM Mirage acquired Mandalay Bay Resorts early this year,
creating the largest resort-gaming company within the industry. The industry of entertainment, including hotels, restaurants, gaming and
casinos, is definitely involved in head on competition. It is an industry that is
rapidly growing at a constant rate in different cities, states, as well as countries.
Some of the top competitors of MGM Mirage consist of Harrah’s Entertainment
Inc., Caesars Entertainment Inc., Mandalay Resort Group, the Las Vegas Sands
Corp., and the Industry as a whole. This industry, as it has been discovered, is
very highly concentrated. The different companies in this industry have a high
diversification of casinos owned throughout the United States, allowing them to
generate high amounts of revenue. The degree of differentiation in this industry
is relatively high because due to the uniformed services offered at each resort
casino. A resort casino can distinguish itself from the other competitors through
exceptional and reliable customer service, as shown by MGM Mirage.
Growth and Expansion in the Future
Growth potential in the industry is based upon customer satisfaction and
entertainment. Due to the highly concentrated field, expansion has taken on
many forms. MGG recently acquired Mandalay Bay Resorts, other mergers within
the industry include Harrah’s and Caesars’s Entertainment. The ability to meet
demand is the main factor in producing substantial revenues to fund growth.
This meeting of demand will come from the differentiation of the companies
within the industry. Along with the twelve partially and fully owned resorts, MGG
has recently looked overseas to add to this diversification. MGG feels as though
5
the wide variety of entertainment, gaming and services they offer achieves this
high level of consumer demand.
Leading Management = Financially Stable
At first glance, the debt-to-equity ratio and financial leverage of MGM
Mirage may be a reason for concern. The current debt-to-equity ratio for the
company is $3.5(debt) to $1.00(equity). A main reason for this increased
leverage is the financing of the recent acquisition of Mandalay Bay with debt.
The increasing risk of investment that will follow such a transaction is to be
closely monitored.
The management team at MGM Mirage has extensive experience dealing
in debt. In 1999, a similar acquisition was financed in a very similar manner.
Although the financials took a hit in the few years to follow, five years later in
2004, the company seemed healthier than ever. So to borrow money at a lower
cost than that of debt is a practice well known at MGM Mirage.
6
Business Analysis:
BLACKJACK, CRAPS, and SLOT-MACHINES are games synonymous with
the Las Vegas gaming industry. Although true, the gaming industry is far more
diverse than just “gambling,” and while analyzing MGM Mirage Inc, this could be
no more apparent. MGM Mirage Inc. owns and operates 12 resort casinos and is
invested in 50% of two other casinos. Their different casinos are located along
the strip of Las Vegas, as well as other cities of Nevada. The company also owns
and operates casinos in cities outside Nevada including Atlantic City, Biloxi,
Mississippi, Detroit, and Australia. Recently, the MGM Mirage has announced
that they are going to be expanding new developments in Singapore by joining
with CapitaLand, a large listed property company in Asia. They have also
confirmed the development of a resort in the Chinese enclave of Macao as well
as talks about expanding into the United Kingdom. On a more specific business
front, target markets for this company stem from the cost penurious all the way
up through the most extravagant of consumers. Due to the equivalence of the
actual gaming, MGM must differentiate themselves on other levels such as: the
resort atmosphere, customer service, special events and variety of quality
services available to the consumer. The immense size of the company creates
an economy of scale unmatched in the industry.
7
Industry Analysis:
MGM Mirage compared to competitors by market cap in billions
0.63119 4.776.33
7.5310.91
16.7
Industry
Mandalay ResortGroupCaesars
Harrah's
MGM Mirage
Las Vegas SandsCorp.
The Five Forces Model: Rivalry among existing firms
The industry of entertainment, including hotels, restaurants, gaming and
casinos, is definitely involved in head on competition. It is an industry that is
rapidly growing at a constant rate in different cities, states, as well as countries.
Some of the top competitors of MGM Mirage consist of Harrah’s Entertainment
Inc., Caesars Entertainment Inc., Mandalay Resort Group, the Las Vegas Sands
Corp., and the Industry as a whole. Since Mandalay Resort Group is one of the
smaller corporations and competitors in the industry, MGM Mirage has proposed
an offer to buyout Mandalay Resort Group which could increase annual revenues
to $7.9 billion. In the past few months it has been confirmed that Harrah’s and
Caesars are merging together. This merger will allow them to generate more
annual revenue then that of MGM Mirage even after they have bought out
8
Mandalay Resort Group. The Las Vegas Sands Corp. owns the Venetian, which is
a direct competitor of the Bellagio, a resort casino owned by MGM Mirage. Since
the Las Vegas Sands Corp. only owns one major resort casino in Las Vegas, MGM
Mirage will be competing more with them internationally as Sands Corp is also
expanding into Macao and the United Kingdom.
The switching costs for this industry are both high and low. When there
are high switching costs it is based on how well a guest views the customer
service, such as comps to upgraded rooms, free meals, and other included
amenities. These comps distract the guests from going to other resort casinos
hopefully resulting in come back customers. There are low switching costs
involved due to the fact that the resort casinos are located in one central area.
This makes it easier for the customers to migrate from one resort casino to
another. The resort casino industry has high exit barriers due to the difficultly
and high cost when getting out of the business.
Threat of New Entrants The threat of new entrants for this particular entertainment industry is
very low. In order to develop a new investment, for example in Las Vegas, an
extremely large amount of capital is necessary. MGM Mirage’s success and
profitability is directly related to the riskiness and constraints of entering into the
industry. With an economy of scale as enormous as the gaming and casino
industry, new entrants must enter with a large capacity, facing the possibilities of
the space not being utilized. Existing relationships between the firms and
suppliers (International Gaming Technology) creates a barrier to new firms
wanting to enter the industry. Some of the legal barriers include state regulation
and liquor licensing, zoning and Nevada gaming commission.
9
Threat of Substitute Products
The threat of substitute products is low in this industry because the
different resort casinos are not affected by the substitutions. For someone who
does not have the time or money necessary when traveling to Las Vegas or
overseas, there are a number of entertainment areas and services where the
exciting pleasure of gambling remains available. Some of the most popular
substitutes consist of playing the lottery, going to horse races, online casinos,
and bookies. The lottery is probably the easiest and most convenient way for a
person to participate in gambling. Since the gambling world is constrained to
those 21 and older, the lottery is a way to pull in a younger crowd. Those that
enjoy the thrilling environment of casinos would most likely find pleasure in
going to the horse races. Online casinos are a readily available source for people
that appreciate a wide variety of games. Finally, bookies are involved in a type
of black market that deals with placing bets on different sporting events and
teams.
Bargaining Power of Buyers The two main determinants of the bargaining power of buyers are price
sensitivity and relative bargaining power. Both price sensitivity and relative
bargaining power are low for this industry. Price sensitivity is going to be based
solely on the prices of the hotels, not the casino, since the actual casino is not
competing on price. The sensitivity of price to the buyer will be determined by
the wealth and personal taste of the consumer. A wealthy consumer will often
choose an expensive hotel when luxury and customer service are of high
importance. On the contrary, if a consumer is there solely to enjoy the casinos,
a cheaper hotel would be suitable. When it comes to the relative bargaining
power of the buyer, negotiating a certain price with the actual hotel will be
10
difficult to achieve. However, there are online discount websites, such as
Hotels.com, who can help lower the cost for the buyer.
Bargaining Power of Suppliers
In this industry, the suppliers to the hotels and casinos have a substantial
amount of power. This is because the resort casinos can only choose from a
small selection of suppliers. International Gaming Technology Inc. is one of the
main manufactures and distributors to all the casinos where gaming is legal.
This company supplies the casinos with various computerized gaming machines
and technology systems. Since the products needed to run the casinos are very
crucial for this industry, MGM Mirage’s ability to negotiate with the supplier is
limited.
Key Success Strategies
Strengths MGM Mirage stands as the third largest gaming company in the industry.
Their portfolio includes some of the top ranked resorts and casinos in the United
States. MGM Mirage owns and operates six of the largest casinos on the Strip in
Las Vegas, and 50% ownership of the Monte Carlo Resort & Casino, also located
on the Strip. In 2003, over 75% of their net revenues and operating income was
generated by their wholly owned casinos and resorts on the Strip. MGM Mirage
strives to be leading competitor in the gaming industry by creating a high quality
atmosphere for a premium price. Luxurious accommodations and exquisite
dinning are only a fraction of what one might experience when choosing MGM
Mirage.
Another strength of MGM Mirage includes the company’s ability and
continuance to grow. EE&K Architects is currently master planning MGM Mirages
new six billion, sixty-six acre, “Project CityCenter” located on the Las Vegas Strip.
11
Considered the largest private development in the country, the project will entail
creating a vertical city including retail, dinning, entertainment, as well as
boutique hotels and residential buildings lining the streets. MGM expects
completion of this massive project by 2010.
Weaknesses Limited geographic diversification restricts MGM Mirage from competing
with their competitors due to their heavy concentration on the Las Vegas Strip.
This limits their ability to target more customers, unlike their largest competitors,
who operate in more gaming markets. Also, guestroom, dinning and
entertainment prices are higher than their competitors because MGM Mirage
feels that the quality of their facilities and services are much higher than that of
their competitors.
Finally, to some extent, MGM Mirage has competition within its own
hotels and casinos for customers. For example, the Bellagio, MGM Grand Las
Vegas and The Mirage all compete for the same high-end customer.
Opportunities MGM Mirage and CapitaLand (one of the largest listed property companies
in Asia), have agreed to submit a joint concept proposal to the Singapore
government for the development of an integrated entertainment/resort complex
at Marina Bay in Singapore. Not only will this project allow MGM Mirage to gain
foreign business relations, it will also give them a unique opportunity to
showcase it’s expertise in this tourist sector.
MGM Mirage has also proposed $4.8 billion to acquire Mandalay Resort
Group which if completed, would create the world’s largest gaming company.
However, if Harrah’s completes its merger with Caesars, MGM-Mandalay would
fall second to largest.
12
Threats The main threat for MGM Mirage is substitution of products and mergers
of other companies within this industry. Upon the acquisition of Mandalay Resort
Group, MGM Mirage now stands as the largest gaming corporation in the
industry. However, Harrah’s has proposed a plan to merge with Caesars which
upon completion puts them as the largest corporation in the gaming industry.
Substitution of products in the gaming industry is becoming more of a
threat as technology increases. The online casinos have been attracting more
and more customers by giving them everything involved within a casino at the
click of a button. This market has expanded in tremendous rates because it
allows one to gamble in the comfort of one’s home.
With the gaming industry targeting more markets, globalization might
prove to be more of a threat than an advantage. MGM mirage has proposed a
plan to the Singapore government for a high class casino/resort in Marina Bay.
This might prove to be a threat because of the weakness in the economies over
seas. Also, due to the unrelenting competition in the United States, MGM Mirage
isn’t the only gaming corporation targeting global economies.
Competitive Advantage MGM Mirage Inc., (denoted as MGG by the NYSE), maintains a
competitive advantage by differentiating their hotel-gaming resorts from the
competition. Differentiation may be achieved by offering a wide variety of
services to consumers, providing superior product quality and outstanding
customer service. Although MGM Mirage’s prices may be slightly above that of
competition, they ensure that the quality of their services are well deserving of
the increased price. MGM Mirage carries a reputation for premiere services and
this alone is a valuable asset. When one’s name becomes synonymous with
quality, trust and diversity, the intrinsic value of the company’s name is greatly
13
benefited. These aspects are essential to creating and maintaining a competitive
advantage in the marketplace. As a leader in the hotel and gaming industry,
MGM Mirage does not stray far from these core competencies.
In the company’s mission statement, it states, “Our mission is to design
and operate an unmatched collection of resort-casinos and provide unsurpassed
service and amenities to our guests.”(mgmmirage.com). MGM Mirage achieves
this mission by providing a wide variety of premium services to a diverse public.
These services range from, a family based atmosphere at Treasure Island, to a
more luxurious atmosphere, such as that of Bellagio. The provided choices give
consumers many ways to personalize their stay with MGM Mirage.
To ensuring long-term relationships with customers, MGM Mirage competes
within itself to promote “internal competition.” The main goal of this internal
competition is provide services at all life-stages of the consumer. MGM Mirage’s
options are designed in a way appealing to consumers of all walks of life, from
family on a tighter budget, to the family who may spend more generously. By
ensuring these long-term relationships and creating loyal consumer support,
MGM Mirage is securing “customers for life”.
Accounting Analysis In this section qualitative and quantitative evaluations were performed.
The qualitative measures consist of the following six steps: (1) Identify key
accounting policies, (2) Asses accounting flexibility, (3) Evaluate accounting
strategy. (4) Evaluate the quality of disclosure, (5) Identify potential red flags,
and (6) Undo accounting distortions. The quantitative measures that must be
examined are the sales and core expense manipulations to analyze past
performance as well as provide a benchmark to their competitors.
14
Identification of Key Accounting Practices The key accounting policies for MGM Mirage are based on their
competitive strategies determined by cost leadership and differentiation. This
information helps establish the key success factors and risks of the company.
Stated below are the evaluations of the policies and estimates used by MGM
Mirage.
♦ Revenue Recognition and Promotional Allowances:
The Casino revenue for MGM Mirage is the combination of the
gaming wins and losses. Funds that are deposited by customers
before gaming occurs and chips in the customer’s possession are
recognized as liabilities. Revenue recognition is recorded when the
services (hotels, food and beverage, entertainment and other
operating revenues) are performed. There are accrued liabilities on
advanced ticket sales and room deposits until services have been
provided to customers. Emerging Issues Task Force requires that
incentives on sales from MGM’s Players Club, be recorded as a
reduction of Casino revenue.
♦ Accounts Receivable and Credit Risk:
MGM Mirage’s casino accounts receivables are based on the
concentration of credit risk. MGM issues markers (loans) to
customers based on the reliability of their credit history. Trade
receivables (casino and hotel receivables) are usually non-interest
bearing and recorded at cost. Management writes off an account
when it is deemed to be uncollectible.
♦ Allowance for Doubtful Casino Accounts Receivable:
MGM Mirage’s casinos Bellagio, The Mirage, and MGM Grand
partake in a significant portion of marker players. For these certain
casinos, MGM sustains strict control by aggressively pursuing
15
collection from customers who fail to pay. If marker play is
insignificant to a casino, then MGM applies a standard aging
method to the allowance for doubtful accounts.
♦ Inventories:
Inventories for MGM Mirage are stated at the lower of cost or
market. The first-in, first-out (FIFO) method is used to determine
the cost of inventory.
♦ Property and Equipment:
Property and equipment for MGM Mirage are stated at cost. The
evaluation of property and equipment and other long-lived assets
for impairment are in compliance with the Statement of Financial
Accounting Standard No. 144.
♦ Fixed Asset Capitalization and Depreciation:
MGM Mirage uses the straight-line method when determining the
amount of depreciation and amortization. When developing and
constructing a new project, interest costs are capitalized as part of
the cost of the project as stated by the Statement of Financial
Accounting Standards No. 34. MGM does not borrow funds directly
related to the project; therefore interest is capitalized on the
project using weighted-average cost of their outstanding
borrowings.
♦ Impairment of Long-lived Assets:
When dealing with asset disposal, MGM Mirage recognizes assets
by fair market value or the lower of carrying value. The
recognitions are based on estimates from comparable asset sales,
solicited offers, or a discounted cash flow model. Long-lived assets
are observed on a quarterly basis to determine if there are
indications of potential impairments.
16
♦ Goodwill and Other Intangible Assets:
On January 1, 2002, MGM Mirage utilized Statement of Financial
Accounting Standard No. 142. In compliance with this statement,
goodwill and other intangible assets are reviewed for impairment
annually and between test dates, instead of being amortized.
♦ Income Taxes:
MGM Mirage is obligated to income taxes in the United States and
foreign jurisdictions where operations occur. They follow the
Statement of Financial Accounting Standards No.109 to recognize
deferred tax assets.
♦ Market Risk:
MGM Mirage’s market risk is determined by the interest rate risk
that relates to their long-term debts. MGM manages the mix of
their long-term fixed rate borrowings and short-term borrowings
through their bank credit facilities and commercial paper program.
When managed correctly, it will help to lower the exposure to
interest rate risk.
Accounting Principles Adopted as of 2003 ♦ Classification of Gains and Losses as Extraordinary Items:
In April 2002, the Statement of Financial Accounting Standard No.
145 declared that extraordinary items (gains and losses) must meet
the criteria of being both unusual and infrequent. MGM Mirage
reclassified prior period losses as a component of income from
continuing operations.
