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MGM Resorts International 10-Q 2014

Documents found in this filing:

  1. 10-Q
  2. Ex-31.1
  3. Ex-31.2
  4. Ex-32.1
  5. Ex-32.2
  6. Ex-32.2

 

 

 

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 September 30, 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 at November 3, 2014 

Common Stock, $.01 par value

 

491,120,180 shares

 

 

 

 

 

 

 

 


 

MGM RESORTS INTERNATIONAL AND SUBSIDIARIES

 

FORM 10-Q

 

I N D E X

 

 

 

Page

PART I.

FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements (Unaudited)

1

 

 

Consolidated Balance Sheets at September 30, 2014 and December 31, 2013

1

 

 

Consolidated Statements of Operations for the Three Months and Nine Months Ended September 30, 2014 and September 30, 2013

2

 

 

Consolidated Statements of Comprehensive Income (Loss) for the Three Months and Nine Months Ended September 30, 2014 and September 30, 2013

3

 

 

Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2014 and September 30, 2013

4

 

 

Condensed Notes to Consolidated Financial Statements

5

Item 2.

 

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

29

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

44

Item 4.

 

Controls and Procedures

44

 

PART II.

OTHER INFORMATION

 

Item 1.

 

Legal Proceedings

45

Item 1A.

 

Risk Factors

47

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

47

Item 6.

 

Exhibits

47

 

SIGNATURES

48

 

 

 

 


 

Part I. FINANCIAL INFORMATION

 

Item 1.

Financial Statements

 

MGM RESORTS INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)

 

 

September 30,

 

 

December 31,

 

 

2014

 

 

2013

 

 

 

 

 

 

 

 

 

ASSETS

 

Current assets

 

 

 

 

 

 

 

Cash and cash equivalents

$

1,313,427

 

 

$

1,803,669

 

Accounts receivable, net

 

433,853

 

 

 

488,217

 

Inventories

 

99,274

 

 

 

107,907

 

Deferred income taxes, net

 

 

 

 

80,989

 

Prepaid expenses and other

 

144,503

 

 

 

238,657

 

Total current assets

 

1,991,057

 

 

 

2,719,439

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

14,253,703

 

 

 

14,055,212

 

 

 

 

 

 

 

 

 

Other assets

 

 

 

 

 

 

 

Investments in and advances to unconsolidated affiliates

 

1,555,353

 

 

 

1,469,261

 

Goodwill

 

2,893,467

 

 

 

2,897,442

 

Other intangible assets, net

 

4,331,768

 

 

 

4,511,861

 

Other long-term assets, net

 

423,138

 

 

 

431,395

 

Total other assets

 

9,203,726

 

 

 

9,309,959

 

 

$

25,448,486

 

 

$

26,084,610

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

Current liabilities

 

 

 

 

 

 

 

Accounts payable

$

266,696

 

 

$

241,192

 

Income taxes payable

 

2,390

 

 

 

14,813

 

Current portion of long-term debt

 

1,191,542

 

 

 

 

Deferred income taxes, net

 

18,815

 

 

 

 

Accrued interest on long-term debt

 

180,792

 

 

 

188,522

 

Other accrued liabilities

 

1,709,079

 

 

 

1,770,801

 

Total current liabilities

 

3,369,314

 

 

 

2,215,328

 

 

 

 

 

 

 

 

 

Deferred income taxes

 

2,339,171

 

 

 

2,419,967

 

Long-term debt

 

11,723,655

 

 

 

13,447,230

 

Other long-term obligations

 

117,710

 

 

 

141,590

 

Commitments and contingencies (Note 6)

 

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

 

Common stock, $.01 par value: authorized 1,000,000,000 shares, issued and outstanding 490,889,936 and 490,360,628 shares

 

4,909

 

 

 

4,904

 

Capital in excess of par value

 

4,173,205

 

 

 

4,156,680

 

Retained earnings

 

234,354

 

 

 

41,964

 

Accumulated other comprehensive income

 

8,388

 

 

 

12,503

 

Total MGM Resorts International stockholders' equity

 

4,420,856

 

 

 

4,216,051

 

Noncontrolling interests

 

3,477,780

 

 

 

3,644,444

 

Total stockholders' equity

 

7,898,636

 

 

 

7,860,495

 

 

$

25,448,486

 

 

$

26,084,610

 

 

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

 

 

1


 

MGM RESORTS INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

2014

 

 

2013

 

 

2014

 

 

