MGM Resorts International — Q1 2011 Form 10-Q
Business context and period. Unaudited results cover the three months ended March 31, 2011, compared with Q1 2010. MGM owns and operates casino resorts, with significant exposure to Las Vegas, and holds interests in joint ventures including CityCenter and MGM Macau.
Financial performance and position
| Metric | Q1 2011 | Q1 2010 / prior date |
|---|---|---|
| Net revenue | $1.505 billion | $1.457 billion; up 3% (4% excluding reimbursed costs) |
| Operating income (loss) | $169.7 million | $(11.4) million |
| Net loss | $(89.9) million; $(0.18) per diluted share | $(96.7) million; $(0.22) per diluted share |
| Adjusted EBITDA | $322.2 million | $155.9 million; up 107% |
| Operating margin | 11.3% | Negative |
| Cash from operations | $24.0 million | $(44.9) million |
| Capital expenditures | $34.5 million | $53.9 million |
| Cash and cash equivalents | $431.3 million | $499.0 million at Dec. 31, 2010 |
| Long-term debt | $12.081 billion | $12.048 billion at Dec. 31, 2010 |
| Current assets / liabilities | $1.366 billion / $1.172 billion | Working capital: $194.0 million |
Q1 2011 Adjusted EBITDA margin was about 21% of net revenue. Management said it was 26%, versus 19% in the prior year, after excluding the 2010 CityCenter residential impairment and forfeited-deposit income. These are non-GAAP measures and are not substitutes for GAAP earnings or cash flow.
Changes versus prior period
- Rooms revenue rose 13%; Las Vegas Strip REVPAR rose 16%, with occupancy of 87% versus 85% and ADR of $130 versus $114. Convention demand supported hotel, food and beverage, and other non-gaming revenue growth.
- Casino revenue fell 5%. Table games revenue declined 13%, affected by table hold about 230 basis points below the prior-year level and 5% lower volume; slots revenue rose 1%.
- Income from unconsolidated affiliates improved to $63.3 million from an $80.9 million loss. MGM Macau contributed $61.7 million, while CityCenter’s reported share loss narrowed to $5.8 million from $118.6 million, largely reflecting the prior-year impairment.
- Interest expense increased to $269.9 million from $264.2 million. Q1 2010 included a $141.8 million gain on debt redemption, which did not recur.
- Cash decreased $67.7 million during the quarter. Financing cash flow included repayment at maturity of $325 million of 8.375% notes; investing included $76.6 million of advances to unconsolidated affiliates, primarily CityCenter.
Liquidity, outlook, risks and unusual items
- The company reported $826 million of available borrowing capacity under its senior credit facility, which matures in February 2014. The facility’s weighted-average borrowing rate was 7.0%; the company was in compliance with its EBITDA and capital-expenditure covenants at quarter-end. The 2011 annual capital-expenditure covenant limit is $500 million.
- Management expected approximately $275 million of 2011 capital expenditures, including room remodels at Bellagio and MGM Grand. It also reported receiving an approximately $175 million tax refund in April 2011.
- Management reported an economic rebound, including stronger convention business, but expected weak employment and consumer confidence, housing-market weakness, and reduced airline capacity to continue pressuring results. Results remain sensitive to high-end gaming, travel, competition, economic conditions, and financing costs. A 100-basis-point LIBOR increase above the facility floor was estimated to add about $26 million to annual interest cost.
- CityCenter completed a January debt restructuring, issuing $1.5 billion of secured notes and amending its credit facility. MGM had funded $593 million under its completion guarantee, recorded a $116 million receivable, and estimated a remaining net obligation of $35 million. Contractor claims exceeded the accrued amount by about $200 million; significant Perini and subcontractor disputes remained. Harmon-related potential costs were not accrued.
- In April, MGM agreed to a proposed MGM China IPO structure under which it would obtain 51% ownership and management control, subject to conditions and approvals. The company expected a significant, currently non-taxable gain if completed; the transaction was not assured. A related proposed $300 million convertible-note sale was also conditional.
- Gold Strike Tunica closed May 2, 2011 due to Mississippi River flooding. The duration, damage, and insurance recovery were unknown at filing.
- MGM’s 50% Borgata interest was held in a divestiture trust and was being marketed for sale, with a required sale period ending September 2012. The trust held $188 million in cash and investments; the company cautioned that timing and completion of a sale were uncertain.
Most important facts to verify
- Progress and terms of the MGM China IPO and related convertible-note issuance, including required approvals and resulting ownership/control.
- CityCenter litigation outcomes, final construction claims, and whether the $35 million estimated guarantee obligation or $116 million receivable changes materially.
- Gold Strike Tunica’s reopening, damage assessment, business-interruption coverage, and any resulting financial impact.
- Debt maturities, covenant headroom, borrowing availability, and the effect of interest-rate changes on cash flow.
- Whether improved Las Vegas hotel demand and MGM Macau performance persist, given lower table-game revenue and continuing economic risks.