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MGMM 2005_Annual_Report


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MGMM 2005_Annual_Report

  1. 1. what if MGM MIRAGE 2005 Annual Report
  2. 2. what if MGM MIRAGE Opposite Page Top Row Bellagio • New York-New York • Mandalay Bay Middle Row Monte Carlo • MGM Grand • Excalibur Bottom Row Luxor • TI • The Mirage
  3. 3. PUTTING THE WHEELS IN MOTION $1.50 0 .6 $1 00 0 .4 ,0 $1 $7 $1.21 What if? These two simple words convey What if... we pick up the pieces of 00 0 .2 ,5 $1 $6 the spirit of creativity and innovation a broken community and rebuild our 00 0 .0 ,0 $1 $6 that runs throughout your company. business and, in doing so, enrich many $0.76 00 0 lives along the Gulf coast? We can, if we .8 ,5 $0 $5 respond quickly and set our sights on an 00 0 .6 ,0 $0 $5 even greater Beau Rivage for the future. 00 0 ,5 .4 $0 $4 $3,863 What if... we create a culture within 00 0 ,0 .2 $0 $4 MGM MIRAGE that reflects the changing 00 ‘03 ‘05 ‘04 ‘03 0 .0 ,5 $0 $3 demographic of the marketplace in an EARNINGS PER SHARE NET RE ever-changing world? We can, if we define From Continuing Operations our company’s culture not in terms of outdated political policies about people, As we seek to implement our growth but based on a leading edge vision to strategy in an ever more competitive create a value-based corporate community can be measured in many ways— environment, we are constantly asking that recognizes and values the contributions tremendous revenue growth and industry- ourselves, “What if?” It spurs us to consider of all people. leading profit margins, for example. But solutions and alternative approaches that my personal favorite is the fact that lead to innovation and success. All of these things and more have employee turnover in the legacy Mandalay been happening within your company. As properties has reached an all-time low. It What if... we merge with one of our a result of our employees’ creativity, hard became obvious to us that as individuals, largest competitors and, by doing so, grow work and dedication, 2005 was a record- our new employees recognized the same stronger together? We can, if we welcome breaking year in every sense. In addition, opportunity we saw as a company. our new colleagues into a secure and stable we are perfectly positioned for sustained We also saw far beyond the immediate working environment that is simultaneously growth throughout the coming years. positive impact of these newly acquired comforting and invigorating. As we considered the merger resorts; we saw an enormous potential with Mandalay Resort Group, we saw a for future development on the vast What if... we create a new era in company that matched ours in many ways. combined real estate holdings of a merged development for Las Vegas, and change By combining, we would be able to offer company—Mandalay’s real estate was the way we think about this city forever? the widest possible array of choices for our vastly undervalued considering recent real We can, if we assemble a team of the customers and position ourselves to better estate pricing trends along the Las Vegas greatest architects and urban planners take advantage of the boundless oppor- Strip and the fact that we would now own in the world. tunities for resort development on the Las most of the prime remaining development Vegas Strip and elsewhere. To do so, we parcels on the Las Vegas Strip. On this annual report 2005 had to be certain that our new colleagues land, in the years to come, your company MGM MIRAGE from Mandalay were made to feel welcome will continue to build exciting new projects Opposite Page and secure in their positions within that will further enhance both the Las J. Terrence Lanni MGM MIRAGE. The success of the merger Vegas experience and shareholder value. Chairman and CEO • MGM MIRAGE Bellagio
  4. 4. “ We continually reinvest in our resorts, maintaining their world-class status.”