17
♦ Cost Associated with Exit or Disposal Activities:
MGM Mirage adopted the Statement of Financial Accounting
Standard No. 146, which requires that activities associated with exit
or disposal costs are recognized when incurred instead of at the
date of commitment. This adoption had minimal effect on MGM
Mirage’s financial position due to the short amount of time between
the commitment to exit and the cost incurred.
♦ Guarantee Obligations:
Interpretation No. 45 (FIN 45), issued by the FASB, requires that
when a guarantee contract is in the beginning stage its future
guarantee obligations must be acknowledged as liabilities. It is
stated that FIN 45 has not had a relevant impact on MGM Mirage’s
financial position.
Assessment of Accounting Flexibility
The degree of flexibility for MGM Mirage is relatively high when making
choices about their accounting policies and estimates. The most common
policies used by firms with regards to flexibility consist of depreciation and
amortization, inventory, revenue recognition, and the estimation of pension and
other post-employment benefits. In addition to these policies, MGM Mirage
exercised their flexibility by adopting other policies as of 2003. The adopted
policies in 2003 were classification of gains and losses as extraordinary items,
cost associated with exit or disposal accounts, and guarantee obligations. MGM’s
judgment on these policies helps to benefit the company in the most profitable
way.
MGM’s property and equipment is depreciated using the straight-line
method. When determining income they include the disposition of gains and
losses on these fixed assets. The amortization of good will and other long-lived
18
intangible assets is no longer in effect, because of the adoption of SFAS No. 142.
These assets are now reviewed for impairment on an annual basis and between
test dates. MGM’s choice of accounting for inventory is prepared using the first-
in, first-out method. By using the FIFO method, there is the potential to yield a
higher net income. MGM uses accrual accounting, which recognizes revenues
when earned. The two major accounts that apply to revenue recognition are
advanced deposits and ticket sales. With the flexibility of these accounting
policies, MGM is able to maintain a strong competitive advantage. MGM’s
managers use this flexibility to assist in the assurance that their accounting
numbers are transparent for outside perspectives.
Evaluation of Actual Accounting Strategies MGM Mirage, being a resort-based (service) company, has revenues that
are highly dependent on the number of customers at their resorts. Price is based
upon having high volumes of customers, who will pay a competitive price for the
room. Along with these revenues, a significant portion of MGM Mirage’s
operating income is from the high-end gaming segment.
Through out MGM’s industry, most competitors implement very similar
accounting policies. The homogenous accounting policies within the industry set
a high standard of efficient bookkeeping. Over the past three years, there have
been no discrepancies with financial disclosures accountants following the
generally accepted accounting principles. MGM Mirage is very diligent in its
accounting and strives to disclose accurate values. This was very evident on May
15, 2002, when the company dismissed Arthur Andersen LLP as their
independent public accountant. One of the main reasons behind the dismissal of
Arthur Andersen LLP was the part they played in the Enron Scandal. Preceding
the scandal, MGM Mirage hired Deloitte & Touche LLP to serve as their
independent public accountant.
19
As of February 22, 2004, Moody’s Investors Service, “cut MGM Mirage's
debt ratings, citing the expectation that the company will finance its Mandalay
Resort Group acquisition with debt. Moody's cut MGM's senior secured and
guaranteed debt ratings to "Ba2," which is two steps below investment grade,
from "Ba1," with a stable outlook. The downgrade assumes that MGM's
acquisition of Mandalay Resort Group will close in the first quarter of 2005 and
will be financed with all debt.” (yahoo.reuters.com/financeQuoteCompanyNewsArticle).
A debt-rating cut can raise a company's borrowing costs, which may result in
an increase in long-term debt. This increase may cause the company to receive
less return on the debt and will be expensing the potential returns instead. The
accounting strategies used by MGM Mirage seem to give a good financial
picture of the way that business is conducted.
Quality of Disclosure throughout Financial Statements MGM Mirage, in its financial disclosures, seems to be vague in some
aspects, and in turn, sufficient in others. As cited by management, “In 2002, our
operating income increased 24%. A large factor in the increase was the
significant one-time expenses incurred in 2001 in relation to the September 11,
2001 attacks, including restructuring charges and asset impairment charges.
Excluding the impact of these charges and pre-opening and start-up expenses,
operating income increased 13%, largely due to stable payroll expenses as a
result of restructuring activity in late 2001, and a significantly lower provision for
doubtful accounts (MGM Mirage 10-K, 2003). This seems to be a very good
explanation of the operations throughout MGM Mirage, but the wording seems to
be un-informing. The numbers although disclosed, just seem to be not
accounted for. Throughout the financials, the word restructuring, impairment,
along with excluding expenses seem to be frequently used. Upon initial reading
of the statements, the outlook seems bright, but these numbers are not easily
20
transferred to and from statements. Accordingly the numbers seem to be mere
forecasts, that “puff-up” MGM Mirage’s business future. The accounting
principles used are in accordance with the generally accepted accounting
principles, and the numbers are accounted for, but the phrasing seems to be an
attempt to usher attention to certain areas, while leaving other information not
thoroughly discussed.
Identification of Potential “Red Flags”
Upon review of the accounting analysis, a few potential “red flags” have
indeed been uncovered. The first of which, deals with management’s ownership
within the company. The total percentage of insider stock options reaches
upward of 55.9%, leaving only 43.11% to institutions and the public. This alone
doesn’t indicate much, but upon further review, many of the insiders (ex. CEO,
Chairman, CFO, etc…) have been exercising their stock options over the last two
quarters in heavy concentration. Robert H. Baldwin, President and CEO of Mirage
Resorts, Inc. as of February 3 2005, planned a sale of stock options with
estimated proceeds of $53,317,000. This specific example coupled with many
other significant insider transactions, leads us to believe that some sort of
market trend is expected to influence the industry. The fact that chief
officers/insiders are liquidating stock options has two implications, one, the
future acquisition of Mandalay Bay Resorts will have a material impact on the
stock prices, or insiders may have undisclosed information regarding the future
finances of MGM Mirage. Examples of transactions are listed below:
21
*16-Feb-05 BALDWIN, ROBERT H. Officer
8,400 Option Exercise at $34.15 per share.
$286,860
*16-Feb-05 BALDWIN, ROBERT H. Officer
8,400 Sale at $78.04 per share. $655,536
15-Feb-05 BALDWIN, ROBERT H. Officer
294,000 Option Exercise at $34.15 per share.
$10,040,100
15-Feb-05 BALDWIN, ROBERT H. Officer
294,000 Sale at $78.09 - $78.37 per share.
$23,000,0002
14-Feb-05 BALDWIN, ROBERT H. Officer
107,100 Option Exercise at $34.15 per share.
$3,657,465
14-Feb-05 BALDWIN, ROBERT H. Officer
107,100 Sale at $78.03 - $78.19 per share.
$8,366,0002
*FTC approved acquisition of Mandalay Bay on this very same day. http://finance.yahoo.com/g/it?s=MGG
One explanation of this sudden liquidation of stock may have something to do
with the acquisition of Mandalay Bay Resorts. On February 16, 2005, the FTC
indeed approved the acquisition of Mandalay Bay Resorts,
(http://biz.yahoo.com/ap/050216/mgm_mirage_mandalay_5.html). The acquisition’s basic
financial breakdown includes $4.8 billion in cash and $2.5 billion in debt (which
was less than estimated by Moody’s). Our conclusions for why MGM Mirage’s
chief officers are liquidating their stock options were to help finance the $4.8
billion in cash used in the acquisition of Mandalay Bay Resorts. However, this
absence of information behind such dramatic stock liquidations signals a “red
flag” to potential investors.
The latest financial data that has been released by MGM mirage is the
quarterly reports for the year of 2004. During the year of 2004, the stock price of
MGM increased tremendously. Information of why this increase takes place is not
easily found in the financial statements that have been disclosed. So, to further
22
analyze the increases we must obtain a copy of their 2004 10-K annual report
(when released), in which in-depth explanations should then be found.
After analyzing potential “red flags” to investment decisions, we
conclude that MGM Mirage is a company in which we feel still needs some
further analysis for investment purposes. The 2004 10-K annual report will
provide more in-depth information and footnotes, and in these footnotes is
where the disclosures should be found.
Accounting Distortions After analysis of the many financial statements of MGM Mirage, we have
found almost no accounting distortions. MGM also has been in compliance with
the generally accepted accounting principles for more than three years now with
no discrepancy from accountants, leaving little if any distortions. The information
provided allows us to create a balanced picture of the accounting practices, and
financial well-being of the company.
Sales Manipulation Diagnostics
Year 1999 2000 2001 2002 2003
Net Sales/ Cash from Sales 4.78 3.93 4.69 4.58 5.56
Net Sales/ Net Accounts Receivable 16.68 13.57 25.85 27.10 28.03
Net Sales/ Inventory 90.95 37.21 47.82 55.77 59.96
Net Sales/ Unearned Revenue* N/A N/A N/A N/A N/A
Net Sales/ Warranty Liabilities* N/A N/A N/A N/A N/A
23
* Indicates that these numbers where not relevant for MGM or were not disclosed in their footnotes
Net Sales/Cash from Sales
0.00
2.00
4.00
6.00
8.00
10.00
12.00
1999 2000 2001 2002 2003
Year
Valu
e
MGM Mirage
Mandalay Bay
Harrahs
The ratio of net sales/cash from sales between the five years is growing at
a steady rate. This shows that the amount of cash being received from sales is
increasing relative to the increase in net sales from year to year. As compared
to their competitors, it is apparent that MGM may not be collecting cash as
efficiently.
Core Expense Manipulation Diagnostics
Year 1999 2000 2001 2002 2003
Asset Turnover 0.51 0.30 0.36 0.36 0.36
Changes in CFFO/ OI N/A 1.69 (0.23) 0.22 2.80
Change in CFFO/ NOA N/A (1.26) (0.11) 0.49 (0.82)
Total Accruals/ Change in Sales N/A 0.310 1.084 9.770 4.799
Pension Expense/ SG&A* N/A N/A N/A N/A N/A
Other Employment Expense/ SG&A* N/A N/A N/A N/A N/A
24
Net Sales/Net Accounts Receivable
0.00
5.00
10.00
15.00
20.00
25.00
30.00
35.00
40.00
45.00
50.00
1999 2000 2001 2002 2003
Year
Valu
e
MGM Mirage
Mandalay Bay
Harrahs
In the first two years net sales/net accounts receivable were not
consistent with the last three years, which were increasing at a constant rate.
The Mirage acquisition that occurred in 2000 caused accounts receivable to
almost triple in size. From years 2000 to 2001 it is apparent that accounts
receivable decreased a significant amount. When comparing MGM to its
competitors it is evident that Mandalay Bay and Harrah’s both have a smaller
accounts receivable, making their ratio larger than MGM’s.
Net Sales/Inventory
0.0010.0020.0030.0040.0050.0060.0070.0080.0090.00
100.00
1999 2000 2001 2002 2003
Year
Valu
e MGM Mirage
Mandalay Bay
25
From 1999 to 2000 inventories for MGM grew an incredible amount due to
the Mirage acquisition. From 2000 on, the ratio increased at a steady rate due
the constant amount of inventory held on hand. Harrah’s and the two years of
Mandalay Bay were not included in this comparison because their inventory was
relatively small compared to the industry. Since this is a service industry, an
increase in this ratio should not show signs of potential red flags.
Asset Turnover
0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
1999 2000 2001 2002 2003
Year
Valu
e
MGM Mirage
Mandalay Bay
Harrahs
It is apparent that from 1999 to 2000 assets increased a vast amount
causing the asset turnover ratio to decrease considerably. As of 2000 assets for
MGM increased slowly over the past few years. When benchmarking MGM their
ratio is smaller, however, this shows that MGM has more assets relative to sales.
26
Changes in CFFO/OI
-1.5
-1
-0.5
0
0.5
1
1.5
2
2.5
3
1999 2000 2001 2002 2003
Year
Valu
e
MGM Mirage
Mandalay Bay
Harrahs
The drop from 2000 to 2001 is caused by not generating as much cash
from operations as they did in the previous year. After 2001, there is a
significant increase in this ratio showing that the change between the years is
not growing as fast as the change in CFFO. MGM is out performing their
competitors as shown by the graph.
Changes in CFFO/NOA
-20
-15
-10
-5
0
5
10
15
20
1999 2000 2001 2002 2003
Year
Valu
e
MGM Mirage
Mandalay Bay
Harrahs
27
When analyzing this graph, it is evident that MGM is fairly stable
throughout the five years. The negative numbers are due to either the change
in CFFO or the change in NOA. The competitors’ numbers are more volatile
which indicates they are not as efficient with their cash or working capital.
In conclusion, when comparing MGM to their competitors it is shown that
they are performing just as well or better. As a whole it is clear that MGM has
good accounting management indicating no room for potential red flags.
Ratio Analysis When evaluating a company’s financial statements, fourteen essential ratios
should be taken into consideration. After computation of the ratios, a company’s
overall capital structure, liquidity and profitability can be analyzed in detail. The
ratios are calculated annually, and as a result may be analyzed for previous years
and thus, forecasted into future years. Upon analyzing these ratios, important
information is discovered, both in numerical form and key accounting principles.
Increases and decreases in ratios is to be expected, some of these changes may
be trending or have some variation in values. The reasoning behind these
variations is what needs careful evaluation. Explanations for these variations
may be attributed to a large variation in other ratios, which may have a direct
influence upon the other. On the other hand, variations may have been caused
by a one-time or fluke situation in business transactions. Ratio Analysis is a
transparent way to compare the capital structure, liquidity and profitability of an
individual competitor or the industry as a whole. Also, the status of the market
can be shown through ratios. This is evident in MGM Mirage’s ratios consistently
through out late 2001, caused mainly by the tragic events of September 11,
2001. This had an ill-effect on travel, so in turn, hurt MGM Mirage as well as
many hotel-gaming resorts, and this can be easily witnessed in ratios.
28
Liquidity Analysis
Liquidity measures how easily, or quickly the assets of a company can be
converted to cash. The first of the liquidity ratios is the current ratio, which is
current assets over current liabilities, seems to show a trend of around .94,
excluding extraneous years of 2000 thru 2002. This implies that for every dollar
of current liabilities, MGM Mirage can cover $.94 with current assets. This seems
to be a little low, but remember that MGM Mirage is classified in the service
industry, in which .94 starts to sound more reasonable. This is mainly due to the
fact that in the service industry substantial amounts of inventories are lacking.
Also accounts receivable is also lacking due to the fact that MGM Mirage
produces most revenues through cash, or cash-like assets, instead of selling
“product” on account.
The quick asset ratio measures the most liquid assets against the
company’s current liabilities. The formula equates to cash, or cash-like assets,
less prepaid expenses and inventories, over current liabilities. Again the ratio
shows that for every dollar of current liabilities, $.72 is available to compensate.
MGM Mirage currently has a quick ratio of .72, which correlates with the current
ratio result, but here is even more affected by subtracting out inventories all
together. Not only are we subtracting inventories, we are also subtracting
prepaid expenses, which will decrease the ratio even more. Prepaid expenses
and inventories account for more than half of MGM Mirage’s current assets, so it
only makes sense that the quick asset ratio is smaller than one. The trend of
this ratio follows closely to the current ratio and also shows declines in 2000-
2004, and now is regaining pre-September 11th totals of around .765, which
seems to be a foreseeable trend.
29
Liquidity Analysis: Operating Efficiency Ratios
The next segment of the liquidity analysis is the operating efficiency
ratios, which measure how efficiently a company uses its assets compared to
potential costs. The first of which is the accounts receivable turnover ratio,
derived by calculating sales over accounts receivable. The resulting figure will
show how many dollars of sales are attributed to one dollar of accounts
receivable. Since 1999, MGM Mirage has had a stable growth of account
receivable turnover. The ratio has climbed from 16.68 in 1999, to around 28 in
2004. This ratio has been able to increase steadily due to the fact MGM Mirage
is very efficient at collecting accounts receivables. A main factor is the year to
year increase in total revenues, and also MGM Mirage has been decreasing there
accounts receivables, whether through collections or decreasing sales on
account, both of which support operating efficiency. A variation of this ratio can
give a number of days in which sales are outstanding, or the collection period.
This is calculated by dividing 365 into the accounts receivable turnover.
Currently the number of days that sales are outstanding (using 2003 actual ART)
is 14 days (13.023days).
