MGM MIRAGE Reports First Quarter Results

The current year results include a gain on extinguishment of debt of $142 million (or $0.21 per share, net of tax) related to the restatement and amendment of the Company’s senior credit facility in March and a pre-tax non-cash charge of approximately $86 million (or $0.13 per share, net of tax) representing the Company’s share of an impairment at CityCenter related to its residential inventory.  The prior year results include a gain of approximately $190 million (or $0.44 per share, net of tax) related to the sale of Treasure Island hotel and casino.

The following table lists these and other items which affect the comparability of the current and prior year quarterly results (approximate per diluted share impact shown, net of tax; negative amounts represent charges to income):

The following key results for the quarter are presented on a “same store” basis excluding the results of Treasure Island casino resort (“TI”) in the prior year as the Company completed the sale of TI in March 2009:

• Net revenue, excluding reimbursed costs, decreased 4% to $1.4 billion, compared to a 6% year-over-year decrease in the fourth quarter of 2009;
• Casino revenue decreased 5%, partially offset by strong baccarat results during the quarter with baccarat volume up 17%;
• Las Vegas Strip REVPAR(1) decreased 8% compared to the prior year quarter versus a 16% year-over-year decrease in the fourth quarter of 2009; and
• Adjusted Property EBITDA(2) attributable to wholly-owned operations was $267 million, or down 19%, excluding Monte Carlo insurance proceeds benefiting the prior year quarter.

Key results at the Company’s joint ventures include the following operating results (the Company’s share of which is reflected in income (loss) from unconsolidated affiliates in the Company’s statement of operations):

• MGM Grand Macau earned operating income of $49 million in the first quarter of 2010, which included depreciation expense of $22 million, and
• Aria, the centerpiece casino resort at CityCenter, reported net revenue of $160 million and an operating loss of $66 million, which included depreciation expense of $54 million.  Hotel occupancy percentage was 63% with an average daily rate of $194.

“We see signs of improvement in the Las Vegas market and expect those to accelerate in the second half of the year and into 2011. Our forward bookings continue to improve as our convention bookings continue to gain traction,” said Jim Murren, MGM MIRAGE Chairman and Chief Executive Officer.  “We are well positioned to increase our operating margins and cash flows as the economy recovers.  CityCenter’s first quarter results were particularly affected by the weakness in the Las Vegas convention market.  We expect Las Vegas visitation to be strong for the balance of 2010 and Aria’s conference calendar is strengthening; therefore, we expect Aria’s occupancy to improve over the balance of the year.  We are unveiling a comprehensive new marketing effort for Aria in the coming weeks with new TV and direct marketing elements.  Now that CityCenter is complete, we are able to use its architecturally unique and highly visual assets in a coordinated global advertising push.”

Detailed Discussion of First Quarter Operating Results

(Results are presented on a same store basis excluding TI)

Net revenue for the first quarter of 2010 was $1.46 billion. Excluding reimbursed costs revenue mainly related to the Company’s management of CityCenter, the Company earned net revenue of $1.36 billion, a decrease of 4% from 2009.  Reimbursed costs revenue represents reimbursement of payroll and other costs incurred by the Company in connection with the provision of management services.  

Total casino revenue decreased 5% compared to the prior year, with slots revenue down approximately 1% for the quarter.  The Company’s table games volume, excluding baccarat, was down 4% in the quarter, but baccarat volume was up 17% compared to the prior year quarter.  The overall table games hold percentage was lower in 2010 than the prior year quarter and near the midpoint of the Company’s normal 18% to 22% range, while in the 2009 quarter it was at the top end of the range.  These factors led to an overall decrease in table games revenue of 10% for the quarter.

Rooms revenue decreased 6% with Las Vegas Strip REVPAR down by 8%.  Weakness in the Las Vegas convention market continued to put pressure on room rates and drove the Company to replace these customers with increased leisure and casino business to maintain occupancy.  The following table shows key hotel statistics for the Company’s Las Vegas Strip resorts:

Food and beverage revenue declined 3%, a portion of which related to a decrease in convention and banquet business.  Entertainment revenue increased 6%, due to new shows added since the first quarter of 2009, including Disney’s The Lion King.

Operating loss for the first quarter of 2010 was $11 million (which included the Company’s $86 million share of the CityCenter residential impairment charge) compared to operating income of $355 million in the 2009 quarter.  In addition, the prior year results included a $190 million pre-tax gain on the TI sale, $15 million of Monte Carlo business interruption insurance recovery income (recorded as a reduction to general and administrative expense) and $7 million of Monte Carlo property damage insurance recovery income (recorded as property transactions, net). The Company reported Adjusted Property EBITDA attributable to wholly-owned operations of $267 million in the 2010 quarter, down 19% excluding insurance recoveries related to the Monte Carlo fire in the prior year.   Adjusted Property EBITDA, which includes impact from unconsolidated affiliates, was $187 million in the 2010 quarter and was negatively impacted by the CityCenter residential impairment charge.  The Company reported Adjusted EBITDA(2), which includes corporate expense, of $156 million in the 2010 quarter.

Income from Unconsolidated Affiliates

The Company reported a loss from unconsolidated affiliates of $81 million versus income of $16 million in the prior year first quarter. The loss in the first quarter of 2010 was attributable to the company’s 50% share of the operating loss at CityCenter.

CityCenter reported net revenues of $260 million and an operating loss of $255 million in the first quarter of 2010, which includes an approximately $171 million non-cash impairment charge related to its residential inventory, depreciation expense of $69 million, and preopening expenses of $6 million. CityCenter results benefited from revenues of $24 million related to forfeited residential deposits.  

The loss at CityCenter was partially offset by the Company’s share of operating income at the MGM Grand Macau, which earned operating income of $49 million in the first quarter of 2010, which included depreciation expense of $22 million, a significant improvement compared to an operating loss of $5 million in the 2009 first quarter, which included depreciation expense of $21 million.

Financial Position

At March 31, 2010, the Company had approximately $13.0 billion of indebtedness (with a carrying value of $12.7 billion), including $3.8 billion of borrowings outstanding under its senior credit facility, with available borrowing capacity under the senior credit facility of approximately $900 million.  These balances reflect the impact of the Company’s March issuance of $845 million of 9% senior secured notes due 2020. The net proceeds of such issuance were used to repay a portion of the senior credit facility, including a permanent reduction of $818 million as required under the Company’s amended and restated senior credit facility.

Subsequent to March 31, 2010, the Company received a tax refund of approximately $380 million, the proceeds of which were used to reduce outstanding borrowings under the revolving portion of the senior credit facility.

In addition, in April 2010, the Company issued $1.15 billion of 4.25% convertible senior notes due 2015 for net proceeds to the Company of $1.12 billion.   After application of such proceeds, the Company had approximately $1.48 billion of availability under the revolving portion of the senior credit facility, of which approximately $1.12 billion was restricted for use to retire future debt maturities or permanently reduce commitments under the senior credit facility, and approximately $900 million of excess cash in bank. In connection with the convertible notes offering, the Company entered into capped call transactions at a cost of $81 million to reduce the potential dilution of the Company’s stock upon conversion of the notes.

“Our secured and convertible notes transactions were executed at pricing advantageous to the Company and reaffirms the confidence our financial partners have in the long term prospects of MGM MIRAGE,” said Dan D’Arrigo, MGM MIRAGE Executive Vice President and Chief Financial Officer. “These transactions further enhance our balance sheet profile and provide our Company with approximately $2.4 billion of available liquidity – we believe we have adequate liquidity to address upcoming debt maturities.”