  5. 5. Your company has assembled a team of The opening of future projects will Our confidence in the Las Vegas real Opposite Page world-class architects never before imagined be made all the easier as a result of the estate market was proven correct by the From left to right for one project: Cesar Pelli, Kohn Pederson tremendous community of MGM MIRAGE exceptional sales performance of The L’Atelier at MGM Grand Fox, Lord Norman Foster, Rafael Viñoly, employees. Our pre-eminent family of industry Signature at MGM Grand. The first tower will JET Nightclub at The Mirage Helmut Jahn, David Rockwell and Daniel professionals positions us for growth as we soon open to the public, and almost all of the Skylofts at MGM Grand Libeskind. Few cities can claim to benefit from have the most experienced workforce from 1,600 units at The Signature sold out faster KÁ • Cirque Du Soleil their individual contributions, let alone a single which to develop new teams of property staff. and at higher prices than we had originally Sensi at Bellagio project on which they all collaborate. The best As we considered options for our prime forecast. Even as I write this, only a handful Joël Robuchon at The Mansion builders, contractors and interior designers parcel of 66 acres at the heart of the Las of units remain available for sale, at prices in at MGM Grand Vegas Strip between Monte Carlo and excess of $1,000 per square foot. will also be on board. Of course, we also As we were preparing to announce an Bellagio, we quickly realized that the have an industry-leading management team exciting new future for Las Vegas, we were development formula of the past fifteen assembled for Project CityCenter to ensure “AS WE SEEK TO IMPLEMENT OUR GROWTH STRATEGY, WE ARE CONSTANTLY ASKING OURSELVES,“WHAT IF?” stunned by the developments of Hurricane years, successful as it has been, must be that operating results are as spectacular as Katrina last August. Even before the water re-engineered in order for Las Vegas to reach the buildings themselves. Where necessary, had receded to the Gulf, we were underway beyond its current paradigm. We envision we have hired top talent from outside with planning the relief and rebuilding the Las Vegas Strip as an even greater the industry, specialists in real estate and resort destination and, more importantly, residential development, and engaged efforts. Teams of people from Las Vegas an integral part of the next-generation Las outside experts to ensure we maximize were dispatched to set up an emergency Vegas, a true metropolitan community with the potential of this once-in-a-lifetime command center, and Beau Rivage employ- its own identity and character. Based on this development opportunity. We are readying ees were the first to receive paychecks, gain concept, we formulated the plans for a new for a May groundbreaking and anticipate access to Red Cross support and Internet urban metropolis—Project CityCenter. opening in late 2009. There is much to access to the Federal Government. There are many superlatives that can be done between now and then, but the We were also the first company to initiate be used when describing Project CityCenter. clean-up and rebuilding efforts and, as a process itself is remarkable; one which While it will be the largest single privately result, we intend to re-open a new and even your company’s management and funded development in the history of the better Beau Rivage on the first anniversary employees are proud to be a part. United States, that doesn’t tell the story of of Katrina, in August of this year. Project CityCenter’s potential impact on Las Vegas. Project CityCenter will redefine the Las Vegas experience for years to come, with stunning, iconic architecture as the visual attraction, and a full slate of residences, luxury hotels, casino, restaurants, retail shops and entertainment amenities to fulfill every need and desire of our residents and guests. From left to right Ken Rosevear President, MGM MIRAGE Development; John T. Redmond President CEO, MGM Grand Resorts, LLC; J. Terrence Lanni Chairman CEO, MGM MIRAGE; Robert H. Baldwin President CEO, Mirage Resorts, Inc., President, Project CityCenter; Gary N. Jacobs Executive Vice President, General Counsel Secretary, MGM MIRAGE; James J. Murren President, CFO Treasurer, MGM MIRAGE
