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MGM Resorts International 10-Q 2014

Documents found in this filing:

  1. 10-Q
  2. Ex-10.1
  3. Ex-31.1
  4. Ex-31.2
  5. Ex-32.1
  6. Ex-32.2
  7. Ex-32.2
Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES & EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

 

  x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2014

OR

 

  ¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from          to         

Commission File No. 001-10362

 

 

MGM Resorts International

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   88-0215232

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

3600 Las Vegas Boulevard South, Las Vegas, Nevada 89109

(Address of principal executive offices)

(702) 693-7120

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files):    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer   x    Accelerated filer   ¨
Non-accelerated filer   ¨    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):    Yes  ¨    No  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

 

Class

  

Outstanding as of May 1, 2014

Common Stock, $.01 par value    490,614,933 shares

 

 

 


Table of Contents

MGM RESORTS INTERNATIONAL AND SUBSIDIARIES

FORM 10-Q

I N D E X

 

     Page  

PART I.

   FINANCIAL INFORMATION   

Item 1.

  

Financial Statements (Unaudited)

  
  

Consolidated Balance Sheets at March 31, 2014 and December 31, 2013

     1   
  

Consolidated Statements of Operations for the Three Months Ended March 31, 2014 and March 31, 2013

     2   
  

Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended March 31, 2014 and March 31, 2013

     3   
  

Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2014 and March 31, 2013

     4   
  

Condensed Notes to Consolidated Financial Statements

     5   

Item 2.

  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     21   

Item 3.

  

Quantitative and Qualitative Disclosures About Market Risk

     33   

Item 4.

   Controls and Procedures      33   

PART II.  

   OTHER INFORMATION   

Item 1.

  

Legal Proceedings

     33   

Item 1A.

  

Risk Factors

     35   

Item 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds

     35   

Item 6.

  

Exhibits

     35   

SIGNATURES

     36   


Table of Contents

Part I.    FINANCIAL INFORMATION

 

Item 1. Financial Statements

MGM RESORTS INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)

 

     March 31,
2014
     December 31,
2013
 
ASSETS   

Current assets

     

Cash and cash equivalents

   $ 1,114,736      $ 1,803,669  

Accounts receivable, net

     492,535        488,217  

Inventories

     101,553        107,907  

Deferred income taxes, net

     —          80,989  

Prepaid expenses and other

     261,806        238,657  
  

 

 

    

 

 

 

Total current assets

     1,970,630        2,719,439  
  

 

 

    

 

 

 

Property and equipment, net

     14,034,075        14,055,212  

Other assets

     

Investments in and advances to unconsolidated affiliates

     1,416,664        1,374,836  

Goodwill

     2,896,542        2,897,442  

Other intangible assets, net

     4,451,496        4,511,861  

Other long-term assets, net

     581,302        551,395  
  

 

 

    

 

 

 

Total other assets

     9,346,004        9,335,534  
  

 

 

    

 

 

 
   $ 25,350,709      $ 26,110,185  
  

 

 

    

 

 

 
LIABILITIES AND STOCKHOLDERS’ EQUITY   

Current liabilities

     

Accounts payable

   $ 220,523      $ 241,192  

Income taxes payable

     20,549        14,813  

Deferred income taxes, net

     46,642        —    

Accrued interest on long-term debt

     188,281        188,522  

Other accrued liabilities

     1,683,569        1,770,801  
  

 

 

    

 

 

 

Total current liabilities

     2,159,564        2,215,328  
  

 

 

    

 

 

 

Deferred income taxes

     2,305,322        2,430,414  

Long-term debt

     12,930,728        13,447,230  

Other long-term obligations

     132,249        141,590  

Commitments and contingencies (Note 5)

     

Stockholders’ equity

     

Common stock, $.01 par value: authorized 1,000,000,000 shares; issued and outstanding 490,609,242 and 490,360,628 shares

     4,906        4,904  

Capital in excess of par value

     4,160,895        4,156,680  

Retained earnings

     165,252        57,092  

Accumulated other comprehensive income

     12,236        12,503  
  

 

 

    

 

 

 

Total MGM Resorts International stockholders’ equity

     4,343,289        4,231,179  

Noncontrolling interests

     3,479,557        3,644,444  
  

 

 

    

 

 

 

Total stockholders’ equity

     7,822,846        7,875,623  
  

 

 

    

 

 

 
   $ 25,350,709      $ 26,110,185  
  

 

 

    

 

 

 

The accompanying condensed notes are an integral part of these consolidated financial statements.

 

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Table of Contents

MGM RESORTS INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

 

     Three Months Ended
March 31,
 
     2014     2013  

Revenues

    

Casino

   $ 1,583,432     $ 1,401,420  

Rooms

     452,386       401,250  

Food and beverage

     383,392       359,882  

Entertainment

     133,777       113,854  

Retail

     44,616       44,707  

Other

     125,427       123,826  

Reimbursed costs

     94,975       90,236  
  

 

 

   

 

 

 
     2,818,005       2,535,175  

Less: Promotional allowances

     (187,607     (183,027
  

 

 

   

 

 

 
     2,630,398       2,352,148  
  

 

 

   

 

 

 

Expenses

    

Casino

     990,834       875,246  

Rooms

     134,238       127,709  

Food and beverage

     220,058       204,740  

Entertainment

     98,937       83,725  

Retail

     23,476       25,966  

Other

     87,577       85,973  

Reimbursed costs

     94,975       90,236  

General and administrative

     319,246       303,901  

Corporate expense

     53,351       46,624  

Preopening and start-up expenses

     5,636       2,146  

Property transactions, net

     558       8,491  

Depreciation and amortization

     207,655       211,918  
  

 

 

   

 

 

 
     2,236,541       2,066,675  
  

 

 

   

 

 

 

Income from unconsolidated affiliates

     18,776       16,344  
  

 

 

   

 

 

 

Operating income

     412,633       301,817  
  

 

 

   

 

 

 

Non-operating expense:

    

Interest expense, net of amounts capitalized

     (209,387     (225,447

Non-operating items from unconsolidated affiliates

     (13,723     (22,079

Other, net

     (1,434     (1,282
  

 

 

   

 

 

 
     (224,544     (248,808
  

 

 

   

 

 

 

Income before income taxes

     188,089       53,009  

Benefit (provision) for income taxes

     3,519       (30,431
  

 

 

   

 

 

 

Net income

     191,608       22,578  

Less: Net income attributable to noncontrolling interests

     (83,448     (16,032
  

 

 

   

 

 

 

Net income attributable to MGM Resorts International

   $ 108,160     $ 6,546  
  

 

 

   

 

 

 

Net income per share of common stock attributable to MGM Resorts International

    

Basic

   $ 0.22     $ 0.01  
  

 

 

   

 

 

 

Diluted

   $ 0.21     $ 0.01  
  

 

 

   

 

 

 

The accompanying condensed notes are an integral part of these consolidated financial statements.

 

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Table of Contents

MGM RESORTS INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

(Unaudited)

 

     Three Months Ended
March 31,
 
     2014     2013  

Net income

   $ 191,608     $ 22,578  

Other comprehensive income (loss), net of tax:

    

Foreign currency translation adjustment

     (2,760     (12,641

Other

     1,250       115  
  

 

 

   

 

 

 

Other comprehensive loss

     (1,510     (12,526
  

 

 

   

 

 

 

Comprehensive income

     190,098       10,052  

Less: Comprehensive income attributable to noncontrolling interests

     (82,205     (9,827
  

 

 

   

 

 

 

Comprehensive income attributable to MGM Resorts International

   $ 107,893     $ 225  
  

 

 

   

 

 

 

The accompanying condensed notes are an integral part of these consolidated financial statements.

 

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Table of Contents

MGM RESORTS INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

     Three Months Ended
March 31,
 
     2014     2013  

Cash flows from operating activities

    

Net income

   $ 191,608     $ 22,578  

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation and amortization

     207,655       211,918  

Amortization of debt discounts, premiums and issuance costs

     9,402       8,366  

Loss on retirement of long-term debt

     —         24  

Provision for doubtful accounts

     9,834       13,604  

Stock-based compensation

     8,195       8,623  

Property transactions, net

     558       8,491  

(Income) loss from unconsolidated affiliates

     (5,034     6,111  

Distributions from unconsolidated affiliates

     3,703       4,397  

Deferred income taxes

     (7,637     63,125  

Change in operating assets and liabilities:

    

Accounts receivable

     (14,186     (45,930

Inventories

     6,349       2,509  

Income taxes payable

     5,736       2,818  

Prepaid expenses and other

     (29,736     (25,872

Prepaid Cotai land concession premium

     (12,945     1,569  

Accounts payable and accrued liabilities

     (87,934     (66,476

Other

     5,227       (21,199
  

 

 

   

 

 

 

Net cash provided by operating activities

     290,795       194,656  
  

 

 

   

 

 

 

Cash flows from investing activities

    

Capital expenditures, net of construction payable

     (192,751     (97,415

Dispositions of property and equipment

     135       235  

Investments in and advances to unconsolidated affiliates

     (32,175     (6,400

Distributions from unconsolidated affiliates in excess of earnings

     497       103  

Investments in treasury securities - maturities longer than 90 days

     (54,064     (60,138

Proceeds from treasury securities - maturities longer than 90 days

     63,063       60,112  

Other

     1,226       (113
  

 

 

   

 

 

 

Net cash used in investing activities

     (214,069     (103,616
  

 

 

   

 

 

 

Cash flows from financing activities

    

Net repayments under bank credit facilities - maturities of 90 days or less

     (1,735,125     (2,690,000

Borrowings under bank credit facilities - maturities longer than 90 days

     1,728,125       2,793,000  

Retirement of senior notes

     (508,900     —    

Distributions to noncontrolling interest owners

     (247,140     (254,659

Other

     (1,648     (863
  

 

 

   

 

 

 

Net cash used in financing activities

     (764,688     (152,522
  

 

 

   

 

 

 

Effect of exchange rate on cash

     (971     (1,390
  

 

 

   

 

 

 

Cash and cash equivalents

    

Net decrease for the period

     (688,933     (62,872

Balance, beginning of period

     1,803,669       1,543,509  
  

 

 

   

 

 

 

Balance, end of period

   $ 1,114,736     $ 1,480,637  
  

 

 

   

 

 

 

Supplemental cash flow disclosures

    

Interest paid, net of amounts capitalized

   $ 200,226     $ 218,613  

Federal, state and foreign income taxes paid, net of refunds

     3,864       3,736  

Non-cash investing and financing activities

    

Increase in investment in CityCenter related to change in completion guarantee liability

   $ 12,306     $ —    

The accompanying condensed notes are an integral part of these consolidated financial statements.

