美高梅國際酒店集團 (MGM) 2006 Q2 法說會逐字稿

Good morning, and welcome to the MGM MIRAGE second quarter conference call.

Joining the call from the Company today are Terry Lanni, Chairman and CEO of MGM MIRAGE;

Jim Murren, President, CFO and Treasurer of MGM MIRAGE;

Bobby Baldwin, President and CEO of Mirage Resorts;

John Redmond, President and CEO of MGM Grand Resorts; and Gary Jacobs, EVP, General Counsel and Secretary of MGM MIRAGE.

Participants are in a listen-only mode.

After the Company's remarks, there will be a question-and-answer session. [OPERATOR INSTRUCTIONS].

Now I will like the turn the call over to Mr. Jim Murren.

Thank you, Shannon.

Good morning, everyone.

As always, our conference call here is being broadcast on our internet sight MGMMirage.com and is also on companyboardroom.com.

A replay of that call -- this call will be available on our website.

We had filed the Form 8K this morning with our press release, and so you can look at that if you like.

In addition, we have quite a bit of information that we put on our website, not only the release itself but as you know we have a considerable amount of supplemental information to help you understand our Company most fully and that is -- been posted, and I would direct your attention to it.

As always, I am obligated to read you the Safe Harbor disclosure.

Information we present on this call may contain forward-looking statements as defined by the SEC.

Such forward-looking statements are protected by the Safe Harbor amendments of the Private Securities Litigation Reform Act of 1995.

You can identify such statements by the use of the words we expect, we anticipate, and similar phrases.

These forward-looking statements may include information about future earnings, expected business developments, anticipated capital expenditures, future financing alternatives, or other statements made about future periods.

Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from estimates.

They haven't lately, have they, Terry?

No, they haven't.

Listeners should also refer to our disclosures about risks and uncertainties made in our filings with the SEC.

So with that, I'd like to turn it right over to Terry Lanni to discuss our overall results.

Thank you very much, Jim, and good morning.

Earlier today we reported diluted EPS of $0.50 for the second quarter of this fiscal year.

This is a record for the second quarter, exceeding last year's previous record of $0.48 per share and in fact is an all-time record for any quarter in our Company's history.

And our earnings of $0.50 per share was exactly the guidance that we gave on April 26 during our last earnings call.

Just briefly on some operation results, more detail will come from Bobby and John, but net revenues increased 4%, and you if you look on a same-store basis it would be 5%.

We're very comfortable, we had very strong slot results with slot revenues up 4%.

Baccarat volume increased 19% on a same-store basis, indicating continued strength in the high end segment.

Operating income was $428 million which was an increase of 13%, and property EBITDA was 645 million, up 15%, with excellent margins, and Jim will cover that in much more detail shortly.

From our perspective, the trends in Las Vegas are excellent.

We feel that our competitive position has never been stronger than it is today.

As an indicator of that, I'll note that MGM MIRAGE has the three highest EBITDA-producing properties on the Las Vegas Strip in the second quarter, with combined property EBITDA of over $280 million at Bellagio, MGM Grand Las Vegas and Mandalay Bay, and in fact Bellagio had all-time record for any quarter in the history of -- since the opening of Bellagio.

Now, not everyone has had a great second quarter here in Las Vegas.

We've seen that in recent reports.

We're pleased to say that we had an excellent second quarter and are very comfortable with that.

On a development update we continue to make substantial progress on key development initiatives.

MGM Grand Macau remains on schedule as we've indicated for some period of time now for a 2007 fourth quarter opening and remains on budget.

Work continues at a substantial pace on the permanent casino resort at MGM Grand Detroit and on the rebuilding of Beau Rivage which will reopen later this month on the 29th, which is the one-year anniversary date of the Katrina disaster.

And of course, project CityCenter is the heart of our Las Vegas development.

We remain very bullish on Las Vegas, and we expect significant growth to continue in this marketplace.

We believe our strategy of disciplined growth here in the United States and abroad continues to move forward.

We continue to reinvest in our existing portfolio with strong returns on targeted projects such as new restaurants, night clubs, and the very exciting LOVE show at the Mirage, which recently opened.

And we remain focused on maintaining a conservative balance sheet and financial flexibility to prudently invest in new projects as they become available to this Company.

I'd now like the turn the meeting over to Jim for a few more comments on the financial results.

Well, thank you, Terry.

Consistent with the last quarter, we're reporting, as you know, GAAP earnings.

We'd estimated we'd earn $0.50 on a GAAP basis, and that's exactly what we did.

A few items that affect the comparability of earnings we put into the release, but I'd just like to highlight it for you all just so we're all on the same page.

One, the profits of Signature, we'ev made a tremendous amount of money -- profit on Signature, both Towers A, B and we will on C as well.

We had said that we're going to make $0.12 a share for Signature between the second and third quarter.

We'd guessed $0.08 this quarter in the second, $0.04 in the third quarter.

It's actually going to be 6 and 6.

So we had $0.06 instead of $0.08 profit in the second quarter; we'll make that up in the current quarter.

Secondly, we had $0.06 a share of preopening and property transactions.

Our guidance was $0.06 to $0.08 there.

That compared to a penny last year.

Our stock option expense in the current quarter that we just reported was $0.04.

And of course, Beau Rivage is not currently open.

It contributed $0.04 last year and obviously nothing this year.

Another little gift that we had from the fine state of Illinois that was not in our guidance that cost us a penny a share in the second quarter by the retroactive tax increase.

So that gives you the apples-to-apples.

It's in the release, but I just wanted to highlight it here.

From a detailed perspective, our gaming revenue in the quarter was up 5%.

Slot revenue was up 4 on a same-store basis particularly strong results over it the MGM Grand here in Las Vegas, also MGM Grand Detroit and TI.