The inventory turnover ratio, which depicts how efficiently inventory is
cycled through the capital system of a company, is calculated by dividing cost of
goods sold by inventory. The higher the ratio reflects the more times that
inventories can be replenished and turned over, thus increasing sales. When the
sales increase so will the cost of goods sold, which will increase the ratio in
proportion. MGM Mirage’s inventory turnover has steadily increased from 1999
to 2004, with a bad year in 2000, but has since continued to increase and now
the ratio is totaling almost 33, which shows MGM Mirage turns over inventories
33 times per year. Although inventory turnover in the last 5 years has been
lower than the competition, the rate at which the ratio has recently been
increasing at a constant rate. This steady increase will soon bring MGM Mirage’s
30
inventory turnover up to competition, and if it continues, will soon surpass them.
This ratio also has an extension, which will calculate how long inventory is in
holding. Calculated by dividing 365 by the inventory turnover ratio, MGM Mirage
currently has a holding period of 12 days.
The last of the operating efficiency ratios is working capital turnover. This
ratio is computed by taking sales and dividing it by working capital (CA-CL).
Working capital is used for determining the amount of sales per every dollar of
working capital of the company. Thus, if a negative number results, like in the
service industry, then more and more of sales have to be pumped into working
capital to compensate for liabilities that assets cannot cover. This can be seen in
the correlation between the sales growth from year to year and the working
capital turnover. (Figure 1-1; following page) Although negative, this seems to
be the industry norm, due to lack of current assets.
FIGURE 1-1
Actual Year End Amount 1999 2000 2001 2002 2003 2004
Sales Growth 108.00% 131.61% 16.23% 1.62% 3.07% 8.42%
Working capital
turnover -68.7 -7.34 -16.51 -23.67 -525.52 -41.07
*a relationship can be seen between decreasing sales, when working capital turnover decreases
Profitability Analysis The first ratio that will be analyzed to show the overall profitability of
MGM Mirage is Gross Profit Margin. After computing gross profit margin, one can
determine the percentage of profit stemming from sales. This shows how
31
effective the company produces profit from their sales. The ratio is derived from
taking gross profit and dividing it by sales. MGM Mirage has had a trend over
the last five years equally roughly 45%. This is just a touch below the industry
average, but that may soon change. MGM Mirage will increase gross profit by
being able to cover higher amounts of sales related expenses with additional
revenues from the merger with Mandalay Bay. Sales, therefore will be increased,
but not at the same rate, which will lead to an increased gross profit margin for
MGM Mirage.
The operating expense ratio for MGM Mirage will be calculated by taking
operating expenses over sales. This computation will reveal how much of MGM
Mirage’s operating expenses are compensated with sales. In 1999, 32.45% was
the operating expense ratio for the company with a steady decrease until 2003
when the ratio totaled 27.82%. This ratio is cause for some concern, seeing as
it shows MGM Mirage covering less and less expenses with sales revenues. In
2004 and 2005, this ratio is forecasted to rise to 77.56% and 80.20% due to the
increased sales revenue and additional costs associated with Mandalay Bay.
Net Profit Margin gives insight into the percentage of net income is
produced by sales. This formula is computed by taking net income and dividing
sales. An increase from year to year in this ratio shows net income affected
positively by increased sales. This is very apparent in MGM Mirage’s net profit
margin. Since 1999, the ratio has hovered around 5.75% to 6.5%, but in 2004
the net profit margin increased to 9.57%. This jump can again be attributed to
the surplus of sales revenues generated by the merger. The ratio is expected to
further increase in 2005 due to the efficiency of the merging companies will
improve.
Asset Turnover reveals the relationship of sales that are produced per one
dollar of total assets, simply sales over total assets. The ratio has been very
consistent in the last five years for MGM Mirage. This consistency will soon
32
change due to the acquisition of assets through the buy-out of Mandalay Bay.
Mandalay Bay is also in the service industry, so the assets acquired will not be
huge, but still will have a slight positive effect on the asset turnover ratio of MGM
Mirage. The effect of the increase raises a ratio of on average .36 (years 1999-
2004), to a forecasted .55 in year 2005. This ratio again shows positive signs for
the company.
The overall profitability analysis of MGM Mirage, including ROA and ROE,
seems to be increasing. The industry seems to be moving forward as well, but
MGM Mirage simply has a greater increase in their profitability ratios when taking
into effect the merger with Mandalay Bay. MGM Mirage, shown through these
ratios, is experiencing an increase of profits through operations acquisition of
Mandalay Bay. In conclusion, MGM Mirage is indeed a profitable company.
Capital Structure Ratios MGM Mirage has performed a debt to equity ratio that is increasingly high.
MGM is exposed to high credit risks to due to the fact that they are holding more
debt than equity. In 1999 they were carrying a $1.95 of debt to every dollar of
equity. In years 2000-2003 they carry roughly $3.50 of debt to every dollar of
equity. In 1999 is when the acquisition occurred so it would be relevant to say
that they are paying back there debt. In 2005, MGM will be buying out Mandalay
Bay Resorts and Casinos. This will increase this ratio even high because they will
be acquiring Mandalay Bay’s liabilities, and therefore it will increase debt even
further.
MGM Mirage’s times interest earned ratio is not steady and is increasing.
They are running at a low coverage, and not providing enough income from
operations to cover their interest charges. If this is not changed, and if they
keep with the trend they will have find other ways to cover their debt interest
33
expenses. This may lead to funding debt interest expenses through funds that
would otherwise affect accounts such as retained earnings.
The debt service margin for MGM Mirage is not steady, but they are
easing the pressure by using operating cash flows to service their long-term
debt. In 2002 they generated $119.03 from cash provided by operations to
service $1 of their long-term debt that will mature within the next year. In 2004,
the debt service margin will decrease to the massive amount that was paid off in
the previous years. In assumption, they are preparing for the debt that will be
rendered in 2005 from the buy-out. MGM will have more long-term debt than
cash from operations making the ratio decrease. It will take MGM a few years to
accumulate enough cash from operations to payback their long-term debt.
Overall the capital structure of MGM Mirage looks to be fundamentally
sound. Although the debt to equity ratio is increasing, the increased debt is
planned to be compensated through returns being greater than the debt
expense. MGM Mirage may take a hit on there expenses and debt may become
very high, but in the future the decision to finance the merger with Mandalay
Bay, is a good decision. This is supported by 2000 capital structure ratios, which
show another merger and has the same effects on capital structure. In
conclusion, MGM Mirage has a bright future of returns and debt coverage; it will
just take till around 2007 to start regaining pre-merger status of capital
structure.
The following graphs give a visible representation of the ratios of MGM
Mirage as compared to major competitors, as well as the industry. Below each
graph is a summary of the ratios significance.
34
Current Ratio
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1999 2000 2001 2002 2003 2004
MGM
MandalayHarrah's
Caesars
Industry
Over the past five years, MGM Mirage has followed a level trend less than one
for the current ratio. This is due to the fact that their liabilities have steadily increased
above their current assets making them susceptible to short term liquidity problems.
Upon analysis of MGM’s competitors and the industries current ratio, it is apparent that
their ratios are greater than one, meaning that these firms can cover their current
liabilities from the cash realized on current assets.
Quick Asset Ratio
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1999 2000 2001 2002 2003 2004
MGM
Mandalay
Harrah'sCaesars
Industry
MGM Mirages quick asset ratio follows a comparable trend to that of their current
ratio, in that they are both less than one. Having a ratio of less than one, concludes a
slower rate of paying of short-term liabilities. In spite of this, MGM’s quick asset ratio
has slowly increased closer to the industry norm of 1.0. In relation to MGM, their
competitors also have trends of quick assets ratios less than one.
35
Accounts Reveicable Turnover
0.00
10.00
20.00
30.00
40.00
50.00
1999 2000 2001 2002 2003 2004
MGM
Mandalay
Harrah'sCaesars
Industry
Over the past five years, MGM’s accounts receivable turnover ratio has remained
less than the industry norm. This is most likely due to increasing amounts of uncollected
accounts receivable. MGM’s competitors are sustaining a faster turnover ratio due to
cash being collected and reinvested quicker.
Inventory Tunover
0.00
20.00
40.00
60.00
80.00
100.00
120.00
1999 2000 2001 2002 2003 2004
MGM
Mandalay
Harrah's
Industry
MGM Mirages inventory turnover is considerably low as compared to their
competitors and industry. MGM’s low ratio causes slower inventory cycles resulting in
an increased cost of revenue. MGM’s data indicates from 2000-2004, a slow but steady
increasing trend in inventory turnover. This increase allows MGM to cycle inventory at a
faster rate, reducing the cost of revenue.
36
Working Capital Turnover
(600.00)(500.00)(400.00)(300.00)(200.00)(100.00)
0.00100.00200.00300.00
MGMMandalay
Harrah's
Caesars
Industry
From 1999 to 2004, MGM’s current liabilities have exceeded their current assets
causing the working capital ratio to be negative. This is due to the fact that MGM
financed the acquisition of MGM Mirage(1999) through debt. This also shows that MGM,
if needed, would have trouble liquidating some of their assets to pay of the debt.
Gross Profit Margin
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
1999 2000 2001 2002 2003 2004
MGMMandalayHarrah'sCaesarsIndustry
Gross profit margin is generally influenced by two factors: 1.) the price premium
that a firm’s products or services command within the market place and 2.) the
efficiency of the firms procurement and production process. MGM’s trend has dropped
minimally, but at a faster rate than their competitors. This rate was influenced heavily
by the weak economy in 2001, and also the increasing price competition within the
industry.
37
Operating Expense Ratio
0.00%5.00%
10.00%15.00%20.00%25.00%30.00%35.00%40.00%45.00%
1999 2000 2001 2002 2003 2004
MGMMandalayHarrah'sCaesarsIndustry
MGM’s operating expense ratio has followed a rather similar trend when
compared to the industry average. In 1999, MGM’s operating expense ratio was
30.01%, and has slowly decreased through 2000 to 2004. The operating expense ratio
is decreasing because MGM maintains more sales per operating expenses. MGM has
accomplished and been able to sustain this competitive advantage by operating more
efficiently at lower costs while increasing sales.
Net Profit Margin
-20.00%
-15.00%
-10.00%
-5.00%
0.00%
5.00%
10.00%
15.00%
1999 2000 2001 2002 2003 2004
MGMMandalayHarrah'sCaesarsIndustry
The net profit margin ratio tells the percentage of sells retained by MGM through
their net income. MGM is well above the industry and its competitors because they are
gaining more return on their sales. MGM’s net profit margin trend is continuing to
increase which clearly states they are more profitable than the industry.
38
Asset Turnover
0.000
0.100
0.200
0.300
0.400
0.500
0.600
0.700
1999 2000 2001 2002 2003 2004
MGMMandalayHarrah'sCaesarsIndustry
The Asset turnover of a company measures the revenue productivity of resources
employed. MGM Mirage’s asset turnover ratio provides that for every dollar of assets
they produced, excluding 1999, only about .35 to .38 cents of sales. The big drop from
1999 to 2000 is because of the acquisition of Mirage, causing MGM’s total assets to
nearly quadruple in size. MGM falls below its competitors and the industry average, but
this shows that MGM has more assets relative to sales and that the two together are
growing at a stable rate.
Return On Assets
-10.00%
-8.00%
-6.00%
-4.00%
-2.00%
0.00%
2.00%
4.00%
6.00%
1999 2000 2001 2002 2003 2004
MGMMandalayHarrah'sCaesarsIndustry
The return on asset ratio for MGM Mirage is relatively low, but falls above the
industry average. This implies that MGM is getting a higher return of their assets than
that of some of their competitors. There is a significant relationship between return on
assets and asset turnover. As the return on asset ratio is increasing from 2000 to 2004,
the asset turnover ratio is increasing as well.
39
Return on Equity
-40.00%
-30.00%
-20.00%
-10.00%
0.00%
10.00%
20.00%
30.00%
1999 2000 2001 2002 2003 2004
MGMMandalayHarrah'sCaesarsIndustry
Return on equity is influenced by asset turnover and the relationship between
total debt and owner’s equity. Since MGM will be increasing its assets with debt
financing in the Mandalay acquisition, then their owner’s equity will represent a smaller
percentage of total resources. This indicates that as profits increase for MGM their
return on owners’ equity will also increase, as proven by there numbers. As a whole
MGM’s ratios are above the industry average which indicates that MGM has more debt
relative to equity and finances more of their assets through debt
Debt to Equity Ratio
0.000.501.001.502.002.503.003.504.004.50
1999 2000 2001 2002 2003 2004
MGMMandalayHarrah'sCaesarsIndustry
As shown by MGM Mirage’s debt to equity ratio, there is a higher amount of
dollars toward debt financing relative to each dollar invested by their shareholders. On
average the ratio provides that for every $1.00 of owners’ equity, MGM has $3.50 of
40
liabilities. This could cause credit risk in the possibility that debt repayment cannot be
satisfied with available cash flows. MGM’s debt to equity ratios fall above those of their
competitors and the industry average, meaning that debt for MGM is a larger proportion
of total financing.
FORECASTING ANALYSIS A series of forecasted financial statements follow giving valuation to MGM
Mirage in a variety of ways. Forecasts were determined by considering the last
five years, starting with year the ended 1999 through year ended 2004. Starting
with 2005, numbers have been forecasted based on trends, and or
interpretations of future gains or losses, these trends have been used to forecast
the next ten years, ending with year end 2014.
The processes used to forecast data weighed heavily upon the year of
1999. During that year, MGM Mirage acquired a company very similar to
Mandalay Bay. We saw a trend over the five years following, in which “red flag”
financials leveled off to more “comfortable” numbers. Included in our processes
was the tendency of values to rebound to previous proportions. This proved to
be very efficient, which is shown extensively throughout the forecasted data.
FORECASTING METHODOLOGY
Balance Sheet
Assets - were calculated by increasing them by five percent. This
was done because we are acquiring Mandalay Bay and a moving
average was not required when making final calculations.
Liabilities- were increased due to the amount of debt that MGM
acquired.
41
Stockholder’s Equity -was increased also due to the acquisition.
In the later years of the forecasted retained earnings the number is
larger and not making the balance sheet balance. We believe that
MGM will be paying a special one time dividend, and decrease total
stockholder’s equity.
Income Statement Revenues- forecasted projections show an increase in revenues.
A simple moving average was first projected then, after 2008 we
cut the average, due to revenues being un-realistically large
Cost of Revenues- an increase was forecasted to occur at a rate
determined by that of the average five previous years of cost
associated with revenues. The findings were consistent with the
ratio of revenues to costs for previous years.
Net Income- Initial forecasts were started at 2004, due to the
lack of current 10-K MGM Mirage. The data seemed to be
increasingly larger and larger and un-realistic. After checking our
moving averages, again and again, we were finally presented the
actual 2004 data, which along with our increments of the ratio,
forecasted net income, which we find to be very feasible
Statement of Cash Flows
Cash Flows from Operations- Basic walking averages were used
as increasing multiples, with significant increases due to the
Mandalay Bay transaction occurring in cash from operations and
increased depreciation due to acquiring a large amount of assets
42
Cash Flows from Investing- We observed the cash flows from
previous acquisitions and based our forecasts upon this factual data
of a situation. This shows to be a very realistic representation of
future cash flows from investing activities
Cash Flows from Financing- The steady actual data seemed to
be very consistent, so a walking average multiple was used to
increase our forecasts. Many insider transactions swayed our
decisions to increase the issuance of common stock. The fact that
more stock was available to investors at a higher market price
increased our forecasts from (2004) $89.8 billion to (2005-E) $103.3 billion.
Although mere forecasts we at Abstract Financial firmly believe that the
data presented is as close to actual data that can be valued. The fact that
numbers do not lie and long-run trends are hard to stray from, gave us the
utmost confidence in our forecasted values. Financial statements were
transparent for the most part and the opaqueness was eventually decided upon
based on financial fundamentals.
43
Valuation Analysis
The purpose of the valuation analysis is to use the forecasted numbers to
determine if MGM Mirage is fairly valued as a company. There are several
models that can help establish the intrinsic value of the firm. The first model
that was used was the Method of Comparables, which benchmarks MGM to its
competitors. For the remaining models there was an additional evaluation to
determine the cost of capital and Weighted Average Cost of Capital. The other
three models used were the Free Cash Flow Model, Residual Income Model, and
the Abnormal Earnings Growth Valuation Model.
Method of Comparables Model
Trailing Price to Earnings Ratio Company Symbol PPS EPS Trailing P/E
MGM Mirage MGG 70.38 2.42 29.08
Harrahs HET 63.70 2.92 21.83
Mandalay MBG 70.53 3.50 20.18
Cesears CZR 19.56 0.58 33.61
Las Vegas Sands Corp. LVS 42.86 1.51 28.40
Industry
Average P/E Expected Share
Price MGM Mirage 26.01 62.94
The trailing price to earnings ratio is a comparison of the price per share
(pps) to earnings per share (eps) of a company. The current years Net Income,
dividends, and outstanding shares are used to derive the trailing P/E. An
average of the competitors trailing P/E ratio was found to discover the expected
share price of MGM. This expected share price that was found was $62.94.
