MGM Resorts International — Q1 2012 Form 10-Q
Reporting period: Three months ended March 31, 2012. Amounts below are U.S. dollars; financial statement amounts are in millions unless stated otherwise.
Business context
MGM Resorts owns and operates casino resorts, principally in the United States, and consolidates MGM China, which operates MGM Macau. The company owns 51% of MGM China and began consolidating it on June 3, 2011. It also owns 50% of CityCenter, accounted for as an unconsolidated affiliate. Consequently, year-over-year consolidated comparisons are affected by MGM China being included in Q1 2012 but not Q1 2011.
Financial results and liquidity
| Metric | Q1 2012 | Q1 2011 |
|---|---|---|
| Net revenue | $2,287.6 | $1,512.9 |
| Operating income | $192.6 | $169.7 |
| Adjusted EBITDA (non-GAAP) | $430.3 | $322.2 |
| Net loss | $(203.3) | $(89.9) |
| Net loss attributable to MGM Resorts | $(217.3) | $(89.9) |
| Loss per share, basic and diluted | $(0.44) | $(0.18) |
| Cash provided by operating activities | $291.7 | $24.0 |
Operating margin was approximately 8.4% of net revenue, compared with 11.2% in Q1 2011; the comparison is affected by MGM China consolidation. Domestic resort revenue rose 5% and domestic Adjusted Property EBITDA rose 7%. MGM China reported $702.1 million of revenue, $68.1 million of operating income, and $164.5 million of Adjusted Property EBITDA. The filing presents Adjusted EBITDA as a supplemental non-GAAP measure, not as a substitute for GAAP earnings or cash flow.
At March 31, 2012, cash and cash equivalents were $1,634.9 million, including $575 million related to MGM China. Long-term debt had a carrying value of $13,360.0 million and estimated fair value of approximately $14.3 billion. The company reported approximately $855 million of available borrowing capacity under its senior credit facility. Cash declined $231.0 million during the quarter. Investing cash outflow was $109.9 million and financing cash outflow was $412.9 million.
Material changes versus the prior comparable period
- Consolidated revenue increased approximately 51%, substantially reflecting MGM China’s consolidation; it is not a like-for-like growth rate. Domestic resort revenue increased 5%.
- Operating income rose about 13%, while net loss attributable to MGM Resorts widened to $217.3 million from $89.9 million. The 2012 result included additional tax expense and a debt-retirement loss.
- Operating cash flow increased to $291.7 million from $24.0 million. MGM China generated $263 million of Q1 2012 operating cash flow.
- CityCenter’s reported net loss was $136.8 million versus $125.0 million a year earlier; MGM Resorts’ share of CityCenter operating losses increased, partly due to unusually low table-games hold at Aria.
- Domestic Las Vegas Strip occupancy increased to 90% from 87%; ADR was $131 versus $130 and REVPAR was $117 versus $112. Domestic table-games revenue increased 12% and slots revenue increased 7%.
Debt, outlook, risks and unusual items
- The company issued $850 million of 8.625% senior notes due 2019 and $1.0 billion of 7.75% senior notes due 2022. Its senior credit facility was amended, with approximately $1.8 billion of loans and revolving commitments extended to February 2015. The company reported $1.28 billion of trailing-12-month covenant EBITDA against a $1.2 billion minimum for 2012 and stated it was in compliance with its capital-expenditure covenant.
- Management expected approximately $360 million of 2012 capital expenditures, within the $500 million annual covenant limit. It said improving visitation and consumer spending trends could continue, but cautioned that weak employment and housing conditions could temper recovery. The filing provides no earnings or revenue guidance.
- Q1 included a $59 million loss on early retirement of debt; a $112 million U.S. deferred-tax valuation allowance provision; and a $44 million Macau complementary-tax provision related to a dividend, pending an anticipated annual-fee arrangement. The reported income-tax line was a $27.1 million provision.
- CityCenter completion-guarantee exposure remained uncertain. MGM Resorts had funded $658 million, recorded a $107 million receivable, and estimated a remaining net obligation of $16 million. Contractor claims exceeded the accrued estimate by about $185 million. CityCenter planned to demolish the structurally deficient Harmon building; estimated demolition cost was approximately $31 million, and court and permit processes were ongoing.
- Silver Legacy failed to repay approximately $143 million of notes at maturity and was exploring refinancing or restructuring, including potential bankruptcy. The notes are non-recourse to MGM Resorts; its investment carrying value had been reduced to zero.
- Other principal risks include substantial indebtedness and refinancing needs, restrictive debt covenants, economic and competitive pressures, reliance on Macau gaming promoters, regulatory and concession risks, and exposure to variable interest rates. A 100-basis-point rate increase was estimated to raise annual interest cost by approximately $13 million on the senior credit facility and $6 million on the MGM Grand Paradise facility.
- Management stated disclosure controls were effective. MGM China, representing approximately 32% of assets and 31% of quarterly revenue, was excluded from the quarter’s internal-control-change assessment following its 2011 acquisition.
Important facts for investors to verify
- How much of reported revenue and EBITDA growth reflects MGM China consolidation versus underlying comparable property performance.
- Debt maturities, refinancing availability, covenant headroom, and the company’s ability to meet obligations while continuing resort investment.
- Whether the Macau annual-fee arrangement is obtained before the complementary tax is due, and the potential tax impact if it is not.
- The ultimate CityCenter/Perini litigation, Harmon demolition, and completion-guarantee exposure relative to the recorded accrual.
- Whether MGM China’s financial controls are included in the company’s 2012 annual internal-control assessment, and developments concerning Silver Legacy.