MGM Resorts International — FY2010 Form 10-K
Reporting period: Fiscal year ended December 31, 2010; the filing also presents unaudited fourth-quarter results. The company operates casino resorts, with major properties concentrated on the Las Vegas Strip, and holds 50% interests in CityCenter and MGM Macau, among other ventures.
Financial performance and position
- Revenue: $6.019 billion, up 0.7% from $5.979 billion in 2009. Excluding reimbursed costs, revenue declined 3%. Net casino revenue fell 7% to $2.443 billion; rooms revenue fell 5% to $1.300 billion. Non-gaming activities accounted for more than half of net revenue.
- Profitability: Operating loss was $1.159 billion, compared with a $964 million loss in 2009; net loss was $1.437 billion, versus $1.292 billion. Diluted loss per share was $3.19, compared with $3.41. Results included $1.451 billion of property transaction charges, primarily CityCenter investment impairment ($1.313 billion) and Borgata impairment ($128 million).
- Adjusted results: Adjusted EBITDA was $930 million, down from $1.107 billion. Management reported a 15% same-store decline. These non-GAAP measures exclude significant charges and should not be viewed as substitutes for GAAP earnings or cash flow.
- Cash flow and investment: Operating cash flow was $504 million, down from $588 million. Investing cash outflow was $586 million, including $553 million contributed to unconsolidated affiliates, primarily CityCenter completion-guarantee funding. Net capital expenditures were $207 million. Cash and cash equivalents ended the year at $499 million, down from $2.056 billion.
- Debt and interest: Year-end book debt, including capital leases, was approximately $12.05 billion, versus $14.06 billion in 2009; contractual principal maturities totaled $12.275 billion before discounts and premiums. Interest expense was $1.114 billion, up from $775 million. The company reported $1.2 billion of available revolving capacity and compliance with debt covenants at year-end.
- Liquidity: Current assets were $1.456 billion and current liabilities $1.246 billion. Management believed available liquidity and expected cash flows would meet obligations through 2012, while cautioning that future repayment or refinancing was not assured. Approximately $455 million of debt principal and an estimated $969 million of interest were scheduled for 2011.
- Hotel indicators: Las Vegas Strip occupancy was 89%, down from 91%; average daily room rate was $108, down from $111; RevPAR was $96, down from $100.
Changes versus 2009
- Revenue was nearly flat overall, partly because reimbursed costs rose to $359 million from $99 million; underlying revenue excluding reimbursements declined. Table-games revenue fell 13%, while slots revenue fell 2%.
- Operating loss and net loss worsened, despite lower operating expenses in some areas, chiefly due to substantial CityCenter impairment charges and higher interest expense.
- Operating cash flow declined 14%. Debt balances fell, supported by debt issuance, equity issuance, repayments and an extension of portions of the senior credit facility.
- In 2010 the company issued $845 million of 9% secured notes, $1.15 billion of 4.25% convertible notes and $500 million of 10% notes, and raised approximately $588 million net from common-stock offerings.
Outlook, risks and unusual items
- Management cited continuing sensitivity to unemployment, weak consumer confidence and housing conditions, reduced business travel, airline capacity, and customer spending. It continued cost controls and reinstated a more limited 401(k) company contribution in 2011.
- Management expected approximately $175 million of tax refunds in 2011. The possible Hong Kong listing of MGM China remained undecided.
- CityCenter remained a major exposure: MGM had funded $553 million under its completion guarantee, recorded a $124 million receivable from future residential proceeds, and estimated a remaining net obligation of $80 million. Contractor claims exceeded the accrued guarantee amount by approximately $200 million; the ultimate outcome could not be reasonably estimated. CityCenter completed a debt restructuring in January 2011.
- CityCenter recorded a $279 million impairment related to the Harmon project and management considered completion of the building in its existing form unlikely. MGM also recorded $166 million as its share of CityCenter residential inventory impairment.
- MGM’s Borgata interest was placed in a divestiture trust under a New Jersey regulatory settlement and must be sold by September 2012. A proposed offer implied approximately $250 million for MGM’s 50% interest; completion and final terms were uncertain. The company recorded a $128 million impairment.
- Perini alleged approximately $490 million was owed for CityCenter construction and recorded a mechanic’s lien initially near $491 million, later reduced to approximately $313 million. MGM and CityCenter disputed the claims; loss exposure could not be reasonably estimated. Securities and shareholder derivative lawsuits also remained pending.
- Key risks include substantial indebtedness and refinancing needs, debt covenants, Las Vegas market concentration and competition, economic conditions, gaming regulation, joint-venture obligations, collectibility of gaming receivables, and labor agreements covering approximately 30,000 employees, most of which were due for renegotiation in 2012.
Important facts for investors to verify
- Whether operating cash flow and available credit can support scheduled interest, maturities and covenant requirements, particularly as minimum EBITDA thresholds rise.
- The actual final cost and litigation outcome of CityCenter, including guarantee payments, residential sales proceeds and any additional impairment.
- The timing, proceeds and regulatory completion of the Borgata divestiture, and the effect of restricted trust cash flows on liquidity.
- Whether demand, room rates and gaming volumes recover, and how much of reported revenue growth reflects reimbursements rather than underlying resort activity.
- The filing is an annual report, not a standalone fourth-quarter filing; Q4 2010 revenue was $1.466 billion, operating income was $107 million and net loss was $139 million.