Business Context and Reporting Period
Company: MGM Mirage (now MGM Resorts International)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 2010
Business Overview: MGM Mirage operates a portfolio of casino resorts in Las Vegas, Nevada, and other locations including Detroit, Mississippi, and Macau. The company also holds a 50% interest in the CityCenter development in Las Vegas and a 50% interest in Borgata Hotel Casino & Spa in Atlantic City (placed in a divestiture trust in March 2010).
Key Financial Metrics
| Metric (in thousands) | Q1 2010 | Q1 2009 |
|---|---|---|
| Net Revenue | $1,457,392 | $1,498,795 |
| Operating Income (Loss) | $(11,423) | $355,099 |
| Net Income (Loss) | $(96,741) | $105,199 |
| Adjusted EBITDA | $155,894 | $344,903 |
| Cash and Cash Equivalents | $440,587 | $1,365,581 |
| Long-Term Debt | $12,694,671 | $12,976,037 |
| Net Cash Used in Operating Activities | $(44,909) | $134,263 |
Note: Q1 2010 results include $93.3 million in reimbursed costs revenue related to CityCenter management, compared to $13.7 million in Q1 2009.
Material Changes vs. Prior Period
- Revenue Decline: Net revenue decreased 3% year-over-year. Excluding reimbursed costs, revenue decreased 4% due to reduced convention room nights and lower discretionary spending driven by economic conditions.
- Operating Loss: The company reported an operating loss of $11.4 million, a significant reversal from the $355.1 million operating income in Q1 2009. The 2009 figure was bolstered by a $190 million gain on the sale of Treasure Island and insurance recoveries from the Monte Carlo fire.
- CityCenter Impairment: A major driver of the loss was an $86 million pre-tax impairment charge (50% share) related to residential inventory at CityCenter, where fair value fell below carrying value.
- Debt Restructuring: The company recognized a $142 million pre-tax gain on the extinguishment of debt following the amendment of its senior credit facility in March 2010.
- Interest Expense: Net interest expense increased to $264 million from $172 million in the prior year, primarily due to higher borrowing rates and the cessation of interest capitalization as CityCenter construction neared completion.
Guidance, Outlook, and Risks
Management Commentary & Outlook: Management notes that economic conditions, including high unemployment and a weak housing market, continue to negatively impact visitor volumes and spending. The company is focusing on cost management and efficiency. While no specific forward guidance numbers were provided in this text, management highlighted the completion of CityCenter and the ongoing sale process for the Borgata interest.
Key Risks and Contingencies:
- CityCenter Litigation: General contractor Perini Building Company filed a lawsuit alleging non-payment of approximately $490 million. Perini has recorded a mechanic's lien against the property. MGM disputes these claims and asserts counterclaims.
- CityCenter Completion Guarantee: MGM holds an unlimited completion and cost overrun guarantee for CityCenter. As of March 31, 2010, the estimated remaining net obligation was $105 million, though management believes it could reasonably reach $300 million.
- Borgata Divestiture: MGM's 50% interest in Borgata is held in a divestiture trust pending sale within 30 months. The company will not receive distributions from Borgata until the sale is consummated, which may impact liquidity.
- Debt Maturities: Significant debt maturities exist, including $782 million due in September 2010 and $400 million due in February 2011.
Investor Verification Checklist
- CityCenter Residential Sales: Verify the absorption rate and pricing of residential units at CityCenter to assess the risk of further impairment charges.
- Perini Litigation Status: Monitor the progress of the lawsuit and potential impact on the $490 million claim and the mechanic's lien.
- Liquidity Position: Confirm the utilization of the $1.15 billion convertible note proceeds (issued April 2010) and the $380 million tax refund received in April 2010 to service upcoming debt maturities.
- Borgata Sale Timeline: Track the 30-month divestiture timeline and the potential for the trust to retain cash flows, affecting MGM's interim liquidity.
- Reimbursed Costs: Analyze the sustainability of the $93 million in reimbursed costs revenue from CityCenter management, as this significantly alters the revenue base compared to prior periods.