2013

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Casino

$

1,420,538

 

 

$

1,460,300

 

 

$

4,479,135

 

 

$

4,304,877

 

Rooms

 

433,005

 

 

 

413,060

 

 

 

1,348,542

 

 

 

1,252,020

 

Food and beverage

 

396,470

 

 

 

366,988

 

 

 

1,192,585

 

 

 

1,121,117

 

Entertainment

 

146,315

 

 

 

145,799

 

 

 

418,827

 

 

 

380,654

 

Retail

 

50,720

 

 

 

52,151

 

 

 

146,147

 

 

 

149,606

 

Other

 

132,126

 

 

 

123,180

 

 

 

391,621

 

 

 

374,920

 

Reimbursed costs

 

98,317

 

 

 

92,038

 

 

 

289,037

 

 

 

275,015

 

 

 

2,677,491

 

 

 

2,653,516

 

 

 

8,265,894

 

 

 

7,858,209

 

Less: Promotional allowances

 

(192,484

)

 

 

(190,479

)

 

 

(569,456

)

 

 

(561,759

)

 

 

2,485,007

 

 

 

2,463,037

 

 

 

7,696,438

 

 

 

7,296,450

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Casino

 

884,177

 

 

 

913,137

 

 

 

2,791,828

 

 

 

2,705,190

 

Rooms

 

143,993

 

 

 

132,386

 

 

 

420,644

 

 

 

394,096

 

Food and beverage

 

234,307

 

 

 

214,683

 

 

 

695,489

 

 

 

645,119

 

Entertainment

 

109,757

 

 

 

107,939

 

 

 

313,455

 

 

 

281,604

 

Retail

 

26,183

 

 

 

28,053

 

 

 

75,714

 

 

 

81,884

 

Other

 

96,324

 

 

 

91,841

 

 

 

275,978

 

 

 

270,633

 

Reimbursed costs

 

98,317

 

 

 

92,038

 

 

 

289,037

 

 

 

275,015

 

General and administrative

 

347,487

 

 

 

342,847

 

 

 

994,217

 

 

 

961,072

 

Corporate expense

 

61,563

 

 

 

54,190

 

 

 

169,353

 

 

 

153,178

 

Preopening and start-up expenses

 

10,233

 

 

 

4,279

 

 

 

25,628

 

 

 

9,931

 

Property transactions, net

 

6,794

 

 

 

26,127

 

 

 

40,522

 

 

 

122,749

 

Depreciation and amortization

 

202,386

 

 

 

211,682

 

 

 

613,111

 

 

 

641,751

 

 

 

2,221,521

 

 

 

2,219,202

 

 

 

6,704,976

 

 

 

6,542,222

 

Income from unconsolidated affiliates

 

23,003

 

 

 

18,962

 

 

 

65,963

 

 

 

52,919

 

Operating income

 

286,489

 

 

 

262,797

 

 

 

1,057,425

 

 

 

807,147

 

Non-operating income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net of amounts capitalized

 

(202,835

)

 

 

(208,939

)

 

 

(616,158

)

 

 

(648,886

)

Non-operating items from unconsolidated affiliates

 

(22,810

)

 

 

(34,439

)

 

 

(69,021

)

 

 

(115,452

)

Other, net

 

(254

)

 

 

(676

)

 

 

(1,997

)

 

 

(6,909

)

 

 

(225,899

)

 

 

(244,054

)

 

 

(687,176

)

 

 

(771,247

)

Income before income taxes

 

60,590

 

 

 

18,743

 

 

 

370,249

 

 

 

35,900

 

Benefit (provision) for income taxes

 

(10,208

)

 

 

14,428

 

 

 

44,401

 

 

 

(16,933

)

Net income

 

50,382

 

 

 

33,171

 

 

 

414,650

 

 

 

18,967

 

Less: Net income attributable to noncontrolling interests

 

(70,652

)

 

 

(55,484

)

 

 

(222,260

)

 

 

(133,896

)

Net income (loss) attributable to MGM Resorts International

$

(20,270

)

 

$

(22,313

)

 

$

192,390

 

 

$

(114,929

)

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

$

(0.04

)

 

$

(0.05

)

 

$

0.39

 

 

$

(0.23

)

Diluted

$

(0.04

)

 

$

(0.05

)

 

$

0.39

 

 

$

(0.23

)

 

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

 

 

2


 

MGM RESORTS INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

(Unaudited)

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

2014

 

 

2013

 

 

2014

 

