MGM

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended September 30, 2009, for MGM MIRAGE (now MGM Resorts International). The company operates a portfolio of casino resorts in Las Vegas, regional markets, and international joint ventures. The reporting period was significantly impacted by the global economic downturn, which reduced customer spending and convention attendance. Additionally, the company executed major capital restructuring transactions in May 2009 to improve liquidity and address covenant compliance issues.

Key Financial Metrics

Note: All figures in millions unless otherwise noted. Net loss for the period was driven primarily by non-cash impairment charges.

Material Changes vs. Prior Period

• Revenue Decline: Net revenue decreased 14% for the three months and 19% for the nine months ended September 30, 2009, compared to the prior year. This was driven by a 26% drop in rooms revenue and a 13% drop in food and beverage revenue due to lower occupancy and average daily rates (ADR) in Las Vegas.
• Impairment Charges: The company recorded a massive $956 million impairment charge related to its 50% investment in CityCenter and a $203 million share of impairment on CityCenter's residential real estate. Additionally, a $176 million impairment was recorded on the M Resort convertible note.
• Asset Sale: The company completed the sale of Treasure Island (TI) in March 2009, recognizing a pre-tax gain of $187 million.
• Debt Restructuring: In May 2009, the company amended its senior credit facility, waived certain covenants, and issued approximately $1.1 billion in equity and $1.4 billion in senior secured notes to repay debt and improve liquidity.

Guidance, Outlook, and Risks

• Liquidity Outlook: Management believes that availability under the senior credit facility and future operating cash flows will allow the company to meet financial commitments through 2010. However, the ability to redeem $782 million in senior notes maturing in September 2010 depends on operating performance and CityCenter funding requirements.
• CityCenter Completion Guarantee: The company assumed an unlimited completion and cost overrun guarantee for CityCenter, secured by assets of Circus Circus Las Vegas and adjacent land. A liability of $64 million was recorded for the fair value of this guarantee.
• Regulatory Risk (New Jersey): The New Jersey Division of Gaming Enforcement (DGE) recommended that the company's Macau joint venture partner be found unsuitable and that the company disengage from the partnership. This could force the disposal of the company's investment in MGM Grand Macau or Borgata, potentially resulting in further impairments.
• Economic Conditions: The company expects continued negative impacts from the weak economy, including reduced consumer spending and convention cancellations, throughout 2009 and into 2010.

Investor Verification Checklist

• CityCenter Impairment: Verify the assumptions used in the discounted cash flow analysis for the $956 million CityCenter investment impairment and the $203 million residential real estate impairment.
• Debt Covenants: Confirm compliance with the amended senior credit facility covenants, specifically the minimum trailing annual EBITDA of $900 million and the $250 million annual capital expenditure limit.
• Regulatory Status: Monitor the New Jersey Casino Control Commission's response to the DGE report regarding the Macau joint venture partner, as this could trigger forced asset sales.
• 2010 Debt Maturity: Assess the company's ability to refinance or repay the $782 million senior notes due in September 2010 given current cash flow projections.
• CityCenter Funding: Track the drawdown of the $1.8 billion CityCenter credit facility and the utilization of the completion guarantee.