 

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Table of Contents

MGM RESORTS INTERNATIONAL AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

NOTE 1 — ORGANIZATION

Organization. MGM Resorts International (the “Company”) is a Delaware corporation that acts largely as a holding company and, through wholly owned subsidiaries, primarily owns and/or operates casino resorts. The Company owns and operates the following casino resorts in Las Vegas, Nevada: Bellagio, MGM Grand Las Vegas, The Mirage, Mandalay Bay, Luxor, New York-New York, Monte Carlo, Excalibur and Circus Circus Las Vegas. Operations at MGM Grand Las Vegas include management of The Signature at MGM Grand Las Vegas, a condominium-hotel consisting of three towers. Other Nevada operations include Circus Circus Reno, Gold Strike in Jean and Railroad Pass in Henderson. Along with its local partners, the Company owns and operates MGM Grand Detroit in Detroit, Michigan. The Company owns and operates two resorts in Mississippi: Beau Rivage in Biloxi and Gold Strike Tunica. The Company also owns Shadow Creek, an exclusive world-class golf course located approximately ten miles north of its Las Vegas Strip resorts, Primm Valley Golf Club at the California/Nevada state line and Fallen Oak golf course in Saucier, Mississippi.

The Company owns 51% and has a controlling interest in MGM China Holdings Limited (“MGM China”), which owns MGM Grand Paradise, S.A. (“MGM Grand Paradise”), the Macau company that owns and operates the MGM Macau resort and casino and the related gaming subconcession and land concession. MGM Grand Paradise has a land concession contract with the government of Macau to develop a second resort and casino on an approximately 17.8 acre site in Cotai, Macau (“MGM Cotai”). MGM Cotai will be an integrated casino, hotel and entertainment complex with up to 1,600 hotel rooms, 500 gaming tables and 2,500 slots. The total estimated project budget is $2.9 billion excluding development fees eliminated in consolidation, capitalized interest and land.

The Company owns 50% of CityCenter, located between Bellagio and Monte Carlo. The other 50% of CityCenter is owned by Infinity World Development Corp, a wholly owned subsidiary of Dubai World, a Dubai, United Arab Emirates government decree entity. CityCenter consists of Aria, a casino resort; Mandarin Oriental Las Vegas, a non-gaming boutique hotel; Crystals, a retail, dining and entertainment district; and Vdara, a luxury condominium-hotel. In addition, CityCenter features residential units in the Residences at Mandarin Oriental and Veer. The Company receives a management fee of 2% of revenues for the management of Aria and Vdara, and 5% of EBITDA (as defined in the agreements governing the Company’s management of Aria and Vdara). In addition, the Company receives an annual fee of $3 million for the management of Crystals. See Note 3 for additional information related to CityCenter.

The Company has 50% interests in Grand Victoria and Silver Legacy. Grand Victoria is a riverboat casino in Elgin, Illinois; an affiliate of Hyatt Gaming owns the other 50% of Grand Victoria and also operates the resort. Silver Legacy is located in Reno, adjacent to Circus Circus Reno, and the other 50% is owned by Eldorado LLC.

The Company seeks to leverage its management expertise and well-recognized brands through domestic and international expansion opportunities. The Company has entered into management agreements for non-gaming hotels, resorts and residential products in the Middle East, North Africa, India, the United States and, through its venture with Diaoyutai State Guesthouse, in the People’s Republic of China. In April 2014, the Company entered into a 50/50 limited liability company agreement with Hakkasan Hospitality, Inc., an affiliate of the Hakkasan group, to form MGM Hakkasan Hospitality, LLC, a Nevada limited liability company (“MGM Hakkasan”) to design, develop and manage luxury non-gaming hotels, resorts and residences under certain brands licensed from the Company and the Hakkasan Group. The Company will contribute all of the management agreements for non-gaming hotels, resorts and residential projects (outside of the greater China region) that are currently under development to MGM Hakkasan. The Company will continue to develop and manage properties in the greater China region through its venture with Diaoyutai State Guesthouse, including the MGM Grand Sanya on Hainan Island, in the People’s Republic of China, which opened in early 2012.

The Maryland Video Lottery Facility Location Commission has awarded the Company the license to build and operate a world-class destination resort casino in Prince George’s County at National Harbor. Currently, the expected cost to develop and construct MGM National Harbor is approximately $1.0 billion, excluding capitalized interest and land related costs. The Company expects the resort to include a casino with approximately 3,600 slots, 160 table games including poker; a 300 suite hotel with luxury spa and rooftop pool; high end branded retail; fine and casual dining; a dedicated 3,000 seat theater venue; 35,000 square feet of meeting and event space; and a 5,000 space parking garage.

The Company has two reportable segments: wholly owned domestic resorts and MGM China. See Note 9 for additional information about the Company’s segments.

Borgata. The Company has a 50% economic interest in the Borgata Hotel Casino & Spa (“Borgata”) located on Renaissance Pointe in the Marina area of Atlantic City, New Jersey. Boyd Gaming Corporation owns the other 50% of Borgata and also operates the resort. The Company’s interest is held in trust and was offered for sale pursuant to its amended settlement agreement with the New Jersey Division of Gaming Enforcement and approved by the New Jersey Casino Control Commission (“CCC”). The terms of the amended settlement agreement previously mandated the sale by March 2014. The Company had the right to direct the sale through March 2013 (the “divesture period”), subject to approval of the CCC, and the trustee was responsible for selling the trust property during the following 12-month period

 

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(the “terminal sale period”). On February 13, 2013, the settlement agreement was further amended to allow the Company to re-apply to the CCC for licensure in New Jersey and to defer expiration of these periods pending the outcome of the licensure process. The Company has submitted its licensure request to the CCC and there can be no assurances that such request will be approved or with respect to the timing of the licensure process. If the CCC denies the Company’s licensure request, then the divesture period will immediately end, and the terminal sale period will immediately begin, which will result in the Company’s Borgata interest being disposed of by the trustee pursuant to the terms of the settlement agreement.

The Company consolidates the trust because it is the sole economic beneficiary and accounts for its interest in Borgata under the cost method. The Company reviews its investment carrying value whenever indicators of impairment exist. As of March 31, 2014, the trust had $94 million of cash and investments, of which $78 million was held in U.S. treasury securities with maturities greater than three months but less than one year, and is recorded within “Prepaid expenses and other.”

NOTE 2 — BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation. As permitted by the rules and regulations of the Securities and Exchange Commission, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted. These consolidated financial statements should be read in conjunction with the Company’s 2013 annual consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments – which include only normal recurring adjustments – necessary to present fairly the Company’s interim financial statements. The results for such periods are not necessarily indicative of the results to be expected for the full year.

Fair value measurements. Fair value measurements affect the Company’s accounting and impairment assessments of its long-lived assets, investments in unconsolidated affiliates, cost method investments, assets acquired and liabilities assumed in an acquisition, and goodwill and other intangible assets. Fair value measurements also affect the Company’s accounting for certain of its financial assets and liabilities. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and is measured according to a hierarchy that includes: Level 1 inputs, such as quoted prices in an active market; Level 2 inputs, which are observable inputs for similar assets; or Level 3 inputs, which are unobservable inputs.

 

   

The fair value of the Company’s treasury securities held by the Borgata trust was measured using Level 2 inputs. See Note 1; and

 

   

The Company uses Level 1 inputs for its long-term debt fair value disclosures. See Note 4.

Income tax provision. For interim income tax reporting the Company estimates its annual effective tax rate and applies it to its year-to-date ordinary income. The tax effects of unusual or infrequently occurring items, including changes in judgment about valuation allowances and effects of changes in tax laws or rates, are reported in the interim period in which they occur. The Company’s effective income tax rate was (1.9%) and 57.4% for the three months ended March 31, 2014 and 2013, respectively.

The Company recognizes deferred tax assets, net of applicable reserves, related to tax loss and credit carryforwards and other temporary differences with a future tax benefit to the extent that realization of such benefit is more likely than not. Otherwise, a valuation allowance is applied. Because of the Company’s history of recent losses in the United States, the Company does not rely on future United States sourced operating income in assessing the realization of its deferred tax assets. Because MGM China is presently exempt from the Macau 12% complementary tax on gaming profits, the Company believes that payment of the Macau Special Gaming Tax qualifies as a tax paid in lieu of an income tax that is creditable against U.S. taxes. As long as the exemption from Macau’s 12% complementary tax on gaming profits continues, the Company will generate excess foreign tax credits on an annual basis. Further, the Company currently estimates that none of the excess foreign credits will be utilized until the exemption expires.

Although the Company’s current five-year exemption from the Macau 12% complementary tax on gaming profits ends on December 31, 2016, the Company believes it will be entitled to receive a third five-year exemption from Macau based upon exemptions granted to the Company’s competitors in order to ensure non-discriminatory treatment among gaming concessionaires and subconcessionaires. For all periods beyond December 31, 2021, the Company has assumed that it will be paying the Macau 12% complementary tax on gaming profits and will thus not be able to credit the Macau Special Gaming Tax in such years, and has factored that assumption into both the measurement of its foreign deferred tax assets and liabilities as well as its future projections of foreign sourced income. As a result, the Company projects that it will be able to realize a benefit, and hence, projects that it will record a deferred tax asset for foreign tax credits, net of valuation allowance (“net deferred foreign tax credit asset”), of approximately $335 million as of December 31, 2014 and has reflected this assumption in its annual effective tax rate for 2014. Should the Company in a future period actually receive or be able to assume under the law a fourth five-year exemption, an additional valuation allowance would likely need to be provided on some or all of the net deferred foreign tax credit asset, resulting in an increase in the provision for income taxes in such period.

 

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Recently issued accounting standards. During the three months ended March 31, 2014, the Company implemented Financial Accounting Standards Board Accounting Standards Update No. 2013-11 (“ASU 2013-11”), which is effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2013. ASU 2013-11 provides explicit guidance on the financial statement presentation of unrecognized tax benefits when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. As a result of implementing ASU 2013-11, the Company recorded a reduction in liability for unrecognized tax benefits and a corresponding reduction in deferred tax assets of $19 million in the three months ended March 31, 2014.