On a same-store basis, table games revenue was up 9% in the quarter, baccarat volume, I think Terry mentioned we had a good quarter there, was up 19%.

Our hold percentages were in the normal range for both periods this year and last year, although this year we're at the upper end of our range.

As you can see from the supplemental results that we published today that -- and as Terry mentioned, we had strong results at all three of the big properties here.

But Bellagio was the primary beneficiary of the hold percentage increase.

On a hotel perspective, our same store RevPAR was up 3% on the Strip.

And that was against a really tough comp, we were up 15% year-over-year in the second quarter of '05.

Pro forma basis also Strip RevPAR was up 3%.

On an EBITDA basis, our guidance there, if you remember, we said EBITDA would be up in the mid- to high-single digits in the quarter.

We were considerably better than that.

Our same store EBITDA was up 13% against that guidance of mid- to high-single digits, and our margins were up significantly; they were 33% EBITDA margin last year, 36% this year.

So 36 this year versus 33 a year ago.

Mandalay, we're over a year into this combination of these two companies.

Last quarter, we reported that we had achieved 135 million of cost savings and revenue enhancements, and since we're past a year on that, we're going to close the book on that like we did in the Mirage transaction, though I'd say that there's much more to come here as we've intimated before and in fact I think it was just last week, John, Mandalay got Players Club.

Was that last week?

That is correct.

So the major revenue enhancements of deploying our technology throughout the newly-acquired properties as well as the overall cost savings, we've got a lot more to go here, but we've already booked over 135 million.

So that's, I think, gratifying to us.

So with that, I'll turn it over to John, and I'll be back to you with a little bit of guidance later.

Thanks, Jim.

Good morning, everyone.

Q2 was a very strong quarter across the board for all the MGM Grand Resort properties.

Realizing the Mandalay properties were owned for only 66 days of Q2 prior year, all results that I'm going to discuss are for the full quarter for comparability purposes when I refer to the prior Q2.

Start with MGM Grand.

Of course it had a very solid quarter with EBITDA of 75.2 million versus 85.6 million in Q2 prior year.

EBITDA in Q2 '06 was negatively impacted by a $5.8 million charge for preopening expense related to the opening of the first tower of Signature and a $1.6 million write-off to make way for a new bar concept.

The property continues to see strong demand as evidenced by the record quarter in slot revenue and near-record revenues and rooms, food and beverage.

Speaking of records in history, the second quarter marks the first closing of a condo hotel unit in the Company's history with 303 of the 516 units in Tower 1 of the Signature closed as of June 30th.

Approximately 65% of the closed units have been placed in the rental program.

We expect the remaining units to close by early August.

For the quarter, we recognized a gain related to said closings of 27.9 million, the remaining gain for Tower 1 of 26.2 million will be recognized in Q3 '06.

The room product is, of course, a very high quality suite that we expect to get a premium rate.

Initial customer response to this product has been exceptional, but due to the limited number of rooms available for the quarter, it's too preliminary to provide ADR and occupancy guidance.

With regards to Tower 2, we expect closings to begin in November and December '06, as we previously mentioned with an estimated gain in excess of 70 million.

Tower 3 to date is 83% sold and expected to be completed in May 2007.

With regards to the convention market in MGM Grand, demand remained very strong with ADR up approximately 8% in Q2 and expected to be up approximately 4% in Q3.

Convention room nights in Q3 are expected to be up an incredible 67%.

Moving over to Mandalay Bay, Q2 was another exceptional quarter of Mandalay Bay, with [inaudible] 76.8 million versus 77.1 million in Q2 prior year.

Negatively impacting the quarter were write-offs of 2.8 million, mostly related to the closing of the wedding chapel and a restaurant.

Excluding the write-offs, the property had the best results in the history of the property.

The catalyst for the impressive improvement was an increase in occupancy from 90.9% to 95.7%.

The increase in occupancy of approximately 21,000 room nights led to record revenues in rooms, food and beverage, and retail.

Additionally, slots realized double-digit growth in win.

With regards to the convention market of Mandalay Bay, demand also remains very strong with ADR up slightly in Q2, but expected to be down slightly in Q3.

However, we expect convention room nights to be up an impressive 36% in Q3 at the property.

Moving over to Luxor, it had, of course, an outstanding quarter, with EBITDA of 41.4 million versus 40.5 million in Q2 of prior year.

EBITDA for the quarter was negatively impacted by the closing of Hair Spray which resulted in a $4.2 million write-off.

The management team at Luxor continued to do a fantastic job of driving occupancy from 96.5% in Q2 '05 to 98.3% in Q2 '06.

This occupancy increase coupled with a 10% improvement in ADR to $132 led to the highest room revenue quarter in the history of the property.

Moving to Excalibur, Q2 EBITDA of 35.7 million was the highest ever achieved versus 30.9 million in Q2 prior year.

This excellent quarter was driven by strong results across all departments leading to record net revenues.

In particular slots were up 10%.

In Detroit, Q2 was very strong.

That property continued its strong performance with EBITDA of 38.5 million versus 38.8 million in Q2 prior year.

The current quarter EBITDA was negatively impacted by the amount of 2.1 million, which relates to the increased gaming tax of 200 basis points that went into effect January 1, '06, this year.

Slot revenue for the quarter was up 7%.

In addition to the strengthening results, construction on the permanent facility continues to progress smoothly and ahead of schedule with an expected opening date in Q4 '07.

Borgata, quickly.

Boyd obviously provided information on the property and the expansion of their conference call.

We are extremely pleased with the performance and the impact to date of the first phase of the expansion.

The early results are tracking our expectations and we look forward to operating uninterrupted for the foreseeable future.

I will now turn it over to my colleague, Bobby Baldwin.

Thank you, John, and good morning, everyone.

