MGM Resorts International — FY2014 Form 10-K
Reporting period: Fiscal year ended December 31, 2014. This is an annual report, not a standalone fourth-quarter filing; selected Q4 results are included below. Amounts are U.S. dollars unless noted.
Business context
MGM Resorts owns and operates casino resorts, with two reportable segments: 15 wholly owned U.S. resorts and MGM China, in which it owns 51%. It also holds interests in unconsolidated ventures, including CityCenter. Domestic resorts generate more than half of their net revenue from non-gaming activities. The company’s results depend on customer visitation and spending, gaming outcomes, and cash generation to support debt and investment.
Financial performance
| Metric | FY2014 | FY2013 |
|---|---|---|
| Net revenue | $10.082 billion | $9.810 billion |
| Operating income | $1.324 billion | $1.137 billion |
| Consolidated net income | $127 million | $41 million |
| Net loss attributable to MGM Resorts | $150 million; $0.31 per share | $172 million; $0.35 per share |
| Adjusted EBITDA | $2.220 billion | $2.125 billion |
| Cash provided by operating activities | $1.131 billion | $1.310 billion |
| Capital expenditures | $872 million | $562 million |
| Cash and cash equivalents at year-end | $1.714 billion | $1.804 billion |
| Total debt, including capital leases | $14.172 billion | $13.449 billion |
Revenue increased 3%; operating income rose 16%. Operating margin was approximately 13.1%, versus 11.6% in 2013. Adjusted EBITDA increased 4%; its margin was approximately 22.0%. The company remained loss-making for its own shareholders despite positive consolidated net income, principally because $277 million of consolidated income was attributable to noncontrolling interests. The effective tax rate was 69.0%, reflecting, among other items, a higher valuation allowance on foreign tax credits.
Domestic resort revenue rose 5% to $6.342 billion; segment Adjusted Property EBITDA increased 5% to $1.518 billion. Las Vegas Strip occupancy was 93%, ADR was $139, and REVPAR was $129, up from 91%, $131, and $119, respectively, in 2013. MGM China revenue declined 1% to $3.282 billion: VIP table-game revenue fell 16%, while main-floor table-game revenue rose 34%. MGM China Adjusted EBITDA increased to $850 million from $814 million.
Fourth-quarter revenue was $2.386 billion, versus $2.513 billion in Q4 2013; operating income was $266 million, versus $330 million. Q4 consolidated net loss was $287 million, and the loss attributable to MGM Resorts was $342 million, or $0.70 per share, compared with a $57 million attributable loss in Q4 2013.
Liquidity, debt and capital allocation
Operating cash flow declined 14% year over year. Cash flow less reported capital expenditures was approximately $259 million, a simple derived measure that does not account for other investing or financing needs. Year-end cash and cash equivalents were $1.714 billion, with an additional $570 million in certificates of deposit maturing by March 31, 2015. Approximately $546 million of year-end cash and cash equivalents related to MGM China.
Debt principal due in 2015 was approximately $2.353 billion, including $1.45 billion of 4.25% convertible notes due April 15 and $875 million of 6.625% notes. Estimated 2015 cash interest was $844 million. The company reported approximately $1.1 billion of available capacity under its senior credit facility and said it expected to meet maturities and planned expenditures through operating cash flow, cash and deposits, MGM China dividends, and available borrowings. Its senior credit facility is secured by specified resort assets and contains financial and other covenants. No common-stock dividends were paid in the last two fiscal years.
2014 financing included issuing $1.25 billion of 6% senior notes due 2023 and repaying $509 million of 5.875% notes at maturity. MGM China paid interim, final, and special dividends during 2014. Its board subsequently announced a $400 million special dividend and recommended a $120 million final dividend for 2014, subject to shareholder approval.
Material changes and unusual items
- Domestic resort growth was supported by higher casino and non-casino revenue; Las Vegas visitor volume increased 4% in 2014.
