Business Context and Reporting Period
Company: MGM Mirage (now MGM Resorts International)
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Three months ended March 31, 2007
Overview: The Company operates 22 wholly-owned casino resorts and holds 50% interests in three others (Borgata, Grand Victoria, MGM Grand Macau). Key developments include the reopening of Beau Rivage following Hurricane Katrina, the sale of Primm Valley Resorts in April 2007, and ongoing construction of the CityCenter project in Las Vegas.
Key Financial Metrics
| Metric (in thousands) | Q1 2007 | Q1 2006 |
|---|---|---|
| Net Revenues | $1,929,435 | $1,774,368 |
| Operating Income | $445,133 | $413,353 |
| Net Income | $168,173 | $144,037 |
| Diluted EPS | $0.57 | $0.49 |
| Operating Cash Flow | $256,260 | $139,755 |
| Capital Expenditures | $(580,689) | $(321,154) |
| Cash and Equivalents (End of Period) | $313,967 | $297,034 |
| Long-Term Debt | $13,240,315 | $12,994,869 |
| Available Liquidity (Credit Facility) | $2.3 billion | N/A |
Material Changes vs. Prior Period
- Revenue Growth: Net revenues increased 9% year-over-year. Excluding the reopened Beau Rivage, same-store revenue increased 3%. Non-casino revenue grew 13%, driven by an 8% increase in room rates and new entertainment venues.
- Profitability: Operating income rose 8% to $445 million. Net income increased 17% to $168 million, aided by lower property transaction charges and profit recognition from The Signature at MGM Grand.
- Cash Flow: Operating cash flow surged 83% to $256 million, primarily due to higher operating income and significantly lower income tax payments compared to the prior year (which included a $112 million payment related to the MotorCity Casino sale).
- Capital Spending: Capital expenditures increased 81% to $581 million, heavily weighted toward the CityCenter project ($244 million) and the MGM Grand Detroit permanent casino ($66 million).
- Debt: Long-term debt increased by approximately $245 million. The Company maintained a leverage ratio of 5.0:1 and an interest coverage ratio of 2.8:1, well within covenant requirements.
Outlook, Risks, and Unusual Items
- Major Projects: CityCenter (estimated net cost $4.7 billion) is expected to open in late 2009. MGM Grand Macau and the permanent MGM Grand Detroit are both anticipated to open in late 2007.
- Asset Sales: The Company completed the sale of Primm Valley Resorts in April 2007 for net proceeds of approximately $398 million. The sale of the Laughlin Properties for $200 million is expected to close in Q2 2007.
- Debt Maturity: Approximately $1.4 billion in senior notes mature in 2007. The Company plans to refinance this with a new $750 million senior note issuance scheduled for May 2016.
- Unusual Items:
- Property Transactions: Net charges were $5 million in Q1 2007, primarily due to the write-off of Nevada Landing assets. This compares to $23.5 million in Q1 2006, which included a $22 million write-off for the Bellagio-Monte Carlo tram.
- Hurricane Katrina: The Company received $48 million in insurance recoveries classified as investing activities and $7 million as operating activities. Total recoveries received to date ($411 million) exceed the net book value of damaged assets and costs by $151 million.
- Risks: Significant exposure to the Las Vegas market, competition from new resorts, and the general economy. The Company also faces execution risks regarding the massive capital requirements for CityCenter and MGM Grand Macau.
Investor Verification Checklist
- CityCenter Funding: Verify the Company's ability to fund the remaining $4.7 billion net construction cost for CityCenter without diluting shareholders or breaching debt covenants.
- Debt Refinancing: Confirm the successful closing of the $750 million senior note issuance in May 2007 to cover the $1.4 billion debt maturity.
- Asset Sale Closings: Monitor the regulatory approval and closing of the Laughlin Properties sale ($200 million) and the contribution of Jean Properties to the joint venture.
- Macau Project Timeline: Track the construction progress and opening date of MGM Grand Macau, as delays could impact revenue projections for late 2007.
- Share Repurchases: Note that the Company repurchased 2.5 million shares for $175 million in Q1, leaving 5.5 million shares available under the current authorization.