I'll, of course, report on the second quarter results for Mirage Resorts.

My report will include highlights for Bellagio and the Mirage and also construction updates on Beau Rivage and CityCenter.

Bellagio's second quarter EBITDA was 131 million.

It was the highest quarter ever recorded for Bellagio and was 34.5 million or 36% more than the second quarter of '05.

Gaming revenue was 24% higher than prior year.

Table games drop was up, being led by a 17% increase in baccarat drop versus last year.

That was also a second quarter record for baccarat drop at Bellagio.

Slot handle was also up 8%.

Hotel revenues were up 2 million on an ADR increase of $10.

RevPAR at 248 was up $11 or 5% over the prior period and was the highest second quarter RevPAR in Bellagio's history.

Finally, Bill [McBeth] and the management team at Bellagio have been able to decrease the operating expenses as they've experienced a full year of operations with the new Spa Tower, and Bellagio was successful in reducing these expenses.

Payroll expenses decreased by 4.4%, which help lead to an EBITDA margin of 38%, a 690-basis point improvement over last year.

EBITDA at the Mirage for the second quarter was 41.7 million, down slightly, 2.7 million, from last year's due to a $4.2 million expense in preopening associated with the LOVE show prepared by -- or performed with the Cirque du Soleil group.

The Mirage continues to break hotel revenue records by posting 47 million in the second quarter, the highest of any quarter in Mirage's history.

RevPAR was 172, and that was up $6 or 3% compared to last year.

Capitalizing on the success of the new restaurants, lounges and night clubs, all of which opened within the last year, the Mirage food and beverage division had revenue increases of 25% quarter -- this quarter over last year's comparable quarter.

There's more to come later this year with Japonais, a gourmet combination of Japanese and European cuisine scheduled to open in August; and Revolution, a 7,000 square foot Beatle and Cirque du Soleil themed ultra lounge scheduled to open in the fourth quarter at the Mirage Casino Hotel.

LOVE, the highly-acclaimed collaboration between the Beatles and Cirque du Soleil, had its grand opening on Friday, June 30th.

The reviews have been great, and we're very excited about the show's success.

In fact, the show continues to receive a standing ovation with every performance.

The preview period between June 2nd and the regularly scheduled shows -- the preview period began June 2nd, and the regularly scheduled shows began on July 3rd.

July's show occupancy is running 90% and is expected to continue to improve due to the strong advance ticket sales.

Update on Beau Rivage.

Beau Rivage will reopen August 29th, the anniversary of Hurricane Katrina.

At this point, the final touches are being made in preparation for this very special date.

The entire property has been upgraded to give Beau Rivage a more updated and stylish appearance.

New amenities include a completely renovated hotel tower, the addition of a poker room, and three new gourmet restaurants.

Beau Rivage will open with 2,120 slot machines, 93 table games and 16 poker tables.

All food and beverage outlets will be open except for the three gourmet rooms, which will open in the fourth quarter of this year.

Six retail outlets will be open with the remaining seven to come online as they are finished throughout the rest of the year.

Additionally, the 1550 seat show room will not open until December, but the ball room is able to accommodate large audiences and has already been booked for headliners scheduled to begin in September.

The property's reopening will put approximately 3800 employees back to work and will be a leading force in advancing the economic recovery of the entire Biloxi region.

During the employment process, Beau Rivage received 18,000 job applicants and Beau Rivage selected the top 21% of this job pool.

Rehire statistics indicate a return rate of 55% of the previous Beau Rivage employees.

As of year-to-date June for the first six months in 2006, Mississippi Gulf Coast gaming revenues were 374 million which is 56% of the prior year's, or pre-Katrina, results.

Currently the five casinos in operation are generating $322 per gaming position per day compared to the prior year's results of $161 per gaming position.

Based on these numbers, Beau Rivage anticipates a very successful reopening, thus reestablishing the property's market leading position.

Finally an update on CityCenter.

Project CityCenter continues on schedule and on budget for a November '09 opening.

From a timing perspective, all areas of the project have successfully completed the schematic design and are currently moving into the final design phases with the transition into design -- through the design development phase.

We're into interiors on all the buildings.

From a cost perspective, the focus continues to be placed on identifying and capitalizing on cost savings opportunities.

This effort is supported by a team of construction cost engineers from Perini, the general contractor; and Tishman, the executive construction manager for the project.

So far this approach has yielded savings in the buildings and procurement process.

For example, savings were achieved in the contract awards of concrete, elevators, form work, rebar, tower cranes, and caissons for the [Pelli] hotel casino tower.

In addition, a concrete batch plan has been assembled onsite and is scheduled to become part -- become operational this month.

The Boardwalk Hotel and Casino was imploded, as most of you know, on May 9th, and clearing of the area continues with mass excavation to begin next week in this location.

Bellagio -- the Bellagio employee parking garage opened on Monday, July 17th, which allows for the existing surface parking area to be cleared for all of CityCenter.

Foundations to the 4,000 room Pelli hotel casino towers are substantially complete.

The Mandarin Lifestyle and Condo Hotel foundations will commence by the end of the year.

The existing Monte Carlo garage is scheduled to be demolished in August to make way for a new 13-floor 7600-car parking garage which will serve not only Monte Carlo, but CityCenter.

The current garage has 1800 spaces.

The CityCenter -- CityCenter residential sales center has received a building permit and is scheduled to open November 1st this year.

Structural steel erection commenced this week.

The residential sales center will include room type mock-ups for each of the residential buildings including unit layouts, fixtures and finishes.

It will also incorporate the use of multi-media and virtual displays to demonstration the vision experiences and product offerings to be found throughout CityCenter.

Satellite residential preview centers will be located at some of the Company's other resorts in Las Vegas.