- Macau gross gaming revenue fell 3% market-wide. MGM Resorts cited economic and political measures in China, stricter transit-visa enforcement, competition, and the October 2014 mass-market smoking ban. MGM China’s VIP business weakened while main-floor play grew.
- Capital expenditures increased to $872 million, including $301 million for MGM Cotai construction. Preopening expenses rose to $39 million from $13 million, mainly due to MGM National Harbor and MGM Springfield.
- Property transactions, net, declined to $41 million from $125 million in 2013; 2014 included a $29 million impairment of the Grand Victoria investment. 2012 results were affected by $697 million of property transactions, including substantial land impairments.
- The company resumed equity-method accounting for its 50% Borgata investment in September 2014 and retroactively adjusted prior periods. This affects comparability.
- A global settlement concluded the Perini/CityCenter construction litigation. MGM Resorts had accrued a $149 million completion-guarantee liability at year-end and funded $130 million to CityCenter after year-end. CityCenter retained claims for certain unknown latent or hidden defects.
Outlook, commitments and principal risks
No company-wide earnings guidance is provided in the supplied filing text. Management expected long-term Macau market growth but acknowledged near-term market challenges. Project plans included MGM Cotai, anticipated to open in fall 2016 with an estimated $2.9 billion budget and a January 2018 land-concession completion deadline; MGM National Harbor, estimated at $1.2 billion and targeted for the second half of 2016; MGM Springfield, estimated at $760 million and targeted for the second half of 2017; and the Las Vegas Arena, estimated at $350 million and scheduled for the first half of 2016. These estimates exclude specified items such as capitalized interest and land-related costs and are subject to construction and approval risks.
Management expected 2015 capital investment of approximately $427 million at domestic resorts and corporate entities, $50 million for the Arena, $79 million for Springfield, $375 million for National Harbor, and $1.1 billion for MGM Cotai, plus approximately $100 million of improvements at MGM Macau. The filing also lists $1.148 billion of 2015 construction commitments and substantial other contractual obligations.
- Leverage and refinancing: substantial debt, large near-term maturities, interest-rate exposure, secured collateral, and restrictive covenants create liquidity and refinancing risk.
- Macau exposure: results depend on Chinese visitor demand, VIP gaming promoters, competition, regulation, available gaming tables, and MGM Grand Paradise’s gaming subconcession, scheduled to expire March 31, 2020. Cotai land rights require development by January 2018.
- Gaming and operating risks: high-end play and credit collections can be volatile; casino receivables aged over 180 days rose to 24% from 16%, and the doubtful-account allowance increased to 27% of casino receivables from 24%.
- Tax uncertainty: a $2.6 billion foreign tax credit carryover was substantially offset by a $2.5 billion valuation allowance. The Macau gaming-profit tax exemption runs through 2016; future renewals and tax-asset realization are uncertain.
- Other risks and contingencies: competition, regulatory and gaming-tax changes, labor negotiations, travel disruption, cybersecurity, weather, construction cost overruns, and the Harmon demolition. Securities and derivative litigation remained pending; management said routine other litigation was not expected to have a material aggregate adverse effect.
Important facts for investors to verify
- How the 2015 debt maturities—especially the $1.45 billion convertible notes—were repaid, converted, or refinanced, and the resulting liquidity and covenant position.
- Whether forecast operating cash flow, MGM China distributions, and available borrowing capacity adequately funded the large 2015–2017 construction program.
- Subsequent Macau gaming trends, including VIP versus main-floor performance, promoter exposure, smoking restrictions, and Chinese travel policies.
- Actual project costs, opening dates, gaming-table approvals, and compliance with the Cotai land-concession deadline.
- Changes to the foreign-tax-credit valuation allowance, Macau tax exemptions, and the company’s unusually high 2014 effective tax rate.
- Final cash costs and any remaining exposure from the CityCenter completion guarantee, Harmon demolition, litigation, and casino receivable aging.