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Rod Smith

Merger Boosts MGM Mirage Results

24 February 2006

LAS VEGAS -- With a big boost from its $7.9 billion merger with Mandalay Resort Group last summer, MGM Mirage Thursday reported record gains in its fourth-quarter financial performance.

When the merger agreement was first announced in 2004, MGM Mirage was expected to use its marketing leverage and the Mandalay Convention Center to lure added foot traffic and build demand in order to charge higher rates for the 37,000 hotel rooms the company would control on the Strip.

Now, about six months after the merger deal closed, MGM Mirage President Jim Murren said the integration of the two companies has proved to be a major success.

"We'll close the book on that at the end of the year, but it's had a big impact on our current earnings," he said. "Obviously, (the merger was) highly accretive to earnings per share. It was a major reason our earnings were up over 30 percent and we've only scratched the surface."

Net income for MGM Mirage in 2005 increased to $443.3 million, or $1.50 per share in 2005, up from $412.3 million, or $1.43 per share, in 2004.

Adjusted earnings per share increased to $1.62 in 2005, up from $1.28 in 2004.

Adjusted earnings per share excluded discontinued operations, preopening and startup expenses, restructuring costs, property transactions, tax adjustments and the effects of early debt retirement.

Twelve-month revenue rose 52.8 percent to $6.48 billion from $4.24 billion.

For the 2005 fourth quarter, net income was $97.8 million, or 33 cents per share, for the three months ended Dec. 3, up from net income of $74.9 million, or 26 cents per share, a year ago.

Excluding nonoperating and one-time items, MGM said it earned 35 cents per share, beating the 33 cents per share estimate of analysts polled by Thomson First Call.

Quarterly revenue rose 65.1 percent to $1.75 billion from $1.06 billion.

Bear Stearns analyst Joe Greff called the performance "solid," and said the company's Strip properties put in a particularly strong performance.

Deutsche Bank analyst Marc Falcone said that, overall, MGM Mirage's performance for 2005 demonstrated that "Las Vegas fundamentals remain strong despite prevailing negative investor sentiment and a disappointing third-quarter showing."

Illustrating the importance of the merger, Brian Gordon, a partner in Las Vegas-based financial consultants Applied Analysis, said MGM Mirage hotel-casino revenues and cash flow -- earnings before interest, depreciation, taxes and amortization -- were up 11 percent in 2005 compared with 2004.

"The room side of the equation, especially for Mandalay properties, continues to improve with the cross marketing the merger made possible," he said.

"Plus, (MGM Mirage) is enjoying corporate efficiencies as part of the merger -- eliminating duplicate positions and integrating the different brands into the MGM (Mirage) operation," Gordon said.

Murren said the benefits from the merger are already clear from the increased foot traffic MGM Mirage has been able to attract to Mandalay Resort Group's south Strip properties -- Mandalay Bay, Luxor and Excalibur -- plus increased room occupancy, room rates and total revenues per available room.

Added amenities, including shows such as "Hairspray," which has just opened at Luxor, have been instrumental in luring added foot traffic, he said.

The real upside, however, will become even clearer once MGM Mirage has completed integrating its yield-management system with Mandalay's properties and has introduced its players' club to Mandalay customers, Murren said.

In addition, MGM Mirage is spending $200 million in capital improvements at the Mandalay hotel-casinos, compared with $50 million that Mandalay typically spent on capital maintenance, he said.

"We've set ourselves up nicely for growth in the first quarter of this year and going forward," Murren said.

MGM Mirage also is working at full speed to reopen Beau Rivage in Biloxi, Miss., which was wrecked in August by Hurricane Katrina.

Mirage Resorts President Bobby Baldwin said 1,000 workers are getting it ready to reopen Aug. 29, the anniversary of the storm, with 1,200 rooms. Its Tom Fazio golf course should open in November.

"It's a massive renovation, but we are confident in the strength of the Biloxi market," he said.

MGM Mirage closed Thursday at $37.93, down $1.61 or 4.07 percent on 3 million shares traded, double normal trading volume.

Greff said MGM Mirage shares traded down because the company gave investors little guidance Thursday on likely hotel revenues per available room in the first quarter of 2006.

Merger Boosts MGM Mirage Results is republished from