MGM Resorts International — FY 2013 Form 10-K
Reporting period: Fiscal year ended December 31, 2013, with comparisons to 2012. The filing also reports fourth-quarter results. MGM Resorts operates domestic casino resorts and, through its 51%-owned subsidiary, MGM China; its major unconsolidated investment is 50%-owned CityCenter.
Financial performance and liquidity
| Metric | FY 2013 | FY 2012 |
|---|---|---|
| Net revenue | $9.810 billion | $9.161 billion |
| Operating income | $1.112 billion | $80.5 million |
| Net income (loss) | $56.5 million | $(1.617) billion |
| Net income (loss) attributable to MGM Resorts | $(156.6) million; $(0.32) per share | $(1.768) billion; $(3.62) per share |
| Adjusted EBITDA (non-GAAP) | $2.099 billion | $1.718 billion |
| Cash from operating activities | $1.310 billion | $909.4 million |
| Capital expenditures | $562.1 million | $422.8 million |
| Cash and cash equivalents at year-end | $1.804 billion | $1.544 billion |
| Total debt, including capital leases | $13.449 billion | $13.590 billion |
Revenue rose about 7%; operating margin was about 11.3%, versus 0.9% in 2012. Adjusted EBITDA margin was about 21.4%, versus 18.8%. Operating cash flow less capital expenditures was approximately $748 million. MGM China generated $3.317 billion of revenue and $814 million of Adjusted EBITDA; domestic resorts generated $6.053 billion of revenue and $1.443 billion of Adjusted Property EBITDA. Domestic resort Adjusted Property EBITDA margin increased to 23.8% from 22.3%.
At December 31, MGM had approximately $1.2 billion of available borrowing capacity under its senior credit facility. Approximately $1.0 billion of reported cash was held by MGM China. Debt principal maturities included $537 million in 2014 and $2.353 billion in 2015. Estimated 2014 cash interest was $823 million. These obligations and subsidiary-level restrictions matter when assessing the availability of cash to the parent.
Material changes and unusual items
- MGM China revenue increased 18%, supported by higher VIP turnover, main-floor gaming and slots. MGM Macau’s VIP hold percentage declined to 2.8% from 3.1%; main-floor hold increased to 34.2% from 29.9%.
- Domestic resort revenue increased 2%. Las Vegas Strip occupancy was 91%, ADR was $131, and REVPAR was $119. Higher table-games revenue reflected a higher hold percentage; room revenue also increased.
- Interest expense fell to $857 million from $1.116 billion, primarily reflecting the December 2012 refinancing. Property transactions were $125 million in 2013 versus $708 million in 2012, including 2013 impairments of corporate buildings, Nevada land and the Grand Victoria investment.
- 2013 consolidated net income did not translate into parent-company earnings: $213 million of net income was attributable to noncontrolling interests, leaving a $156.6 million loss attributable to MGM Resorts.
- Fourth-quarter 2013 revenue was $2.513 billion, operating income $330.3 million, consolidated net income $40.9 million, and net loss attributable to MGM Resorts $38.3 million. Fourth-quarter 2012 included a $424.9 million operating loss, substantially affected by impairments and other charges.
Outlook, commitments and principal risks
The filing provides no specific consolidated earnings guidance. Management described improving domestic and Macau operating trends and expected Macau growth, while acknowledging uncertainty around China’s economy and policy. Development plans included MGM Cotai (estimated $2.9 billion; required completion by January 2018), MGM National Harbor (about $1.0 billion), and a proposed Massachusetts project (about $690 million, subject to licensing). The planned Las Vegas arena was estimated at $350 million and depended on permanent financing. Management estimated 2014 spending of $500 million on Cotai, $170 million on National Harbor-related capital and land costs, and $350 million at domestic resorts and corporate entities; additional project spending was conditional in some cases.
- Substantial leverage, debt maturities, interest costs, restrictive covenants and reliance on operating cash flow create refinancing and liquidity risks. The senior facility also imposes minimum EBITDA and capital expenditure limits.
- CityCenter carries construction and litigation exposure. The company had funded $716 million under its completion guarantee and accrued $97 million at year-end; approximately $72 million of condominium proceeds were held for eligible claims. The Harmon demolition remained subject to court proceedings; a January 2014 court order revoked prior demolition authorization pending further insurer-requested testing.
- Perini’s remaining CityCenter construction claims and related counterclaims were scheduled for trial beginning September 2014. The filing states CityCenter defendants’ probable liability was $152 million, with the company’s guarantee accrual discussed separately.
- Macau risks include competition, dependence on gaming promoters, regulatory uncertainty, and the gaming subconcession’s scheduled 2020 expiration. The Cotai land concession may be at risk if development deadlines are missed.
- Other exposures include gaming-receivable collectibility, high-end gaming volatility, regulatory and gaming-tax changes, labor costs, economic conditions, and the concentration of major resorts on the Las Vegas Strip. MGM also disclosed securities litigation and the Borgata licensing/divestiture contingency.
MGM did not pay a common-stock dividend or repurchase shares in 2013. Its board’s dividend capacity is constrained by debt agreements and dependence on subsidiary distributions. MGM China announced a $500 million special dividend in February 2014, of which MGM Resorts expected to receive $255 million.
Important facts for investors to verify
- Debt maturity and refinancing plans, covenant headroom, and the extent to which MGM China’s cash and distributions are accessible to the parent.
- Whether Cotai remains on schedule and within budget, and whether required Macau approvals and gaming rights are maintained.
- Final CityCenter/Perini liability, completion-guarantee funding needs, and the Harmon testing, demolition and insurance outcomes.
- Whether MGM National Harbor and Massachusetts projects proceed on stated budgets and schedules, including licensing and financing conditions.
- Underlying operating trends and hold-rate effects at MGM Macau and domestic resorts; Adjusted EBITDA is non-GAAP and does not include interest, taxes, capital expenditures or debt principal payments.