These discovery centers will build interest and excitement and connect our resort customers with the new residential experience at CityCenter.

And that concludes my report, Mr. Murren.

Why, thank you, Bobby.

A few other things about the quarter and then we'll get right into guidance.

Our interest expense in the quarter was a little bit lower than our guidance.

Net interest was 195 million.

The gross interest number was 223.

Cap interest was 28.

That gets you to the 195.

Corporate expense was right in line with guidance.

We came in at 39 million.

Preopening and start-up expenses in the quarter were 15 million.

That was related primarily to The Signature that John talked about and the LOVE show that Bobby talked about, but also there's a little bit there for the Borgata expansion and CityCenter.

Property transactions in the quarter -- that was 13 million, it was the $4 million write off in Hair Spray that John talked about, as well as some assets that are being replaced with new projects over at the Grand in Las Vegas and at Mandalay Bay.

Related to our financial position, we bought back 2.5 million shares in the quarter for $103 million.

Our remaining authorization is for 11 million, so we're almost halfway there in our buyback program.

We've been buying every quarter.

From a standpoint of CapEx, we spent 449 million of capital on our existing resorts and on development initiatives.

That's very similar to guidance that we gave last quarter.

Excluding Beau Rivage, the investment amount was 340 million, our guidance was around 350, so we're a little bit lower than what we said.

We had of that about 255 million were projects that are development projects like the new MGM Grand Detroit, CityCenter and MGM Grand Macau investments.

The remaining 87 million was what we, I guess, would call maintenance capital, but broadly defined capital at our existing resorts.

That's the theater and restaurants at the Mirage and also around 30 million at the Mandalay properties.

That's consistent with our first quarter run rate as well.

From the standpoint of our balance sheet as well, we issued in the quarter $750 million of fixed rate debt.

We were very fortunate there.

That debt was issued at rates under 7%.

As of the end of the quarter, we had about $2.5 billion available on our senior credit facility and our fixed-to-floating ratio at the end of the quarter was 64% fixed, 36% floating.

Before I turn it over to questions, I'll give you a little bit of guidance, as we always do, about the current quarter.

As you saw in the release, we gave guidance of -- on a GAAP basis, of $0.40 for the current quarter.

That guidance includes stock option expense of around $0.04 a share in the quarter.

It also includes about $0.02 of preopening expenses and property transactions combined.

And also includes the $0.06 per share profit that we talked about couple times already on the call related to the gain at Tower 1 -- or Tower A of The Signature at MGM Grand.

We gave guidance on property EBITDA.

We said it'd be another very solid quarter here in the third quarter.

We think that property cash flow will increase in the mid-single digits.

From a corporate expense standpoint, look to be in the $40 million range and that includes stock option expense.

Interest expense will be a little bit higher than it was in the second quarter.

Our educated guess here is that gross interest will be around 100 -- I'm sorry, 230 million, and cap interest around 35.

Depreciation.

Our forecast here is in the 165 to $170 million range, and our tax rate we anticipate to be approximately 36%.

Capital expenditures we expect to spend around 350 to $400 million in the third quarter, and again that excludes Beau Rivage which is obviously under way, and insured.

And in our full year guidance is still in the $1.3 billion range, again, also excluding Beau Rivage full year CapEx.

That's what we said last quarter.

So that's quite a bit, and we have exactly 29 minutes.

I think we did a good job of getting that all together, so I'm going to turn it back over to our operator.

Shannon, if you can come back on and we'll get to your questions.

[OPERATOR INSTRUCTIONS].

Larry Klatzkin, [Everett] & Co.

Jefferies & Co. Hey, guys.

Could you -- what's the dollar Signature profit for the quarter?

The dollar Signature profit for the quarter?

Yes.

I think John mentioned that, 20-what, John?

27.

27.9? 27.9.

27.9.

Okay.

As far as there was some rumors about Japan and you guys getting involved.

Any comment on that?

I'm going on that.

We have had representatives meeting with representatives of the Liberal Democratic party in Japan, and we will have further ones.

I don't think anything's going to happen there, at least until after the November elections, and they will have a new prime minister even if the LDP wins.

But we're obviously very interested in that market if it does open up reasonably early stages.

All right.

And can you also talk about your AC plans and what, as far as that piece of land you have and maybe also the land next to Trump?

I'll tackle that, Larry, and it wouldn't be a call without you being first and asking ten questions.

But we're going to have to limit you to this one here so we can get to every other person.

But Atlantic City, we are -- I think Terry mentioned it several times before we're very excited about that piece of property.

We do believe it is conducive to a mixed-use type of development over time and we've even, I think, dubbed it CityCenter East, and we have several people internally here working on conceptual ideas, traffic, and otherwise of what we should do to fully maximize the 71 acres that we have existing at Renaissance Point outside of Borgata, and the 14-acres that we have across the street next to Trump Marina.

A great piece of property.

We've got a lot on our plate right now, so we prioritize our capital, but that's certainly in our future.

Thanks, Jim.

Thank you, Larry.

Robin Farley, UBS.

Great.

Yes.

I -- just to clarify, in the comments it sounded like you were saying at Mandalay Bay you were giving a little bit of ADR guidance for the third quarter.

And I think you said you were looking for ADR to be down even though convention room nights are up, if I heard that right, if you could just clarify.

And then I don't know if you could give some similar color on ADR, RevPAR at Bellagio or the Mirage.

And then also, the Grand property, even if you back out the preopening and the write-offs, it looked like there was still an EBITDA decline there, and I wondered if you could just give a little color on that?

Okay.

I think maybe I'll pass the baton, Robin, over to John and maybe Bobby, too, but I think the overall, we're looking for RevPAR to be up in the quarter and -- companywide, but I'll go to specifically to John.

