Business Context and Reporting Period
Company: MGM Mirage (now MGM Resorts International)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2006
Business Overview: The Company operates 23 wholly-owned casino resorts and holds 50% investments in three others (Borgata, Grand Victoria, MGM Grand Macau). Key properties include Bellagio, MGM Grand, Mandalay Bay, and Mirage in Las Vegas. The Company is heavily invested in major development projects, including CityCenter (Las Vegas), a permanent casino in Detroit, and MGM Grand Macau.
Key Financial Metrics
| Metric (in thousands) | Three Months Ended Sep 30, 2006 | Nine Months Ended Sep 30, 2006 | Nine Months Ended Sep 30, 2005 |
|---|---|---|---|
| Net Revenues | $1,901,975 | $5,647,691 | $4,728,334 |
| Operating Income | $427,667 | $1,279,778 | $1,011,104 |
| Net Income | $156,262 | $446,693 | $345,457 |
| Diluted EPS | $0.54 | $1.53 | $1.16 |
| Operating Cash Flow (9mo) | $776,296 (2006) vs $798,168 (2005) | ||
| Capital Expenditures (9mo) | $1,384,464 (2006) vs $428,288 (2005) | ||
| Total Debt (Long-term) | $12,955,822 (Sep 30, 2006) | ||
| Cash and Equivalents | $343,716 (Sep 30, 2006) |
Material Changes vs. Prior Period
- Revenue Growth: Net revenues increased 5% in the third quarter and 19% for the nine-month period compared to 2005. This was driven by the full-year inclusion of Mandalay Resort Group properties (acquired April 2005) and strong gaming volume, particularly in baccarat.
- Profitability: Operating income rose 26% in the quarter and 27% year-to-date. Net income increased 68% in the quarter and 29% year-to-date.
- Stock Compensation: The adoption of SFAS 123(R) in 2006 resulted in an additional $17 million (quarter) and $55 million (nine months) in stock-based compensation expense, which reduced net income compared to prior periods where such options were not expensed.
- Capital Expenditures: Significant increase in investing cash outflows due to construction on CityCenter ($429M), the Detroit permanent casino ($210M), and the rebuilding of Beau Rivage ($392M).
- Beau Rivage Reopening: The Mississippi resort reopened in August 2006 after Hurricane Katrina damage, contributing to revenue recovery.
Guidance, Outlook, and Risks
- Major Projects:
- CityCenter: Estimated total cost of $7 billion; expected opening late 2009. Net project cost estimated at $4.5 billion after residential sales.
- MGM Grand Detroit: Permanent facility expected to open late 2007 at a cost of ~$765 million.
- MGM Grand Macau: 50% joint venture; expected opening late 2007 with a total cost of ~$1.1 billion.
- Asset Sales: In October 2006, the Company agreed to sell Colorado Belle and Edgewater for $200 million and the Primm Valley Resorts for $400 million. Proceeds are intended to repay debt. These will be reported as discontinued operations starting Q4 2006.
- Liquidity: The Company maintains a $7 billion senior credit facility with approximately $2.1 billion available as of September 30, 2006. Leverage ratio was 5.4:1 and interest coverage was 2.7:1, both within covenant limits.
- Risks:
- Market Risk: Exposure to interest rate fluctuations on variable-rate debt (approx. 37% of total borrowings).
- Regulatory/Legal: Uncertainty regarding the New York Racing Association (NYRA) Chapter 11 filing affecting the VLT management agreement.
- Insurance: Ongoing claims related to Hurricane Katrina; while proceeds have exceeded damaged asset values, final settlement timing is uncertain.
Investor Verification Checklist
- Debt Covenants: Verify continued compliance with the 6.5:1 leverage ratio and 2.0:1 interest coverage ratio given high capital expenditure levels.
- Project Costs: Monitor cost overruns and timeline delays for CityCenter, Detroit, and Macau projects, which are subject to significant execution risk.
- Asset Sale Closing: Confirm regulatory approval and closing dates for the Primm Valley and Laughlin property sales to ensure expected debt reduction.
- Insurance Settlements: Track final resolution of Hurricane Katrina claims to confirm the anticipated gain on Beau Rivage.
- Stock Compensation Impact: Assess the ongoing impact of SFAS 123(R) on future earnings per share as vesting schedules progress.