  6. 6. Your management and employees are Your company is growing in Michigan, still asking “what if”—more now than ever. where our new $765 million casino hotel We are energized by the possibilities before Fontana Bar • Bellagio us: new co-workers, new development sites, complex is under construction. This 400- new profit opportunities, new cities rising room, 100,000-square-foot casino will be open from the ground. We are feeding off the sometime late next year or in early 2008. The MGM Grand Detroit casino has momentum of 2005 to propel us forward, performed magnificently since its opening in and I have no doubt that we will report many Borgata 1999, and we have even higher expectations new and exciting ideas throughout 2006. architects and relied on our experience of our new multi-faceted MGM Grand Detroit In closing, the MGM MIRAGE Board of in operating some of the world’s top resort casino hotel. Directors sadly mourned the passing of two properties to create and submit a thorough The Mansion • MGM Grand In Macau, the stunning MGM Grand of its members during 2005 – George Mason proposal for an iconic resort, worthy of Macau is rising from the ground soon to and Walter M. Sharp. the unique Marina Bay location. Should Mr. Mason, a Bear, Stearns and Co. reach 34 stories and frame a new icon in the Singapore government choose the executive and longtime member of the this emerging center of tourism in China. MGM MIRAGE proposal, we stand ready Along with our partner, Pansy Ho Chiu-king, MGM MIRAGE Board of Directors, passed to assist them in achieving their goal of we anticipate opening this resort in late away October 5, 2005. He previously served increasing tourism. 2007. Our plan for continued growth is as a member of the Board of Directors for Much of our continuing story of success secured by your company’s substantial Mirage Resorts from 1973 to 2000, and is attributable to the extraordinary men and real estate holdings in Las Vegas and in key was a member of the Board of Directors of women who make up our family of almost markets in the U.S. and abroad. MGM MIRAGE from 2000 until his passing. 70,000 employees. In making them feel at We are the largest gaming industry With his remarkable business instincts, home and secure in their work, we also have Shadow Creek • Golf Course landowners in Las Vegas with current real George made valuable contributions to our made great strides in emphasizing the need estate assets in excess of 800 acres. Of this, Board of Directors. for diversity in all that we do. As our nation’s over 300 acres are either undeveloped or Walter M. Sharp, an icon of the ethnicity changes, so too must we reflect underdeveloped. Long after Project CityCenter California banking industry and longtime the vast and varied backgrounds of our has become the new standard for the Las member of the MGM MIRAGE Board of guests. As I’ve noted on many occasions, Vegas experience in the 21st Century, we will Directors, passed away December 22, 2005. at MGM MIRAGE diversity is not defined have numerous growth opportunities to ex- He served on the MGM MIRAGE Board of in terms of EEOC reports, but rather in a pand and improve your company’s holdings. Directors and previously on the MGM Grand, philosophy and attitude that we incorporate We are also the largest gaming industry Inc. Board of Directors from 1986 until into our daily business plan. landowners in Atlantic City with over 75 2002, when he was named to the honorary In addition to the wonderful success Centrifuge • MGM Grand developable acres adjacent to Borgata, our position of Director Emeritus of the Board. of your company financially this past extraordinarily successful partnership with Although our friends are no longer with year, we have taken great care to remain Boyd Gaming. We envision for Atlantic City us, their contributions will endure well into involved and responsive to the needs of a project of similar impact to that of Project our company’s future. the communities in which we are privileged CityCenter in Las Vegas. to do business. Along with donations from We eagerly await the decision of Sincerely, our family of employees, MGM MIRAGE the government of Singapore to find out made contributions to worthy charities if we will have the opportunity to enter in excess of $7 million in 2005. We are a second market in the rapidly mindful of the need to give back to the developing Asian market- communities in which we live and work J. Terrence Lanni place. We’ve enlisted in order to strengthen them for our Chairman and CEO • MGM MIRAGE the talents of top annual report 2005 families and future generations. MGM MIRAGE In all, 2005 was a landmark year Opposite Page for MGM MIRAGE. Now we find ourselves MGM Grand asking how to top this and make 2006 even better.
  7. 7. “ In all, 2005 was a landmark year for MGM MIRAGE.”
  8. 8. W H AT I F ? 1 No.