NOTE 3 — INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES

Investments in and advances to unconsolidated affiliates consisted of the following:

 

     March 31,      December 31,  
     2014      2013  
     (In thousands)  

CityCenter Holdings, LLC – CityCenter (50%)

   $ 1,210,855      $ 1,172,087  

Elgin Riverboat Resort–Riverboat Casino – Grand Victoria (50%)

     169,082        169,579  

Other

     36,727        33,170  
  

 

 

    

 

 

 
   $ 1,416,664      $ 1,374,836  
  

 

 

    

 

 

 

The Company recorded its share of the results of operations of unconsolidated affiliates as follows:

 

     Three Months Ended  
     March 31,  
     2014     2013  
     (In thousands)  

Income from unconsolidated affiliates

   $ 18,776     $ 16,344  

Preopening and start-up expenses

     (19     (376

Non-operating items from unconsolidated affiliates

     (13,723     (22,079
  

 

 

   

 

 

 
   $ 5,034     $ (6,111
  

 

 

   

 

 

 

CityCenter

CityCenter summary financial information. Summarized balance sheet information for CityCenter is as follows:

 

     March 31,      December 31,  
     2014      2013  
     (In thousands)  

Current assets

   $ 506,884      $ 451,058  

Property and other assets, net

     8,150,228        8,261,240  

Current liabilities

     426,493        462,487  

Long-term debt and other long-term obligations

     1,683,923        1,688,113  

Equity

     6,546,696        6,561,698  

Summarized income statement information for CityCenter is as follows:

 

     Three Months Ended  
     March 31,  
     2014     2013  
     (In thousands)  

Net revenues

   $ 336,417     $ 315,142  

Operating expenses

     (331,454     (315,310
  

 

 

   

 

 

 

Operating income (loss)

     4,963       (168

Non-operating expense

     (25,165     (67,675
  

 

 

   

 

 

 

Net loss

   $ (20,202   $ (67,843
  

 

 

   

 

 

 

 

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NOTE 4 — LONG-TERM DEBT

Long-term debt consisted of the following:

 

     March 31,      December 31,  
     2014      2013  
     (In thousands)  

Senior credit facility:

     

$2,765 million ($2,772 million at December 31, 2013) term loans, net

   $ 2,758,307      $ 2,765,041  

MGM Grand Paradise credit facility

     553,066        553,242  

$508.9 million 5.875% senior notes, due 2014, net

     —          508,848  

$1,450 million 4.25% convertible senior notes, due 2015, net

     1,454,980        1,456,153  

$875 million 6.625% senior notes, due 2015, net

     875,862        876,022  

$242.9 million 6.875% senior notes, due 2016

     242,900        242,900  

$732.7 million 7.5% senior notes, due 2016

     732,749        732,749  

$500 million 10% senior notes, due 2016, net

     497,219        496,987  

$743 million 7.625% senior notes, due 2017

     743,000        743,000  

$475 million 11.375% senior notes, due 2018, net

     467,808        467,451  

$850 million 8.625% senior notes, due 2019

     850,000        850,000  

$500 million 5.25% senior notes, due 2020

     500,000        500,000  

$1,000 million 6.75% senior notes, due 2020

     1,000,000        1,000,000  

$1,250 million 6.625% senior notes, due 2021

     1,250,000        1,250,000  

$1,000 million 7.75% senior notes, due 2022

     1,000,000        1,000,000  

$0.6 million 7% debentures, due 2036, net

     572        572  

$4.3 million 6.7% debentures, due 2096

     4,265        4,265  
  

 

 

    

 

 

 
   $ 12,930,728      $ 13,447,230  
  

 

 

    

 

 

 

Debt due within one year of the March 31, 2014 balance sheet date is classified as long-term as the Company has both the intent and ability to refinance such amounts on a long-term basis under its senior credit facility.

Senior credit facility. At March 31, 2014, the Company’s senior credit facility consisted of $1.2 billion revolving credit facility, a $1.04 billion term loan A facility, and a $1.73 billion term loan B facility. The revolving and term loan A facilities bear interest at LIBOR plus an applicable rate determined by the Company’s credit rating (2.75% as of March 31, 2014). The term loan B facility bears interest at LIBOR plus 2.50%, with a LIBOR floor of 1.00%. The revolving and term loan A facilities mature in December 2017 and the term loan B facility matures in December 2019. The term loan A and term loan B facilities are subject to scheduled amortization payments on the last day of each calendar quarter in an amount equal to 0.25% of the original principal balance. The Company permanently repaid $7 million in the first quarter of 2014 in accordance with the scheduled amortization. The Company had $1.2 billion of available borrowing capacity under its senior credit facility at March 31, 2014. At March 31, 2014, the interest rate on the term loan A was 2.9% and the interest rate on the term loan B was 3.5%.

The land and substantially all of the assets of MGM Grand Las Vegas, Bellagio and The Mirage secure up to $3.35 billion of obligations outstanding under the senior credit facility. In addition, the land and substantially all of the assets of New York-New York and Gold Strike Tunica secure the entire amount of the senior credit facility and the land and substantially all of the assets of MGM Grand Detroit secure its $450 million of obligations as a co-borrower under the senior credit facility. In addition, the senior credit facility is secured by a pledge of the equity or limited liability company interests of the subsidiaries that own the pledged properties.

The senior credit facility contains customary representations and warranties and customary affirmative and negative covenants. In addition, the senior credit facility requires the Company and its restricted subsidiaries to maintain a minimum trailing four-quarter EBITDA and limits the ability of the Company and its restricted subsidiaries to make capital expenditures and investments. At March 31, 2014 and June 30, 2014, the Company and its restricted subsidiaries are required to maintain a minimum EBITDA (as defined in the senior credit facility) of $1.10 billion. The minimum EBITDA increases to $1.20 billion for September 30, 2014 and December 31, 2014, with periodic increases thereafter. EBITDA for the trailing twelve months ended March 31, 2014, calculated in accordance with the terms of the senior credit facility, was $1.35 billion. The senior credit facility limits the Company and its restricted subsidiaries to capital expenditures of $500 million per fiscal year, with unused amounts in any fiscal year rolling over to the next fiscal year, but not any fiscal year thereafter. The Company’s total capital expenditures allowable under the senior credit facility for fiscal year 2014, after giving effect to unused amounts from 2013, was $681 million. In addition, the senior credit facility limits the Company’s ability to make investments subject to certain thresholds and other important exceptions. As of March 31, 2014, the Company and its restricted subsidiaries were within the limit of capital expenditures and other investments for the calendar year 2014.

The senior credit facility provides for customary events of default, including, without limitation, (i) payment defaults, (ii) covenant defaults, (iii) cross-defaults to certain other indebtedness in excess of specified amounts, (iv) certain events of bankruptcy and insolvency, (v) judgment defaults in excess of specified amounts, (vi) the failure of any loan document by a significant party to be in full force and effect and such circumstance, in the reasonable judgment of the required lenders, is materially adverse to the lenders, or (vii) the security documents cease to create a valid and perfected first priority lien on any material portion of the collateral. In addition, the senior credit facility provides that a cessation of business due to revocation, suspension or loss of any gaming license affecting a specified amount of its revenues or assets, will constitute an event of default.

 

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MGM China credit facility. At March 31, 2014, the MGM China credit facility consisted of approximately $550 million of term loans and an approximately $1.45 billion revolving credit facility due October 2017. The credit facility is subject to scheduled amortization payments beginning in 2016. The outstanding balance at March 31, 2014 was comprised solely of term loans. The interest rate on the facility fluctuates annually based on HIBOR plus a margin, which ranges between 1.75% and 2.50%, based on MGM China’s leverage ratio. The margin was 1.75% at March 31, 2014. MGM China is a joint and several co-borrower with MGM Grand Paradise. MGM Grand Paradise’s interest in the Cotai land use right agreement will become collateral under the MGM China credit facility upon finalization of the appropriate government approvals. The material subsidiaries of MGM China continue to guarantee the facilities, and MGM China, MGM Grand Paradise and their guarantor subsidiaries have granted a security interest in substantially all of their assets to secure the amended facilities. The credit facility will be used for general corporate purposes and for the development of the Cotai project.

The MGM China credit facility agreement contains customary representations and warranties, events of default, affirmative covenants and negative covenants, which impose restrictions on, among other things, the ability of MGM China and its subsidiaries to make investments, pay dividends and sell assets, and to incur additional debt and additional liens. MGM China is also required to maintain compliance with a maximum consolidated total leverage ratio of 4.50 to 1.00 prior to the first anniversary of the MGM Cotai opening date and 4.00 to 1.00 thereafter, in addition to a minimum interest coverage ratio of 2.50 to 1.00. MGM China was in compliance with its credit facility covenants at March 31, 2014.

Senior notes. The Company repaid its $509 million 5.875% senior notes in February 2014 at maturity.

Senior convertible notes. In April 2010, the Company issued $1.15 billion of 4.25% convertible senior notes due 2015 for net proceeds to the Company of $1.12 billion. The notes are general unsecured obligations of the Company and rank equally in right of payment with the Company’s other existing senior unsecured indebtedness. The notes are convertible at an initial conversion rate of approximately 53.83 shares of the Company’s common stock per $1,000 principal amount of the notes, representing an initial conversion price of approximately $18.58 per share of the Company’s common stock. In connection with the offering, the Company entered into capped call transactions to reduce the potential dilution of the Company’s stock upon conversion of the notes. The capped call transactions have a cap price equal to approximately $21.86 per share.

In June 2011, the Company sold an additional $300 million in aggregate principal amount of 4.25% convertible senior notes due 2015 (the “Notes”) on terms that were consistent with those governing the Company’s existing convertible senior notes due 2015 for a purchase price of 103.805% of the principal amount. The Company received approximately $311 million in proceeds related to this transaction. The Notes were recorded at fair value determined by the trading price (105.872%) of the Company’s existing convertible notes on the date of issuance of the Notes, with the excess over the principal amount recorded as a premium to be recognized over the term of the Notes.

Fair value of long-term debt. The estimated fair value of the Company’s long-term debt at March 31, 2014 was $14.7 billion. At December 31, 2013, the estimated fair value of the Company’s long-term debt was $14.9 billion. Fair value was estimated using quoted market prices for the Company’s senior notes and senior credit facility. Carrying value of the MGM Grand Paradise credit facility approximates fair value.

NOTE 5 — COMMITMENTS AND CONTINGENCIES

CityCenter construction litigation. In March 2010, Perini Building Company, Inc. (“Perini”), general contractor for CityCenter, filed a lawsuit in the Eighth Judicial District Court for Clark County, State of Nevada, against MGM MIRAGE Design Group (a wholly owned subsidiary of the Company which was the original party to the Perini construction agreement) and certain direct or indirect subsidiaries of CityCenter Holdings, LLC (the “CityCenter Owners”). Perini asserted that CityCenter was substantially completed, but the defendants failed to pay Perini approximately $490 million allegedly due and owing under the construction agreement for labor, equipment and materials expended on CityCenter. The complaint further charged the defendants with failure to provide timely and complete design documents, late delivery to Perini of design changes, mismanagement of the change order process, obstruction of Perini’s ability to complete the Harmon component, and fraudulent inducement of Perini to compromise significant amounts due for its general conditions. The complaint advanced claims for breach of contract, breach of the implied covenant of good faith and fair dealing, tortious breach of the implied covenant of good faith and fair dealing, unjust enrichment and promissory estoppel, and fraud and intentional misrepresentation. Perini seeks compensatory damages, punitive damages, attorneys’ fees and costs.

In April 2010, Perini served an amended complaint in this case, which joins as defendants many owners of CityCenter residential condominium units (the “Condo Owner Defendants”), added a count for foreclosure of Perini’s recorded master mechanic’s lien against the CityCenter property in the amount of approximately $491 million, and asserted the priority of this mechanic’s lien over the interests of the CityCenter Owners, the Condo Owner Defendants and CityCenter lenders in the CityCenter property.

