MGM Mirage FINAL VALUATION - Mark E. Moore

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]

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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

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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

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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

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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.

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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.

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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

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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.

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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

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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.

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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.

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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

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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.

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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

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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.

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♦ 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.

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♦ 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

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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.

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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

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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:

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*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


$10,040,100


294,000 Sale at $78.09 - $78.37 per share.

$23,000,0002



$3,657,465


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

http://biz.yahoo.com/t/77/2693.html






http://biz.yahoo.com/ap/050216/mgm_mirage_mandalay_5.html

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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


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


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


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


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


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


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


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


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


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


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)


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

MGM Mirage FINAL VALUATION - Mark E. Moore

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