MGM Mirage reports record results
Highlights from the quarter include:
* 5% increase in gaming revenues, with strong high-end table games
volume and a solid 5% increase in slots revenue;
* 3% increase in hotel revenues, led by a 6% increase in Las Vegas
Strip REVPAR;(1)
* Property EBITDA(2) of $637 million, a 19% increase over the prior
year;
* Property EBITDA margins increased to 33% versus 30% in the 2005 third
quarter;
* Beau Rivage, which was open for 33 days in the quarter, earned
Property EBITDA of $16 million, versus $12 million in the 2005
quarter, when it was open for two months;(3)
The following table lists significant items which affect the comparability of the current year and prior year results (EPS impact shown, net of tax, per diluted share; negative amounts represent charges to income):
Three months ended September 30, 2006 2005
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Profits from The Signature at MGM Grand $0.06 $--
Incremental stock compensation - adoption
of SFAS 123® (0.04) --
Preopening and start-up expenses (0.01) (0.01)
Property transactions, net -- (0.05)
Tax adjustments 0.02 (0.01)
"The third quarter once again demonstrated our Company's ability to grow organically and generate meaningful increases in cash flow," said Terry Lanni, MGM Mirage's Chairman and CEO. "We are extremely pleased with the record performances turned in by several resorts, and especially proud of the recently re-opened Beau Rivage. Our valued employees are excited to be back to work, and we are glad to be a part of the revival of the Gulf Coast."
Net revenue of $1.9 billion is an all-time Company record for the third quarter. Results in most operating areas were consistent with this trend, as strong gaming results were accompanied by higher customer volumes at restaurants and shows and contributions from new amenities such as the Love show and new restaurants at Mirage.
The 5% increase in gaming revenue was led by double-digit increases in slot revenues at several resorts, including Bellagio, MGM Grand Las Vegas, Mandalay Bay, TI, MGM Grand Detroit and Gold Strike Tunica. Baccarat volume was also particularly impressive, up 22%, continuing the trend from the second quarter. Table games hold percentages were near the mid-point of the normal 18-22% range in both periods, though higher in the 2006 period.
Non-gaming results were strong, with new shows and restaurants contributing positively to results and continued strength in room rates. The 6% increase in Las Vegas Strip REVPAR represents the Company's thirteenth consecutive quarter of year-over-year REVPAR growth. The following table shows key hotel statistics for the Company's Las Vegas Strip resorts:
Three Months Ended
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September 30, September 30,
2006 2005
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Occupancy % 96% 97%
Average Daily Rate (ADR) $140 $133
Revenue per Available Room (REVPAR) $135 $128
Revenue growth carried through to the profit line, as the Company was able to increase its margins, leading to increases in operating income, EBITDA and Property EBITDA. The Company's operating income increased 26% to $428 million, which includes $27 million of profit from closings on the final units of Tower 1 of the Signature at MGM Grand. The operating margin was 22% in the current quarter versus 19% in the 2005 quarter.
Detailed Discussion of Certain Charges
In the third quarter of 2006, the Company incurred minimal property transactions. In the 2005 period, net property transactions of $23 million largely related to the write-off of assets replaced in connection with expansion and remodel projects at Bellagio, Mirage and TI.
Preopening and start-up expenses of $6 million in the 2006 quarter related primarily to CityCenter, MGM Grand Macau, the permanent facility at MGM Grand Detroit and The Signature at MGM Grand. Preopening and start-up expenses in 2005 -- $6 million -- related primarily to CityCenter, as well as new restaurants at MGM Grand Las Vegas and The Signature at MGM Grand.
Positive tax adjustments of $6 million in the 2006 third quarter related to a reduction in reserves required for certain complimentary costs. The IRS had historically challenged the deductibility of certain complimentaries provided to customers, but recent IRS guidance indicated that they would no longer challenge the deductions.
Earnings per share for the 2006 third quarter include the impact of implementing SFAS 123® on January 1, 2006. Under this new standard, the cost of employee stock awards are required to be recognized as an expense. The Company classified the incremental expense of $17 million as a result of implementing the standard as follows:
Three months ended September 30, 2006
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(In thousands)
Casino $3,845
Other operating departments 1,589
General and administrative 4,836
Corporate expense and other 7,117
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$17,387
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Financial PositionThird quarter capital investments totaled $610 million, which included $198 million for CityCenter, $70 million for the permanent MGM Grand Detroit hotel and casino, $164 million for rebuilding efforts at Beau Rivage, $45 million for a new corporate aircraft and $31 million of additional investments in MGM Grand Macau. Remaining capital expenditures of $102 million included spending on the new theatre and new restaurants at Mirage, new amenities at Mandalay Bay, and other routine capital expenditures.
During the third quarter of 2006, the Company repurchased 3 million shares of its common stock for $106 million, leaving 8 million shares available under the Company's current authorization. At September 30, 2006, the Company had $2.1 billion of available borrowings under its senior credit facility. Subsequent to quarter-end, the Company announced that it had amended its credit facility. The total capacity remains at $7 billion, the term loan component was increased from $1.5 billion to $2.5 billion, the pricing was reduced and the maturity was extended to October 2011. In addition, the Company has the ability to solicit additional lender commitments to increase the facility's capacity to $8 billion.
"Our financial strength continues to be the foundation for future growth at MGM Mirage, and the continued confidence of our stakeholders is proof that our strategies are sound," said Jim Murren, MGM Mirage President, CFO and Treasurer. "With the amended credit facility and our resorts' success in generating cash flows, we will continue to have financial flexibility for our growth initiatives while still being able to re-invest in our market leading resorts."
Outlook
"We are looking forward to another successful quarter in the fourth quarter, as our resorts continue to attract high quality visitors from all segments. We expect higher Property EBITDA and our fourteenth consecutive quarter of REVPAR growth, resulting in an estimate of GAAP diluted EPS from continuing operations of approximately $0.40 to $0.45 per share in the fourth quarter of 2006, compared to $0.33 per share in the prior year," Mr. Murren said.
The Company expects to recognize approximately $40-45 million of profits in the fourth quarter related to sales of Tower 2 at The Signature at MGM Grand. The Company expects to recognize the remaining profits on Tower 2, approximately $30-35 million, in the first quarter of 2007. In addition, the Company's Laughlin operations -- Colorado Belle and Edgewater -- and the Primm Valley Resorts will be classified as discontinued operations beginning in the fourth quarter as a result of the Company's agreement to sell these properties.
The Company's EPS estimate incorporates the impact of the following significant items (EPS impact shown, net of tax, per diluted share; negative amounts represent charges to income):
2006 2005
Three months ended December 31, estimate actual
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Profits from The Signature at MGM Grand $0.09-0.10 $--
Incremental stock compensation - adoption
of SFAS 123® (0.03) --
Preopening, property transactions and other (0.02) (0.03)
Tax adjustments -- 0.01