MGM Resorts International — 2012 Form 10-K Summary
Business context and reporting period
For the fiscal year ended December 31, 2012; the filing also reports unaudited fourth-quarter results. MGM Resorts owns and operates casino resorts, with two reportable segments: wholly owned domestic resorts and MGM China, which operates MGM Macau. MGM owned 51% of MGM China and consolidated it for all of 2012, versus only from June 3 in 2011. CityCenter is a significant 50%-owned, unconsolidated joint venture.
Financial performance and liquidity
| Metric | 2012 | 2011 |
|---|---|---|
| Net revenue | $9.161 billion | $7.849 billion |
| Operating income | $80.5 million | $4.057 billion |
| Net income (loss) attributable to MGM Resorts | $(1.768) billion | $3.115 billion |
| Adjusted EBITDA | $1.718 billion | $1.557 billion |
| Cash from operating activities | $909 million | $675 million |
| Capital expenditures | $423 million | $301 million |
| Cash and cash equivalents, year-end | $1.544 billion | $1.866 billion |
| Total debt, including capital leases | $13.590 billion | $13.472 billion |
Revenue rose 17%, mainly reflecting a full year of consolidated MGM China results and improved domestic resort performance. Adjusted EBITDA increased 10%; its margin was approximately 18.8% of revenue. Domestic resort Adjusted Property EBITDA was $1.325 billion, up 2%, with a 22.3% margin. MGM China reported $2.808 billion revenue and $679 million Adjusted EBITDA; revenue was 8% above MGM Macau’s prior full-year results, and EBITDA growth was 10% after adjusting both periods for branding fees.
Domestic resort revenue increased 1%. Las Vegas Strip occupancy was 91%, ADR $129, and REVPAR $117, compared with 90%, $127, and $115 in 2011. Operating cash flow improved, but investing activities used $446 million and financing activities used $787 million; cash declined by $322 million during the year. Year-end current assets were $2.507 billion and current liabilities $1.926 billion.
At year-end, approximately $13.6 billion of debt was outstanding, including $2.8 billion under the parent senior credit facility and $554 million under the MGM China facility. The parent facility had about $1.2 billion of available capacity. Management reported that 25% of borrowings were variable-rate; a 100-basis-point increase in LIBOR or HIBOR was estimated to add approximately $28 million or $6 million, respectively, to annual interest cost.
Material changes and unusual items
- 2012’s attributable net loss contrasts with 2011 profit, which included a $3.5 billion non-cash gain from gaining control of MGM China. Comparisons are also affected by MGM China’s partial-year consolidation in 2011.
- 2012 included $708 million of net property transactions, including impairments of $366 million for north Las Vegas Strip land, $167 million for Atlantic City land, $85 million for Grand Victoria, and $65 million for Borgata. A further $47 million impairment of South Jersey Transportation Authority bonds was recorded in other non-operating expense.
- Debt refinancing and retirement generated a $563 million loss in 2012, including premiums and write-offs associated with retiring secured notes. MGM issued new notes and amended its credit facilities to extend maturities and reduce projected interest costs.
- Fourth-quarter revenue was $2.295 billion; operating loss was $424.9 million, net loss was $1.188 billion, and attributable loss was $1.224 billion. Fourth-quarter charges included a $505 million debt-retirement loss and the impairments noted above for Borgata, Atlantic City land, north Las Vegas Strip land, and the special revenue bonds.
- The company began recording a $1.0 billion valuation allowance against U.S. federal deferred tax assets in 2012, citing its assessment of their realizability.
Outlook, commentary, risks, and contingencies
Management said domestic resort cash flows improved and expected that trend to continue in 2013 despite economic uncertainty. It cited 2% growth in Las Vegas visitation in 2012 and limited near-term room supply. Macau market casino revenue grew 14% in 2012, although growth slowed; management expected further market growth despite China-related uncertainty and Macau smoking restrictions.
Management expected approximately $350 million in 2013 domestic resort capital expenditures and approximately $250 million for MGM Macau improvements and Cotai development, excluding land and capitalized interest. The proposed Cotai resort was expected to require approximately $2.6 billion, excluding land and capitalized interest, and must be completed by January 2018 under the land concession. MGM China declared a special dividend of approximately $500 million in February 2013, of which MGM Resorts expected to receive approximately $255 million.
- Leverage, refinancing requirements, debt covenants, and the minimum EBITDA tests under the parent credit facility remain important risks. The facility requires at least $1.0 billion of defined EBITDA beginning in March 2013, rising to $1.05 billion for the final two quarters of 2013; the filing reports $1.15 billion of covenant-defined trailing EBITDA at year-end 2012.
- CityCenter construction litigation remains unresolved. MGM had funded $692 million under its completion guarantee and accrued a $28 million liability; claims by the contractor and remaining subcontractors exceeded the accrual by about $154 million. CityCenter’s Harmon building was slated for demolition because of structural concerns, subject to court approval and other requirements.
- Macau operations depend significantly on VIP gaming and junket operators, and face gaming-concession and land-concession deadlines, regulatory uncertainty, and collection risk on gaming receivables. Cotai development faces construction, approval, funding, and deadline risks.
- Other key exposures include Las Vegas market concentration, competition, economic and travel disruption, gaming regulation and taxes, labor negotiations (many Las Vegas union agreements expire in 2013), and weather. The company also disclosed pending securities and derivative litigation and a New Jersey licensing process affecting its Borgata interest.
- Management stated it believed cash flows and available credit would meet known obligations and planned expenditures over the next few years. The filing notes that significant debt maturities remain, including $2.353 billion scheduled for 2015.
Deloitte issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded controls were effective at December 31, 2012.
Important facts for investors to verify
- How much of the 2012 revenue and cash-flow improvement reflects underlying growth versus the full-year consolidation of MGM China.
- Progress against credit-facility EBITDA and capital-expenditure covenants, liquidity availability, and the ability to refinance upcoming maturities.
- Actual cost, timing, and funding of Cotai development, and whether the January 2018 completion deadline can be met.
- Final exposure under the CityCenter completion guarantee and Perini litigation, including Harmon demolition costs and any further funding needs.
- Whether impairment assumptions for Borgata, land holdings, Grand Victoria, and deferred tax assets remain supportable.
- Macau VIP/junket trends, gaming-receivable collection experience, and the effect of regulatory changes on MGM China.