The CityCenter Owners and the other defendants dispute Perini’s allegations and contend that the defendants are entitled to substantial amounts from Perini, including offsets against amounts claimed to be owed to Perini and its subcontractors and damages based on breach of their contractual and other duties to CityCenter, duplicative payment requests, non-conforming work, lack of proof of alleged work performance, defective work related to the Harmon,

 

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property damage and Perini’s failure to perform its obligations to pay certain subcontractors and to prevent filing of liens against CityCenter. Parallel to the court litigation, CityCenter management conducted an extra-judicial program for settlement of CityCenter subcontractor claims. CityCenter has resolved the claims of 219 first-tier Perini subcontractors (including the claims of any lower-tier subcontractors that might have claims through those first-tier subcontractors), with only three remaining for further proceedings along with trial of Perini’s claims and CityCenter’s Harmon-related counterclaim and other claims by CityCenter against Perini and its parent guarantor, Tutor Perini. Two of the remaining subcontractors are implicated in the defective work at the Harmon. In August 2013, Perini recorded an amended notice of lien reducing its lien to approximately $167 million.

In November 2012, Perini filed a second amended complaint which, among other things, added claims against the CityCenter defendants of breach of contract (alleging that CityCenter’s Owner Controlled Insurance Program (“OCIP”) failed to provide adequate project insurance for Perini with broad coverages and high limits), and tortious breach of the implied covenant of good faith and fair dealing (alleging improper administration by CityCenter of the OCIP and Builders Risk insurance programs).

In 2013, CityCenter reached a settlement agreement with certain professional service providers against whom it had asserted claims in this litigation for errors or omissions with respect to the CityCenter project, which settlement has been approved by the court. In April 2014, CityCenter settled for $55 million, net of deductible, its 2008 builder’s risk insurance claim for loss and damage with respect to the Harmon’s defective condition.

Further, CityCenter and Perini have entered a settlement agreement which resolves most but not all of the components of Perini’s non-Harmon-related lien claim against CityCenter. The settlement established a stipulated value for Perini’s mechanic’s lien, which amount will not be paid until resolution of CityCenter’s damages claim for the Harmon and will be offset against any judgment CityCenter obtains against Perini for damages relating to construction of the Harmon. Pursuant to the parties’ stipulation, on February 24, 2014, Perini filed a revised lien for $174 million as the amount claimed by Perini and the remaining Harmon-related subcontractors. The discovery process continues. Trial of the remainder of Perini’s lien claim, the remaining subcontractors’ claims against CityCenter, and CityCenter’s counterclaims against Perini and certain subcontractors for defective work at the Harmon has been rescheduled to commence on September 23, 2014.

CityCenter Owners and the other defendants will continue to vigorously assert and protect their interests in the Perini lawsuit. The Company believes it is probable that the CityCenter Owners and the other defendants will be liable for $140 million in connection with the non-Harmon settlement agreement and remaining claims in this lawsuit. Amounts determined to be owed would be funded in part under the Company’s completion guarantee which is discussed below. The Company does not believe it is reasonably possible it will be liable for any material amount in excess of its estimate of its probable liability. The Company’s estimate of its probable liability does not include any offset for amounts that may be recovered on its counterclaims against Perini and certain subcontractors for defective work at the Harmon.

Please see below for further discussion on the Company’s completion guarantee obligation which may be impacted by the outcome of the above litigation and CityCenter’s extra-judicial settlement process.

CityCenter completion guarantee. In October 2013, the Company entered into a third amended and restated completion and cost overrun guarantee, which is collateralized by substantially all of the assets of Circus Circus Las Vegas, as well as certain undeveloped land adjacent to that property. The terms of the amended and restated completion guarantee provide CityCenter the ability to utilize up to $72 million of net residential proceeds to fund construction costs, or to reimburse the Company for construction costs previously expended. As of March 31, 2014, CityCenter is holding approximately $72 million in a separate bank account representing the remaining condo proceeds available to fund completion guarantee obligations or be reimbursed to the Company. In accordance with the amended and restated completion guarantee, such amounts may only be used to fund construction lien obligations or to reimburse the Company once the Perini litigation is settled.

As of March 31, 2014, the Company has funded $721 million under the completion guarantee and has accrued a liability of $104 million, which includes estimated litigation costs related to the resolution of disputes with contractors concerning the final construction costs and estimated amounts to be paid to contractors through the legal process related to the Perini litigation. The Company does not believe it is reasonably possible it could be liable for amounts in excess of what it has accrued. The Company’s estimated obligation has been offset by the $72 million of condominium proceeds received and held in escrow by CityCenter, which are available to fund construction lien claims upon the resolution of the Perini litigation. Also, the Company’s accrual reflects certain estimated offsets to the amounts claimed by the contractors. Moreover, the Company has not accrued for any contingent payments to CityCenter related to the Harmon component.

Harmon demolition. In response to a request by the Clark County Building Division (the “Building Division”), CityCenter engaged an engineer to conduct an analysis, based on all available information, as to the structural stability of the Harmon under building-code-specified load combinations. On July 11, 2011, that engineer submitted the results of his analysis of the Harmon tower and podium in its current as-built condition. The engineer opined, among other things, that “[i]n a code-level earthquake, using either the permitted or current code specified loads, it is likely that critical structural members in the tower will fail and become incapable of supporting gravity loads, leading to a partial or complete collapse of the tower. There is missing or misplaced reinforcing steel in columns, beams, shear walls, and transfer walls throughout the structure of the tower below the twenty-first floor.” Based on this engineering opinion, the Building Division requested a plan of action from CityCenter. CityCenter informed the Building Division that it decided to abate the potential for structural collapse of the Harmon in the event of a code-level earthquake by demolishing the building, and enclosed a plan of action for demolition by implosion prepared by LVI Environmental Services of Nevada, Inc (“LVI”). CityCenter also advised that prior to undertaking the demolition plan of action, it would seek relief from a

 

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standing order of the district court judge presiding over the Perini litigation that prohibits alteration or destruction of the building without court approval. In addition, CityCenter supplied the foundational data for the engineering conclusions stated in the July 11, 2011 letter declaring the Harmon’s structural instability in the event of a code-level earthquake. On November 22, 2011, the Building Division required that CityCenter submit a plan to abate the code deficiencies discovered in the Harmon tower.

In December 2011, CityCenter resubmitted to the Building Division the plan of abatement action prepared by LVI which was first submitted on August 15, 2011, and met with the Building Division about the requirements necessary to obtain demolition permits and approvals. As discussed above, the timing of the demolition of the Harmon is subject to rulings in the Perini litigation.

The district court presiding over the Perini litigation had previously granted CityCenter’s motion to demolish the Harmon, but stayed the demolition to allow CityCenter an opportunity to conduct additional Phase 4 destructive testing at the Harmon following the court’s order prohibiting CityCenter’s structural engineering expert from extrapolating the results of pre-Phase 4 testing to untested portions of the building.

In May 2013, CityCenter completed additional Phase 4 destructive testing of 468 structural elements at the Harmon, analysis of which data confirmed the existence of a wide variety of construction defects throughout the Harmon tower. In his June 2013 expert report CityCenter’s structural engineer opined that the additional test results and extrapolation thereof to untested portions of the building show that after a service-level earthquake (typically defined as an earthquake with a 50% chance of occurring in 30 years), the Harmon can be expected to sustain extensive damage and failure of many structural elements, and in a large earthquake, such as a building code-level earthquake, critical elements of the Harmon are likely to fail and lead to a partial or complete collapse of the tower. In April 2013, Perini’s structural engineering expert John A. Martin & Associates (“JAMA”) had sent a letter to the Building Division which declared in part that JAMA no longer believes that the Harmon Tower can be repaired to a code compliant structure, which condition JAMA attributed to CityCenter’s building testing. On July 18, 2013 CityCenter filed a renewed motion with the district court for permission to demolish the Harmon. On August 23, 2013, the court granted CityCenter’s motion, and CityCenter commenced planning for demolition of the building. On January 31, 2014, the court revoked its prior authorization of demolition of the Harmon, without prejudice to renewal of the application, on the grounds that CityCenter’s non-party builder’s risk insurer requested further testing in the building. That request for further testing was withdrawn pursuant to the insurer’s settlement of CityCenter’s Harmon 2008 policy claim. On April 22, 2014 the court granted CityCenter’s renewed application for permission to demolish the Harmon. The Clark County Building Department has issued the first in a series of permits required for demolition of this building. CityCenter is continuing to plan for a controlled deconstruction of the Harmon structure in accordance with the standards set by its expert consultants and the Clark County Building Department.

The Company does not believe it would be responsible for funding any additional remediation efforts under the completion guarantee that might be required with respect to the Harmon; however, the Company’s view is based on a number of developing factors, including with respect to on-going litigation with CityCenter’s contractors, actions by local officials and other developments related to the CityCenter venture, all of which are subject to change.

Cotai land concession contract. MGM Grand Paradise’s land concession contract for an approximate 17.8 acre site in Cotai, Macau became effective on January 9, 2013 and has an initial term of 25 years. The total land premium payable to the Macau government for the land concession contract is $161 million and is composed of a down payment and eight additional semi-annual payments. As of March 31, 2014, MGM China had paid $86 million of the contract premium recorded within other long-term assets, net. Including interest on the six remaining semi-annual payments, MGM China has approximately $88 million remaining payable for the land concession contract. In addition, MGM Grand Paradise is required to pay the Macau government approximately $269,000 per year in rent during the course of development of the land and approximately $681,000 per year in rent once the development is completed. The annual rent is subject to review by the Macau government every five years. Under the terms of the land concession contract, MGM Grand Paradise is required to complete the development of the land by January 2018.

Other guarantees. The Company is party to various guarantee contracts in the normal course of business, which are generally supported by letters of credit issued by financial institutions. The Company’s senior credit facility limits the amount of letters of credit that can be issued to $500 million, and the amount of available borrowings under the senior credit facility is reduced by any outstanding letters of credit. At March 31, 2014, the Company had provided $35 million of letters of credit. At March 31, 2014, MGM China had provided $39 million of guarantees under its credit facility.

Other litigation. The Company is a party to various legal proceedings, most of which relate to routine matters incidental to its business. Management does not believe that the outcome of such proceedings will have a material adverse effect on the Company’s financial position, results of operations or cash flows.