44
When MGM’s actual price of $70.38 is compared to this models expected share
price it shows that MGM is overvalued.
Forward Price to Earnings Ratio Company Symbol PPS EPS Forward P/E MGM Mirage MGG 70.38 3.34 21.05 Harrahs HET 63.70 4.04 15.77 Mandalay MBG 70.53 4.20 16.79 Cesears CZR 19.56 0.88 22.23 Las Vegas Sands Corp. LVS 42.86 1.10 38.96
Industry
Average P/E Expected Share
Price MGM Mirage 23.44 78.29
The Forward P/E is obtained from the forecasted Net Income, dividends,
and outstanding shares. Using the same steps as the trailing P/E ratio, an
industry average P/E was found to acquire the expected share price of $78.29.
This model indicates that MGM is undervalued as compared to the actual price.
Forward PEG Ratio
Company Symbol Forward P/E
1 YR. Ahead E Growth
Rate Forward PEG MGM Mirage MGG 21.05 11.75% 1.79 Harrahs HET 15.77 12.13% 1.30 Mandalay MBG 16.79 14.16% 1.15 Cesears CZR 22.23 8.30% 2.68 Las Vegas Sands Corp. LVS 38.96 16.30% 2.39
Industry
Average PEGExpected Share
Price MGM Mirage 1.88 73.78
45
The PEG ratio is a calculation of the forward P/E ratio and the earnings
growth rate of one year ahead. By executing this ratio the price per share for
MGM Mirage is $73.78. This model provides that MGM is undervalued as a
company when comparing this price to the actual of $70.38.
The market to book is a ratio of price per share to a company’s book value
per share. To identify MGM’s expected share price, an industry average was
established that excluded Las Vegas Sands Corp. The reason for this exclusion
was because the P/B ratio for LVS did not match well with the other competitors.
The expected share price derived from this model was $60.44 implying that MGM
is overvalued.
Once the comparable method ratios have been computed, it is observed
that both the forward and trailing P/E ratios provide the most reasonable price
per share as compared to the actual stock price of MGM.
Altman Z-Score When calculating the Altman Z-Score the number acquired for MGM is
1.05. This would imply that they are a high credit risk firm. MGM issues bonds
to pay for the Mandalay Bay acquisition that are below investment grade. When
Market to Book Ratio Company Symbol PPS BPS P/B Ratio MGM Mirage MGG 70.38 19.88 3.54 Harrahs HET 63.70 17.99 3.54 Mandalay MBG 70.53 18.56 3.8 Cesears CZR 19.56 11.05 1.77 Las Vegas Sands Corp. LVS 42.86 3.57 11.91
Industry
Average P/B Expected Share
Price MGM Mirage 3.04 60.44
46
looking at the debt to equity ratio it shows that repayment of debt cannot be
satisfied with available cash flows. To lessen their credit risk, MGM should
improve their debt to equity ratio and be able to repay debt when due.
Finding WACC, Cost of Capital, and Cost of Debt:
The WACC, cost of capital, and cost of debt must be calculated in
order to determine the estimated price per share of the remaining three models.
To find the cost of capital the CAPM equation was incorporated.
CAPM = Re = Rf + β(Rm - Rf)
Re = cost of equity
Rf = risk free rate
β = beta (systematic risk)
Rm = market risk free rate
MGM Mirage’s CAPM
Re = .03207 + .7479(.03) Re = 5.45%
First the stock prices from the past five years, on a monthly basis, were
taken from finance.yahoo.com. A regression model and slope of the firm’s return
and the market risk premium was performed to get the R2 and beta, respectively.
The risk free rate used was derived from the average monthly yield risk free rate
from August 2003 through January 2005. This range of months is used because
the economy was not stable before August 2003 due to the effects of 9/11 and
the tech wreck.
The cost of debt was calculated by retrieving the long term debt located in
the footnotes of the 10-K. A weighted average rate (7.27%) was established
from the long-term debt that was transferred to the long-term liabilities of the
balance sheet. For the long-term obligation portion a larger rate (8.27%) was
47
estimated because MGM Mirage does not disclose the rate at which they finance
their retirement plans. An additional one percent was added because MGM is
unionized making them a more risky company. The sum of the value weighted
rate was computed to give the weighted average cost of debt (5.15%). (For
further details see the appendix)
Finally the WACC is computed by:
Vd = Value of Debt
Ve = Value of Equity
Kd = Cost of Debt
Ke = Cost of Equity
8,343,325,000 2,771,704,000 WACC = 11,115,029,000 (0.0515) + 11,115,029,000 (0.0545)
The value of debt is the total liabilities and the value of equity is the total
stockholder’s equity. By solving this equation the WACC is 5.23%. This percent
is used in the Discounted Cash Flow Model to determine the estimated price per
share.
Discounted Cash Flow Model Sensitivity Analysis g 0 0.01 0.015 0.025
WACC 0.03 141.1 229.83 318.56 1028.4 0.04 96.74 141.1 176.59 318.56 0.0523 65.43 89.5 106.37 158.65 0.06 52.37 70.12 81.95 115.75 0.07 39.69 52.37 60.44 81.95
Vd Vd WACC = Vd + Ve
(Kd) +Vd + Ve
(Ke)
48
The discounted cash flow model uses the forecasted operating and
investing cash flows for the 10 forecasted years to obtain the free cash flows to
the firm. Based on the sensitivity analysis that was used, the stock price of
$65.42 was derived using the calculated WACC, assuming no growth. By using
different WACC percentages and growth rates this will manipulate the stock price
to be closer to the actual of $70.38. The discounted cash flow model provides
that with these assumptions MGM Mirage is overvalued as a company.
Discounted Residual Income Model Sensitivity Analysis g 0 0.01 0.015 0.025
Ke 0.03 $48.39 $48.38 $48.38 48.37 0.04 $41.20 $41.19 $41.19 41.18 0.0545 $34.15 $34.14 $34.14 34.13 0.06 $32.05 $32.04 $32.04 $32.03 0.07 $28.75 $28.74 $28.74 $28.74
The residual income method is a tool used to estimate a company’s stock
price. The factors taken into consideration are the cost of equity per share in
relation to the company’s book value of equity per share. As discussed in earlier
sections, we determined that MGM’s cost of equity is equal to 5.45%. In our
model we assumed a zero growth rate to obtain an estimated stock price of
$34.15. As of April 1, 2005, the actual share price was valued at $70.38. This
shows that MGM’s stock price is well overvalued using cost of equity equaling
5.45%. However, MGM is in the process of many growth opportunities that will
influence the value per share. The acquisition of Mandalay Bay Resorts, which
was primarily financed through debt, will have a direct effect of the cost of
equity and therefore the stock value. As shown above, a decrease in the cost of
equity, still assuming zero growth, will increase the estimated value of MGM’s
stock. This increase is slowed by the fact growth in MGM is inevitable. In
conclusion, the growth of MGM will have both positive and negative affects on
49
future share prices. However, the test of time will show if MGM has the ability to
manage their financial leverage by keeping cost of liabilities under their return on
investments.
Abnormal Earning Growth Model Sensitivity Analysis
g 0 0.01 0.015 0.025
Ke 0.03 $74.89 $74.63 $74.49 $74.23 0.04 $51.99 $51.81 $51.71 51.53 0.0545 $34.16 $34.03 $33.97 33.85
0.06 $29.76 $29.65 $29.60 $29.49 0.07 $23.66 $23.58 $23.53 $23.45
Under this approach the value of the firm’s equity is expressed as the sum
of its book value and discounted forecasts of abnormal earnings. Recent research
shows that abnormal earnings estimates of value outperform traditional
multiples, such as price-earnings ratios, price-to-book ratios, and dividend yields,
for predicting future stock movements. With this said, we calculated MGM’s value
per share at $34.16. This value is relatively low when compared to its actual
stock price of $70.38. Our calculations indicate MGM will have negative abnormal
stock performance in the future, meaning that their stock price will continue to
decrease. Although the near future will face these negative values, we firmly
believe that MGM Mirage will not have negative abnormal earnings indefinitely.
This weighed heavily on our decision to slightly increase abnormal earnings
growth from negative $0.14 to $0.0. By leveling off our abnormal earnings
growth (AEG) to $0.0 we were able to forecast more precise stock prices. Had
we used the negative (AEG) value, our stock’s estimated value would have
plummeted to $4.86 which is simply unrealistic.
In conclusion, upon further evaluation of MGM Mirage we found a 12
month target price to be $34.15, when its actual market share price is $70.38.
With this said MGM is an overvalued company.
50
APPENDIX
MGG-1……….Forecasted Balance Sheet
MGG-2……….Proforma Balance Sheet
MGG-3……….Forecasted Income Statement
MGG-4……….Proforma Income Statement
MGG-5……….Forecasted Statement of Cashflows
MGG-6……….Proforma Statement of Cashflows
MGG-7……….Ratio Analysis
MGG-8……….Discounted Free Cash Flow Model
MGG-9……….Residual Income Model
MGG-10……..Abnormal Earning Growth Model
MGG-11……..Balance Sheet Debt
MGG-12……..Weighted Average Debt Cost
MGG-13……..CAPM Series
51
MGM MIRAGE 10-K: Balance Sheet
Actual at year end Forcast at year end1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
ASSETSCurrent assets Cash and cash equivalents $121,522,000.00 $227,968,000.00 $208,971,000.00 $211,234,000.00 $178,047,000.00 $355,632,000.00 $368,164,725.90 $381,139,114.01 $394,570,728.84 $404,750,781.22 $415,193,482.24 $425,905,608.33 $436,894,110.74 $448,166,120.06 $459,728,950.86 $471,590,106.44 Accounts receivable, net $83,101,000.00 $236,650,000.00 $144,374,000.00 $139,935,000.00 $139,475,000.00 $172,408,000.00 $175,102,906.73 $177,839,937.51 $180,619,750.77 $183,878,505.19 $187,196,054.30 $190,573,458.86 $194,011,798.80 $197,512,173.51 $201,075,702.24 $204,703,524.40 Inventories $15,240,000.00 $86,279,000.00 $78,037,000.00 $68,001,000.00 $65,189,000.00 $64,173,000.00 $64,569,747.41 $64,968,947.71 $65,370,616.04 $65,800,695.81 $66,233,605.12 $66,669,362.58 $67,107,986.94 $67,549,497.04 $67,993,911.89 $68,441,250.58 Income tax receivable $0.00 $11,264,000.00 $12,077,000.00 $0.00 $9,901,000.00 $0.00 Deferred income taxes $17,452,000.00 $162,934,000.00 $148,845,000.00 $84,348,000.00 $49,286,000.00 $38,337,000.00 $38,478,594.27 $38,978,815.99 $39,485,540.60 $39,998,852.63 $40,518,837.71 $41,045,582.60 $41,579,175.18 $42,119,704.45 $42,667,260.61 $43,221,935.00 Prepaid expenses and other $32,598,000.00 $70,549,000.00 $69,623,000.00 $86,311,000.00 $89,641,000.00 $88,651,000.00 $89,759,137.50 $90,881,126.72 $92,017,140.80 $93,167,355.06 $94,331,947.00 $95,511,096.34 $96,704,985.04 $97,913,797.36 $99,137,719.82 $100,376,941.32 Assets held for sale $0.00 $0.00 $0.00 $0.00 $226,082,000.00 $0.00 Total current assets $269,913,000.00 $795,644,000.00 $661,927,000.00 $589,829,000.00 $757,621,000.00 $719,201,000.00 $769,033,191.37 $822,318,168.96 $879,295,170.34 $942,082,389.24 $1,009,353,011.43 $1,081,427,180.17 $1,158,647,898.96 $1,241,382,663.93 $1,330,025,212.75 $1,424,997,398.42Property and equipment, net $2,384,772,000.00 $9,064,233,000.00 $8,891,645,000.00 $8,762,445,000.00 $8,681,339,000.00 $8,862,740,000.00 $10,302,242,357.35 $11,975,551,306.89 $13,920,642,140.74 $14,256,129,616.34 $14,599,702,340.09 $14,951,555,166.49 $15,311,887,646.00 $15,680,904,138.27 $16,058,813,928.00 $16,445,831,343.66Other assets Investment in unconsolidated affiliates $12,485,000.00 $522,422,000.00 $632,949,000.00 $710,802,000.00 $756,012,000.00 $805,046,000.00 $847,552,428.80 $892,303,197.04 $939,416,805.84 $990,401,056.14 $1,044,152,335.68 $1,100,820,817.33 $1,160,564,824.18 $1,223,551,271.85 $1,289,956,134.84 $1,359,964,938.22 Excess of purchase price over fair market value of ne $31,683,000.00 $54,281,000.00 $0.00 $0.00 $0.00 $0.00 Goodwill and other intangible assets, net $0.00 $0.00 $139,178,000.00 $256,108,000.00 $267,668,000.00 $233,059,000.00 $238,142,373.85 $243,336,623.87 $248,644,168.45 $252,125,800.76 $255,656,184.52 $259,236,002.37 $262,865,946.51 $266,546,718.83 $270,279,031.05 $274,063,604.85 Deposits and other assets, net $44,601,000.00 $298,021,000.00 $171,744,000.00 $185,801,000.00 $247,070,000.00 $278,784,000.00 $284,303,923.20 $289,933,140.88 $295,673,817.07 $301,528,158.65 $307,498,416.19 $313,586,884.83 $319,795,905.15 $326,127,864.07 $332,585,195.78 $339,170,382.65 Total other assets $88,769,000.00 $874,724,000.00 $943,871,000.00 $1,152,711,000.00 $1,270,750,000.00 $1,316,889,000.00 $1,526,932,795.50 $1,770,478,576.38 $2,052,869,909.32 $2,380,302,659.85 $2,759,960,934.10 $3,200,174,703.09 $3,710,602,568.23 $4,302,443,677.86 $4,988,683,444.48 $5,784,378,453.87Total Assets $2,743,454,000.00 $10,734,601,000.00 $10,497,443,000.00 $10,504,985,000.00 $10,709,710,000.00 $10,898,830,000.00 $12,598,208,344.23 $14,568,348,052.23 $16,852,807,220.40 $17,578,514,665.43 $18,369,016,285.61 $19,233,157,049.74 $20,181,138,113.19 $21,224,730,480.06 $22,377,522,585.23 $23,655,207,195.96LIABILITIES AND STOCKHOLDERS' EQUITYCurrent liabilities Accounts payable $45,914,000.00 $65,317,000.00 $75,787,000.00 $69,959,000.00 $85,439,000.00 $101,584,000.00 $102,781,145.14 $103,992,398.38 $105,217,925.97 $106,397,556.43 $107,590,412.09 $108,796,641.22 $110,016,393.75 $111,249,821.31 $112,497,077.20 $113,758,316.46 Income taxes payable $3,296,000.00 $0.00 $0.00 $637,000.00 $0.00 $46,572,000.00 Dividend Payable $11,388,000.00 $0.00 $0.00 $0.00 $0.00 $0.00Current obligation, capital lease $5,145,000.00 $4,099,000.00 $0.00 $0.00 $0.00 $0.00 Current portion of long-term debt $7,852,000.00 $521,308,000.00 $168,079,000.00 $6,956,000.00 $9,008,000.00 $14,000.00 $14,014.00 $14,028.01 $14,042.04 $14,227.20 $14,414.80 $14,604.87 $14,797.44 $14,992.56 $15,190.25 $15,390.55 Accrued interest on long-term debt $18,915,000.00 $77,738,000.00 $78,938,000.00 $80,310,000.00 $87,711,000.00 $77,632,000.00 $78,337,154.69 $79,081,357.66 $79,832,630.56 $80,591,040.55 $81,356,655.43 $82,129,543.66 $82,909,774.33 $83,697,417.18 $84,492,542.65 $85,295,221.80 Other accrued liabilities $197,580,000.00 $564,743,000.00 $565,106,000.00 $592,206,000.00 $559,445,000.00 $557,681,000.00 $594,104,732.86 $632,907,403.35 $674,244,386.66 $720,842,848.78 $770,661,829.64 $823,923,906.11 $880,867,037.85 $941,745,630.41 $1,006,831,671.85 $1,076,415,947.90 Liabilities related to assets held for sale $0.00 $0.00 $0.00 $0.00 $23,456,000.00 $0.00 Total current liabilities $290,090,000.00 $1,233,205,000.00 $887,910,000.00 $750,068,000.00 $765,059,000.00 $783,483,000.00 $854,695,354.34 $946,575,104.93 $1,048,331,928.71 $1,161,027,611.05 $1,285,838,079.24 $1,424,065,672.76 $1,577,152,732.58 $1,746,696,651.33 $1,934,466,541.35 $2,142,421,694.54Deferred income taxes $108,713,000.00 $1,730,158,000.00 $1,746,272,000.00 $1,769,431,000.00 $1,765,426,000.00 $1,772,269,000.00 $1,905,189,175.00 $2,196,683,118.78 $2,532,775,635.95 $2,968,015,848.51 $3,478,049,122.07 $4,075,728,133.86 $4,776,114,206.02 $5,596,856,846.12 $6,558,638,509.21 $7,685,695,789.12Long-term debt $1,304,345,000.00 $5,348,320,000.00 $5,295,313,000.00 $5,213,778,000.00 $5,521,890,000.00 $5,569,768,000.00 $5,848,256,400.00 $6,140,669,220.00 $6,447,702,681.00 $6,770,087,815.05 $7,108,592,205.80 $7,464,021,816.09 $7,837,222,906.90 $8,229,084,052.24 $8,640,538,254.85 $9,072,565,167.60Other long-term obligations $4,241,000.00 $33,381,000.00 $57,248,000.00 $107,564,000.00 $123,547,000.00 $141,925,000.00 $144,284,014.23 $145,005,434.30 $145,730,461.47 $146,459,113.78 $147,191,409.35 $147,927,366.40 $148,667,003.23 $149,410,338.25 $150,157,389.94 $150,908,176.89Total Liabilities $1,997,479,000.00 $9,578,269,000.00 $8,874,653,000.00 $8,590,909,000.00 $8,940,981,000.00 $9,050,928,000.00 $9,527,661,990.27 $10,244,928,065.42 $11,033,849,692.37 $11,953,436,061.35 $12,979,294,128.41 $14,126,607,684.96 $15,412,964,852.09 $16,858,755,749.40 $18,487,637,177.29 $20,327,075,704.85Stockholders' equity Common stock, $.01 par value: $1,384,000.00 $1,632,000.00 $1,637,000.00 $1,664,000.00 $1,683,000.00 $1,719,000.00 $1,959,660.00 $2,234,012.40 $2,546,774.14 $2,903,322.52 $3,309,787.67 $3,773,157.94 $4,301,400.05 $4,903,596.06 $5,590,099.51 $6,372,713.44 authorized 300,000,000 shares, issued 166,393,025 and 163,685,876 shares; outstanding 154,574,225 and 157,396,176 shares Capital in excess of par value $1,261,625,000.00 $2,041,820,000.00 $2,049,841,000.00 $2,125,626,000.00 $2,171,625,000.00 $2,284,353,000.00 $2,368,417,190.40 $2,455,574,943.01 $2,545,940,100.91 $2,639,630,696.62 $2,736,769,106.26 $2,837,482,209.37 $2,941,901,554.67 $3,050,163,531.89 $3,162,409,549.86 $3,278,786,221.29 Deferred compensation $0.00 $0.00 $0.00 -$27,034,000.00 -$19,174,000.00 -$12,947,000.00 Treasury stock, at cost (11,818,800 -$505,824,000.00 -$83,683,000.00 -$129,399,000.00 -$317,432,000.00 -$760,594,000.00 -$1,110,228,000.00 -$1,168,181,901.60 -$1,229,160,996.86 -$1,293,323,200.90 -$1,360,834,671.99 -$1,431,870,241.86 -$1,506,613,868.49 -$1,585,259,112.42 -$1,668,009,638.09 -$1,755,079,741.20 -$1,846,694,903.69 and 6,289,700 shares) Retained earnings $267,165,000.00 $427,956,000.00 $597,771,000.00 $890,206,000.00 $1,133,903,000.00 $1,471,349,000.00 $1,553,744,544.00 $1,640,754,238.46 $1,732,636,475.82 $1,829,664,118.46 $1,932,125,309.10 $2,040,324,326.41 $2,154,582,488.69 $2,275,239,108.05 $2,402,652,498.10 $2,537,201,038.00 Other comprehensive loss -$1,149,000.00 -$5,280,000.00 -$9,150,000.00 -$8,886,000.00 $6,345,000.00 -$2,861,000.00 Total stockholders' equity $1,023,201,000.00 $2,382,445,000.00 $2,510,700,000.00 $2,664,144,000.00 $2,533,788,000.00 $2,631,385,000.00 $3,070,546,353.95 $4,323,419,986.81 $5,818,957,528.03 $5,625,078,604.07 $5,389,722,157.20 $5,106,549,364.78 $4,768,173,261.10 $4,365,974,730.66 $3,889,885,407.94 $3,328,131,491.11Total Liabilities and Stockholder's equity $2,743,454,000.00 $10,734,601,000.00 $10,497,443,000.00 $10,504,985,000.00 $10,709,710,000.00 $10,898,830,000.00 $12,598,208,344.23 $14,568,348,052.23 $16,852,807,220.40 $17,578,514,665.43 $18,369,016,285.61 $19,233,157,049.74 $20,181,138,113.19 $21,224,730,480.06 $22,377,522,585.23 $23,655,207,195.96
MGG-1
52
MGM MIRAGE 10-K: Proforma Balance Sheet
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014ASSETSCurrent assets Cash and cash equivalents 4.43% 2.12% 1.99% 2.01% 1.66% 3.26% 3.52% 3.52% 3.52% 2.58% 2.58% 2.58% 2.58% 2.58% 2.58% 2.58% Accounts receivable, net 3.03% 2.20% 1.38% 1.33% 1.30% 1.58% 1.56% 1.56% 1.56% 1.80% 1.80% 1.80% 1.80% 1.80% 1.80% 1.80% Inventories 0.56% 0.80% 0.74% 0.65% 0.61% 0.59% 0.62% 0.62% 0.62% 0.66% 0.66% 0.66% 0.66% 0.66% 0.66% 0.66% Income tax receivable 0.00% 0.10% 0.12% 0.00% 0.09% 0.00% 0.00% 0.00% 0.00% 0.05% 0.05% 0.05% 0.05% 0.05% 0.05% 0.05% Deferred income taxes 0.64% 1.52% 1.42% 0.80% 0.46% 0.35% 0.37% 0.37% 0.37% 0.86% 0.86% 0.86% 0.86% 0.86% 0.86% 0.86% Prepaid expenses and other 1.19% 0.66% 0.66% 0.82% 0.84% 0.81% 0.85% 0.85% 0.85% 0.83% 0.83% 0.83% 0.83% 0.83% 0.83% 0.83% Assets held for sale 0.00% 0.00% 0.00% 0.00% 2.11% 0.00% Total current assets 9.84% 7.41% 6.31% 5.61% 7.07% 6.60% 6.93% 6.93% 6.93% 7.14% 7.14% 7.14% 7.14% 7.14% 7.14% 7.14%Property and equipment, net 86.93% 84.44% 84.70% 83.41% 81.06% 81.32% 83.76% 83.76% 83.76% 83.64% 83.64% 83.64% 83.64% 83.64% 83.64% 83.64%Other assets 16.24% 16.24% 16.24% 2.41% 2.41% 2.41% 2.41% 2.41% 2.41% 2.41% Investment in unconsolidated affiliates 0.46% 4.87% 6.03% 6.77% 7.06% 7.39% 5.28% 5.28% 5.28% 5.43% 5.43% 5.43% 5.43% 5.43% 5.43% 5.43% Excess of purchase price over fair market value of ne 1.15% 0.51% 0.00% 0.00% 0.00% 0.00% Goodwill and other intangible assets, net 0.00% 0.00% 1.33% 2.44% 2.50% 2.14% 2.18% 2.18% 2.18% 1.40% 1.40% 1.40% 1.40% 1.40% 1.40% 1.40% Deposits and other assets, net 1.63% 2.78% 1.64% 1.77% 2.31% 2.56% 1.98% 1.98% 1.98% 2.11% 2.11% 2.11% 2.11% 2.11% 2.11% 2.11% Total other assets 3.24% 8.15% 8.99% 10.97% 11.87% 12.08% 9.44% 9.44% 9.44% 9.22% 9.22% 9.22% 9.22% 9.22% 9.22% 9.22%total Non-Current Assets 90.16% 92.59% 93.69% 94.39% 92.93% 93.40% 93.07% 93.07% 93.07% 92.86% 92.86% 92.86% 92.86% 92.86% 92.86% 92.86%Total Assets 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%LIABILITIES AND STOCKHOLDERS' EQUITYCurrent liabilities Accounts payable 2.30% 0.68% 0.85% 0.81% 0.96% 1.12% 1.18% 1.18% 1.18% 1.12% 1.12% 1.12% 1.12% 1.12% 1.12% 1.12% Income taxes payable 0.17% 0.00% 0.00% 0.01% 0.00% 0.51% Dividend Payable 0.57% 0.00% 0.00% 0.00% 0.00% 0.00%Current obligation, capital lease 0.26% 0.04% 0.00% 0.00% 0.00% 0.00% Current portion of long-term debt 0.39% 5.44% 1.89% 0.08% 0.10% 0.00% 0.10% 0.10% 0.10% 1.32% 1.32% 1.32% 1.32% 1.32% 1.32% 1.32% Accrued interest on long-term debt 0.95% 0.81% 0.89% 0.93% 0.98% 0.86% 0.91% 0.91% 0.91% 0.90% 0.90% 0.90% 0.90% 0.90% 0.90% 0.90% Other accrued liabilities 9.89% 5.90% 6.37% 6.89% 6.26% 6.16% 6.53% 6.53% 6.53% 6.91% 6.91% 6.91% 6.91% 6.91% 6.91% 6.91% Liabilities related to assets held for sale 0.00% 0.00% 0.00% 0.00% 0.26% 0.00% Total current liabilities 14.52% 12.88% 10.01% 8.73% 8.56% 8.66% 9.09% 9.18% 9.18% 10.56% 10.56% 10.56% 10.56% 10.56% 10.56% 10.56%Deferred income taxes 5.44% 18.06% 19.68% 20.60% 19.75% 19.58% 15.30% 15.30% 15.30% 17.18% 17.18% 17.18% 17.18% 17.18% 17.18% 17.18%Long-term debt 65.30% 55.84% 59.67% 60.69% 61.76% 61.54% 62.77% 65.23% 65.23% 61.10% 61.10% 61.10% 61.10% 61.10% 61.10% 61.10%Other long-term obligations 0.21% 0.35% 0.65% 1.25% 1.38% 1.57% 1.66% 1.66% 1.66% 0.90% 0.90% 0.90% 0.90% 0.90% 0.90% 0.90%Total long-term liabilities 70.95% 74.25% 79.99% 82.54% #REF! 82.69% 79.73% 82.19% 82.19% 79.19% 79.19% 79.19% 79.19% 79.19% 79.19% 79.19%Total Liabilities 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%Commitments and contingencies (Note 10)Stockholders' equity Common stock, $.01 par value: 0.14% 0.07% 0.07% 0.06% 0.07% 0.07% 0.08% 0.08% 0.08% 0.08% 0.08% 0.08% 0.08% 0.08% 0.08% 0.08% authorized 300,000,000 shares, issued 166,393,025 and 163,685,876 shares; outstanding 154,574,225 and 157,396,176 shares Capital in excess of par value 123.30% 85.70% 81.64% 79.79% 85.71% 86.81% 90.49% 85.02% 84.91% 85.46% 86.40% 86.52% 86.47% 85.80% 85.92% 86.09% Deferred compensation 0.00% 0.00% 0.00% -1.01% -0.76% -0.49% Treasury stock, at cost (11,818,800 -49.44% -3.51% -5.15% -11.91% -30.02% -42.19% -47.41% -46.73% -61.14% -79.80% -102.43% -126.57% -154.70% -190.46% -238.37% -297.44% and 6,289,700 shares) Retained earnings 26.11% 17.96% 23.81% 33.41% 44.75% 55.92% 56.00% 37.95% 29.78% 32.53% 35.85% 39.96% 45.19% 52.11% 61.77% 76.23% Other comprehensive loss -0.11% -0.22% -0.36% -0.33% 0.25% -0.11% Total stockholders' equity 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
MGG-2
53
MGM MIRAGE 10-K 2003-12-31: Income StatementActual at year end Forecast at year end
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Revenues Casino $873,781,000 $1,913,733,000 $2,015,960,000 $2,042,626,000 $2,075,569,000 $2,260,094,000 $3,537,047,110.00 $3,890,751,821.00 $4,279,827,003.10 $4,707,809,703.41 $5,178,590,673.75 $5,696,449,741.13 $6,266,094,715.24 $6,892,704,186.76 $7,581,974,605.44 $8,340,172,065.98 Rooms $266,490,000 $620,626,000 $793,321,000 $798,562,000 $835,938,000 $925,227,000 $1,114,898,535.00 $1,133,294,360.83 $1,151,993,717.78 $1,171,001,614.12 $1,190,323,140.76 $1,209,963,472.58 $1,229,927,869.88 $1,250,221,679.73 $1,270,850,337.45 $1,291,819,368.01 Food and beverage $161,856,000 $490,981,000 $680,538,000 $711,373,000 $765,242,000 $852,830,000 $1,023,396,000.00 $1,042,840,524.00 $1,062,654,493.96 $1,082,844,929.34 $1,103,418,983.00 $1,124,383,943.68 $1,145,747,238.61 $1,167,516,436.14 $1,189,699,248.43 $1,212,303,534.15 Entertainment, retail and $196,626,000 $471,525,000 $620,523,000 $637,791,000 $647,710,000 $683,038,000 $797,446,865.00 $800,636,652.46 $803,839,199.07 $807,054,555.87 $810,282,774.09 $813,523,905.19 $816,778,000.81 $820,045,112.81 $823,325,293.26 $826,618,594.43 otherTotal Revenue $1,498,753,000 $3,496,865,000 $4,110,342,000 $4,190,352,000 $4,324,459,000 $4,721,189,000 $5,311,337,625.00 $5,842,471,387.50 $6,426,718,526.25 $7,069,390,378.88 $7,776,329,416.76 $8,553,962,358.44 $9,409,358,594.28 $10,350,294,453.71 $11,385,323,899.08 $12,523,856,288.99 Less: Promotional ($112,606,000) ($286,343,000) ($378,706,000) ($398,104,000) ($415,643,000) ($429,396,000) ($473,409,090.00) ($521,933,521.73) ($575,431,707.70) ($634,413,457.74) ($699,440,837.16) ($771,133,522.97) ($850,174,709.07) ($937,317,616.75) ($1,033,392,672.47) ($1,139,315,421.40) allowancesNet Revenue $1,386,147,000 $3,210,522,000 $3,731,636,000 $3,792,248,000 $3,908,816,000 $4,291,793,000 $4,720,972,300.00 $5,193,069,530.00 $5,712,376,483.00 $6,283,614,131.30 $6,911,975,544.43 $7,603,173,098.87 $8,363,490,408.76 $9,199,839,449.64 $10,119,823,394.60 $11,131,805,734.06Cost of Revenue Casino $434,241,000 $933,621,000 $1,042,011,000 $1,019,761,000 $1,055,536,000 $1,098,954,000 $1,373,692,500.00 $1,384,682,040.00 $1,395,759,496.32 $1,406,925,572.29 $1,418,180,976.87 $1,429,526,424.68 $1,440,962,636.08 $1,452,490,337.17 $1,464,110,259.87 $1,475,823,141.95 Rooms $84,135,000 $188,080,000 $216,548,000 $212,337,000 $236,050,000 $246,461,000 $259,523,433.00 $259,782,956.43 $260,042,739.39 $260,302,782.13 $260,563,084.91 $260,823,648.00 $261,084,471.64 $261,345,556.12 $261,606,901.67 $261,868,508.57 Food and beverage $102,102,000 $293,380,000 $379,313,000 $396,273,000 $441,549,000 $480,392,000 $529,872,376.00 $530,508,222.85 $531,144,832.72 $531,782,206.52 $532,420,345.17 $533,059,249.58 $533,698,920.68 $534,339,359.38 $534,980,566.62 $535,622,543.30 Entertainment, retail and other $112,046,000 $291,711,000 $410,125,000 $404,158,000 $428,834,000 $448,650,000 $492,393,375.00 $493,624,358.44 $494,858,419.33 $496,095,565.38 $497,335,804.30 $498,579,143.81 $499,825,591.67 $501,075,155.64 $502,327,843.53 $503,583,663.14