Robin, the question that you mentioned about Mandalay Bay, the guidance I was providing was as it relates to the convention market, I was mentioning that the ADR will be -- was up slightly in Q2, but it was expected to be down slightly in Q3.

Having said that, I also had mentioned that the convention room nights in Q3 would be up 36%.

Okay.

So the ADR decline was not across the property overall, it was just --?

No.

It's just down slightly, just in the convention market.

And what percent of the room mix to be expect to be convention?

I know you said up 36% year-over-year, but --

I don't have that data point handy.

I think it's typically -- let me look for that real quick for you.

That's okay.

You mostly answered.

I was just looking to clarify the climate you mentioned.

And then --

Robin, this is Bobby.

RevPAR for Bellagio and Mirage's going to be up between 3.5 and 4% and for Mirage Resorts -- the Mirage Resorts group about 3% in total and conventions I think represent about 17 or 18% of our business.

Yes, and I guess tying that altogether, then, we're looking for as last quarter, up RevPAR Strip wide and we're looking for a good convention calendar and good convention business.

Is that fair to say, guys, in the third and in the fourth quarter.

Great.

And then the -- the MGM Grand property?

In terms of what?

Oh, I had mentioned that if you -- even if you adjust for the preopening and the write-off, it looked like on an operating basis the cash flow may have declined there.

I just wanted to get some color on that.

It was down slightly, and most of was that attributable to an increase in health benefit costs.

Okay.

I guess that's primarily -- I don't know if you're seeing anything, Jim, that you can comment on in terms of demand.

In the premium market versus more middle market properties, I don't know if you have any color like that you could give us.

Well, maybe in general.

Maybe Terry can jump in.

We obviously had a very, very strong second quarter on the -- on the premium side.

Great volumes throughout the Company, really, and that seems to be continuing here in the third quarter.

If there is any and I think I -- we mentioned this a little bit on the last call.

In the context or back drop of the economy and slowing housing and discretionary income concerns, if there is any slowdown at all here within our portfolio properties, it would be in the lowest end properties that we currently have.

And we've been seeing that now going on for about four, five months, and it hasn't changed, and obviously we just had a record second quarter in spite of that, but that continues, that if there is weakness in there -- and I wouldn't even use that strong a word, but if there is a softening at all in our portfolio, it would be in the lower half of our portfolio.

The upper end is doing quite well, obviously.

And having said that -- Robin, this is Bobby.

Monte Carlo did 32.6 million for the quarter.

That was their best quarter ever since they opened the hotel.

That's great.

Thank you.

Also, Robin, the question you asked about the convention market mix at Mandalay Bay in the third quarter, that's forecasted to be about 33% of the mix.

Great.

Thanks very much.

J. Cogan, Banc of America Securities.

Yes, hi.

Good morning.

I've got a couple questions.

First, just to clarify, Jim, on the fold and the impact at Bellagio, and maybe a negative impact, if there was any, at the other properties that might be somewhat significant.

Can you quantify that at all for us?

I mean, obviously, the revenues were huge, the EBITDA was even better.

Bobby talked about operating expenses being down.

Can you give us a sense what the hold contributed kind of year-over-year?

Well, I -- we -- we want -- we don't want to get into a situation where we're giving property by property too much.

But I would say that the hold at Bellagio -- the table hold was was in the mid- to high 20s in terms of table hold, so you can probably work that out probably.

Bellagio would have had a tremendous quarter if they would square in the middle of our hold percentage.

It did have a very strong hold.

It was in the mid- to high-20% range, and all the properties did reasonably well.

There was some below our kind of a hold mid-point, but most of them within our range.

We've given a range many times before of 18 to 22%, and that's where they were.

The outlier there was Bellagio, fortunately for us, it was a little bit better -- nicely better than that.

In terms of dollar quantification, I think it's safe to say that Bellagio still would have had a tremendous second quarter.

Do you have anything further on that?

Well, we -- Jay, this is Bobby.

Bellagio would have had almost a record quarter anyway even if it had a normal hold percentage.

But it would have done in the $115 million range with kind of a flattish hold.

So it had a extra strong quarter, but it was already very, very strong and on a normalized basis, it would have been around 115, maybe a little more.

Okay.

That's extremely helpful.

And I appreciate that.

On the project CityCenter, just a few questions.

It sounds like the process -- kind of that design assist process that you guys have in place is helping to keep the costs in line at this juncture.

As we kind of continue to move through design process and as you think about the condo market, can you just give us any sense as to whether there could be some movement to the upside overtime, the total CapEx budget?

And also, when's the next time you guys take a gut check on the condo market and just your overall thoughts on -- on the project.

And then also in terms, Jim, of my monetization of assets, retail, hotels, et cetera, any update there?

Well, Jay, on CityCenter we watch the costs every day.

We're on time, and we're on budget, and we don't foresee any cost increase over the period of the project.

Now, we don't control all the costs, but we have bought out part of the job, and we're in the ground on the Pelli casino hotel tower, which is the largest single component of CityCenter in terms of its cost.

And we have, through Tishman and Perini and our other business partners, we have 115 companies working with us on CityCenter, and most of those are working on the Pelli casino hotel tower as well.

And we think we have a pretty good understanding of the cost of the entire CityCenter -- CityCenter project.

As it relates to the retail component, of the $7 billion in CityCenter, we're spending about 2.3 or 2.4 to build 3,000 residential units that we intend to sell for 3 billion or a little more.

We watch the market every day.

Nothing's changed there.

We knew when CityCenter was conceived and approved initially two years ago that there were many players in the market or appeared to be many players in the market.

We felt like half of them would fall away before CityCenter's residential products would even get on the market.

That's held through.

Nothing's changed there.

And at the same time, we felt like there was a strong, strong underlying market for high-rise residential products, particularly located in the heart of the Las Vegas Strip.

