Business Context and Reporting Period
Company: MGM Mirage (now MGM Resorts International)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2008
Business Overview: MGM Mirage operates 17 wholly-owned casino resorts and holds 50% interests in four others, including the CityCenter development in Las Vegas. The company's operations are heavily concentrated in Las Vegas, with significant exposure to economic conditions, tourism trends, and credit market liquidity.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2008 | Nine Months Ended Sep 30, 2008 | Three Months Ended Sep 30, 2007 | Nine Months Ended Sep 30, 2007 |
|---|---|---|---|---|
| Net Revenue | $1,785.5 million | $5,584.3 million | $1,897.1 million | $5,762.9 million |
| Operating Income | $241.6 million | $916.6 million | $464.6 million | $1,378.7 million |
| Net Income | $61.3 million | $292.7 million | $183.9 million | $712.2 million |
| Diluted EPS | $0.22 | $1.02 | $0.62 | $2.41 |
| Cash from Operations (9mo) | $500.7 million | $697.4 million | ||
| Long-Term Debt | $13.3 billion (as of Sep 30, 2008) | $11.2 billion (as of Dec 31, 2007) | ||
| Cash & Equivalents | $250.1 million (as of Sep 30, 2008) | $416.1 million (as of Dec 31, 2007) |
Material Changes vs. Prior Period
- Revenue Decline: Net revenue decreased 6% in the quarter and 3% year-to-date compared to 2007. Casino revenue dropped 8% (quarter) and 5% (YTD), driven by lower table games volume (-10% QoQ) and slots handle (-6% QoQ). Rooms revenue fell 10% in the quarter due to a 9% decrease in Average Daily Rate (ADR) and reduced room availability from remodels and the Monte Carlo fire.
- Profitability Compression: Operating income fell 48% in the quarter and 34% year-to-date. This was driven by lower revenues, higher depreciation, and a $30 million impairment charge for the Primm Valley Golf Club.
- Debt Increase: Long-term debt increased by approximately $2.1 billion to $13.3 billion, primarily due to borrowings to fund capital expenditures, loans to the CityCenter joint venture, and share repurchases.
- Share Repurchases: The company repurchased 18.2 million shares for $1.2 billion during the nine-month period, including a joint tender offer with Dubai World.
Guidance, Outlook, and Risks
- Economic Impact: Management cites the credit market crisis and weak U.S. economy as primary headwinds, leading to reduced consumer spending and difficulty in forecasting future results. Cost-cutting measures, including reduced staffing and eliminated bonuses, are underway.
- CityCenter Financing: In October 2008, CityCenter secured a $1.8 billion credit facility. Partners (MGM and Dubai World) are required to fund future construction costs via equity commitments up to $959 million each and have provided partial completion guarantees up to $600 million each.
- Impairment Risk: While no interim impairment test was triggered as of September 30, 2008, management noted a subsequent decline in market capitalization makes a non-cash goodwill impairment charge in the fourth quarter "reasonably possible," though the amount cannot be estimated.
- Project Delays: Development of the MGM Grand Atlantic City and the Kerzner/Istithmar Las Vegas Strip project has been postponed due to economic conditions and credit market constraints.
- Debt Covenants: The company amended its senior credit facility in September 2008 to increase the maximum leverage ratio to 7.5:1.0 through 2009. As of September 30, 2008, the leverage ratio was 5.8:1.0 and interest coverage was 3.0:1.0.
- Legal Proceedings: A class-action lawsuit regarding ticket processing fees at Mandalay Bay was filed in July 2008; management intends to vigorously defend the claim.
Investor Verification Checklist
- Goodwill Impairment: Verify the outcome of the fourth-quarter annual impairment test given the decline in market cap post-quarter-end.
- CityCenter Funding: Monitor the drawdown of the $1.8 billion credit facility and the execution of equity commitments by MGM and Dubai World.
- Debt Maturities: Confirm the repayment of $1.3 billion in senior notes maturing in July and October 2009 and the refinancing of the $150 million debentures due in November 2008.
- Revenue Trends: Track the recovery of Las Vegas Strip REVPAR and table games volume as economic conditions evolve.
- Interest Expense: Assess the impact of the new 13% senior secured notes (yielding 15%) and variable rate debt on future interest coverage ratios.