MGM Resorts International — Q3 2011 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2011. Amounts below are U.S. dollars; financial statement amounts are in millions unless noted. MGM Resorts owns and operates casino resorts in the U.S. and Macau, and holds interests in joint ventures including CityCenter.
Financial performance and position
| Metric | Q3 2011 | Q3 2010 | Nine months 2011 | Nine months 2010 |
|---|---|---|---|---|
| Net revenue | $2,234 | $1,567 | $5,552 | $4,581 |
| Operating income (loss) | $113 | $(206) | $3,966 | $(1,266) |
| Net income (loss) attributable to MGM Resorts | $(124) | $(318) | $3,228 | $(1,298) |
| Adjusted EBITDA, non-GAAP | $444 | $280 | $1,132 | $678 |
| EPS, diluted | $(0.25) | $(0.72) | $5.83 | $(2.94) |
- Q3 net revenue increased about 43%; consolidated Adjusted EBITDA rose 59%. Domestic resort revenue increased 3% and domestic resort Adjusted Property EBITDA increased 10%. Las Vegas Strip REVPAR rose 13%, with Q3 occupancy of 95% and ADR of $124.
- Domestic casino revenue declined 2% in Q3, including a 12% decline in table-games revenue attributed to lower hold and lower volume; slots revenue increased 4%. MGM China contributed $623 million of Q3 revenue and $139 million of Adjusted Property EBITDA.
- Nine-month reported operating income and net income include a $3.496 billion noncash gain from gaining control of MGM China. Excluding that gain, the filing’s pro forma nine-month results, assuming consolidation from January 1, show a net loss of $248 million and a loss attributable to MGM Resorts of $324 million.
- Operating cash flow for the nine months was $481 million, versus $380 million in 2010. Investing cash flow was positive $126 million, versus negative $421 million; financing cash flow was positive $710 million, versus negative $1.463 billion.
- Cash and cash equivalents were $1.815 billion at September 30, including $494 million at MGM China, compared with $499 million at December 31, 2010. Current assets were $2.722 billion and current liabilities $2.015 billion.
- Debt carrying value totaled approximately $13.45 billion, including $352 million classified current. The company separately described total indebtedness as approximately $13.6 billion. Long-term debt fair value was estimated at $13.0 billion.
- Capital expenditures were $176 million for the nine months. Management expected approximately $275 million for full-year 2011, below the $500 million annual covenant limit.
Material changes and unusual items
- On June 3, MGM Resorts acquired an additional 1% of MGM China, bringing its interest to 51%, and began consolidating the business. The IPO transaction value produced the $3.5 billion remeasurement gain. The acquisition added substantial goodwill and intangible assets, including the Macau gaming subconcession.
- Q3 results include an $80 million noncash impairment of Circus Circus Reno assets. Prior-year comparisons include $191 million of Q3 2010 CityCenter investment impairment and a $128 million Borgata impairment; nine-month 2010 CityCenter impairments totaled $1.313 billion.
- Adjusted EBITDA is a non-GAAP measure and excludes items including interest, taxes, depreciation, property transactions and the MGM China gain. It is not a substitute for operating cash flow or GAAP earnings.
Liquidity, outlook, and principal risks
- After quarter-end repayment of $879 million borrowed in September, management reported approximately $1.2 billion of available capacity under the senior credit facility. The facility matures in February 2014; interest on outstanding borrowings was 7.0% at quarter-end. The company reported compliance with its facility covenants, with trailing-twelve-month covenant EBITDA of $1.26 billion against a $1.15 billion minimum.
- Management cited improving U.S. customer groups and higher Las Vegas REVPAR, but expected weak employment, housing and consumer spending conditions to continue weighing on results. The filing provides no formal earnings or revenue guidance.
- Variable-rate borrowings were about 27% of total borrowings. A 100-basis-point increase in LIBOR above the facility floor was estimated to increase annual interest cost by about $32 million; an equivalent HIBOR increase on MGM Grand Paradise debt by about $6 million.
- CityCenter remains a significant contingent exposure. MGM Resorts had funded $624 million under its completion guarantee, recorded a $108 million receivable, and accrued a remaining estimated net obligation of $14 million. Contractor claims exceeded the accrued amount by approximately $200 million. CityCenter decided to pursue demolition of the structurally problematic Harmon building, subject to court approval; no related contingent payment had been accrued.
- Perini alleges roughly $490 million is owed under the CityCenter construction contract and asserted a mechanics’ lien later reduced to about $313 million. The defendants dispute the claims; outcomes may affect completion-guarantee exposure.
- Silver Legacy, an unconsolidated affiliate, had approximately $143 million of notes due in March 2012 and was exploring refinancing or restructuring, with no assurance of success.
- The company’s Borgata interest was held in a divestiture trust and must be sold by March 2014 under the amended New Jersey settlement. Cash flows remain in the trust before sale, potentially limiting interim cash available to MGM Resorts.
- Other material risks include substantial indebtedness and refinancing needs, economic and competitive pressures, gaming regulation, collection of gaming credit, foreign exchange exposure, and the risk that Macau’s gaming subconcession could be terminated or not extended.
Key facts for investors to verify
- How much of reported growth and nine-month profit reflects the MGM China consolidation and the one-time $3.5 billion gain, versus underlying operating performance.
- Whether MGM Resorts can refinance or manage maturities and covenant requirements, particularly given the senior credit facility’s February 2014 maturity and high debt load.
- The ultimate cost and timing of CityCenter contractor disputes, Harmon demolition, and any further completion-guarantee funding or recovery.
- Whether Silver Legacy refinances its March 2012 notes and whether the Borgata trust completes a sale by the required deadline.
- Whether domestic recovery and Macau gaming volumes persist, considering hold variability, VIP credit and promoter exposure, and regulatory and economic risks.