 

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NOTE 6 — INCOME PER SHARE OF COMMON STOCK

The weighted-average number of common and common equivalent shares used in the calculation of basic and diluted income per share consisted of the following:

 

     Three Months Ended  
     March 31,  
     2014     2013  
     (In thousands)  

Numerator:

    

Net income attributable to MGM Resorts International—basic

   $ 108,160     $ 6,546  

Interest on convertible debt, net of tax

     2,195       —    

Potentially dilutive effect due to MGM China Share Option Plan

     (132     —    
  

 

 

   

 

 

 

Net income attributable to MGM Resorts International—diluted

   $ 110,223     $ 6,546  
  

 

 

   

 

 

 

Denominator:

    

Weighted-average common shares outstanding—basic

     490,542       489,291  

Potential dilution from share-based awards

     6,453       3,014  

Potential dilution from assumed conversion of convertible debt

     16,149       —    
  

 

 

   

 

 

 

Weighted-average common and common equivalent shares—diluted

     513,144       492,305  
  

 

 

   

 

 

 

Anti-dilutive share-based awards excluded from the calculation of diluted earnings per share

     2,625       10,974  
  

 

 

   

 

 

 

For the three months ended March 31, 2014, potential dilution from the assumed conversion of convertible debt relates to the $300 million 4.25% senior convertible notes issued in June 2011. The $1.15 billion 4.25% senior convertible notes issued in April 2010 were excluded from the calculation of diluted earnings per share as their effect would be antidilutive. For the three months ended March 31, 2013, both the $300 million and $1.15 billion 4.25% senior convertible notes were excluded from the calculation of diluted earnings per share as their effect would be antidilutive.

NOTE 7 — STOCKHOLDERS’ EQUITY

MGM China dividends. MGM China paid a $499 million special dividend in March 2014, of which $254 million remained within the consolidated entity and $245 million was distributed to noncontrolling interests. Additionally, in February 2014, MGM China’s Board of Directors recommended a final dividend for 2013 of approximately $128 million, subject to approval at the 2014 annual shareholder meeting.

MGM China paid a $500 million special dividend in March 2013, of which $255 million remained within the consolidated entity and $245 million was distributed to noncontrolling interests.

Supplemental equity information. The following table presents the Company’s changes in stockholders’ equity for the three months ended March 31, 2014:

 

     MGM Resorts
International
Stockholders’
Equity
    Noncontrolling
Interests
    Total
Stockholders’
Equity
 
     (In thousands)  

Balances, January 1, 2014

   $ 4,231,179     $ 3,644,444     $ 7,875,623  

Net income

     108,160       83,448       191,608  

Foreign currency translation adjustment

     (1,517     (1,243     (2,760

Other comprehensive income from unconsolidated affiliate, net

     1,250       —         1,250  

Stock-based compensation

     7,747       716       8,463  

Change in excess tax benefit from stock-based compensation

     (7,933     —         (7,933

Issuance of MGM Resorts common stock pursuant to stock-based compensation awards

     (2,869     —         (2,869

Cash distributions to noncontrolling interest owners

     —         (247,561     (247,561

Issuance of PSUs

     7,529       —         7,529  

Other

     (257     (247     (504
  

 

 

   

 

 

   

 

 

 

Balances, March 31, 2014

   $ 4,343,289     $ 3,479,557     $ 7,822,846  
  

 

 

   

 

 

   

 

 

 

 

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Accumulated other comprehensive income (loss). Changes in accumulated other comprehensive income (loss) by component are as follows:

 

     Foreign
Currency
Translation
Adjustment
    Other
Adjustments
    Total  
     (In thousands)  

Balances, January 1, 2014

   $ 13,082     $ (579   $ 12,503  

Current period other comprehensive income (loss)

     (1,517     1,250       (267
  

 

 

   

 

 

   

 

 

 

Balances, March 31, 2014

   $ 11,565     $ 671     $ 12,236  
  

 

 

   

 

 

   

 

 

 

NOTE 8 — STOCK-BASED COMPENSATION

2005 Omnibus Incentive Plan. As of March 31, 2014, the Company had an aggregate of 15 million shares of common stock available for grant as share-based awards under the Company’s omnibus incentive plan (“Omnibus Plan”). A summary of activity under the Company’s share-based payment plans for the three months ended March 31, 2014 is presented below:

Stock options and stock appreciation rights (“SARs”)

 

     Units
(000’s)
    Weighted
Average
Exercise
Price
 

Outstanding at January 1, 2014

     16,074     $ 15.22  

Exercised

     (729     13.77  

Forfeited or expired

     (115     44.38  
  

 

 

   

Outstanding at March 31, 2014

     15,230       15.06  
  

 

 

   

Exercisable at March 31, 2014

     9,643       16.19  
  

 

 

   

Restricted stock units (“RSUs”) and performance share units (“PSUs”)

 

     RSUs      PSUs  
     Units
(000’s)
    Weighted
Average
Grant-Date
Fair Value
     Units
(000’s)
     Weighted
Average
Grant-Date
Fair Value
     Weighted
Average
Target
Price
 

Nonvested at January 1, 2014

     1,339     $ 13.85        1,055      $ 13.91      $ 16.95  

Granted

     3       24.29        —          —          —    

Forfeited

     (7     12.46        —          —          —    
  

 

 

      

 

 

       

Nonvested at March 31, 2014

     1,335       13.88        1,055        13.91        16.95  
  

 

 

      

 

 

       

In 2013, the Company began granting PSUs for the portion of any calculated bonus for a Section 16 officer of the Company that is in excess of such officer’s base salary (the “Bonus PSU Policy”). Awards granted under the Bonus PSU Policy have the same terms as PSUs granted under the Omnibus Plan with the exception that as of the grant date the awards will not be subject to forfeiture in the event of the officer’s termination. During the three months ended March 31, 2014, the Company granted 265,122 PSUs pursuant to the Bonus PSU Policy with a target price of $31.72. Such awards are excluded from the table above.

 

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MGM China Share Option Plan. As of March 31, 2014, MGM China had an aggregate of 358 million shares of options available for grant as share-based awards under the MGM China share option plan (“MGM China Plan”). A summary of activity under the MGM China Plan for the three months ended March 31, 2014 is presented below:

Stock options

 

     Units
(000’s)
    Weighted
Average
Exercise
Price
 

Outstanding at January 1, 2014

     16,916     $ 2.06  

Granted

     700       4.16  

Exercised

     (228     1.88  

Forfeited or expired

     (200     2.54  
  

 

 

   

Outstanding at March 31, 2014

     17,188       2.14  
  

 

 

   

Exercisable at March 31, 2014

     6,493       1.98  
  

 

 

   

Recognition of compensation cost. Compensation cost for both the Omnibus Plan and MGM China Plan was recognized as follows:

 

     Three Months Ended  
     March 31,  
     2014     2013  
     (In thousands)  

Compensation cost:

  

Omnibus Plan

   $ 7,002     $ 7,260  

MGM China Plan

     1,461       1,680  
  

 

 

   

 

 

 

Total compensation cost

     8,463       8,940  

Less: Reimbursed costs and other

     (268     (317
  

 

 

   

 

 

 

Compensation cost recognized as expense

     8,195       8,623  

Less: Related tax benefit

     (2,317     —    
  

 

 

   

 

 

 

Compensation expense, net of tax benefit

   $ 5,878     $ 8,623  
  

 

 

   

 

 

 

NOTE 9 — SEGMENT INFORMATION

The Company’s management views each of its casino resorts as an operating segment. Operating segments are aggregated based on their similar economic characteristics, types of customers, types of services and products provided, the regulatory environments in which they operate, and their management and reporting structure. The Company’s principal operating activities occur in two geographic regions: the United States and Macau S.A.R. The Company has aggregated its operations into two reportable segments based on the similar characteristics of the operating segments within the regions in which they operate: wholly owned domestic resorts and MGM China. The Company’s operations related to investments in unconsolidated affiliates and certain other corporate operations and management services have not been identified as separate reportable segments; therefore, these operations are included in corporate and other in the following segment disclosures to reconcile to consolidated results.

The Company’s management utilizes Adjusted Property EBITDA as the primary profit measure for its reportable segments. Adjusted Property EBITDA is a non-GAAP measure defined as Adjusted EBITDA before corporate expense and stock compensation expense related to the MGM Resorts stock option plan, which are not allocated to the reportable segments. MGM China recognizes stock compensation expense related to its stock compensation plan which is included in the calculation of Adjusted EBITDA for MGM China. Adjusted EBITDA is a non-GAAP measure defined as earnings before interest and other non-operating income (expense), taxes, depreciation and amortization, preopening and start-up expenses and property transactions, net.

The following tables present the Company’s segment information:

 

     Three Months Ended  
     March 31,  
     2014      2013  
     (In thousands)  

Net Revenues:

     

Wholly owned domestic resorts

   $ 1,570,234      $ 1,489,188  

MGM China

     941,448        747,557  
  

 

 

    

 

 

 

Reportable segment net revenues

     2,511,682        2,236,745  

Corporate and other

     118,716        115,403  
  

 

 

    

 

 

 
   $ 2,630,398      $ 2,352,148  
  

 

 

    

 

 

 

 

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Table of Contents

Adjusted EBITDA:

  

 

Wholly owned domestic resorts

   $ 402,846     $ 361,037  

MGM China

     240,725       180,455  
  

 

 

   

 

 

 

Reportable segment Adjusted Property EBITDA

     643,571       541,492  

Corporate and other

     (17,089     (17,120
  

 

 

   

 

 

 
     626,482       524,372  

Other operating expense:

    

Preopening and start-up expenses

     (5,636     (2,146

Property transactions, net

     (558     (8,491

Depreciation and amortization

     (207,655     (211,918
  

 

 

   

 

 

 

Operating income

     412,633       301,817  
  

 

 

   

 

 

 

Non-operating expense:

    

Interest expense, net of amounts capitalized

     (209,387     (225,447

Non-operating items from unconsolidated affiliates

     (13,723     (22,079

Other, net

     (1,434     (1,282
  

 

 

   

 

 

 
     (224,544     (248,808
  

 

 

   

 

 

 

Income before income taxes

     188,089       53,009  

Benefit (provision) for income taxes

     3,519       (30,431
  

 

 

   

 

 

 

Net income

     191,608       22,578  

Less: Net income attributable to noncontrolling interests

     (83,448     (16,032
  

 

 

   

 

 

 

Net income attributable to MGM Resorts International

   $ 108,160     $ 6,546  
  

 

 

   

 

 

 

NOTE 10 — RELATED PARTY TRANSACTIONS

MGM China. MGM Branding and Development Holdings, Ltd., (together with its subsidiary MGM Development Services, Ltd, “MGM Branding and Development”), an entity included in the Company’s consolidated financial statements in which Ms. Pansy Ho indirectly holds a noncontrolling interest, entered into a brand license agreement with MGM China. MGM China pays a license fee to MGM Branding and Development equal to 1.75% of MGM China’s consolidated net revenue, subject to an annual cap of $43 million in 2014 with a 20% increase per annum during the agreement term. During the three months ended March 31, 2014 and 2013, MGM China incurred total license fees of $16 million and $13 million, respectively. Such amounts have been eliminated in consolidation.

