Business Context and Reporting Period
Company: MGM Mirage (now MGM Resorts International)
Filing Type: Form 10-Q (Unaudited)
Period Ended: June 30, 2009
Overview: MGM Mirage operates casino resorts in Las Vegas, Nevada, and other locations, including joint ventures in CityCenter (Las Vegas), Borgata (Atlantic City), and MGM Grand Macau. The reporting period was significantly impacted by the global economic downturn, credit market instability, and a major liquidity restructuring executed in May 2009.
Key Financial Metrics
| Metric | Six Months Ended June 30, 2009 | Six Months Ended June 30, 2008 |
|---|---|---|
| Net Revenue | $2,992,950,000 | $3,779,352,000 |
| Operating Income | $486,198,000 | $675,072,000 |
| Net Income (Loss) | $(107,376,000) | $231,447,000 |
| Diluted EPS | $(0.34) | $0.79 |
| Operating Cash Flow | $388,029,000 | $256,413,000 |
| Cash and Equivalents (End of Period) | $411,356,000 | $279,995,000 |
| Total Debt (Long-term + Current) | $12,364,839,000 | $13,464,166,000 |
Note: Figures are in thousands unless otherwise noted. Net revenue decreased 21% year-over-year.
Material Changes vs. Prior Period
- Revenue Decline: Net revenue dropped 21% to $2.99 billion, driven by a 33% decrease in rooms revenue and a 16% decrease in casino revenue. Las Vegas Strip REVPAR fell 31% due to lower average daily rates (ADR) and convention cancellations.
- Net Loss: The company reported a net loss of $107.4 million compared to net income of $231.4 million in the prior year. This was primarily due to a $176 million "other-than-temporary" impairment charge on the M Resort convertible note and increased interest expenses.
- Asset Sale: The company recognized a pre-tax gain of $187 million from the sale of Treasure Island (TI) in March 2009, which partially offset operating declines.
- Debt Restructuring: In May 2009, the company amended its senior credit facility, waived certain covenants, and permanently repaid $1.26 billion of credit facility borrowings. Concurrently, it issued $1.5 billion in new senior secured notes and $1.1 billion in common stock to improve liquidity.
Guidance, Outlook, and Risks
- Liquidity Position: Management believes proceeds from the May 2009 equity/debt offering ($2.5 billion), the TI sale ($755 million), and operating cash flow will satisfy financial commitments through 2010, including the CityCenter completion guarantee.
- CityCenter Completion Guarantee: The company assumed an unlimited completion and cost overrun guarantee for CityCenter, secured by Circus Circus Las Vegas assets. 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 MGM Grand Macau or Borgata investments, potentially resulting in significant impairments.
- Debt Maturities: The company faces significant debt maturities in 2010, including $782 million in senior notes due in September 2010. Management noted that meeting these obligations depends on operating performance and CityCenter funding requirements.
- Economic Outlook: Management expects continued negative impacts from the economic downturn, including reduced consumer spending and travel budgets, though trends appeared to stabilize in the second quarter.
Investor Verification Checklist
- Debt Covenant Compliance: Verify the company's ability to meet the new minimum trailing annual EBITDA covenant of $900 million and the $250 million annual capital expenditure limit.
- CityCenter Funding: Monitor the status of the CityCenter completion guarantee and the potential for additional funding requirements or impairment charges related to residential inventory valuation.
- Regulatory Outcome: Track 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 Refinancing: Assess the company's strategy for refinancing the $782 million senior notes maturing in September 2010, given the tight credit markets.
- Operating Margins: Evaluate the sustainability of the 10% operating margin achieved in the first half of 2009, which is significantly lower than the 18% margin in the prior year.