  9. 9. Project CityCenter Conceptual renderings INNOVATION OVERCAME what if THE IMPOSSIBLE? I t seems as though Las Vegas reinvents We have created working partnerships Teams of company experts are strat- itself every few years. As we contemplated with Cesar Pelli, Kohn Pederson Fox, Lord egizing on the project’s marketing, advertising the possibilities for one of the most attractive Norman Foster, Rafael Viñoly, Helmut Jahn, and public relations programs, all of which development sites in the world, at the heart David Rockwell and Daniel Libeskind. Along will combine to introduce this remarkable of the Las Vegas Strip, it became clear to us with these creative forces, MGM MIRAGE will new concept to consumers in the coming that a paradigm shift was in order. create a new development framework for Las months. Project CityCenter will not only No longer would an expansive, sprawling, Vegas, one that will forever change the way represent an enormous opportunity for low-rise development be justifiable given the world sees Las Vegas. growth and increased value for your skyrocketing real estate values. Rather, we The nation’s best builders, contractors company, it will lead the way in redefining envisioned something greater, based on the and interior designers are also part of our Las Vegas for generations to come. successful models of sophisticated cities extraordinary team. The entire process is so Project CityCenter around the world. unusual and complex that we have already Conceptual rendering of retail space From this innovative approach came received numerous inquiries from Universities the idea for a new urban metropolis— to document the project’s development. Project CityCenter. The scope and scale of this undertaking is almost unheard of in its sheer magnitude. When complete, Project CityCenter will encompass 18 million square feet of resort, convention, retail and residential space, far larger than any privately funded development in our nation’s history. Key to the success of Project CityCenter is the creation of synergy between the components and unmatched energy and excitement for the project. To accomplish this we decided to enlist the talents of the top architects in the world. Project CityCenter Opposite Page
  10. 10. THEhotel Shark Reef • Mandalay Bay Moorea Ultra Beach Lounge Monte Carlo Mandalay Bay what if A DREAM TEAM BECAME A REALITY? T he Mandalay merger adds tremendous Filling these 13,000 rooms would generate assets to our company in the form of much-needed customer volumes and help buildings, land and employees, but maximize profits in the casino, restaurants more importantly the merger adds a and showrooms. By implementing MGM significant intangible—potential. MIRAGE’s yield management strategies, You can see it everywhere at Mandalay— combined occupancy at these resorts for the employees excited about the future; second half of 2005 was 93% compared to magnificent sites for future development; 88% in the 2004 period, without sacrificing even walking around the time-tested room rates. This led to increased profits, Circus Circus operating resorts, we see potential for with combined EBITDA going up 13%. future growth. In the same way we Consider the steps we took to immedi- transformed MGM Grand Las Vegas, ately increase occupancy at Mandalay’s key New York-New York and now The Mirage, resorts: Mandalay Bay, Luxor and Excalibur. Opposite Page we feel that similar changes at resorts These resorts generally get less walk-in Mandalay Bay like Luxor and Mandalay Bay will lead traffic due to their south Strip location. to increased cash flow, and a new sense of “Wow!” for our customers. In bringing these companies together, we are making changes large and small to maximize the potential of this powerful combination. annual report 2005 MGM MIRAGE Luxor 10 Excalibur
  11. 11. “ The Mandalay merger offers a concrete manifestation of our business principles in action.” W H AT I F ? 2 No.
  12. 12. W H AT I F ? 3 No. “Construction is underway and we anticipate opening MGM Grand Macau in late 2007.” annual report 2005 MGM MIRAGE 1