So we -- we think that our sales -- residential sales for CityCenter are going to be robust.

We'll know, of course, a lot more when those sales become available to the public in three or four months.

But we do our gut check seven days a week.

Okay.

That's what I hear.

Thanks a lot.

Thank you.

Dennis Forst, Keybanc.

Jim, I missed the depreciation guidance.

Did you say 155 to 170 or 165 to 170?

Dennis, I said 165 to 170.

Still missed it. 1-6-5?

Yes, 1-6-5.

Okay.

And then my real question had to do with stock option expense.

It was 21 million in the first quarter, dropped to 16 million in the second quarter.

Was there any particular reason, or is that going to be a normal seasonal trend?

I was just making -- confirming with the other guys here, Dennis.

It'll be very similar in the third quarter.

To the second quarter?

Yes -- yes.

It'll be similar to the second quarter.

Okay.

Why was it down sequentially, though?

It's just a number of options that we have.

Will the first quarter normally going forward be the highest quarter of the year, or should just annualize 16 million a quarter going out?

Well -- yes.

It will not be the first -- it won't be the largest of the year, and that'd be annualize the current rate.

Okay.

So even for next year, maybe a little bit of inflation, somewhere in the high 60s next year.

That's a pretty good guess.

Okay.

Thanks a lot.

You're welcome.

Mario [Contamarcos], J.P. Morgan.

Hi.

It's Harry Curtis.

We were wondering if you were in Bermuda or something, Harry.

No, no.

Sitting at my desk, getting pale.

In your guidance for the third quarter how much profitability are you -- are you building in for Beau Rivage?

Well, it opens at the end of -- what?

You gave a date, right?

August 29th.

So we get a month of it.

And I don't think -- did we -- we -- it's not a ton.

So you're assuming some ramping of profitability, right?

Yes, although I'd -- as Bobby, I think, has said before -- he's certainly said it internally, is that our original expectation with Beau Rivage was it would, like a typical property, ramp-up over time.

In light of the strength of the market we think it's going to ramp up much more rapidly.

And it is, of course -- I don't think it's overstating it to say it'll be the best property by a mile down there, so I think that it will ramp up rapidly, but we can't expect a ton of money in just the month of September.

And my second question, Terry, can you -- can you give us an update on the regulatory clearance for Pansy.

Well, actually, I think -- we've got Gary Jacobs here, our general counsel here.

I think he'd probably --

Yes, sure.

Everything is proceeding.

We're working -- we continue to work closely with the regulators as we always have, and it's just proceeding in the ordinary course, and we -- we don't anticipate complications in this.

Any sense of when we might get some clarification?

They run on their own schedules, and I'm long since not one to predict them, but everything is just proceeding as -- as we expect.

I would think it's fair to say before we open.

And then, that's on schedule, so you know when we think we're going to open, and we think it'll be resolved before that.

It does not impact -- impact the construction schedule or the opening.

Very illuminating.

Thank you.

And I guess, Harry, I -- we -- you may be like a penny in Beau Rivage this year, and it made a couple cents more than that last year.

To give you kind of a relative comparison.

Thank you.

You're welcome.

Celeste Brown, Morgan Stanley.

Hey, guys.

Hi.

Can you just comment on where you think you're drawing the baccarat customers from?

Are you taking share, are you finding new customers, do you sort of spend more time over in Asia?

Well -- this is Terry Lanni.

We obviously have an extensive program throughout Asia of marketing, and we're marketing, I think, more effectively in the People's Republic of China and in other -- other areas in that marketplace.

But the -- it's a combination of continued business that we've had for long period of time at MGM MIRAGE as well as new customers.

I can't break it down between the two.

It's obviously-- a substantive portion is existing business, but we do see an ever-increasing number of people coming from the People's Republic of China.

I saw interesting statistic that was released by the Nevada Tourism Board for 2005.

Of the 493,000 people who came to the United States -- I shouldn't say people -- visitations.

It could have been multiple visits by people.

But of 493,000 visitations to the United States, and 93% of those people found their way to come to Las Vegas, which I think is a staggering statistic.

And as visas are coming much more readily, they're opening it up to the four coastal provinces, and I think that's going to be a very strong market for Las Vegas, and we expect to be a significant participant in that.

In theory, you should get another lift once you open your property in Macau as well, right?

Well, we'll -- we'll see.

Obviously, having the flag there, it's at MGM Grand Macau property when it opens in the fourth quarter of '07 and I think that will be beneficial.

We have -- our competitors, a couple of them will be there, and they'll benefit from it also.

It's just a matter of how well we do with our marketing people.

We've got a pretty good record, and I think that record will stand.

Great.

Thank you.

David Anders, Merrill Lynch.

Hey.

John or maybe Jim, could you comment on the additional condo towers that you're looking to build by Mandalay Bay?

Do you want me to take that, John?

Or do you want it?

Obviously, that was a -- we had a comment that appeared in the paper -- at the end of the day we have been very bullish on that particular product, as you know.

We started it with The Signature at The Grand.

We're doing it in a major way at CityCenter.

That's our primary focus as we mentioned in that release, but at the end of the day we want to make sure we have a pipeline of product, and it takes a lot of time to develop that pipeline and develop those concepts and get all the various approvals that one needs to have in order to -- to continue with that.

So that's all we're doing in this case is to make sure that we have that continuum of pipeline of product that we can roll out, but our primary focus and attention at this point in time is obviously CityCenter.

So the timing would be after CityCenter, is that correct?

Well, it's one of those things you just kind of gauge with the market conditions.

But -- so it's hard to predict at this time.

But we just want to make sure we're in a position to move whenever we elect to.

Let me add a point there.

The priority is CityCenter.