 

2013

 

Net income

$

50,382

 

 

$

33,171

 

 

$

414,650

 

 

$

18,967

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

(13,505

)

 

 

587

 

 

 

(10,403

)

 

 

(5,638

)

Other

 

 

 

 

 

 

 

1,250

 

 

 

115

 

Other comprehensive income (loss)

 

(13,505

)

 

 

587

 

 

 

(9,153

)

 

 

(5,523

)

Comprehensive income

 

36,877

 

 

 

33,758

 

 

 

405,497

 

 

 

13,444

 

Less: Comprehensive income attributable to noncontrolling interests

 

(63,994

)

 

 

(55,760

)

 

 

(217,222

)

 

 

(131,057

)

Comprehensive income (loss) attributable to MGM Resorts International

$

(27,117

)

 

$

(22,002

)

 

$

188,275

 

 

$

(117,613

)

 

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

 

 

 

3


 

MGM RESORTS INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

Nine Months Ended

 

 

September 30,

 

 

2014

 

 

2013

 

Cash flows from operating activities

 

 

 

 

 

 

 

Net income

$

414,650

 

 

$

18,967

 

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

 

 

 

 

 

 

 

Depreciation and amortization

 

613,111

 

 

 

641,751

 

Amortization of debt discounts, premiums and issuance costs

 

28,107

 

 

 

26,027

 

Loss on retirement of long-term debt

 

 

 

 

3,799

 

Provision for doubtful accounts

 

32,554

 

 

 

16,929

 

Stock-based compensation

 

26,551

 

 

 

23,934

 

Property transactions, net

 

40,522

 

 

 

122,749

 

Loss from unconsolidated affiliates

 

3,195

 

 

 

62,909

 

Distributions from unconsolidated affiliates

 

11,101

 

 

 

12,788

 

Deferred income taxes

 

6,379

 

 

 

48,089

 

Change in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

21,678

 

 

 

15,330

 

Inventories

 

8,508

 

 

 

9,238

 

Income taxes receivable and payable, net

 

(12,419

)

 

 

(647

)

Prepaid expenses and other

 

7,100

 

 

 

(69,848

)

Prepaid Cotai land concession premium

 

(24,162

)

 

 

(9,657

)

Accounts payable and accrued liabilities

 

(169,720

)

 

 

190,147

 

Other

 

15,659

 

 

 

(16,748

)

Net cash provided by operating activities

 

1,022,814

 

 

 

1,095,757

 

Cash flows from investing activities

 

 

 

 

 

 

 

Capital expenditures, net of construction payable

 

(617,459

)

 

 

(379,573

)

Dispositions of property and equipment

 

537

 

 

 

546

 

Investments in and advances to unconsolidated affiliates

 

(70,446

)

 

 

(23,853

)

Distributions from unconsolidated affiliates in excess of earnings

 

999

 

 

 

 

Investments in treasury securities - maturities longer than 90 days

 

(123,133

)

 

 

(174,446

)

Proceeds from treasury securities - maturities longer than 90 days

 

210,300

 

 

 

204,394

 

Other

 

8,149

 

 

 

1,580

 

Net cash used in investing activities

 

(591,053

)

 

 

(371,352

)

Cash flows from financing activities

 

 

 

 

 

 

 

Net borrowings (repayments) under bank credit facilities – maturities of 90 days or less

 

(1,740,375

)

 

 

59,000

 

Borrowings under bank credit facilities – maturities longer than 90 days

 

5,171,250

 

 

 

2,793,000

 

Repayments under bank credit facilities – maturities longer than 90 days

 

(3,451,875

)

 

 

(2,793,000

)

Retirement of senior notes

 

(508,900

)

 

 

(612,262

)

Debt issuance costs

 

 

 

 

(17,061

)

Distributions to noncontrolling interest owners

 

(385,722

)

 

 

(318,348

)

Other

 

(3,457

)

 

 

(3,211

)

Net cash used in financing activities

 

(919,079

)

 

 

(891,882

)

Effect of exchange rate on cash

 

(1,577

)

 

 

(629

)

Cash and cash equivalents

 

 

 

 

 

 

 

Net decrease for the period

 

(488,895

)

 

 

(168,106

)

Cash related to assets held for sale

 

(1,347

)

 

 

 

Balance, beginning of period

 

1,803,669

 

 

 

1,543,509

 

Balance, end of period

$

1,313,427

 

 

$

1,375,403

 

Supplemental cash flow disclosures

 

 

 

 

 

 

 

Interest paid, net of amounts capitalized

$

595,781

 

 

$

645,637

 

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

 

40,262

 

 

 

806

 

Non-cash investing and financing activities

 

 

 

 

 

 

 

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

$

73,695

 

 

$

72,676

 

 

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

 

 

4


 

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. In September 2014, the Company entered into an agreement to sell Railroad Pass, and in October 2014, the Company entered into an agreement to sell the Gold Strike in Jean, Nevada, each as discussed in Note 3. 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 related costs.