  13. 13. YOUR VISION EXTENDED Atlantic City Renaissance Pointe what if ACROSS CONTINENTS? M GM MIRAGE has built and operates some The prospects for growth have of the most well known resorts in the world. emerged in other countries, including Beau Rivage This is the result of an innovative team of Singapore, where a spirited process is professionals all blending their talents into underway to determine the company that a strategic approach that is consistent and will build a new icon for the Marina Bay. extremely difficult for competitors to copy. MGM MIRAGE is partnering with CapitaLand We use our strengths to manage our on this venture, and we have hired famed assets, train our employees and build our architect Kohn Pederson Fox to design business in a way that leads to memory- the resort. We have submitted a dynamic making experiences for our guests and proposal to renew and energize the heart increased performance for our shareholders. of Singapore. We continue to seek opportunities to Anticipating the passage of major re- grow our company and increase shareholder forms to British gaming laws, MGM MIRAGE Macau Casino value. We do this not only by reinvesting has announced a series of strategic joint in our existing family of resorts, but also venture partnerships with United Kingdom- by seeking new jurisdictions in which to based companies to develop destination establish operations. entertainment and casino complexes. In June 2005, we broke ground on Given the opportunity, MGM MIRAGE the spectacular MGM Grand Macau Hotel plans to bring our experience in developing MGM Grand Detroit and Casino. Along with our partner, Pansy world-class gaming and entertainment Ho Chiu-king, we envision MGM Grand properties to support the development Macau setting a new course for development of the most exciting, vibrant leisure in this Chinese Special Administrative complexes in the United Kingdom. Region rich with history. Opposite Page From left to right Macau Dancer The Signature at MGM Grand MGM MIRAGE Design Center Macau Guest Room Project CityCenter Model New Asian Restaurant • Beau Rivage MGM Grand Macau MGM Grand Macau Construction Site
  14. 14. Kids to Kids Breakfast Clark County Reads Program with Books Program Clark County Reads Program A COMPANY Hurricane Katrina • Job Opportunity Center at Beau Rivage what if COULD BUILD HOPE? A t MGM MIRAGE, our employees are And the Human Rights Campaign administrative costs associated with the our greatest resource. That’s why we are applauded our policies that are considerate Voice Foundation, enabling one hundred diligent about investing in our people. of gay, lesbian, bisexual and transgender percent of our employees’ donations to reach Leadership and development programs, employees. Our individual properties are their intended recipients. top quality employee benefits, tuition distinguished for human resources In 2005 alone, our employees contributed reimbursement, on-site daycare and health practices. New York-New York is recipient $3.6 million to the Voice Foundation. These and wellness initiatives are examples of of the “healthy workplace” award from the contributions were donated to organizations ways in which we address the needs of our Nevada State Psychological Association selected by our employees to benefit the com- employees. This holistic approach led for maintaining an environment considerate munities where they live and work. We believe to our being named among the Fortune of the psychological health of employees, that an investment in our employees is an 500 “most admired” companies for human and MGM Grand has been named the investment that can transform communities. resources practices by Human Resource “best place to work” by the Southern The Voice Foundation played a critical Executive magazine. Also, the Nevada Nevada Human Resources Association role following the devastation of Hurricane Business Journal named our company as for its training, benefits and employee Katrina at Beau Rivage Resort in Biloxi, Miss. one of the “best to work for” in the state. recruitment and retention programs. MGM MIRAGE created a special recovery Both Hispanic Business magazine and We believe that when our employees fund to aid Beau Rivage employees starting Black Enterprise recognized us for our thrive, so do the communities in which with a $1 million seed donation matching, diversity leadership. they live, work and raise their families. without limit, every employee donation made That’s why we also invest in the communities to the fund. Generous employees donated where we operate businesses. $145,543 and the MGM MIRAGE match Since its inception in 2002, the raised the total to $291,085 for the fund. MGM MIRAGE Voice Foundation, our employee-driven non-profit entity, has raised more than $12 million to benefit annual report 2005 a variety of non-profit programs and MGM MIRAGE causes. The company underwrites all Opposite Page Hurricane Katrina Devastation The MGM MIRAGE Voice Foundation has raised $12 million to assist not only MGM MIRAGE 14 employees, but entire families in the community.
  15. 15. “ Our greatest strength is our people. This strength is even more apparent when you look at the generosity of our employees.” W H AT I F ? 4 No.