And that's going to be the primary focus, and as John said, going through the planning commission is important for those projects because it gives us an opportunity to get them in order.

But the prior will be CityCenter.

We expect that to sell well, and as John says, depending upon the movement in -- in those units, we can certainly move up the project for Mandalay Bay, but the priority is CityCenter.

Okay.

Thank you.

Joseph Greff, Bear Stearns.

Good morning, everyone.

Jim, I have a question for you just on operating leverage on the Las Vegas Strip.

If we were to assume that revenues were to grow in the -- say, the mid-single digit range, and we're assuming table hold percentage is normal, what should -- should operating expenses grow at?

What rate?

Well, our biggest cost, of course, is labor, and we have a culinary agreement and we also have many nonunion employees, and that has been growing it.

And so you have that as a defined increase year-over-year.

Bobby mentioned that the team here at Bellagio have actually cut down our overall labor costs, and we look to do that where applicable without negatively impacting the customer experience, which is our overriding objective.

So if you were to look at our -- our cost structure, I would say that the cost should not grow in excess of our revenues.

In fact, I think there is positive operating leverage in our Company.

We are constantly finding ways of becoming more efficient, and I'll give you a couple examples of that.

One is on the cost side, we hired a chief procurement officer.

She's doing a tremendous job, but she's just getting started.

And the buying power that this Company has today is enormous and has not been well-utilized in the past, to be very frank.

And not only will that save us money, but it'll improve the terms of deals that we do, conditions of engagement and so that -- there's a big cost savings there.

As we consolidate some of the operations as we expand our shared services effort, there are many areas that don't touch the customer that can be rationalized, and we've been working on that.

Over on the revenue side, as I've mentioned, Mandalay Bay, the property, just got Player's Club last week.

And here -- imagine a property that -- that now has the access to -- what is it? 40 million names in our data base, a tremendous data base that they did not have access to prior to that on a consolidated basis.

And that'll be rolled out throughout the Company over the next year-and-a-half, as will our yield management system in conjunction with our new hotel management system and there are more examples of that.

So if revenues -- and we gave some guidance and just using your example, grow at that rate, I don't expect expenses to grow at the same rate, and I do think there's positive operating leverage as we showed in the quarter we just reported.

Great.

And then I have a follow-up, maybe to Bobby and John, on the convention side.

You gave us impressive 3Q convention numbers.

I'm presuming that's because of a strong September.

How does the fourth quarter look in terms of group, either for your properties or the market, and then, as you look into next year, what kind of growth rates do you see on the number of conventions or attendees?

Thank you.

Well, we -- fourth quarter for the -- for MGM Grand and Mandalay Bay is going to be very strong as well, as will the first quarter, and in both cases they will be up over prior years.

And Bobby's taking a peek --

We're going to -- we're going to be up in both the fourth quarter and first quarter of next year as well.

And in terms of the permanent facility in Detroit, have you talked about or have you communicated what the number of gaming positions in that property is?

No, we have not to date.

Can you give us a sense of what the increase would be over the existing, or --?

Well, I think it's safe to assume it's a much larger facility than what our current facility is, or we wouldn't be building it, that's for sure.

So there will be additional capacity in that facility, but we're not really at a point where we want to release the level of detail on that property yet.

John, can you give them what the revenue -- the slot per unit per day numbers are now?

Well, right now you're doing in the neighborhood of about 380 per machine per day.

And then, of course, we're capacity constrained dramatically on the weekends.

And I think we did say that the casino overall square footage goes from 75,000 square feet to 100,000 square feet.

That's the limit that are provided for under the regulatory framework there.

We have less than 75, but we will definitely want to have closer to 100 in a permanent.

The way the Detroit authorities define it, but it's safe to assume that the property will be significantly -- have significantly more capacity than what we currently have.

Great.

Thank you, guys.

Bill Lerner, Deutsche Bank.

Thanks, guys.

Maybe this is for Terry.

Any color on what you're thinking about in Macau subsequent to MGM?

I mean, I would suspect we'd probably hear from you guys or from the joint venture about additional projects in the next year, but any color would be helpful there.

We've had continuing meetings with the government.

We're going to be going there next week, and we expect to have an opportunity to meet with officials of the government.

And we are seeking as a -- joint venture organization's seeking additional sites, not just a single site but additional sites.

And we're looking at a number of different locations.

And we -- we believe that the government is supportive of that search.

Great.

Thanks.

Larry Klatzkin, Jefferies & Co.

Actually, that last question was what -- was my question.

The sites in Macau.

Thanks, guys.

Thank you, Larry.

[Larry Haverty], [GMAOC Investors].

Hi, Jim.

A couple questions.

One, could you walk through what your strategy is and particularly focus on the reputational and legal issues from this announced venture with the Indians and Foxwoods?

And then perhaps an update on the cirque de Aqueduct.

Okay.

That's a good way of putting it, Larry, and hi.

Well, I'll tackle Foxwoods; maybe I'll pass it over to our Aqueduct expert, Gary Jacobs, to handle that.

So first, we have -- we have long thought about the idea here of leveraging some of our intellectual capital.

We manage many casinos.

We manage many hotels.

We have many -- multiple brands, and the business that we are in is highly captain-intensive and high margin and profitable, but we haven't really done -- as an industry, certainly, we haven't -- a good job of leveraging that into non-capital intensive arenas.

The concept with the Mashantucket Pequot Tribal Nation is, here's an opportunity to, with a highly-successful tribe that's well-managed and extraordinarily profitable in a state where we could never otherwise operate under any condition, have an opportunity to plant the flag of MGM Grand in New England and expose an enormous demographic to an MGM Grand-style of property.

We also believe that we can help the tribal nation, as good as they are, in improving their operations and master planning their campus for multiple projects, both gaming and non-gaming.