MGM China also entered into a development services agreement with MGM Branding and Development to provide certain development services to MGM China in connection with future expansion of existing projects and development of future resort gaming projects. Such services are subject to a development fee which is calculated separately for each resort casino property upon commencement of development. For each such property, the fee is 2.625% of project costs, to be paid in installments as certain benchmarks are achieved. Project costs are the total costs incurred for the design, development and construction of the casino, casino hotel, integrated resort and other related sites associated with each project, including costs of construction, fixtures and fittings, signage, gaming and other supplies and equipment and all costs associated with the opening of the business to be conducted at each project but excluding the cost of land and gaming concessions and financing costs. The development fee for MGM Cotai is subject to a cap of $24 million in 2014, which will increase by 10% per annum for each year during the term of the agreement. For the three months ended March 31, 2013, MGM China incurred $15 million of fees to MGM Branding and Development related to development services. Such amount was eliminated in consolidation. No fee was incurred during the three months ended March 31, 2014.

An entity owned by Ms. Pansy Ho received distributions of $3 million and $10 million, respectively, during the three months ended March 31, 2014 and 2013 in connection with the ownership of a noncontrolling interest in MGM Branding and Development Holdings, Ltd.

 

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NOTE 11 — CONDENSED CONSOLIDATING FINANCIAL INFORMATION

The Company’s domestic subsidiaries, excluding certain minor subsidiaries, its domestic insurance subsidiaries and MGM Grand Detroit, LLC, have fully and unconditionally guaranteed, on a joint and several basis, payment of the senior credit facility and the outstanding debt securities. The Company’s international subsidiaries, including MGM China, are not guarantors of such indebtedness. Separate condensed financial statement information for the subsidiary guarantors and non-guarantors as of March 31, 2014 and December 31, 2013 and for the three months ended March 31, 2014 and 2013 are presented below. Within the Condensed Consolidating Statements of Cash Flows for the period ending March 31, 2014, the Company has presented net changes in intercompany accounts as investing activities if the applicable entities have a net asset in intercompany accounts, and as a financing activity if the applicable entities have a net intercompany liability balance.

CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION

 

     At March 31, 2014  
     Parent      Guarantor
Subsidiaries
     Non-Guarantor
Subsidiaries
     Elimination     Consolidated  
     (In thousands)  

Current assets

   $ 219,451      $ 901,839      $ 849,624      $ (284   $ 1,970,630  

Property and equipment, net

     —          12,493,347        1,552,700        (11,972     14,034,075  

Investments in subsidiaries

     20,024,280        3,832,773        —          (23,857,053     —    

Investments in and advances to unconsolidated affiliates

     —          1,384,048        7,616        25,000       1,416,664  

Intercompany accounts

     —           1,718,624         —           (1,718,624     —     

Other non-current assets

     149,548        553,409        7,226,383        —         7,929,340  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 
   $ 20,393,279      $ 20,884,040      $ 9,636,323      $ (25,562,933   $ 25,350,709  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Current liabilities

   $ 391,719      $ 952,792      $ 815,337      $ (284   $ 2,159,564  

Intercompany accounts

     1,656,756        —           61,868        (1,718,624 )     —    

Deferred income taxes

     1,995,682        —          309,640        —         2,305,322  

Long-term debt

     11,924,713        4,837        1,001,178        —         12,930,728  

Other long-term obligations

     81,120        50,080        1,049        —         132,249  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities

     16,049,990        1,007,709         2,189,072        (1,718,908     17,527,863  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

MGM Resorts stockholders’ equity

     4,343,289        19,876,331        3,967,694        (23,844,025     4,343,289  

Noncontrolling interests

     —          —          3,479,557        —         3,479,557  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total stockholders’ equity

     4,343,289        19,876,331        7,447,251        (23,844,025     7,822,846  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 
   $ 20,393,279      $ 20,884,040      $ 9,636,323      $ (25,562,933   $ 25,350,709  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

     At December 31, 2013  
     Parent      Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
     Elimination     Consolidated  
     (In thousands)  

Current assets

   $ 494,296      $ 903,537     $ 1,322,170      $ (564   $ 2,719,439  

Property and equipment, net

     —          12,552,828       1,514,356        (11,972     14,055,212  

Investments in subsidiaries

     20,017,270        4,037,168       —          (24,054,438     —    

Investments in and advances to unconsolidated affiliates

     —          1,367,071       7,765        —         1,374,836  

Other non-current assets

     167,552        542,259       7,250,887        —         7,960,698  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 
   $ 20,679,118      $ 19,402,863     $ 10,095,178      $ (24,066,974   $ 26,110,185  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Current liabilities

   $ 340,343      $ 959,118     $ 941,431      $ (25,564   $ 2,215,328  

Intercompany accounts

     1,446,952        (1,470,305     23,353        —         —    

Deferred income taxes

     2,120,676        —         309,738        —         2,430,414  

Long-term debt

     12,441,112        4,836       1,001,282        —         13,447,230  

Other long-term obligations

     98,856        41,758       976        —         141,590  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total liabilities

     16,447,939        (464,593     2,276,780        (25,564     18,234,562  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

MGM Resorts stockholders’ equity

     4,231,179        19,867,456       4,173,954        (24,041,410     4,231,179  

Noncontrolling interests

     —          —         3,644,444        —         3,644,444  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total stockholders’ equity

     4,231,179        19,867,456       7,818,398        (24,041,410     7,875,623  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 
   $ 20,679,118      $ 19,402,863     $ 10,095,178      $ (24,066,974   $ 26,110,185  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

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Table of Contents

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME INFORMATION

 

     Three Months Ended March 31, 2014  
      Parent     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Elimination     Consolidated  
     (In thousands)  

Net revenues

   $ —       $ 1,556,329     $ 1,074,662     $ (593   $ 2,630,398  

Equity in subsidiaries’ earnings

     306,971       93,369       —         (400,340     —    

Expenses:

          

Casino and hotel operations

     1,254       921,974       727,460       (593     1,650,095  

General and administrative

     1,112       260,640       57,494       —         319,246  

Corporate expense

     16,739       33,586       3,026       —         53,351  

Preopening and start-up expenses

     —         1,991       3,645       —         5,636  

Property transactions, net

     —         494       64       —         558  

Depreciation and amortization

     —         128,075       79,580       —         207,655  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     19,105       1,346,760       871,269       (593     2,236,541  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from unconsolidated affiliates

     —         18,723       53       —         18,776  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     287,866       321,661       203,446       (400,340     412,633  

Interest expense, net of amounts capitalized

     (200,897     (104     (8,386     —         (209,387

Other, net

     18,590       (14,363     (19,384     —         (15,157
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     105,559       307,194       175,676       (400,340     188,089  

Benefit (provision) for income taxes

     2,601       1,641       (723     —         3,519  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     108,160       308,835       174,953       (400,340     191,608  

Less: Net income attributable to noncontrolling interests

     —         —         (83,448     —         (83,448
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to MGM Resorts International

   $ 108,160     $ 308,835     $ 91,505     $ (400,340   $ 108,160  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 108,160     $ 308,835     $ 174,953     $ (400,340   $ 191,608  

Other comprehensive income (loss), net of tax:

          

Foreign currency translation adjustment

     (1,517     (1,517     (2,760     3,034       (2,760

Other

     1,250       1,250       —         (1,250     1,250  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss)

     (267     (267     (2,760     1,784       (1,510
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

     107,893       308,568       172,193       (398,556     190,098  

Less: Comprehensive income attributable to noncontrolling interests

     —         —         (82,205     —         (82,205
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to MGM Resorts International

   $ 107,893     $ 308,568     $ 89,988     $ (398,556   $ 107,893  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION

 

     Three Months Ended March 31, 2014  
     Parent     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Elimination     Consolidated  
     (In thousands)  

Cash flows from operating activities

          

Net cash provided by (used in) operating activities

   $ (186,046   $ 301,590     $ 150,251     $ 25,000     $ 290,795  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from investing activities

          

Capital expenditures, net of construction payable

     —         (69,530     (123,221     —         (192,751

Dispositions of property and equipment

     —         69       66       —         135  

Investments in and advances to unconsolidated affiliates

     (5,200     (1,975     —         (25,000     (32,175

Distributions from unconsolidated affiliates in excess of earnings

     —         497       —         —         497  

Investments in treasury securities - maturities longer than 90 days

     —         (54,064     —         —         (54,064

Proceeds from treasury securities - maturities longer than 90 days

     —         63,063       —         —         63,063  

Intercompany transactions

     —          (248,319     —          248,319        —     

Other

     —         1,226       —         —         1,226  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     (5,200     (309,033     (123,155     223,319        (214,069
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from financing activities

          

Net repayments under bank credit facilities - maturities of 90 days or less

     (1,285,125     —         (450,000     —         (1,735,125

Borrowings under bank credit facilities - maturities longer than 90 days

     1,278,125       —         450,000       —         1,728,125  

Retirement of senior notes

     (508,900     —         —         —         (508,900

Intercompany transactions

     515,595       (9,057     (258,219     (248,319     —    

Distributions to noncontrolling interest owners

     —         —         (247,140     —         (247,140

Other

     (1,202     —         (446     —         (1,648
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in financing activities

     (1,507     (9,057     (505,805     (248,319     (764,688
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Effect of exchange rate on cash

     —         —         (971     —         (971
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents

          

Net decrease for the period

     (192,753     (16,500     (479,680     —         (688,933

Balance, beginning of period

     378,660       237,457       1,187,552       —         1,803,669  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, end of period

   $ 185,907     $ 220,957     $ 707,872     $ —       $ 1,114,736  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME INFORMATION

 

     Three Months Ended March 31, 2013  
     Parent     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Elimination     Consolidated  
     (In thousands)  

Net revenues

   $ —       $ 1,463,965     $ 888,662     $ (479   $ 2,352,148  

Equity in subsidiaries’ earnings

     183,423       29,986       —         (213,409     —    

Expenses:

          

Casino and hotel operations

     1,510       886,083       606,481       (479     1,493,595  

General and administrative

     1,090       251,549       51,262       —         303,901  

Corporate expense

     14,808       27,739       4,077       —         46,624  

Preopening and start-up expenses

     —         (228     2,374       —         2,146  

Property transactions, net

     —         8,295       196       —         8,491  

Depreciation and amortization

     —         127,831       84,087       —         211,918  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     17,408       1,301,269       748,477       (479     2,066,675  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from unconsolidated affiliates

     —         16,338       6       —         16,344  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     166,015       209,020       140,191       (213,409     301,817  

Interest expense, net of amounts capitalized

     (208,683     (2,985     (13,779     —         (225,447

Other, net

     15,166       (22,818     (15,709     —         (23,361
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     (27,502     183,217       110,703       (213,409     53,009  

Benefit (provision) for income taxes

     34,048       1,457       (65,936     —         (30,431
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     6,546       184,674       44,767       (213,409     22,578  

Less: Net income attributable to noncontrolling interests

     —         —         (16,032     —         (16,032
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to MGM Resorts International

   $ 6,546     $ 184,674     $ 28,735     $ (213,409   $ 6,546  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 6,546     $ 184,674     $ 44,767     $ (213,409   $ 22,578  

Other comprehensive income (loss), net of tax:

          

Foreign currency translation adjustment

     (6,436     (6,436     (12,641     12,872       (12,641

Other

     115       115       —         (115     115  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss)