  16. 16. YOUR FINANCIAL what if PICTURE WAS CRYSTAL CLEAR? What if... you broke all the financial Our hotel revenues increased 19% on the world; continually reinvest in our resorts, a same-store basis, owing to the continued maintaining their world-class and industry- records, then broke them again? It seems strength of room rates, additional capacity leading status; maximize operating cash flow redundant to talk about record years. After all, from the Bellagio expansion and upgraded through financial discipline; utilize free cash last year we noted that 2004 had shattered rooms at the MGM Grand Las Vegas. And flow and sound capital allocation strategies our previous records for customer volumes, the Mandalay resorts performed tremendously to maximize value for shareholders. revenues and profitability. And yet we did it under our new leadership, as we drove again, carrying the positive momentum into What if... we hired the best of the best? significant gains in occupancy at the key 2005, and thus far this year. Las Vegas Strip resorts, which in turn added Our management team consists of the best We earned net revenues of $6.5 billion customers to the gaming floor and other non- and brightest leaders in the industry. Two in 2005, 53% higher than 2004. Even exclud- gaming areas, such as restaurants, shows recent additions exemplify the leadership ing the Mandalay resorts and Beau Rivage, and retail shops. Property-level EBITDA was qualities we seek in our management. our net revenues increased a healthy 11%, an all-time record, over $2.1 billion, and even In April 2005, we named Lorenzo providing an argument against some market on a same-store basis profits were up 11%. Creighton as President and Chief Operating observers who think that gaming is a mature Officer of New York-New York. Lorenzo brings industry with few prospects for growth. What if... a company adhered to one us a wide-ranging perspective on business $1.50 0 .6 set of core strategies—year after year? matters, having worked as an attorney, judge, $1 A novel concept to some businesses, but gaming regulator and for more than 10 years 00 0 4 0 1. 7, $1.21 $ $ the strategies that led to our success in 2005 as a gaming operator. Recently, Lorenzo was $6,482 00 20 ,5 continue to be the cornerstone strategies we honored as a recipient of the Trumpet Award, . $1 $6 have consistently followed. The key tenets of honoring outstanding accomplishments by 00 0 .0 ,0 $1 $6 our financial strategy are important to us, and African Americans in the fields of business, $0.76 00 0 .8 ,5 worth repeating: hire the best operators in law, public service and entertainment. $0 $5 00 0 .6 ,0 $0 $5 00 0 ,5 .4 $4,238 $0 $4 $3,863 00 0 0 2 4, 0. $ $ 00 ‘03 ‘05 ‘04 ‘05 ‘04 ‘03 0 .0 ,5 $0 $3 EARNINGS PER SHARE NET REVENUE From Continuing Operations annual report 2005 MGM MIRAGE James J. Murren President, CFO Treasurer • MGM MIRAGE W H AT I F ? 5 1 No.
  17. 17. In 2005, we also made capital invest- ments in The Mirage. To many, The Mirage has always been the ultimate Las Vegas resort. And while we too love the character In October 2005, we hired George of this resort, we saw potential for greater Corchis as the President of Beau Rivage, customer experiences. So we decided to where he will lead the important work of add a category-defining new nightclub, JET. rebuilding that great resort. George comes to We remodeled Kokomo’s, a quintessential us from Horseshoe Gaming, where he spent Las Vegas steakhouse, and provided a lobby many years in leadership roles with that lounge to go along with a fantastic new design company’s properties in the South. George’s by Adam Tihany. We added new restaurants: experience with the market, success with Stack, an American Grill; and Fin, an upscale past development projects and great leader- Asian restaurant. We also upgraded our ship qualities make him a perfect fit for our slots and table games high-limit areas for long-term future in Biloxi. our premium customers. Finally, we continue work on a new theatre for a Beatles-themed What if... you never settled for good Cirque du Soleil show which promises to be a one-of-a-kind when it opens later in 2006. enough? Our operating strategy requires capital investment. While others in our What if... you could grow revenues and industry seem satisfied with milking per- ceived “cash cows”—resorts that have paid profits faster than your competitors, without for themselves if only due to a lack of ongoing relying on increased room rates? For the investment—we believe this short-sighted past couple of years, we have experienced view is a losing proposition. Evidence of a solid run of REVPAR growth. Many market our philosophy includes the success of the observers are wondering if these growth rates Spa Tower at Bellagio, which has generated can continue. We understand that REVPAR returns in excess of 20% and has added new growth is just one element of the equation. We vitality, and more customers, to the resort’s also know that REVPAR doesn’t pay the bills. existing gaming areas, restaurants