 

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 4 for additional information related to CityCenter.

 

The Company owns 50% of 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.  See Note 4 for additional information regarding Borgata.  The Company also 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, which operates the resort.

 

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 and the United States. In 2014, the Company and the Hakkasan Group formed MGM Hakkasan Hospitality (“MGM Hakkasan”), owned 50% by each member, to design, develop and manage luxury non-gaming hotels, resorts and residences under certain brands licensed from the Company and the Hakkasan Group. In October 2014, the Company contributed 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 with Diaoyutai State Guesthouse, including the MGM Grand Sanya on Hainan Island, in the People’s Republic of China, which opened in 2012.

 

The Maryland Video Lottery Facility Location Commission has awarded MGM National Harbor, LLC (“MGM National Harbor”) the license to build and operate a destination resort casino in Prince George’s County at National Harbor. Currently, the expected cost to develop and construct MGM National Harbor is approximately $1.2 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.

 

On June 13, 2014, the Massachusetts Gaming Commission (the “MGC”) agreed to award the Company’s subsidiary developing MGM Springfield the Category One casino license in Region B, Western Massachusetts, one of three licensing regions designated by

5


 

legislation. On June 24, 2014, the Massachusetts Supreme Judicial Court ruled that a proposed ballot initiative seeking to prohibit local casinos, slot parlors and other wagering in Massachusetts was constitutional and thereby allowed the ballot initiative to appear on the November 4, 2014 ballot. The ballot initiative ultimately failed during the November 2014 general elections. Therefore, the state’s expanded gaming law has been preserved and development of MGM Springfield will proceed as previously planned.  Final award payment of licensing fees and other costs is expected to be made to the MGC in the fourth quarter of 2014.

 

MGM Springfield will be developed on 14.5 acres of land between Union and State streets, and Columbus Avenue and Main Street in Springfield, Massachusetts. Currently, the expected cost to develop and construct MGM Springfield is approximately $760 million, excluding capitalized interest and land related costs. The Company expects the resort will include a casino with approximately 3,000 slots and 75 table games, a poker room and high limit VIP gambling area, 250 hotel rooms, 55,000 square feet of retail and restaurant space that will accommodate 15 shops and restaurants, and a multi-level parking garage.

 

In 2013, the Company formed Las Vegas Arena Company, LLC (“LVAC”) with a subsidiary of Anschutz Entertainment Group, Inc. (“AEG”) (a leader in sports, entertainment, and promotions) to design, construct, and operate the Las Vegas Arena which will be located on a parcel of the Company’s land between Frank Sinatra Drive and New York-New York, adjacent to the Las Vegas Strip. The Company and AEG each own 50% of LVAC. The Las Vegas Arena is anticipated to seat between 18,000 – 20,000 people. Such development is estimated to cost approximately $350 million, excluding capitalized interest and land related costs. See Note 4 and Note 6 for additional information related to LVAC.

 

The Company has two reportable segments: wholly owned domestic resorts and MGM China. See Note 11 for additional information about the Company’s segments.

 

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.

 

As discussed in Note 4, the consolidated financial statements have been retroactively adjusted to reflect the Company’s investment in Borgata under the equity method for all periods presented in this quarterly report.

 

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 Company uses Level 1 inputs for its long-term debt fair value disclosures. See Note 5; and

 

·

The Company used Level 3 inputs when assessing the fair value of its investment in Grand Victoria at June 30, 2014 and 2013. 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 16.8% and (12.0%) for the three months and nine months ended September 30, 2014, 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. Due to 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.

6


 

 

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 expects that it will generate excess foreign tax credits on an annual basis and 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 $332 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 portion or all of the net deferred foreign tax credit asset, resulting in an increase in the provision for income taxes in such period.

