MGM Resorts International — Q3 2012 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2012. MGM Resorts owns and operates casino resorts in the U.S. and, through its 51%-owned subsidiary MGM China, MGM Macau. It also holds a 50% interest in CityCenter. Amounts below are U.S. dollars; “Q3” means the three months ended September 30.
Key financial metrics
| Metric | Q3 2012 | Q3 2011 | Nine months 2012 | Nine months 2011 |
|---|---|---|---|---|
| Net revenue | $2.255 billion | $2.234 billion | $6.866 billion | $5.552 billion |
| Operating income | $137 million | $113 million | $505 million | $3.966 billion |
| Net income (loss) attributable to MGM Resorts | $(181) million | $(124) million | $(544) million | $3.228 billion |
| Adjusted EBITDA (non-GAAP) | $372 million | $444 million | $1.304 billion | $1.132 billion |
| Operating cash flow | Not stated separately | Not stated separately | $887 million | $481 million |
- Q3 net revenue rose about 1%; operating income increased, but attributable net loss widened. Adjusted EBITDA fell about 16%.
- Nine-month revenue rose about 24%, primarily reflecting the inclusion of MGM China for a full period in 2012 versus only from June 3 in 2011. The prior-year period also included a $3.5 billion noncash gain on the MGM China transaction; therefore, the large year-over-year operating-income and net-income comparisons are not representative of underlying operating trends.
- Q3 segment results: wholly owned domestic resorts generated $1.486 billion of revenue and $325 million of Adjusted Property EBITDA, down 2% and 7%, respectively. MGM China generated $665 million of revenue and $152 million of Adjusted EBITDA, up 7% and 9%, respectively. Domestic Q3 room revenue declined 3%; Las Vegas Strip REVPAR was $114 versus $117, with occupancy of 92% versus 95%.
- At September 30, cash and cash equivalents were $2.443 billion, including $936 million at MGM China. Total current assets were $3.348 billion and current liabilities $2.026 billion.
- Long-term debt was $13.825 billion; estimated fair value was approximately $14.8 billion. Interest expense was $276 million in Q3 and $836 million year to date. The company reported approximately $855 million of available borrowing capacity under its senior credit facility and was in compliance with its stated EBITDA and capital-expenditure covenants.
- Nine-month capital expenditures were $317 million. Total equity was $9.266 billion at quarter-end, compared with $9.882 billion at December 31, 2011.
Material changes and unusual items
- Q3 operating results included MGM Resorts’ approximately $18 million share of a CityCenter residential inventory impairment and $16 million share of estimated Harmon demolition costs. The nine-month results also included an $85 million impairment of the Grand Victoria investment. The comparable 2011 periods included an $80 million Circus Circus Reno impairment.
- The company recorded a $59 million loss on early retirement of debt following its senior credit facility amendment. It issued $2.85 billion of senior notes during the first nine months and repaid $535 million of notes at maturity.
- U.S. deferred-tax valuation allowances reduced tax benefits by $55 million in Q3 and $236 million year to date. The company reported a $429 million consolidated net loss for the nine months.
- CityCenter reported a $399 million net loss for the first nine months. MGM Resorts’ share of CityCenter losses was $61 million, including the noted impairment and Harmon costs.
Outlook, risks and contingencies
- Management expected to fund debt obligations and planned capital expenditures from operating cash flow, cash balances and available credit. Excluding MGM China, it disclosed $612 million of principal maturities through September 30, 2013 and estimated approximately $1.0 billion of cash interest payments over that period.
- Management estimated 2012 domestic capital expenditures of $355–$365 million, including $90–$100 million for the remainder of the year, and expected 2013 domestic capital expenditures to be similar to 2012, subject to board approval. The senior credit facility capped defined 2012 capital expenditures at $500 million.
- In October 2012, MGM China entered an amended credit facility with $550 million of term loans and a $1.45 billion revolver due 2017. MGM Grand Paradise also accepted a Cotai land concession for a proposed resort estimated at approximately $2.5 billion; the initial land-premium payment was approximately $56 million. Construction and financing needs remain significant.
- CityCenter’s Perini construction dispute remained unresolved. Perini’s amended lien was approximately $191 million; the company had accrued a $59 million remaining net completion-guarantee obligation, while disputed claims exceeded the accrual by approximately $154 million. No contingent payments relating to the Harmon were accrued. Harmon demolition timing and the litigation outcome remained uncertain; the district court’s October 29 order revoked prior demolition permission pending further proceedings.
- Management cited substantial indebtedness, refinancing and covenant constraints, economic weakness, competition, Las Vegas concentration, Macau gaming-concession and junket dependence, regulatory exposure, and CityCenter litigation as material risks. A 100-basis-point increase in rates was estimated to increase annual interest cost by about $13 million on senior credit-facility borrowings and about $5 million on MGM Grand Paradise facility borrowings.
- The filing gave no specific earnings guidance. Management said results may vary with customer demand, gaming hold, convention timing, economic conditions and development activity.
Important facts for investors to verify
- Underlying domestic resort trends and whether MGM China’s revenue and EBITDA growth persist; distinguish reported comparisons from the change in consolidation scope.
- Debt maturities, available revolver capacity, interest burden, covenant headroom and the funding plan for Cotai development.
- Final exposure under the CityCenter completion guarantee, the Perini litigation and Harmon remediation or demolition proceedings.
- Cash-flow quality, including MGM China’s reported operating cash flow benefit from increased outstanding casino chips, and the timing of working-capital movements.
- Tax-asset valuation allowances and the status of Macau complementary-tax arrangements, including the pending extension request.