and shops. More important to our business is ensuring At MGM Grand Las Vegas, our invest- that the right customers are in our buildings ments—KÀ, the acclaimed show by Cirque by properly managing occupancy and rate du Soleil, the Skylofts and West Wing room mix; offering superior entertainment, dining enhancements, two stunning restaurants and shopping experiences; and maximizing by Joël Robuchon, new poker and race the overall profit of the resorts by controlling and sports areas—have led many to view costs. Our investments in new experiences this resort as a completely new version of and new technologies keep existing customers its original self, and the results prove it. coming back, keep our hotel guests within As recently as 2002, MGM Grand Las our buildings when they “go out” for the night Vegas made $213 million in EBITDA; it and attract guests staying at other hotels to earned $331 million in 2005. sample our offerings. annual report 2005 Top to bottom MGM MIRAGE From left to right Gamal Aziz Frank Baldwin George R. Boyer III Joe Brunini George Corchis Lorenzo Al Faccinto, Jr. William J. Curtis Jacks William Tom Robert V. Moon Creighton Hornbuckle McBeath Mikulich President General Manager President President President President General Manager Chairman MGM Grand Circus-Circus • Reno MGM Grand Detroit MGM Grand Resorts Beau Rivage President MGM MIRAGE President Colorado Belle President President MGM MIRAGE National Marketing New York-New York International Mandalay Bay and Edgewater Bellagio TI Marketing 17 Marketing
  18. 18. What if... we found a better way to utilize Project CityCenter represents the culmination of everything we have learned as our assets to maximize return on investment? developers, operators and financial engineers. As we grow, it becomes even harder to find With Project CityCenter, we are leveraging the projects that “move the needle” in terms of ultimate intangible asset for a real estate positively impacting shareholder value. Yet developer—location—into a growth project we have our best development pipeline ever. with compelling consequences, while Here are just a few examples: generating a return on investment superior The Signature at MGM Grand opens two to a resort-only development. of its three towers this year, with significant Project CityCenter also raises the bar one-time cash profits to us, as well as the for future Las Vegas development. In effect, opportunity for ongoing revenues as we rent it creates a new barrier to entry. Develop- the hotel-condominium units and further able land, especially prime land, on the Las fill our largest resort with upscale, discerning Vegas Strip is almost entirely spoken for and visitors. The third tower will open in 2007 incredibly expensive. No company has more and is selling at a rapid pace with prices of this land than your company, allowing us to over $1,100 per square foot; more residential control our own growth well into the future. projects are likely. Overseas, MGM Grand Macau will soon What if... you could turn the supply- Furthermore, our margins lead the make a major contribution to our financial industry, year-after-year. Our property- demand equation on its head? Recently, results. In partnership with Pansy Ho Chiu- level EBITDA margin in 2005 was 32%; on you may have heard rumblings about over- king, we will create an icon for this burgeoning a same-store basis it was 33%, consistent building on the Las Vegas Strip. I’ve been tourist destination, with a resort that will be with 2004. We expect our margins to not around this industry for 22 years, and I can’t second-to-none when it opens in late 2007. only stay strong in 2006 and beyond, but tell you how many times I’ve heard that the With a total investment of $280 million in this improve as we fully realize the synergies of Las Vegas Strip is over-developed or at risk for venture, we expect returns well above 30%. the Mandalay merger. overdevelopment. Let me make it clear that The partnership also continues to seek oppor- we are not only comfortable with anticipated tunities for future developments in Macau. supply developments but excited about them. Top to bottom annual report 2005 MGM MIRAGE From left to right Randy Morton Mike Poehling Michael Puggi Felix D. Mike Shaunnessy Scott Sibella William Smith Ben Speidel Richard A. Sturm Donald Thrasher Frank Visconti Renee West Rappaport President General Manager President General Manager President President General Manager President General Manager President President Monte Carlo Railroad Pass Primm Valley President Gold Strike • Jean The Mirage MGM MIRAGE Slots-A-Fun MGM MIRAGE Circus-Circus • LV MGM MIRAGE Excalibur Resorts Luxor Nevada Landing Design Group Sports and Retail 18 Entertainment