So from our perspective is -- we think it's a great way of leveraging our -- our intellect assets.

We think it's a great way of improving our brand, and I don't think this will be the last venture of this type, in terms of leveraging our opportunities globally as it relates to management, and we think it's an opportunity to, in a non-capital intensive way, grow earnings.

No -- no economics you're going to share with us at this point?

Well, it's a little premature.

There's going to be more to say, Larry, probably as early as September on that.

But it's safe to say that it's significant enough to us to make it worth our while, number one, initially, plus there's a component to it that also includes a joint venture that we intend to form, which will be its own company and could be kind of fun to go out and do smaller existing or development deals in gaming that we would jointly own.

So the financial impact is not insignificant even as large as we are.

But I think I look at it more as a signal that these are the kinds of things that we could potentially do over time to grow earnings in a non-capital intensive way, and I think maybe Gary can talk about Aqueduct.

Sure.

Let me speak to that.

The road to Aqueduct has been a long and winding one in New York, and the procedures and the process there is not always the clearest or it's very unclear.

And we have -- the contracts are just merely awaiting final regulatory approvals in the state.

We expect that to be forth coming shortly.

Interestingly, the ad hoc committee, which is running what appears to be the successor process, has explicitly recognized our contract rights, and they've advised the bidders of that.

They've most recently done that in their advice to bidders or response to questions.

They respond to very few questions and among the ones that they did respond to was that to clarify that.

So what that translates to is that how ever that process runs, the management agreement would be an obligation of any successor, should there be one.

And, Gary, that ad hoc committee is a committee of the legislature.

That's correct.

And, Larry, I wasn't trying to duck the question.

We're working on a definitive agreement with the tribe right now.

So once that is -- we'll have more to say once we have a definitive agreement, and we've been working on that, so.

Maybe we can take one more question, operator.

J. Cogan, Banc of America Securities.

Hi.

Just a couple for you here.

I think some people have tried to ask in a variety of ways, maybe just a little bit more directly, Jim, the third quarter guidance seems to be less than what I think most people were looking for, when you kind of look at apples-to-apples, just ex the condos, preopening, et cetera.

And I was wondering if there's anything that you think that's happening within Vegas or elsewhere where we may be too optimistic, et cetera, as you kind of look at the numbers?

And then also, just back to Biloxi for a second.

Terry or someone else can talk about how much capacity do you really think's coming to Biloxi over the next few years, and how do you think Beau will do on a roughly relative cash flow basis as we see that capacity ramp?

Okay.

I think Bobby's going to tackle Biloxi.

I'll tackle guidance.

Jay, the -- first of all, we think that Biloxi's going to come back very strong.

I think the -- our competitors believe the same thing.

Some of the other companies, of course, as you know, are concentrating their new developments in Biloxi as opposed to other regions in southern Mississippi.

The way we look at it, we've analyzed all our top 200 ZIP codes or so in the region to determine the economic health of those regions where our customers are actually located and live and run their businesses.

And we found that in almost all cases, those area codes were unaffected by hurricanes or Hurricane Katrina.

It's our belief that there are many, many customers awaiting a first class product in Biloxi, Mississippi.

As you know, the five casinos that are currently open are currently open, many of which are in a temporary phase are still winning more than half the money that was done by the 11 casinos when they were fully operational, pre-storm.

So I suspect, as do others, that Biloxi's going to be a very, very strong market, probably stronger than ever.

We certainly anticipate that Beau Rivage, that was pacing about $90 million a year, should quickly achieve that rate of EBITDA and probably do better than it ever did before.

It's -- the market's just as strong as ever, and Beau Rivage as a product is way better than it was before it was damaged by the hurricane.

Great.

And I'll tackle the second part there, Jay.

From a cash flow standpoint first, and then I'll get into EPS, our guidance for the second quarter, I think I mentioned it, was mid- to high-single digit for the second quarter, and we blew right through that.

We're up 13% in the second quarter.

So no debate, we had a great second quarter.

I think Bellagio made more money than any other two casinos combined in this town, and that's pretty cool.

It wasn't long ago that Bellagio wasn't supposed to do well when new properties opened.

As related to earnings per share, earnings per share, we're doing GAAP, and by the way, I believe the SEC's going to require all companies to do this over time.

So we reported GAAP earnings of $0.50, which was a bit above what a lot of people have.

First Call's a struggle for us because there's no way of knowing exactly what you all are thinking about when you put in your EPS estimate in to First Call.

Some of you are looking at it as adjusted earnings.

Some include condo sales, some don't.

Some include stock option expense, some don't.

Some include preopening, some don't.

I don't really know, and I don't really care.

I do know that we're going to have a very fine third quarter, and I do know that our margins will be strong, our cash flows will be strong, and that a $0.40 number is a very strong number, and it'll be up versus a year ago.

And so I'm not quite sure -- we tried to do this -- maybe someone can help me on this down the road is as we look at P&Ls from some of the analysts, and even in many cases the P&Ls from the analysts don't comport with the published First Call numbers.

So I think that that's what my view on that is.

I like the GAAP presentation.

I think it's cleaner.

I think it's more fair.

I think it's more transparent, and I think it prevents an opportunity for companies to get a little bit creative, and that's not the way we operate.

So you have all that information.

You can use whatever you like, and we're proud of how we're doing, and I hope that answers the question.

Helpful.

Thanks.

Thank you.

Operator, I think that's -- what do we got here, Terry?

We got 9:05, so want to thank you all for joining us.

As always we're available, and I'd really focus on some of that supplemental information.

I think we give more of that kind of stuff out than anybody, and that'll really help you fully digest how we're doing and how we think we will do.

Thank you very much.

Thank you for participating in today's MGM MIRAGE second quarter conference call.

You may now disconnect.