MGM MIRAGE (NYSE:MGM) today announced its financial results for the first quarter of 2009. The Company reported first quarter diluted earnings per share (EPS) of $0.38 compared to $0.40 per share in the prior year first quarter. The current year results include a gain of $0.44, net of tax, related to the sale of the Treasure Island hotel and casino.
Operating Results and Outlook
Net revenue decreased 20% to $1.5 billion in the first quarter of 2009. Revenues were negatively impacted by increased convention cancellations - particularly in January and February and at the Company's Las Vegas Strip resorts - and a continued decline in discretionary spending due to the weakened economy. Occupancy at the Company's Las Vegas Strip resorts was unusually low in January, improved in February, and returned to a normalized level of approximately 95% in March. The convention cancellations forced the Company to shift hotel business to the leisure segment at lower room rates. As a result of these factors, Las Vegas Strip REVPAR(1) decreased by 34%, to $102 for the first quarter of 2009 compared to $154 in the first quarter of 2008.
Total casino revenue declined 16%, with slots revenue down 12% for the quarter. The Company's table games volume, excluding baccarat, was down 20% in the quarter, but the high-end of the gaming segment was more resilient, with baccarat volume only down 1% in the 2009 quarter. The overall table games hold percentage was slightly lower in 2009 than the prior year quarter and near the top end of the Company's normal 18% to 22% range in both periods.
Operating income for the first quarter of 2009 was $355 million compared to $341 million in the first quarter of 2008. The current year results include the pre-tax gain on the TI sale - $190 million - as well as $15 million of Monte Carlo business interruption insurance recovery income (recorded as a reduction to SG&A expense) and $7 million of Monte Carlo property damage insurance recovery income (recorded as property transactions, net). Property EBITDA(2), which does not include the TI gain, was approximately $372 million in the 2009 quarter, down 35% from $575 million. Property EBITDA, excluding the Monte Carlo insurance recovery income and other items affecting comparability (preopening expenses and other property transactions, net), declined 38% on a comparable basis with a margin of 24% versus 31% in the prior year quarter. Consolidated EBITDA was $532 million in the 2009 quarter, which includes the $190 million pre-tax gain on the TI sale, compared to $536 million in the prior year period.
The Company's regional properties reported strong results with MGM Grand Detroit's EBITDA up 18% to $41 million in the 2009 quarter, and the combined EBITDA of Beau Rivage and Gold Strike Tunica up 15% to $31 million. Corporate expense declined 25% to $24 million, despite increased costs for legal and other corporate finance costs. The Company has continued to implement cost savings initiatives on a company-wide basis, which positively impacted results in the quarter.
The following table lists items which affect the comparability of the current and prior year quarterly results (approximate EPS impact shown, net of tax, per diluted share, negative amounts represent charges to income):
Three months ended March 31, 2009 2008
Preopening and start-up expenses $ (0.02) $ (0.01)
Monte Carlo fire business
interruption income (recorded as a
reduction of general and
administrative expenses) 0.04 -
Property transactions net:
Gain on the sale of TI 0.44 -
Monte Carlo fire property damage income 0.02 -
Other property transactions, net - (0.01)
"While we experienced significant group cancellations early in the quarter and experienced a continuation of negative consumer spending trends from the fourth quarter, cancellations have tapered off and we see signs that business levels seem to be stabilizing," said Jim Murren, MGM MIRAGE Chairman and Chief Executive Officer. "Our resorts have seen sequential increases in occupancy levels through the first quarter and into April, and our forward booking pace is improving. This is allowing us the opportunity to better yield our room pricing. Additionally, world-class events at our resorts continue to drive revenue and we have an exceptionally strong event calendar in the second and third quarters, with recent events such as the Pacquiao vs. Hatton fight, and numerous other premier concerts and events in the summer months."
At March 31, 2009, the Company had approximately $14.4 billion of borrowings outstanding and its cash balance was approximately $1.4 billion. These balances included the results of the following transactions:
- In March 2009, the Company closed on the TI sale. The Company received cash of $600 million and a note receivable of $175 million at closing from the purchaser, Ruffin Acquisition, LLC.
- During the quarter, the Company drew down the remainder of unused borrowing capacity available under its $7.0 billion senior credit facility.
- During the quarter, capital expenditures were $56 million.
- On March 16, 2009, the Company obtained a waiver through May 15, 2009 of the requirement that the Company comply with the financial covenants in its senior credit facility as of March 31, 2009. As part of the amendment, the Company repaid $300 million of the outstanding borrowings under the facility.
- During the first quarter, the Company funded $437 million of equity contributions to CityCenter, which included $100 million that should have been funded by Dubai World.
On April 17, 2009, the Company made an additional investment of $70 million in CityCenter, which included $35 million that should have been funded by Dubai World. As announced separately on April 29, 2009, the Company, Dubai World and the CityCenter lenders entered into a series of agreements, including an amendment to the CityCenter joint venture agreement and the CityCenter senior secured credit facility, resulting in a comprehensive plan to fully fund the completion of CityCenter for its scheduled opening later this year.
On April 29, 2009, the Company received $155 million, plus accrued interest, from Ruffin Acquisition, LLC in full payment of the note receivable referred to above, with a $20 million discount for early payment.
Also as separately announced, the Company reached an agreement with its senior lenders for a further waiver of noncompliance (as of March 31, 2009) with financial covenants under its senior credit facility through June 30, 2009. As part of these agreements and amendments, the Company funded the remaining $224 million of its required equity contributions for CityCenter through the issuance of a letter of credit.
"We continue to work constructively with our advisors and senior lenders to find a comprehensive long-term solution to improve our financial position," said Dan D'Arrigo, MGM MIRAGE Executive Vice President and Chief Financial Officer. "We are evaluating a variety of options - which may include asset sales, new capital, and modifying or extending our existing debt - to address our liquidity needs and strengthen our balance sheet."
The Company intends to further formulate its plans to address near-term liquidity issues and its overall levels of outstanding borrowings and leverage, and to work with its lenders to approve and implement such solutions and to obtain additional waivers or amendments prior to June 30, 2009 to address future noncompliance with the senior credit facility, however, the Company can provide no assurance that it will be able to secure such waivers or amendments. Following expiration of the waiver referred to above on June 30, 2009, the Company will be subject to an event of default related to noncompliance with financial covenants under the senior credit facility at March 31, 2009. Under the terms of the senior credit facility, noncompliance with financial covenants is an event of default, under which the lenders (with a vote of more than 50% of the lenders) may exercise any or all of their remedies, including demanding immediate repayment of all outstanding borrowings under the senior credit facility.
In addition, there are provisions in the indentures governing the Company's senior and senior subordinated notes under which a) the event of default under the senior credit facility, or b) the remedies under an event of default under the senior credit facility, would cause an event of default under the relevant senior and senior subordinated notes, which would also allow holders of the senior and senior subordinated notes to demand immediate repayment and decline to release subsidiary guarantees. If the lenders exercise any or all such rights, the Company may determine to seek relief through a filing under the U.S. Bankruptcy Code.
As a result of the short-term nature of the waiver under the senior credit facility and potential cross-defaults under the indentures, the Company has classified all of its outstanding borrowings as current liabilities as of March 31, 2009 in the accompanying consolidated balance sheet.
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