  19. 19. What if... we set new records next year? Every time that compelling supply has What if... we were able to combine two great companies into Mandalay Acquisition been added to the Las Vegas Strip, the What if our Macau, Biloxi and Detroit market has grown considerably and easily a powerhouse organization? developments yield attractive returns? What absorbed the new capacity and, in fact, if the power of combining MGM MIRAGE It is not an easy task to complete a merger and integrate two large there is currently very little capacity being and Mandalay is manifested in higher levels companies, all while operating at peak efficiency and turning in record added to the Las Vegas market. Even with all of profitability? What if we deliver on the operating results, but that is what our management and employees reasonable development expected between promise that is Project CityCenter? These accomplished this year. The Mandalay merger offers a concrete manifesta- now and 2010, hotel room supply in Las Vegas opportunities are becoming realities and add tion of our business principles in action. Behind the scenes, significant will grow only an average of 4% per year. to the great work already underway that has work has been underway since the merger, with a focus on providing a This is far below the historical rate at a produced record financial results and platform for future growth; growth not just for the next several years, but time when Las Vegas’ popularity is at a record created significant shareholder value. for the next several decades. We are developing new ways to leverage our high and rising. Finally, there are only a hand- As shareholders, we expect management to powerful brands, superb operating talent, significant financial resources ful of credible, financially strong developers continually improve and look for innovative and unmatched real estate assets. in the market, and with long development ways to deliver on the promise of quality What if... we gave people what they want? lead times and the expected closure of older financial performance. We are clearly on the resorts, we should have no trouble maintain- right track, and I feel confident that we know It’s nice to think that you can always offer your customer the best of ing our pricing advantage given this appealing how to best accomplish our ambitious goals. something yourself. For example, our philosophy at MGM MIRAGE has market backdrop and our superior assets. been to own our restaurants so that we could control quality of food and Sincerely, service. But when it comes to coffee, I guess there’s just no substitute What if... the financial markets for Starbucks. At minimal cost, we are converting several of Mandalay’s recognized our industry leading coffee outlets into Starbucks locations at several of the Las Vegas Strip margins, asset quality and track record? resorts. Our estimated ROI for this change is well over 20%. Your company has earned the respect of the financial markets. Last year, we closed on What if... technology did what it was supposed to? the largest ever bank facility in the industry’s James J. Murren history and we were able to borrow fixed rate When we were one of the first companies to implement cashless slot President, Chief Financial Officer debt at historically low levels in both 2004 technology (ticket-in, ticket-out, or TITO) several years ago, many weren’t and Treasurer • MGM MIRAGE and 2005. And our equity performance sure if customers wanted their winnings reduced to a ticket – after all, coins and bills built this industry. But want tickets they did. And the over the last several years has reflected our technology enhances the customer experience while allowing us to strong financial results and solid financial raise our service standards with less staff. So once we acquired Mandalay, position. As an example of your company’s we knew TITO was one of the first things we should do. You should see financial prowess, in the first eight months increased slot revenues throughout 2006 at the Mandalay Resorts, as after the Mandalay merger we reduced you have for the past several years at the legacy MGM MIRAGE resorts. debt by over $400 million, invested over $600 million in our resorts and development What if... everyone bought the same eggs? projects and repurchased over $200 million of our common stock. Purchasing is perceived as perhaps the ultimate white elephant in most gaming companies. Other industries have mastered to varying degrees the art of getting everyone to use the same supplies and materials. In hospitality companies, and in particular gaming companies serving multiple customer segments, it is particularly difficult. Yet we believe this “final frontier” offers great potential for increased efficiencies and profits for our company. We have hired a Chief Purchasing Officer, a new position for our company. Together with our operating personnel and third-party consultants, she will annual report 2005 be reviewing every aspect of our current spend, our future needs and our MGM MIRAGE operating processes. We believe we can save tens of millions of dollars on an annual basis. Just getting every chef across our company to buy the same eggs, a step we took in 2005, will result in annual savings of $1 million. Now that’s a lot of dollars for such a simple switch – of course, 19 we buy a lot of eggs.