MGM

Business Context and Reporting Period

This summary covers the Form 10-Q filed by MGM MIRAGE (now MGM Resorts International) for the quarterly period ended September 30, 2007. The company operates a portfolio of casino resorts primarily in Las Vegas, Nevada, with additional properties in Mississippi, Michigan, and joint ventures in Atlantic City, Illinois, and Macau. Key operational developments during the period included the sale of the Primm Valley and Laughlin properties, the closure of the interim MGM Grand Detroit facility, and the ongoing construction of the CityCenter project.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Net revenue increased 6% for the quarter and 8% year-to-date compared to the prior year periods. This growth was driven by strong room pricing (ADR up 5% on the Strip) and increased non-gaming revenues from entertainment and dining.
• Operating Income: Operating income rose 11% for the quarter to $464.6 million. A significant portion of this increase was due to $135 million in insurance recoveries recognized at Beau Rivage (related to Hurricane Katrina), of which $107 million was recorded as a credit to property transactions.
• Discontinued Operations: The company completed the sale of Primm Valley Resorts and Laughlin Properties in 2007, resulting in a combined pre-tax gain of $264 million. These properties were classified as discontinued operations.
• Corporate Expenses: Corporate expense increased to $63 million in Q3 2007 from $35 million in Q3 2006, attributed to severance costs, CityCenter joint venture transaction costs, and development expenses for MGM Grand Atlantic City.
• Debt Levels: Long-term debt increased to $14.13 billion from $12.99 billion at year-end 2006, reflecting borrowings to fund capital projects and the repayment of maturing notes.

Guidance, Outlook, and Risks

• Insurance Settlement: In October 2007, the company finalized Hurricane Katrina insurance settlements totaling $635 million. Approximately $150 million of remaining income was expected to be recognized in Q4 2007.
• MGM Grand Detroit: The permanent MGM Grand Detroit opened on October 2, 2007. Management expects significant increases in operating results due to expanded gaming capacity and a reduction in the Michigan gaming tax rate from 26% to 21%.
• CityCenter Joint Venture: In August 2007, MGM MIRAGE entered a 50/50 joint venture with Dubai World for the CityCenter project. The company expects to receive a cash distribution of approximately $2.7 billion upon closing, anticipated in Q4 2007.
• Stock Sale: On October 18, 2007, the company sold 14.2 million shares of treasury stock to Infinity World Investments (Dubai World) for approximately $1.2 billion, proceeds used to reduce debt.
• Labor Agreements: A new five-year collective bargaining agreement was reached with approximately 21,000 Las Vegas Strip employees, providing for ~4% annual wage and benefit increases.
• Risks: Key risks include the capital intensity of development projects (CityCenter, MGM Grand Macau), exposure to economic conditions affecting tourism, and potential impacts from labor disputes or wage increases.

Investor Verification Checklist

• Verify the timing and accounting treatment of the remaining $150 million Hurricane Katrina insurance recovery expected in Q4 2007.
• Confirm the closing date and final cash distribution amount from the CityCenter joint venture with Dubai World.
• Monitor the performance of the newly opened MGM Grand Detroit permanent facility and the impact of the reduced Michigan tax rate.
• Review the company's leverage ratio (currently 5.2:1) against its debt covenants (maximum 6.5:1) given the high level of capital expenditures.
• Assess the impact of the new labor agreements on future operating margins.