$2,655,481,684.00Total Cost of Revenue $732,524,000 $1,706,792,000 $2,047,997,000 $2,032,529,000 $2,161,969,000 $2,274,296,000 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
Gross Profit $653,623,000 $1,503,730,000 $1,683,639,000 $1,759,719,000 $1,746,847,000 $2,017,497,000 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00Selling, General and Administrative Expenses Corporate Expenses $13,685,000 $33,939,000 $37,637,000 $43,856,000 $61,541,000 $69,117,000 $70,153,755.00 $70,181,816.50 $70,209,889.23 $70,237,973.18 $70,266,068.37 $70,294,174.80 $70,322,292.47 $70,350,421.39 $70,378,561.56 $70,406,712.98 General and administrative $190,934,000 $422,655,000 $552,916,000 $566,080,000 $591,155,000 $604,944,000 $687,216,384.00 $692,714,115.07 $698,255,827.99 $703,841,874.62 $709,472,609.61 $715,148,390.49 $720,869,577.61 $726,636,534.24 $732,449,626.51 $738,309,223.52Non recurring Expenses Preopening and start-up $71,496,000 $5,624,000 $4,130,000 $14,141,000 $29,266,000 $3,965,000 expenses Restructuring costs $0 $23,520,000 $23,382,000 ($17,021,000) $6,597,000 $6,315,000 (credit) Property transactions, net $0 $0 $46,062,000 $14,712,000 ($18,336,000) $7,093,000Other Expenses Depreciation and $126,610,000 $293,181,000 $375,945,000 $384,890,000 $404,597,000 $393,835,000 $430,855,490.00 $434,733,189.41 $438,645,788.11 $442,593,600.21 $446,576,942.61 $450,596,135.09 $454,651,500.31 $458,743,363.81 $462,872,054.09 $467,037,902.57 amortization Provision for doubtful $47,114,000 $106,938,000 $70,690,000 $27,675,000 $12,570,000 0 accounts Write Downs and impairments $0 $102,225,000 $0 $0 $0 0Total Expenses $449,839,000 $988,082,000 $1,110,762,000 $1,034,333,000 $1,087,390,000 $1,085,269,000 $1,367,438,940.00 $1,408,462,108.20 $1,450,715,971.45 $1,494,237,450.59 $1,539,064,574.11 $1,585,236,511.33 $1,632,793,606.67 $1,681,777,414.87 $1,732,230,737.32 $1,784,197,659.44
Income from unconsolidated $0 $0 $36,816,000 $32,361,000 $53,612,000 $109,362,000 $112,314,774.00 $112,764,033.10 $113,215,089.23 $113,667,949.59 $114,122,621.38 $114,579,111.87 $115,037,428.32 $115,497,578.03 $115,959,568.34 $116,423,406.62 affiliatesOperating Income $203,784,000 $515,648,000 $609,693,000 $757,747,000 $713,069,000 $975,907,000 $1,200,365,610.00 $1,228,334,128.71 $1,256,954,313.91 $1,286,241,349.43 $1,316,210,772.87 $1,346,878,483.88 $1,378,260,752.55 $1,410,374,228.08 $1,443,235,947.60 $1,476,863,345.18 Non-operating income (expense) Interest income $2,142,000 $12,964,000 $5,630,000 $4,306,000 $4,310,000 $4,343,000 Interest expense, net ($59,853,000) ($272,856,000) ($338,783,000) ($286,636,000) ($341,114,000) ($367,504,000) Non-operating items from $0 $0 ($914,000) ($1,335,000) ($10,401,000) ($25,519,000) unconsolidated affiliates Interest expense from unconsolidated ($1,058,000) ($2,043,000) $0 $0 $0 0 affiliate Other, net ($946,000) ($741,000) ($6,036,000) ($7,611,000) ($12,160,000) ($17,316,000)
($59,715,000) ($262,676,000) ($340,103,000) ($291,276,000) ($359,365,000) ($405,996,000) Income from continuing $150,153,000 $275,040,000 $269,590,000 $466,471,000 $353,704,000 $586,290,000 $660,455,685.00 $661,974,733.08 $663,497,274.96 $665,023,318.69 $666,552,872.33 $668,085,943.93 $669,622,541.60 $671,162,673.45 $672,706,347.60 $674,253,572.20 operations before income taxes Provision for income taxes ($55,029,000) ($108,880,000) ($104,402,000) ($171,271,000) ($116,592,000) ($214,180,000) Income from continuing $95,124,000 $166,160,000 $165,188,000 $295,200,000 $237,112,000 $372,110,000 $401,878,800.00 $402,361,054.56 $402,843,887.83 $403,327,300.49 $403,811,293.25 $404,295,866.80 $404,781,021.84 $405,266,759.07 $405,753,079.18 $406,239,982.88 operations Discontinued operations Income (loss) from $0 $0 $6,803,000 ($661,000) $6,031,000 discontinued operations, including loss on disposal of $6,735 (2003) Benefit (provision) for $0 $0 ($2,176,000) ($2,104,000) $554,000 income taxesIncome before exraordinary item and cumulative effect of change in accounting principle $95,124,000 $166,160,000 $4,627,000 ($2,765,000) $6,585,000 Loss on early retirements of debt, ($898,000) ($5,416,000) $0 $0 $0 net of income tax benefits of $2,983 and $484Cumulative effect of change in accounting principle Preopening costs, net of income tax ($8,168,000) $0 $0 $0 $0 benefit of $4,399
Net income $86,058,000 $160,744,000 $169,815,000 $292,435,000 $243,697,000 $412,332,000 $435,628,758.00 $437,153,458.65 $438,683,495.76 $440,218,887.99 $441,759,654.10 $443,305,812.89 $444,857,383.24 $446,414,384.08 $447,976,834.42 $449,544,753.34 Basic income per share of common stock Income from continuing $820 $1,150 $1,040 $1,870 $1,590 operations Discontinued operations $0 $0 $30 ($20) $50 Income before extraordinary item and $820 $1,150 $0 $0 $0 cumulative effect of change in accounting principle Net income per share $740 $1,110 $1,070 $1,850 $1,640 Diluted income per share of common stock Income from continuing $1,030 $1,850 $1,560 operations Discontinued operations $0 $0 $30 ($20) $50 Net income per share $720 $1,090 $1,060 $1,830 $1,610
MGG-3
54
MGM MIRAGE 10-K 2003-12-31: Income Statement (Proforma)
Actual at year end Forecast at year end1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Revenues Casino 58.30% 54.73% 49.05% 48.75% 48.00% 47.87% 50.00% 50.00% 50.00% 50.00% 50.00% 50.00% 50.00% 50.00% 50.00% 50.00% Rooms 17.78% 17.75% 19.30% 19.06% 19.33% 19.60% 19.00% 19.00% 19.00% 19.00% 19.00% 19.00% 19.00% 19.00% 19.00% 19.00% Food and beverage 10.80% 14.04% 16.56% 16.98% 17.70% 18.06% 16.47% 16.47% 16.47% 16.47% 16.47% 16.47% 16.47% 16.47% 16.47% 16.47% Entertainment, retail and other 13.12% 13.48% 15.10% 15.22% 14.98% 14.47% 14.53% 14.53% 14.53% 14.53% 14.53% 14.53% 14.53% 14.53% 14.53% 14.53%Total Revenue 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Less: Promotional allowances -7.51% -8.19% -9.21% -9.50% -9.61% -9.10%Net Revenue 92.49% 91.81% 90.79% 90.50% 90.39% 90.90%Cost of Revenue Casino 28.97% 26.70% 25.35% 24.34% 24.41% 23.28% 25.00% 25.00% 25.00% 25.00% 25.00% 25.00% 25.00% 25.00% 25.00% 25.00% Rooms 5.61% 5.38% 5.27% 5.07% 5.46% 5.22% 5.30% 5.30% 5.30% 5.30% 5.30% 5.30% 5.30% 5.30% 5.30% 5.30% Food and beverage 6.81% 8.39% 9.23% 9.46% 10.21% 10.18% 10.30% 10.30% 10.30% 10.30% 10.30% 10.30% 10.30% 10.30% 10.30% 10.30% Entertainment, retail and other 7.48% 8.34% 9.98% 9.64% 9.92% 9.50% 9.75% 9.75% 9.75% 9.75% 9.75% 9.75% 9.75% 9.75% 9.75% 9.75%Total Cost of Revenue 48.88% 48.81% 49.83% 48.50% 49.99% 48.17% 49.70% 49.70% 49.70% 49.70% 49.70% 49.70% 49.70% 49.70% 49.70% 49.70%Gross Profit 43.61% 43.00% 40.96% 41.99% 40.39% 42.73% 43.40% 43.40% 43.40% 43.40% 43.40% 43.40% 43.40% 43.40% 43.40% 43.40%Selling, General and Administrative Expenses Corporate Expenses 0.91% 0.97% 0.92% 1.05% 1.42% 1.46% 1.50% 1.50% 1.50% 1.50% 1.50% 1.50% 1.50% 1.50% 1.50% 1.50% General and administrative 12.74% 12.09% 13.45% 13.51% 13.67% 12.81% 13.60% 13.60% 13.60% 13.60% 13.60% 13.60% 13.60% 13.60% 13.60% 13.60%Non recurring Expenses Preopening and start-up 4.77% 0.16% 0.10% 0.34% 0.68% 0.08% expenses Restructuring costs 0.00% 0.67% 0.57% -0.41% 0.15% 0.13% (credit) Property transactions, net 0.00% 0.00% 1.12% 0.35% -0.42% 0.15%Other Expenses Depreciation and 8.45% 8.38% 9.15% 9.19% 9.36% 8.34% 9.40% 9.40% 9.40% 9.40% 9.40% 9.40% 9.40% 9.40% 9.40% 9.40% amortization Provision for doubtful 3.14% 3.06% 1.72% 0.66% 0.29% 0.00% accounts Write Downs and impairments 0.00% 2.92% 0.00% 0.00% 0.00% 0.00%Total Expenses 30.01% 28.26% 27.02% 24.68% 25.15% 22.99% 26.00% 26.00% 26.00% 26.00% 26.00% 26.00% 26.00% 26.00% 26.00% 26.00% Income from unconsolidated 0.00% 0.00% 0.90% 0.77% 1.24% 2.32% 2.70% 2.70% 2.70% 2.70% 2.70% 2.70% 2.70% 2.70% 2.70% 2.70% affiliatesOperating Income 13.60% 14.75% 14.83% 18.08% 16.49% 20.67% 23.00% 23.00% 23.00% 23.00% 23.00% 23.00% 23.00% 23.00% 23.00% 23.00% Non-operating income (expense) Interest income 0.14% 0.37% 0.14% 0.10% 0.10% 0.09% Interest expense, net -3.99% -7.80% -8.24% -6.84% -7.89% -7.78% Non-operating items from 0.00% 0.00% -0.02% -0.03% -0.24% -0.54% unconsolidated affiliates Interest expense from unconsolidated -0.07% -0.06% 0.00% 0.00% 0.00% 0.00% affiliate Other, net -0.06% -0.02% -0.15% -0.18% -0.28% -0.37%
-3.98% -7.51% -8.27% -6.95% -8.31% -8.60% Income from continuing 10.02% 7.87% 6.56% 11.13% 8.18% 12.42% 12.65% 12.65% 12.65% 12.65% 12.65% 12.65% 12.65% 12.65% 12.65% 12.65% operations before income taxes Provision for income taxes -3.67% -3.11% -2.54% -4.09% -2.70% -4.54% Income from continuing 6.35% 4.75% 4.02% 7.04% 5.48% 7.88% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% operations Discontinued operations Income (loss) from 0.00% 0.00% 0.17% -0.02% 0.14% 0.00% discontinued operations, including loss on disposal of $6,735 (2003) Benefit (provision) for 0.00% 0.00% -0.05% -0.05% 0.01% 0.00% income taxesIncome before exraordinary item and cumulative effect of change in accounting principle 6.35% 4.75% 0.11% -0.07% 0.15% 0.00% Loss on early retirements of debt, -0.06% -0.15% 0.00% 0.00% 0.00% 0.00% net of income tax benefits of $2,983 and $484Cumulative effect of change in accounting principle Preopening costs, net of income tax -0.54% 0.00% 0.00% 0.00% 0.00% 0.00% benefit of $4,399 Net income 5.74% 4.60% 4.13% 6.98% 5.64% 8.73% 5.65% 5.65% 5.65% 5.65% 5.65% 5.65% 5.65% 5.65% 5.65% 5.65%
MGG-4
55
MGM MIRAGE 10-K : Cash Flow
Actual at year end Forecast at year end1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Cash flows from operating activities Net income $86,058,000.00 $160,744,000.00 $169,815,000.00 $292,435,000.00 $243,697,000.00 $412,332,000 $435,628,758.00 $437,153,458.65 $438,683,495.76 $440,218,887.99 $441,759,654.10 $443,305,812.89 $444,857,383.24 $446,414,384.08 $447,976,834.42 $449,544,753.34 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization $126,610,000.00 $293,181,000.00 $390,726,000.00 $398,623,000.00 $412,937,000.00 $296,776,000.00 $457,035,040.00 $521,019,945.60 $593,962,737.98 $677,117,521.30 $771,913,974.28 $879,981,930.68 $1,003,179,400.98 $1,143,624,517.12 $1,303,731,949.51 $1,486,254,422.44 Amortization of debt discount $1,958,000.00 $31,257,000.00 $30,505,000.00 $28,527,000.00 $35,826,000.00 $23,382,000.00 $24,759,199.80 $25,501,975.79 $26,267,035.07 $27,055,046.12 $27,866,697.50 $28,702,698.43 $29,563,779.38 $30,450,692.76 $31,364,213.55 $32,305,139.95 and issuance costs Provision for doubtful $47,114,000.00 $106,938,000.00 $71,244,000.00 $28,352,000.00 $13,668,000.00 ($7,734,000.00) ($7,778,857.20) ($7,794,414.91) ($7,810,003.74) ($7,825,623.75) ($7,841,275.00) ($7,856,957.55) ($7,872,671.46) ($7,888,416.81) ($7,904,193.64) ($7,920,002.03) accounts Property transactions, net $0.00 $0.00 $47,955,000.00 $14,712,000.00 ($18,336,000.00) $5,354,000.00 Loss on early retirements of $47,114,000.00 $106,938,000.00 $1,197,000.00 $504,000.00 $3,244,000.00 $5,527,000.00 debt Cumulative effect of change in $12,567,000.00 $0.00 $0.00 $0.00 $0.00 $0.00 accounting principle Loss on disposal of $0.00 $0.00 $0.00 $0.00 $6,735,000.00 ($82,538,000.00) discontinued operations Restructuring costs $0.00 $23,520,000.00 $0.00 $0.00 $0.00 $0.00 Write-downs and impairments $0.00 $102,225,000.00 $0.00 $0.00 $0.00 $0.00 Income from unconsolidated ($5,026,000.00) ($20,025,000.00) ($34,446,000.00) ($31,765,000.00) ($43,211,000.00) ($65,876,000.00) ($70,816,700.00) ($72,587,117.50) ($74,401,795.44) ($76,261,840.32) ($78,168,386.33) ($80,122,595.99) ($82,125,660.89) ($84,178,802.41) ($86,283,272.47) ($88,440,354.28) affiliates Distributions from $0.00 $24,000,000.00 $36,000,000.00 $37,000,000.00 $38,000,000.00 $41,500,000.00 $43,628,950.00 $44,021,610.55 $44,417,805.04 $44,817,565.29 $45,220,923.38 $45,627,911.69 $46,038,562.89 $46,452,909.96 $46,870,986.15 $47,292,825.02 unconsolidated affiliates Deferred income taxes $27,489,000.00 $35,595,000.00 $65,619,000.00 $90,852,000.00 $28,362,000.00 $16,924,000.00 $17,188,014.40 $17,222,390.43 $17,256,835.21 $17,291,348.88 $17,325,931.58 $17,360,583.44 $17,395,304.61 $17,430,095.22 $17,464,955.41 $17,499,885.32 Tax benefit from stock option $0.00 $0.00 $2,137,000.00 $18,050,000.00 $9,505,000.00 $22,943,000.00 exercises Changes in assets and liabilities: Accounts receivable ($41,401,000.00) ($122,203,000.00) ($23,726,000.00) ($24,107,000.00) ($14,330,000.00) ($23,009,000.00) ($23,538,207.00) ($23,552,329.92) ($23,566,461.32) ($23,580,601.20) ($23,594,749.56) ($23,608,906.41) ($23,623,071.75) ($23,637,245.60) ($23,651,427.94) ($23,665,618.80) Inventories ($4,067,000.00) $4,293,000.00 $7,464,000.00 ($5,685,000.00) ($2,205,000.00) ($1,162,000.00) ($1,176,525.00) ($1,192,408.09) ($1,208,505.60) ($1,224,820.42) ($1,241,355.50) ($1,258,113.80) ($1,275,098.33) ($1,292,312.16) ($1,309,758.38) ($1,327,440.11) Income taxes receivable and ($5,966,000.00) ($71,754,000.00) ($8,512,000.00) $12,714,000.00 ($10,538,000.00) $56,472,000.00 $57,595,792.80 $59,323,666.58 $61,103,376.58 $62,936,477.88 $64,824,572.22 $66,769,309.38 $68,772,388.66 $70,835,560.32 $72,960,627.13 $75,149,445.95 payable Prepaid expenses and other ($9,332,000.00) ($2,731,000.00) $1,070,000.00 ($16,142,000.00) ($8,500,000.00) ($5,880,000.00) ($5,891,760.00) ($5,915,327.04) ($5,938,988.35) ($5,962,744.30) ($5,986,595.28) ($6,010,541.66) ($6,034,583.83) ($6,058,722.16) ($6,082,957.05) ($6,107,288.88) Accounts payable and $52,491,000.00 $100,611,000.00 ($5,528,000.00) ($18,863,000.00) $16,125,000.00 $1,406,000.00 $1,669,625.00 $1,670,292.85 $1,670,960.97 $1,671,629.35 $1,672,298.00 $1,672,966.92 $1,673,636.11 $1,674,305.56 $1,674,975.29 $1,675,645.28 accrued liabilities Other $0.00 $0.00 ($3,089,000.00) $2,751,000.00 ($8,013,000.00) ($12,629,000.00) Net cash provided by $289,877,000.00 $817,558,000.00 $795,883,000.00 $827,958,000.00 $702,966,000.00 $608,902,000.00 $1,091,152,384.00 $1,145,710,003.20 $1,202,995,503.36 $1,263,145,278.53 $1,326,302,542.45 $1,392,617,669.58 $1,462,248,553.06 $1,535,360,980.71 $1,612,129,029.74 $1,692,735,481.23 operating activitiesCash flows from investing activities Purchases of property and ($375,260,000.00) ($336,499,000.00) ($327,936,000.00) ($300,039,000.00) ($550,232,000.00) ($526,483,000.00) ($532,800,796.00) ($538,128,803.96) ($543,510,092.00) ($548,945,192.92) ($554,434,644.85) ($559,978,991.30) ($565,578,781.21) ($571,234,569.02) ($576,946,914.71) ($582,716,383.86) equipment Acquisition of Primadonna Resorts, ($13,346,000.00) $0.00 $0.00 $0.00 $0.00 $345,730,000.00 Inc., net of cash acquired Acquisition of Mirage Resorts, $0.00 ($5,315,466,000.00) $0.00 $0.00 $0.00 $0.00 Incorporated, net of cash acquired Dispositions of property and $6,487,000.00 $150,172,000.00 $26,840,000.00 $20,340,000.00 $56,614,000.00 $14,996,000.00 $15,370,900.00 $15,524,609.00 $15,679,855.09 $15,836,653.64 $15,995,020.18 $16,154,970.38 $16,316,520.08 $16,479,685.28 $16,644,482.14 $16,810,926.96 equipment Investments in unconsolidated $0.00 $0.00 ($38,250,000.00) ($80,314,000.00) ($41,350,000.00) ($9,225,000.00) affiliates Change in construction payable ($9,507,000.00) ($14,361,000.00) $3,368,000.00 $6,313,000.00 $12,953,000.00 $14,241,000.00 ($14,383,410.00) $14,455,327.05 $14,527,603.69 $14,600,241.70 $14,673,242.91 $14,746,609.13 $14,820,342.17 $14,894,443.88 $14,968,916.10 $15,043,760.68 Other $4,933,000.00 ($40,538,000.00) ($16,227,000.00) ($17,510,000.00) ($33,673,000.00) ($13,304,000.00) ($13,570,080.00) ($15,605,592.00) ($17,946,430.80) ($20,638,395.42) ($23,734,154.73) ($27,294,277.94) ($31,388,419.63) ($36,096,682.58) ($41,511,184.97) ($47,737,862.71) Net cash used in ($386,693,000.00) ($5,556,692,000.00) ($352,205,000.00) ($371,210,000.00) ($555,688,000.00) ($174,045,000.00) ($339,387,750.00) ($347,872,443.75) ($356,569,254.84) ($365,483,486.21) ($374,620,573.37) ($383,986,087.70) ($393,585,739.90) ($403,425,383.39) ($413,511,017.98) ($423,848,793.43) investing activitiesCash flows from financing activities Net borrowing (repayment) under $963,000,000.00 $4,354,000,000.00 ($819,704,000.00) ($270,126,000.00) ($285,087,000.00) ($1,458,989,000.00) ($2,370,857,125.00) ($1,461,906,978.00) ($2,375,598,839.25) ($1,464,830,791.96) ($2,380,350,036.93) ($1,467,760,453.54) ($2,385,110,737.00) ($1,470,695,974.45) ($2,389,880,958.48) ($1,473,637,366.40) bank credit facilities Issuance of long-term debt $0.00 $1,547,052,000.00 $400,000,000.00 $0.00 $600,000,000.00 $1,528,957,000.00 $1,536,601,785.00 $2,304,902.68 $3,457.35 $5.19 $0.01 $0.00 $0.00 $0.00 $0.00 $0.00 Retirements of debt ($374,500,000.00) $0.00 $0.00 $0.00 $0.00 $0.00 Repurchase of senior notes $0.00 $0.00 $0.00 $0.00 ($28,011,000.00) ($52,149,000.00) Debt issuance costs $0.00 ($75,099,000.00) ($8,529,000.00) ($848,000.00) ($25,374,000.00) ($13,209,000.00) ($13,341,090.00) ($13,474,500.90) ($13,609,245.91) ($13,745,338.37) ($13,882,791.75) ($14,021,619.67) ($14,161,835.87) ($14,303,454.22) ($14,446,488.77) ($14,590,953.65) Repayments to banks and others ($206,955,000.00) ($2,171,614,000.00) $0.00 $0.00 $0.00 $0.00 Issuance of common stock $50,072,000.00 $780,441,000.00 $7,837,000.00 $45,985,000.00 $36,254,000.00 $89,821,000.00 $103,294,150.00 $90,270,105.00 $103,810,620.75 $90,721,455.53 $104,329,673.85 $91,175,062.80 $104,851,322.22 $91,630,938.12 $105,375,578.83 $92,089,092.81 Purchases of treasury stock ($295,235,000.00) ($52,579,000.00) ($45,716,000.00) ($207,590,000.00) ($442,864,000.00) ($348,895,000.00) ($352,035,055.00) ($355,203,370.50) ($358,400,200.83) ($361,625,802.64) ($364,880,434.86) ($368,164,358.77) ($371,477,838.00) ($374,821,138.55) ($378,194,528.79) ($381,598,279.55) Sale of treasury stock $0.00 $474,720,000.00 $0.00 $0.00 $0.00 $0.00 Other $0.00 $0.00 $3,437,000.00 ($21,906,000.00) ($20,153,000.00) ($2,808,000.00) ($3,369,600.00) ($3,088,800.00) ($3,706,560.00) ($3,397,680.00) ($4,077,216.00) ($3,737,448.00) ($4,484,937.60) ($4,111,192.80) ($4,933,431.36) ($4,522,312.08) Net cash used in $136,382,000.00 $4,845,580,000.00 ($462,675,000.00) ($454,485,000.00) ($165,235,000.00) ($257,272,000.00) financing activitiesCash and cash equivalents Net increase (decrease) for the $39,566,000.00 $106,446,000.00 ($18,997,000.00) $2,263,000.00 ($17,957,000.00) $177,585,000.00 $186,464,250.00 $182,024,625.00 $191,125,856.25 $186,575,240.63 $195,904,002.66 $191,239,621.64 $200,801,602.72 $196,020,612.18 $205,821,642.79 $200,921,127.49 year Cash related to discontinued $0.00 $0.00 $0.00 $0.00 ($15,230,000.00) $0.00 operations Balance, beginning of year $81,956,000.00 $121,522,000.00 $227,968,000.00 $208,971,000.00 $211,234,000.00 $178,047,000.00 $178,492,117.50 $178,670,609.62 $178,849,280.23 $179,028,129.51 $179,207,157.64 $179,386,364.79 $179,565,751.16 $179,745,316.91 $179,925,062.23 $180,104,987.29 Balance, end of year $121,522,000.00 $227,968,000.00 $208,971,000.00 $211,234,000.00 $178,047,000.00 $355,632,000.00 $357,765,792.00 $358,481,323.58 $359,198,286.23 $359,916,682.80 $360,636,516.17 $361,357,789.20 $362,080,504.78 $362,804,665.79 $363,530,275.12 $364,257,335.67Supplemental cash flow disclosures Interest paid, net of amounts $56,035,000.00 $200,716,000.00 $317,773,000.00 $266,071,000.00 $308,198,000.00 $267,517,000.00 $339,746,590.00 $340,086,336.59 $340,426,422.93 $340,766,849.35 $341,107,616.20 $341,448,723.82 $341,790,172.54 $342,131,962.71 $342,474,094.67 $342,816,568.77 capitalized State, federal and foreign $26,068,000.00 $30,537,000.00 $19,342,000.00 $44,579,000.00 $94,932,000.00 $98,046,000.00 $108,831,060.00 $108,939,891.06 $109,048,830.95 $109,157,879.78 $109,267,037.66 $109,376,304.70 $109,485,681.00 $109,595,166.69 $109,704,761.85 $109,814,466.61 income taxes paid
MGG-5
56
MGM MIRAGE 10-K : Statement of Cash Flows (Proforma)
Actual at year end Forecast at year end1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Operating Income $209,868,000 $537,716,000 $609,693,000 $757,747,000 $713,069,000 $975,907,000
Cash flows from operating activities Net income 41.01% 29.89% 27.85% 38.59% 34.18% 42.25% 36.58% 36.58% 36.58% 36.58% 36.58% 36.58% 36.58% 36.58% 36.58% 36.58% Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 60.33% 54.52% 64.09% 52.61% 57.91% 30.41% 54% 54% 54% 54% 54% 54% 54% 54% 54% 54% Amortization of debt discount 0.93% 5.81% 5.00% 3.76% 5.02% 2.40% 5.89% 5.89% 5.89% 5.89% 5.89% 5.89% 5.89% 5.89% 5.89% 5.89% and issuance costs Provision for doubtful 22.45% 19.89% 11.69% 3.74% 1.92% -0.79% -0.58% -0.58% -0.58% -0.58% -0.58% -0.58% -0.58% -0.58% -0.58% -0.58% accounts Property transactions, net 0.00% 0.00% 7.87% 1.94% -2.57% 0.55% Loss on early retirements of 22.45% 19.89% 0.20% 0.07% 0.45% 0.00% debt Cumulative effect of change in 5.99% 0.00% 0.00% 0.00% 0.00% 0.00% accounting principle Loss on disposal of 0.00% 0.00% 0.00% 0.00% 0.94% -8.46% discontinued operations Restructuring costs 0.00% 4.37% 0.00% 0.00% 0.00% 0.00% Write-downs and impairments 0.00% 19.01% 0.00% 0.00% 0.00% 0.00% Income from unconsolidated -2.39% -3.72% -5.65% -4.19% -6.06% -6.75% -7.50% -7.50% -7.50% -7.50% -7.50% -7.50% -7.50% -7.50% -7.50% -7.50% affiliates Distributions from 0.00% 4.46% 5.90% 4.88% 5.33% 4.25% 5.13% 5.13% 5.13% 5.13% 5.13% 5.13% 5.13% 5.13% 5.13% 5.13% unconsolidated affiliates Deferred income taxes 13.10% 6.62% 10.76% 11.99% 3.98% 1.73% 1.56% 1.56% 1.56% 1.56% 1.56% 1.56% 1.56% 1.56% 1.56% 1.56% Tax benefit from stock option 0.00% 0.00% 0.35% 2.38% 1.33% 2.35% exercises Changes in assets and liabilities: Accounts receivable -19.73% -22.73% -3.89% -3.18% -2.01% -2.36% -2.30% -2.30% -2.30% -2.30% -2.30% -2.30% -2.30% -2.30% -2.30% -2.30% Inventories -1.94% 0.80% 1.22% -0.75% -0.31% -0.12% 1.25% 1.25% 1.25% 1.25% 1.25% 1.25% 1.25% 1.25% 1.25% 1.25% Income taxes receivable and -2.84% -13.34% -1.40% 1.68% -1.48% 5.79% 1.99% 1.99% 1.99% 1.99% 1.99% 1.99% 1.99% 1.99% 1.99% 1.99% payable Prepaid expenses and other -4.45% -0.51% 0.18% -2.13% -1.19% -0.60% -0.20% -0.20% -0.20% -0.20% -0.20% -0.20% -0.20% -0.20% -0.20% -0.20% Accounts payable and 25.01% 18.71% -0.91% -2.49% 2.26% 0.14% 18.75% 18.75% 18.75% 18.75% 18.75% 18.75% 18.75% 18.75% 18.75% 18.75% accrued liabilities Other 0.00% 0.00% -0.51% 0.36% -1.12% -1.29% Net cash provided by 138.12% 152.04% 130.54% 109.27% 98.58% 62.39% 79.20% 79.20% 79.20% 79.20% 79.20% 79.20% 79.20% 79.20% 79.20% 79.20% operating activitiesCash flows from investing activities Purchases of property and -1.79 -0.63 -0.54 -0.40 -0.77 -0.54 -1.2 -1.2 -1.2 -1.2 -1.2 -1.2 -1.2 -1.2 -1.2 -1.2 equipment Acquisition of Primadonna Resorts, -0.06 0.00 0.00 0.00 0.00 0.35 0 0 0 0 0 0 0 0 0 0 Inc., net of cash acquired Acquisition of Mirage Resorts, 0.00 -9.89 0.00 0.00 0.00 0.00 0 0 0 0 0 0 0 0 0 0 Incorporated, net of cash acquired Dispositions of property and 0.03 0.28 0.04 0.03 0.08 0.02 0.025 0.025 0.025 0.025 0.025 0.025 0.025 0.025 0.025 0.025 equipment Investments in unconsolidated 0.00 0.00 -0.06 -0.11 -0.06 -0.01 0 0 0 0 0 0 0 0 0 0 affiliates Change in construction payable -0.05 -0.03 0.01 0.01 0.02 0.01 -0.01 -0.01 -0.01 -0.01 -0.01 -0.01 -0.01 -0.01 -0.01 -0.01 Other 0.02 -0.08 -0.03 -0.02 -0.05 -0.01 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 Net cash used in -1.84 -10.33 -0.58 -0.49 -0.78 -0.18 -0.95 -0.95 -0.95 -0.95 -0.95 -0.95 -0.95 -0.95 -0.95 -0.95 investing activitiesCash flows from financing activities Net borrowing (repayment) under 4.59 8.10 -1.34 -0.36 -0.40 -1.50 6.25 6.25 6.25 6.25 6.25 6.25 6.25 6.25 6.25 6.25 bank credit facilities Issuance of long-term debt 0.00 2.88 0.66 0.00 0.84 1.57 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 Retirements of debt -1.78 0.00 0.00 0.00 0.00 0.00 0 0 0 0 0 0 0 0 0 0 Repurchase of senior notes 0.00 0.00 0.00 0.00 -0.04 -0.05 0 0 0 0 0 0 0 0 0 0 Debt issuance costs 0.00 -0.14 -0.01 0.00 -0.04 -0.01 -0.01 -0.01 -0.01 -0.01 -0.01 -0.01 -0.01 -0.01 -0.01 -0.01 Repayments to banks and others -0.99 -4.04 0.00 0.00 0.00 0.00 -1.1 -1.1 -1.1 -1.1 -1.1 -1.1 -1.1 -1.1 -1.1 -1.1 Issuance of common stock 0.24 1.45 0.01 0.06 0.05 0.09 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.15 Purchases of treasury stock -1.41 -0.10 -0.07 -0.27 -0.62 -0.36 -0.9 -0.9 -0.9 -0.9 -0.9 -0.9 -0.9 -0.9 -0.9 -0.9 Sale of treasury stock 0.00 0.88 0.00 0.00 0.00 0.00 0 0 0 0 0 0 0 0 0 0 Other 0.00 0.00 0.01 -0.03 -0.03 0.00 0 0 0 0 0 0 0 0 0 0 Net cash used in 0.65 9.01 -0.76 -0.60 -0.23 -0.26 2 2 2 2 2 2 2 2 2 2 financing activitiesCash and cash equivalents Net increase (decrease) for the 0.19 0.20 -0.03 0.00 -0.03 0.18 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 year Cash related to discontinued 0.00 0.00 0.00 0.00 -0.02 0.00 0 0 0 0 0 0 0 0 0 0 operations Balance, beginning of year 0.39 0.23 0.37 0.28 0.30 0.18 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 Balance, end of year 0.58 0.42 0.34 0.28 0.25 0.36 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6Supplemental cash flow disclosures Interest paid, net of amounts 0.27 0.37 0.52 0.35 0.43 0.27 0.27 0.27 0.27 0.27 0.27 0.27 0.27 0.27 0.27 0.27 capitalized State, federal and foreign 0.12 0.06 0.03 0.06 0.13 0.10 0.11 0.11 0.11 0.11 0.11 0.11 0.11 0.11 0.11 0.11 income taxes paidNon-cash investing and financing transactions Acquisition of Detroit 0.00 0.00 0.00 0.15 0.00 0.00 0 0 0 0 0 0 0 0 0 0