     (6,321     (6,321     (12,641     12,757       (12,526
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

     225       178,353       32,126       (200,652     10,052  

Less: Comprehensive income attributable to noncontrolling interests

     —         —         (9,827     —         (9,827
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to MGM Resorts International

   $ 225     $ 178,353     $ 22,299     $ (200,652   $ 225  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION

 

     Three Months Ended March 31, 2013  
     Parent     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Elimination      Consolidated  
     (In thousands)  

Cash flows from operating activities

           

Net cash provided by (used in) operating activities

   $ (203,987   $ 198,580     $ 200,063     $ —        $ 194,656  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Cash flows from investing activities

           

Capital expenditures, net of construction payable

     —         (51,766     (45,649     —          (97,415

Dispositions of property and equipment

     —         108       127       —          235  

Investments in and advances to unconsolidated affiliates

     (6,400     —         —         —          (6,400

Distributions from unconsolidated affiliates in excess of earnings

     —         103       —         —          103  

Investments in treasury securities - maturities longer than 90 days

     —         (60,138     —         —          (60,138

Proceeds from treasury securities - maturities longer than 90 days

     —         60,112       —         —          60,112  

Other

     —         (113     —         —          (113
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net cash used in investing activities

     (6,400     (51,694     (45,522     —          (103,616
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Cash flows from financing activities

           

Net repayments under bank credit facilities - maturities of 90 days or less

     (2,240,000     —         (450,000     —          (2,690,000

Borrowings under bank credit facilities - maturities longer than 90 days

     2,343,000       —         450,000       —          2,793,000  

Intercompany transactions

     474,764       (200,367     (274,397     —          —    

Distributions to noncontrolling interest owners

     —         —         (254,659     —          (254,659

Other

     (583     —         (280     —          (863
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net cash provided by (used in) financing activities

     577,181       (200,367     (529,336     —          (152,522
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Effect of exchange rate on cash

     —         —         (1,390     —          (1,390
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Cash and cash equivalents

           

Net increase (decrease) for the period

     366,794       (53,481     (376,185     —          (62,872

Balance, beginning of period

     254,385       226,242       1,062,882       —          1,543,509  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Balance, end of period

   $ 621,179     $ 172,761     $ 686,697     $ —        $ 1,480,637  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This management’s discussion and analysis of financial condition and results of operations (“MD&A”) contains forward-looking statements that involve risks and uncertainties. Please see “Cautionary Statement Concerning Forward-Looking Statements” for a discussion of the uncertainties, risks and assumptions that may cause our actual results to differ materially from those discussed in the forward-looking statements. This discussion should be read in conjunction with our historical financial statements and related notes thereto and the other disclosures contained elsewhere in this Quarterly Report on Form 10-Q, and the audited consolidated financial statements and notes for the fiscal year ended December 31, 2013, which were included in our Form 10-K, filed with the Securities and Exchange Commission on March 3, 2014. The results of operations for the periods reflected herein are not necessarily indicative of results that may be expected for future periods. MGM Resorts International together with its subsidiaries may be referred to as “we,” “us” or “our.” MGM China Holdings Limited together with its subsidiaries is referred to as “MGM China.”

Executive Overview

Our primary business is the ownership and operation of casino resorts, which includes offering gaming, hotel, convention, dining, entertainment, retail and other resort amenities. We believe that we own and invest in several of the premier casino resorts in the world and have continually reinvested in our resorts to maintain our competitive advantage. Most of our revenue is cash-based, through customers wagering with cash or paying for non-gaming services with cash or credit cards. We rely heavily on the ability of our resorts to generate operating cash flow to repay debt financings, fund capital expenditures and provide excess cash flow for future development. We make significant investments in our resorts through newly remodeled hotel rooms, restaurants, entertainment and nightlife offerings as well as other new features and amenities.

Results of operations from our wholly owned domestic resorts in the first quarter of 2014 improved compared to the first quarter of 2013 primarily as a result of increased hotel revenues as general economic conditions continue to improve. During the three months ended March 31, 2014, visitor volume to Las Vegas increased 5.3% and the average daily Las Vegas Strip room rate increased 10.6% compared to the same period in the prior year, as reported by the Las Vegas Convention and Visitors Authority. We expect our resorts to benefit from a continued trend of improvements in general economic conditions in 2014.

In Macau, results of operations also improved in the first quarter of 2014 compared to the prior year period as a result of strong gaming volumes benefiting from economic growth in China. Despite concerns about the sustainability of economic growth in China, we expect the Macau market to continue to grow as a result of a large and growing Asian middle class and infrastructure improvements expected to facilitate more convenient travel to and within Macau. According to statistics published by the Statistics Census Service of the Macau government, visitor arrivals were 8 million in the first quarter 2014, a 9% increase compared to the first quarter of 2013. Gross casino revenues for the Macau market increased 20% in the first quarter of 2014, with increases in both high-end (“VIP”) and main floor volumes.

Our results of operations are affected by decisions we make related to our capital allocation, our access to capital and our cost of capital. While we continue to be focused on improving our financial position, we are also dedicated to capitalizing on development opportunities. In Macau, we plan to spend approximately $2.9 billion, excluding development fees eliminated in consolidation, capitalized interest and land related costs, to develop a resort and casino featuring up to 1,600 hotel rooms, 500 gaming tables, and 2,500 slots built on an approximately 17.8 acre site in Cotai, Macau (“MGM Cotai”).

In December 2013, our subsidiary MGM National Harbor, LLC (“MGM National Harbor”) was awarded the license to operate the sixth and final casino under current statutes in the State of Maryland by the Maryland Video Lottery Facility Location Commission to build and operate a world-class destination resort casino in Prince George’s County at National Harbor. We currently expect the cost to develop and construct MGM National Harbor to be approximately $1.0 billion, excluding capitalized interest and land related costs. We expect that the resort will include a casino with approximately 3,600 slots and 160 table games including poker; a 300-suite hotel with luxury spa and rooftop pool; high-end branded retail; fine and casual dining; a dedicated 3,000 seat theater venue; 35,000 square feet of meeting and event space; and a 5,000-space parking structure.

Our subsidiary MGM Springfield is the only remaining applicant for the casino license in Region B, Western Massachusetts, one of three licensing regions designated by legislation. In December 2013, a unanimous vote from the Massachusetts Gaming Commission (“MGC”) found us to be a suitable candidate for a casino license in Massachusetts. Our subsidiary has since submitted to the MGC a completed license application for the next phase of the licensing process. The MGC is presently scheduled to make a determination on our application in June 2014; however, there can be no assurance that the MGC will ultimately award us the license on terms acceptable to us or at all, or that they will not postpone such determination. MGM Springfield is proposed for 14.5 acres of land between Union and State streets, and Columbus Avenue and Main Street. We currently expect the cost to develop and construct MGM Springfield to be approximately $690 million, excluding capitalized interest and land related costs.

Under consideration before the Massachusetts Supreme Judicial Court (the “Court”) is the constitutionality of a proposed ballot initiative that would prohibit local casinos, slot parlors and other wagering in Massachusetts. A decision from the Court as to whether the ballot initiative will appear on the November 2014 ballot is expected in July 2014,

 

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although no assurance can be made on the timing of any such decision. If we are determined to be the winner of the Region B, Western Massachusetts license in June 2014, we have requested that the MGC delay the final award and payment of licensing fees until the earlier of a favorable Court ruling or the failure of the ballot initiative to pass in the November 2014 elections. If the MGC does not grant our request, we may be required to pay the license fee and other financial obligations associated with the development of MGM Springfield in June 2014 and thereafter, or forego the license. To the extent we make any such payments, we believe we would have claim to a refund, however, there can be no assurance that we will receive a refund of these amounts if the ballot initiative is successful.

In 2013, we formed a 50/50 limited liability company, Las Vegas Arena Company, LLC (“LVA”), with a subsidiary of Anschutz Entertainment Group, Inc. (a leader in sports, entertainment, and promotions) to design, construct, and operate an arena on a parcel of our land located between Frank Sinatra Drive and New York-New York, adjacent to the Las Vegas Strip. The proposed arena is anticipated to seat between 18,000 – 20,000 people and is currently scheduled to be completed in 2016. Such development is estimated to cost approximately $350 million, excluding capitalized interest and land related costs, and is contingent on LVA obtaining permanent financing.

Wholly Owned Domestic Resorts

Over half of the net revenue from our wholly owned domestic resorts is derived from non-gaming operations including hotel, food and beverage, entertainment and other non-gaming amenities. We market to different customer groups and utilize our significant convention and meeting facilities to maximize hotel occupancy and customer volumes during off-peak times such as mid-week or during traditionally slower leisure travel periods, which also leads to better labor utilization. Our operating results are highly dependent on the volume of customers at our resorts, which in turn affects the price we can charge for our hotel rooms and other amenities. As a result of our leveraged business model, our operating results are significantly affected by our ability to generate operating revenues. Also, we generate a significant portion of our revenue from our wholly owned domestic resorts in Las Vegas, Nevada, which exposes us to certain risks, such as increased competition from new or expanded Las Vegas resorts, and from the expansion of gaming in the United States generally.

Key performance indicators related to gaming and hotel revenue at our wholly owned domestic resorts are:

 

   

Gaming revenue indicators: table games drop and slots handle (volume indicators); “win” or “hold” percentage, which is not fully controllable by us. Our normal table games hold percentage is in the range of 18% to 22% of table games drop and our normal slots hold percentage is in the range of 8.0% to 8.5% of slots handle; and

 

   

Hotel revenue indicators: hotel occupancy (a volume indicator); average daily rate (“ADR,” a price indicator); and revenue per available room (“REVPAR,” a summary measure of hotel results, combining ADR and occupancy rate). Our calculation of ADR, which is the average price of occupied rooms per day, includes the impact of complimentary rooms. Complimentary room rates are determined based on an analysis of retail or “cash” rates for each customer segment and each type of room product to estimate complimentary rates which are consistent with retail rates. Complimentary rates are reviewed at least annually and on an interim basis if there are significant changes in market conditions. Because the mix of rooms provided on a complimentary basis, particularly to casino customers, includes a disproportionate suite component, the composite ADR including complimentary rooms is slightly higher than the ADR for cash rooms, reflecting the higher retail value of suites.

MGM China

We own 51% and have a controlling interest in MGM China Holdings Limited (“MGM China”), which owns MGM Grand Paradise, S.A. (“MGM Grand Paradise”), the Macau company that owns the MGM Macau resort and casino and the related gaming subconcession and land concession and is in the process of developing a gaming resort in Cotai. We believe our investment in MGM China plays an important role in extending our reach internationally and will foster future growth and profitability. Asia is the fastest growing gaming market in the world and Macau is the world’s largest gaming destination in terms of revenue.