 

During the quarter ended June 30, 2014, the Company received final approval from the Joint Committee on Taxation of the results of IRS examinations covering its 2005 through 2009 tax years. These examinations are now considered settled for financial reporting purposes. Consequently, the Company reduced unrecognized tax benefits by $81 million and recorded income tax benefit of $31 million to reflect the effects of this settlement. The Company previously made a deposit of $30 million with the IRS to cover the expected cash taxes and interest resulting from the tentatively agreed adjustments for these examinations. The tax and interest was assessed during the quarter ended September 30, 2014, and the deposit, which was previously included in “Prepaid expenses and other”, was reclassified to “Income taxes payable” on the balance sheet.

 

Recently issued accounting standards. During the three months ended September 30, 2014, the Company early adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update No. 2014-08, “Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity ”, (“ASU 2014-08”), which is effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2014.  ASU 2014-08 amends the definition of a discontinued operation by requiring discontinued operations treatment for disposals of a component or group of components that represents a strategic shift that has or will have a major impact on an entity’s operations or financial results, and also expands the scope of ASC 205-20 to disposals of equity method investments and acquired businesses held for sale.  Additionally, ASU 2014-08 requires enhanced disclosures about disposal transactions that do not meet the discontinued operations criteria.  As a result of implementing ASU 2014-08, the Company determined that certain disposals did not qualify as discontinued operations.  See Note 3 for further discussion.

 

During the nine months ended September 30, 2014, the Company implemented FASB Accounting Standards Update No. 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists,” (“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 nine months ended September 30, 2014.

 

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers,” (“ASU 2014-09”), which is effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2016. ASU 2014-09 outlines a new, single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. This new revenue recognition model provides a five-step analysis in determining when and how revenue is recognized. Additionally, the new model will require revenue recognition to depict the transfer of promised goods or services to customers in an amount that reflects the consideration a company expects to receive in exchange for those goods or services. The Company is currently assessing the impact that adoption of this new accounting guidance will have on its consolidated financial statements and footnote disclosures.

 

NOTE 3 — ASSETS HELD FOR SALE

 

In September 2014, the Company entered into an agreement to sell Railroad Pass for $8 million which is contingent upon regulatory approvals and other customary closing conditions. The assets and liabilities of Railroad Pass have been classified as held for sale as of September 30, 2014.  The Company recognized a $1 million impairment charge recorded in “Property transactions, net” at September 30, 2014 based on fair value less cost to sell of the related assets and liabilities.  Assets held for sale of $9 million, comprised predominantly of property, plant and equipment, are classified within “Prepaid expenses and other”  and  liabilities related

7


 

to assets held for sale of $2 million, comprised of accounts payable and other accrued liabilities, are classified  within “Other accrued liabilities.”  Railroad Pass has not been classified as discontinued operations because the Company has concluded that the sale will not have a major effect on the Company’s operations or its financial results and it does not represent a disposal of a major geographic segment or product line.

 

In October 2014, the Company entered into an agreement to sell Gold Strike and related assets in Jean, Nevada, for $12 million which is contingent upon regulatory approvals and other customary closing conditions.   The carrying value of the assets and liabilities to be sold of $15 million and $2 million, respectively, were not classified as held for sale as of September 30, 2014. Gold Strike will not be classified as discontinued operations because the Company has concluded that the sale will not have a major effect on the Company’s operations or its financial results and it does not represent a disposal of a major geographic segment or product line.

 

NOTE 4 — INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES

 

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

 

 

September 30,

 

 

December 31,

 

 

2014

 

 

2013

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

CityCenter Holdings, LLC – CityCenter (50%)

$

1,239,541

 

 

$

1,172,087

 

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

 

139,791

 

 

 

169,579

 

Marina District Development Company – Borgata (50%)

 

106,935

 

 

 

94,425

 

Other

 

69,086

 

 

 

33,170

 

 

$

1,555,353

 

 

$

1,469,261

 

 

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

  

 

Three Months Ended

 

 

Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

2014

 

 

2013

 

 

2014

 

 

2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

Income from unconsolidated affiliates

$

23,003

 

 

$

18,962

 

 

$

65,963

 

 

$

52,919

 

Preopening and start-up expenses

 

(17

)

 

 

 

 

 

(137

)

 

 

(376

)

Non-operating items from unconsolidated affiliates

 

(22,810

)

 

 

(34,439

)

 

 

(69,021

)

 

 

(115,452

)

 

$

176

 

 

$

(15,477

)

 

$

(3,195

)

 

$

(62,909

)

 

CityCenter

 

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

 

 

September 30,

 

 

December 31,