MGM Resorts International — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2010. Unaudited consolidated results. Dollar amounts below are in millions unless stated otherwise.
Business context
MGM Resorts owns and operates casino resorts, primarily in Las Vegas, and has significant joint-venture interests, including 50% of CityCenter and MGM Macau. CityCenter opened in December 2009. The company sold Treasure Island in March 2009 and placed its 50% Borgata interest in a divestiture trust in March 2010.
Financial results and liquidity
| Metric | Q3 2010 | Q3 2009 | Nine months 2010 | Nine months 2009 |
|---|---|---|---|---|
| Net revenue, after promotional allowances | $1,558 | $1,533 | $4,553 | $4,526 |
| Operating loss | $(206) | $(963) | $(1,266) | $(477) |
| Net loss | $(318) | $(750) | $(1,298) | $(858) |
| Loss per diluted share | $(0.72) | $(1.70) | $(2.94) | $(2.40) |
| Adjusted EBITDA (non-GAAP) | $271 | $188 | $670 | $852 |
| Net interest expense | $285 | $182 | $840 | $555 |
- Net revenue rose 2% in both periods; excluding reimbursed-cost revenue, it fell 3% in Q3 and 3% year to date. Reimbursed-cost revenue was $89 million in Q3 and $272 million year to date, primarily related to CityCenter management.
- Management reported normalized operating margins of 10% versus 14% in Q3 and 7% versus 12% year to date, excluding specified impairments, deposit income, preopening costs, insurance recoveries and other property transactions. On the same basis, operating income decreased 30% in Q3 and 46% year to date. Adjusted EBITDA increased 44% in Q3 and decreased 21% year to date; excluding specified unusual items, management said it decreased 19% and 26%, respectively.
- Casino revenue declined 9% in Q3 and 8% year to date. Q3 table-games revenue fell 18%, reflecting lower hold and volume; slots revenue fell 3%. Las Vegas Strip REVPAR was $97 in Q3 versus $100, with occupancy of 93% versus 95% and ADR of $105 in both periods.
- Operating cash flow was $380 million for the first nine months, versus $518 million. Investing cash outflow was $421 million; financing cash outflow was $1,463 million. Cash fell to $553 million at September 30, from $2,056 million at year-end 2009.
- Long-term debt was $12,624 million, down from $14,056 million at year-end; estimated fair value was approximately $12.1 billion. The company reported $1.3 billion of available senior-credit-facility capacity. Total current liabilities were $1,319 million versus current assets of $1,289 million.
- Stockholders’ equity declined to $2,540 million from $3,870 million. Property and equipment, net, was $14,697 million; investments in unconsolidated affiliates were $2,116 million.
Material changes and unusual items
- CityCenter: MGM recorded $1,305 million of investment impairment for the first nine months, including $182 million in Q3. Its share of CityCenter residential inventory impairments was approximately $161 million year to date. CityCenter recorded a separate $279 million Harmon construction-in-progress impairment; MGM said its share had been recognized previously.
- CityCenter guarantee: MGM had funded $408 million under its completion guarantee and recorded a $129 million receivable recoverable from future residential proceeds. After a $232 million increase in its estimated obligation, the remaining estimated net obligation was $219 million. Contractor claims exceeded amounts accrued by approximately $200 million.
- Borgata: An October offer implied slightly more than $250 million for MGM’s 50% interest, below its carrying value; MGM recorded a $128 million Q3 impairment. Negotiations and regulatory approvals remained outstanding. A separate sale of Borgata-related land and ground leases for $73 million closed in November 2010.
- Debt and equity transactions: During 2010, MGM issued $1.15 billion of 4.25% convertible notes and $845 million of 9% secured notes. In October, after the reporting date, it issued 40.9 million shares for approximately $512 million net proceeds and $500 million of 10% senior notes for approximately $486 million net proceeds. These proceeds were used in part to repay credit-facility borrowings. The October share issuance diluted existing shareholders; Tracinda’s ownership fell from approximately 37% to 28% after its concurrent share sale.
- The March credit-facility amendment generated a $142 million net pretax debt-extinguishment gain. MGM remained in compliance with its stated credit-facility EBITDA and capital-expenditure covenants at September 30.
Outlook, commentary and risks
The filing provides no formal numerical earnings guidance. Management cited continued pressure from weak consumer spending, unemployment, business-travel reductions, a weak housing market and reduced airline capacity to Las Vegas, and described ongoing cost-control efforts. The company’s results are sensitive to gaming hold, tourism, convention demand and high-end customer activity.
- CityCenter faces construction litigation, mechanics’ liens and potential additional funding needs. The Perini lawsuit alleged approximately $490 million was due; its recorded lien was reduced to approximately $418 million in October. MGM disputed the claims, and the potential loss beyond recorded accruals could not be reasonably estimated.
- CityCenter’s credit facility requires financial covenant compliance beginning June 30, 2011. Management warned that CityCenter could fail those tests if results do not improve significantly or debt is not reduced. Mechanics-lien limits and the availability of further facility amendments were also risks.
- MGM reported substantial indebtedness, refinancing needs and exposure to variable rates: about 26% of total borrowings were variable-rate, and a 100-basis-point LIBOR increase was estimated to add approximately $34 million to annual interest cost. The filing identified $454 million of notes maturing in 2011 and $545 million in 2012.
- Other stated risks include Las Vegas market concentration, competition, joint-venture dependence, regulatory and international exposure, litigation, labor agreements, and potential influence or share sales by Tracinda.
Most important facts for investors to verify
- Whether CityCenter’s final construction costs, contractor disputes, liens and guarantee obligations remain within recorded estimates.
- CityCenter operating performance, residential sales and ability to meet its 2011 credit-facility covenants without further partner funding.
- Progress, final price and required approvals for the proposed Borgata-interest sale, and the status of related trust cash flows.
- Post-quarter debt repayments, credit-facility availability, near-term maturities and the effect of high interest costs on cash generation.
- Underlying resort trends excluding reimbursed costs and unusual items, particularly gaming volumes and hold, Las Vegas occupancy and REVPAR, and comparable Adjusted EBITDA.