MGG-6
57
MGM MIRAGE: Ratio Analysis
Actual at Year End Forecasted at Year End1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Sales Growth 108.00% 131.61% 16.23% 1.62% 3.07% 8.42% 12.00% 12.00% 12.00% 12.00% 12.00% 12.00% 12.00% 12.00% 12.00% 12.00%
Liquidity Analysis: Current Ratio 0.93 0.65 0.75 0.79 0.99 0.89 0.95 0.95 0.95 0.95 0.95 0.95 0.95 0.95 0.95 0.95 Quick Asset Ratio 0.77 0.52 0.58 0.58 0.79 0.72 0.75 0.75 0.75 0.75 0.75 0.75 0.75 0.75 0.75 0.75 Accounts Receivable Turnover 16.68 13.57 25.85 27.10 28.03 20.75 27.5 27.5 27.5 27.5 27.5 27.5 27.5 27.5 27.5 27.5 Days supply of recievables 21.88 26.90 14.12 13.47 13.02 17.59 15.25 15.25 15.25 15.25 15.25 15.25 15.25 15.25 15.25 15.25 Inventory Turnover 48.07 19.78 26.24 29.89 33.16 32.62 35 35 35 35 35 35 35 35 35 35 Days supply of inventory 7.59 18.45 13.91 12.21 11.01 11.19 10.95 10.95 10.95 10.95 10.95 10.95 10.95 10.95 10.95 10.95 Working captal turnover (68.70) (7.34) (16.51) (23.67) (525.52) (41.07) ($32.61) ($32.61) ($32.61) ($32.61) ($32.61) ($32.61) ($32.61) ($32.61) ($32.61) ($32.61)
Profitability Analysis: Gross Profit Margin 47.15% 46.84% 45.12% 46.40% 44.69% 40.21% 52.15% 52.15% 52.15% 52.15% 52.15% 52.15% 52.15% 52.15% 52.15% 52.15% Operating expense ratio 13.65% 13.06% 14.37% 14.56% 15.09% 14.28% 14.26% 13.06% 11.96% 10.95% 10.03% 9.18% 8.41% 7.70% 7.05% 6.46% Net profit margin 6.21% 5.01% 4.55% 7.71% 6.23% 9.57% 15.00% 15.00% 15.00% 15.00% 15.00% 15.00% 15.00% 15.00% 15.00% 15.00% Asset turnover 0.505 0.30 0.36 0.36 0.36 0.38 0.55 0.55 0.55 0.55 0.55 0.55 0.55 0.55 0.55 0.55 Return on Assets 3.14% 1.50% 1.62% 2.78% 2.28% 3.65% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% Return on equity 8.41% 6.75% 6.76% 10.98% 9.62% 14.66% 17.35% 17.35% 17.35% 17.35% 17.35% 17.35% 17.35% 17.35% 17.35% 17.35%
Capital Structure Analysis: Debt to equity ratio 1.95 4.02 3.53 3.22 3.53 3.02 3.10 3.10 3.10 3.10 3.10 3.10 3.10 3.10 3.10 3.10 Times interest earned (3.40) (1.89) (1.80) (2.64) (2.09) (3.20) (4.00) (4.00) (4.00) (4.00) (4.00) (4.00) (4.00) (4.00) (4.00) (4.00) Debt service margin 36.92 1.57 4.74 119.03 78.04 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
MGG-7
58
Discounted Free Cash Flow
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Cash Flow From Operations $830,905,494.00 $807,821,245.00 $840,377,370.00 $713,510,490.00 $841,685,705.00 $843,369,076.41 $819,938,563.68 $852,983,030.55 $724,213,147.35 $854,310,990.58Cash Provided (used) by investing activities ($356,446,825.00) ($358,229,059.13) ($360,020,204.42) ($361,820,305.44) ($363,629,406.97) ($365,447,554.00) ($367,274,791.77) ($369,111,165.73) ($370,956,721.56) ($372,811,505.17)Free Cash Flows (to firm) $474,458,669.00 $449,592,185.88 $480,357,165.58 $351,690,184.56 $478,056,298.03 $477,921,522.41 $452,663,771.90 $483,871,864.82 $353,256,425.79 $481,499,485.40Discount Rate 0.950 0.903 0.858 0.816 0.775 0.736 0.700 0.665 0.632PV of freecash flows $450,877,762.05 $406,012,695.46 $412,235,664.84 $286,815,069.65 $370,494,011.03 $351,980,955.82 $316,809,900.54 $321,820,575.54 $223,271,832.52Total PV of annual cash flows $3,140,318,467.46Continuing Terminal Value $9,206,491,116.73PV of Continuing Terminal Value $14,566,334,271.97Value of the Firm (end of 2004) $17,706,652,739.42BV of Debt and preferred stock $8,343,325,000Value of equity (end of 2004) $9,363,327,739.42Estimated value per share $65.43
Actual Price per share as of 4/01/2005 $70.38
WACC 0.0523Growth 0
g0 0.01 0.015 0.025
WACC 0.03 141.1 229.83 318.56 1028.40.04 96.74 141.1 176.59 318.56
0.0523 65.43 89.5 106.37 158.650.06 52.37 70.12 81.95 115.750.07 39.69 52.37 60.44 81.95
Sensitivity Analysis
MGG-8
59
MGM Mirage Residual Income Valuation
1 2 3 4 5 6 7 8 9Forecast Years perp.
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013Beginning BE (per share) 19.88 22.65 25.43 28.21 31.01 33.82 36.63 39.46 42.29Earnings Per Share $2.77 $2.78 $2.79 $2.80 $2.81 $2.82 $2.83 $2.84 $2.85Dividends per shareEnding BE (per share) 19.88 22.65 25.43 28.21 31.01 33.82 36.63 39.46 42.29 45.14Ke 0.0545"Normal" Income 1.08 1.23 1.39 1.54 1.69 1.84 2.00 2.15 2.31Residual Income (RI) 1.68 1.54 1.40 1.26 1.12 0.97 0.83 0.69 0.54 0.54
Present Value of RI 1.60 1.39 1.20 1.02 0.86 0.71 0.57 0.45 0.34
BV Equity (per share) 2004 19.88Total PV of RI (end 2013) 8.12Continuation (Terminal) Value 9.908257PV of Terminal Value (end 2004) 6.15Estimated Value (2005) $34.15
Sensitivity Analysisg
0 0.01 0.015 0.025Actual Price per share $70.38 Ke 0.03 $48.39 $48.38 $48.38 48.37Growth 0 0.04 $41.20 $41.19 $41.19 41.18
0.0545 $34.15 $34.14 $34.14 34.130.06 $32.05 $32.04 $32.04 $32.030.07 $28.75 $28.74 $28.74 $28.74
MGG-9
60
MGM MirageAbnormal Earnings Growth Valuation
1 2 3 4 5 6 7 8 PerpForecast Years
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014Earnings Per Share $2.760 $2.78 $2.79 $2.80 $2.81 $2.82 $2.83 $2.84 $2.85DPS $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00DPS invested at 3.21% $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00Cum-Dividend Earnings $2.78 $2.79 $2.80 $2.81 $2.82 $2.83 $2.84 $2.85Normal Earnings $2.91 $2.93 $2.94 $2.95 $2.96 $2.97 $2.98 $2.99Abnormal Earning Growth (AEG) ($0.13) ($0.14) ($0.14) ($0.14) ($0.14) ($0.14) ($0.14) ($0.14) 0.00
PV Factor 0.948 0.899 0.853 0.809 0.767 0.727 0.690 0.654
PV of AEG ($0.126) ($0.127) ($0.121) ($0.115) ($0.110) ($0.104) ($0.099) ($0.095)EPS of 2005 $2.76Total PV of AEG ($0.90)Continuing (Terminal) Value $0.00PV of Terminal Value $0.00Total PV of AEG $1.86Capitalization Rate (perpetuity) 0.0545
Sensitivity AnalysisValue Per Share $34.16 g
0 0.01 0.015 0.025Ke 0.0545 Ke 0.03 $74.89 $74.63 $74.49 $74.23g 0 0.04 $51.99 $51.81 $51.71 51.53
0.0545 $34.16 $34.03 $33.97 33.850.06 $29.76 $29.65 $29.60 $29.49
Actual Price per share $70.38 0.07 $23.66 $23.58 $23.53 $23.45
MGG-10
61
Balance Sheet Debt
PrincipalPercent of Total
LiabilitiesComputed
Interest RateValue Weighted
RateCurrent liabilitiesAccounts payable $198,050,000 2.37% 0.00% 0.00%Income taxes payable $4,991,000 0.06% 0.00% 0.00%Current portion of long-term debt $14,000 0.00% 7.27% 0.00%Accrued interest on long-term debt $116,997,000 1.40% 2.74% 0.038%Other accrued liabilities $607,925,000 7.29% 2.74% 0.200%Liabilities related to assets held for sale $0 0.00% 0.00% 0.000%Total current liabilities $927,977,000 11.12%
Deferred income taxes $1,802,008,000 21.60% 0.00% 0.000%Long-term debt $5,458,848,000 65.43% 7.27% 4.757%Other long-term obligations $154,492,000 1.85% 8.27% 0.153%Total Non-Current Liabilities $7,415,348,000 88.88%Total Liabilities $8,343,325,000 100.00%
Weighted Average Cost of Debt 5.15%
The 2.74% Computed Interest Rate was taken from Economagic.com: Economic Time Series Page
MGG-11
62
Long Term Debt
Principal Rate WeightValue
Weighted Rate
6.95% Senior Notes, due 2005 300,087,000 6.95% 0.05497 0.382%6.625% Senior Notes, due 2005 176,096,000 6.63% 0.03226 0.214%7.25% Senior Notes, due 2006 235,511,000 7.25% 0.04314 0.313%9.75% Senior Subordinated Notes, due 2007 706,968,000 9.75% 0.12951 1.263%6.75% Senior Notes, due 2007 189,115,000 6.75% 0.03464 0.234%6.75% Senior Notes, due 2008 168,908,000 6.75% 0.03094 0.209%6.875% Senior Notes, due 2008 199,095,000 6.88% 0.03647 0.251%6% Senior Notes, due 2009 1,056,453,000 6.00% 0.19353 1.161%8.5% Senior Notes, due 2010 822,214,000 8.50% 0.15062 1.280%8.375% Senior Subordinated Notes, due 2011 400,000,000 8.38% 0.07328 0.614%6.75% Senior Notes, due 2012 550,000,000 6.75% 0.10075 0.680%5.875% Senior Notes, due 2014 522,301,000 5.88% 0.09568 0.562%7.25% Senior Debentures, due 2017 81,919,000 7.25% 0.01501 0.109%Other notes 195,000
5,458,862,000 7.271%Less: Current portion (14,000)
$5,458,848,000
MGG-12
63
Date Firm's Return SP500 ReturnMonthly Yield
Risk FreeMarket Risk Premium Beta Estimate R-Squared
Average Risk Free Rate
Netscape Published Beta
Historical Market Risk Premium
Mar-00 0.207243461 0.096719896 0.00522 0.09150 0.699241482 0.100696083 0.032073333 0.71 3.00%
Apr-00 0.229166667 -0.03079582 0.00558 -0.03637
May-00 0.101694915 -0.021914998 0.00525 -0.02716
Jun-00 -0.011076923 0.023933549 0.00515 0.01878 Estimated Ke 5.31%
Jul-00 0.118232732 -0.016341262 0.00505 -0.02139
Aug-00 -0.043405676 0.060699035 0.00494 0.05576
Sep-00 0.110820244 -0.053482948 0.00482 -0.05830
Oct-00 -0.09505106 -0.004949496 0.00475 -0.00970 Estimated Kd 5.15%
Nov-00 -0.171875 -0.08006856 0.00431 -0.08438
Dec-00 -0.015024458 0.004053386 0.00405 0.00000 Short horizon (2 years)
1-Jan 0.034054629 0.034636592 0.00408 0.03056 0.747914244 Estimated Ke 5.45%
1-Feb -0.07787307 -0.092290686 0.00387 -0.09616 R^2 4.83%
1-Mar -0.0625 -0.06420472 0.00397 -0.06817
1-Apr 0.198007968 0.076814355 0.00411 0.07271
1-May 0.045560359 0.005090199 0.00401 0.00108 Short horizon (3 years)
1-Jun -0.047073791 -0.025003583 0.00397 -0.02897 0.110363416 Estimated Ke 3.54%
1-Jul 0.031375167 -0.010772447 0.00381 -0.01458 R^2 0.26%
1-Aug -0.056634304 -0.064108386 0.00343 -0.06754
1-Sep -0.228816467 -0.08172339 0.00326 -0.08498
1-Oct -0.008007117 0.01735931 0.00331 0.01405
1-Nov 0.18161435 0.075957734 0.00366 0.07230
1-Dec 0.095635674 0.007573829 0.00362 0.00396
2-Jan 0.12781434 -0.015573828 0.00358 -0.01916
2-Feb 0.056511057 -0.020766236 0.00395 -0.02472
2-Mar 0.053197674 0.036738861 0.00388 0.03286
2-Apr 0.108197626 -0.061661684 0.00374 -0.06540
2-May -0.061270237 -0.008823748 0.00349 -0.01232
2-Jun -0.104537012 -0.072464719 0.00318 -0.07564
2-Jul 0.037037037 -0.078994959 0.00274 -0.08174
2-Aug 0.014 0.00488142 0.00245 0.00243
2-Sep 0.051000282 -0.110013427 0.00246 -0.11247
2-Oct -0.166219839 0.086447767 0.00254 0.08391
2-Nov 0.087459807 0.057057701 0.00253 0.05453
2-Dec -0.025133057 -0.060332582 0.00254 -0.06287
3-Jan -0.205338186 -0.027414698 0.00242 -0.02983
3-Feb -0.022137405 -0.017003623 0.00232 -0.01932
3-Mar 0.141686183 0.008357606 0.00244 0.00592
3-Apr -0.028376068 0.081044118 0.00210 0.07894
3-May -0.005981703 0.050898661 0.00189 0.04901
3-Jun 0.209911504 0.011332621 0.00239 0.00894
3-Jul 0.003510825 0.016213276 0.00281 0.01340
3-Aug 0.057142857 0.017873191 0.00265 0.01522
3-Sep 0.007997794 -0.011944326 0.00266 -0.01460
3-Oct -0.02872777 0.054961495 0.00274 0.05222
3-Nov 0.055774648 0.007128513 0.00273 0.00440
3-Dec 0.003468517 0.050765451 0.00260 0.04817
4-Jan 0.074448285 0.017276423 0.00256 0.01472
4-Feb 0.077703539 0.01220903 0.00233 0.00988
4-Mar 0.041102181 -0.016358936 0.00283 -0.01918
4-Apr 0.010366123 -0.016790829 0.00321 -0.02000
4-May -0.030561013 0.012083446 0.00328 0.00881
4-Jun 0.056969151 0.017989078 0.00308 0.01491
4-Jul -0.05943758 -0.034290523 0.00289 -0.03718
4-Aug -0.063646659 0.002287333 0.00280 -0.00051
4-Sep 0.201015965 0.009363906 0.00279 0.00657
4-Oct 0.083585096 0.014014248 0.00294 0.01107
4-Nov 0.083643123 0.038594939 0.00300 0.03559
4-Dec 0.247684391 0.032458128 0.00309 0.02937
5-Jan -0.012785263 -0.025290448 0.00314 -0.02843
MGG-13