Revenues at MGM Macau are generated from three primary customer segments in the Macau gaming market: VIP casino gaming operations, main floor gaming operations, and slot machine operations. VIP players play mostly in dedicated VIP rooms or designated gaming areas. VIP customers can be further divided into customers sourced by in-house VIP programs and those sourced through gaming promoters. A significant portion of our VIP volume is generated through the use of gaming promoters. Gaming promoters introduce VIP gaming players to MGM Macau, assist these customers with travel arrangements, and extend gaming credit to these players. In exchange for their services, gaming promoters are compensated through payment of commission. In-house VIP players also typically receive a commission based on the program in which they participate. The main floor gaming operation in Macau is also referred to as the “mass gaming operation.” MGM Macau main floor operations primarily consist of walk-in and day trip visitors. Unlike VIP players, main floor players do not receive commissions. The profit contribution from the main floor segment exceeds the VIP segment due to commission costs paid to gaming promoters. Gaming revenues from the main gaming floors have grown significantly in recent years and we believe this segment represents the most potential for sustainable growth in the future.

VIP gaming at MGM Macau is conducted by the use of special purpose nonnegotiable gaming chips called “rolling chips.” Gaming promoters purchase these rolling chips from MGM Macau and in turn they sell these chips to their players. The rolling chips allow MGM Macau to track the amount of wagering conducted by each gaming promoters’

 

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clients in order to determine VIP gaming play. Gaming promoter commissions are based on either a percentage of actual win plus a monthly complimentary allowance based on a percentage of the rolling chip turnover their customers generate, or a percentage of the rolling chip turnover plus discounted offerings on nongaming amenities. The estimated portion of the gaming promoter payments that represent amounts passed through to VIP customers is recorded as a reduction of casino revenue, and the estimated portion retained by the gaming promoter for its compensation is recorded as casino expense. In-house VIP commissions are based on a percentage of rolling chip turnover and are recorded as a reduction of casino revenue.

Main floor table games wagers at MGM Macau are conducted by the use of cash chips. In addition to purchasing cash chips at gaming tables, main floor customers may also purchase cash chips at the casino cage. As a result of recent significant increases in cash chips purchased at the casino cage, we now adjust main floor table games drop to include such purchases in order to more meaningfully reflect main floor table games volume and hold percentage. MGM Macau’s main floor normal table games hold percentage, as calculated on this basis, is in the range of 22% to 25% of table games drop. Slots hold percentage at MGM Macau is in the range of 5% to 6% of slots handle.

In addition to the key performance indicators used by our wholly owned domestic resorts, MGM Macau utilizes “turnover,” which is the sum of rolling chip wagers won by MGM Macau calculated as rolling chips purchased plus rolling chips exchanged less rolling chips returned. Turnover provides a basis for measuring VIP casino win percentage. Win for VIP gaming operations at MGM Macau is in the range of 2.7% to 3.0% of turnover.

Corporate and other

Corporate and other includes our investments in unconsolidated affiliates and certain management and other operations.

CityCenter. We own 50% of CityCenter. The other 50% of CityCenter is owned by Infinity World Development Corp (“Infinity World”), a wholly owned subsidiary of Dubai World, a Dubai, United Arab Emirates government decree entity. CityCenter consists of Aria, a casino resort; Mandarin Oriental Las Vegas, a non-gaming boutique hotel; Crystals, a retail and entertainment district; and Vdara, a luxury condominium-hotel. In addition, CityCenter includes residential units in the Residences at Mandarin Oriental and Veer. We receive a management fee of 2% of revenues for the management of Aria and Vdara, and 5% of EBITDA (as defined in the agreements governing our management of Aria and Vdara). In addition, we receive an annual fee of $3 million for the management of Crystals.

Other unconsolidated affiliates and management services. We also own 50% interests in Grand Victoria and Silver Legacy. Grand Victoria is a riverboat casino in Elgin, Illinois; an affiliate of Hyatt Gaming owns the other 50% of Grand Victoria and also operates the resort. Silver Legacy is located in Reno, adjacent to Circus Circus Reno, and the other 50% is owned by Eldorado LLC, which operates the resort.

We seek to leverage our management expertise and well-recognized brands through domestic and international expansion opportunities. We have entered into management agreements for non-gaming hotels, resorts and residential products in the Middle East, North Africa, India, the United States and, through our venture with Diaoyutai State Guesthouse, in the People’s Republic of China. In April 2014, we entered into a 50/50 limited liability company agreement with Hakkasan Hospitality, Inc., an affiliate of the Hakkasan group, to form MGM Hakkasan Hospitality, LLC, a Nevada limited liability company (“MGM Hakkasan”), to design, develop and manage luxury non-gaming hotels, resorts and residences under certain brands licensed from us and the Hakkasan Group. We will contribute all of the management agreements for non-gaming hotels, resorts and residential projects (outside of the greater China region) that are currently under development to MGM Hakkasan. We will continue to develop and manage properties in the greater China region through our venture with Diaoyutai State Guesthouse, including the MGM Grand Sanya on Hainan Island, in the People’s Republic of China, which opened in early 2012.

Borgata. We have a 50% economic interest in Borgata Hotel Casino & Spa (“Borgata”) located on Renaissance Pointe in the Marina area of Atlantic City, New Jersey. Boyd Gaming Corporation owns the other 50% of Borgata and also operates the resort. Our interest is held in trust and was offered for sale pursuant to our amended settlement agreement with the New Jersey Division of Gaming Enforcement and approved by the New Jersey Casino Control Commission (“CCC”). The terms of the amended settlement agreement previously mandated the sale by March 2014. We had the right to direct the sale through March 2013 (the “divesture period”), subject to approval of the CCC, and the trustee was responsible for selling the trust property during the following 12-month period (the “terminal sale period”). On February 13, 2013, the settlement agreement was further amended to allow us to re-apply to the CCC for licensure in New Jersey and to defer expiration of these periods pending the outcome of the licensure process. If the CCC denies our licensure request, then the divestiture period will immediately end, and the terminal sale period will immediately begin, which will result in our Borgata interest being disposed of by the trustee pursuant to the terms of the settlement agreement.

We consolidate the trust because we are the sole economic beneficiary and we account for our interest in Borgata under the cost method. As of March 31, 2014, the trust had $94 million of cash and investments, of which $78 million is held in U.S. treasury securities with maturities greater than three months but less than one year, and is recorded within “Prepaid expenses and other.”

 

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Results of Operations

The following discussion is based on our consolidated financial statements for the three months ended March 31, 2014 and 2013.

Summary Financial Results

The following table summarizes our financial results:

 

     Three Months Ended
March 31,
 
     2014      2013  
     (In thousands)  

Net revenues

   $ 2,630,398      $ 2,352,148  

Operating income

     412,633        301,817  

Net income

     191,608        22,578  

Net income attributable to MGM Resorts International

     108,160        6,546  

Consolidated net revenue for the three months ended March 31, 2014 increased 12% over the prior year quarter driven by a 13% increase in casino revenue and a 13% increase in rooms revenue. See below for additional information related to segment revenues.

Consolidated operating income of $413 million for the three months ended March 31, 2014 benefited from increased revenues at our wholly owned domestic resorts and MGM China. Corporate expense increased 14% to $53 million for the first quarter of 2014 due to an increase in personnel costs and professional fees. In the prior year quarter, operating income was negatively impacted by $8 million related to disposals recorded in “Property transactions, net.”

Operating Results – Detailed Segment Information

The following table presents a detail by segment of consolidated net revenue and Adjusted EBITDA. Management uses Adjusted Property EBITDA as the primary profit measure for its reportable segments. See “Non-GAAP Measures” for additional information:

 

     Three Months Ended
March 31,
 
     2014     2013  
     (In thousands)  

Net revenues:

    

Wholly owned domestic resorts

   $ 1,570,234     $ 1,489,188  

MGM China

     941,448       747,557  
  

 

 

   

 

 

 

Reportable segment net revenues

     2,511,682       2,236,745  

Corporate and other

     118,716       115,403  
  

 

 

   

 

 

 
   $ 2,630,398     $ 2,352,148  
  

 

 

   

 

 

 

Adjusted EBITDA:

    

Wholly owned domestic resorts

   $ 402,846     $ 361,037  

MGM China

     240,725       180,455  
  

 

 

   

 

 

 

Reportable segment Adjusted Property EBITDA

     643,571       541,492  

Corporate and other

     (17,089     (17,120
  

 

 

   

 

 

 
   $ 626,482     $ 524,372  
  

 

 

   

 

 

 

 

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Wholly owned domestic resorts. The following table presents detailed net revenue at our wholly owned domestic resorts:

 

     Three Months Ended
March 31,
 
     2014     2013  
     (In thousands)  

Casino revenue:

    

Table games

   $ 232,508     $ 239,593  

Slots

     400,562       408,034  

Other

     18,689       16,407  
  

 

 

   

 

 

 

Casino revenue

     651,759       664,034  

Non-casino revenue:

    

Rooms

     436,665       387,843  

Food and beverage

     360,113       339,034  

Entertainment, retail and other

     279,873       256,425  
  

 

 

   

 

 

 

Non-casino revenue

     1,076,651       983,302  
  

 

 

   

 

 

 
     1,728,410       1,647,336  

Less: Promotional allowances

     (158,176     (158,148
  

 

 

   

 

 

 
   $ 1,570,234     $ 1,489,188  
  

 

 

   

 

 

 

Net revenue related to wholly owned domestic resorts for the first quarter of 2014 increased 5% compared to the prior year first quarter due primarily to increases in rooms, food and beverage and entertainment revenue which were partially offset by a decrease in casino revenue.

Casino revenue related to wholly owned domestic resorts decreased 2% compared to the prior year quarter, due to a decrease in table games hold percentage and a small decrease in slots revenue. Table games hold percentage in the first quarter of 2014 was 20.8% compared to 21.9% for the prior year quarter. Slots revenue increased 1% compared to the prior year quarter at our Las Vegas Strip resorts, but decreased 5% at our other wholly owned domestic resorts.

Rooms revenue in the first quarter of 2014 increased 13%, with a 14% increase in Las Vegas Strip REVPAR. The following table shows key hotel statistics for our Las Vegas Strip resorts.

 

     Three Months Ended
March 31,
 
     2014     2013  

Occupancy

     92     90

Average Daily Rate (ADR)

   $ 147     $ 132  

Revenue per Available Room (REVPAR)

   $ 135     $ 118  

Food and beverage revenue increased 6% compared to the prior year due to an increase in convention and banquet revenue and the opening of several new outlets. Entertainment revenue increased 18% as a result of the opening of the Michael Jackson ONE Cirque du Soleil production show at Mandalay Bay in June 2013, which replaced the Lion King which closed in December 2011.

Adjusted Property EBITDA at our wholly owned domestic resorts increased 12% compared to the first quarter of 2013 primarily as a result of the increase in rooms revenue and improved rooms margins. Adjusted Property EBITDA margin increased by approximately 150 basis points from the prior year quarter to 25.7%.

 

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MGM China. The following table presents detailed net revenue for MGM China:

 

     Three Months Ended
March 31,
 
     2014