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MGM Resorts International 10-Q 2016
mgm-10q_20160331.htm

 

 

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, 2016

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 May 3, 2016 

Common Stock, $.01 par value

 

565,153,753 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 March 31, 2016 and December 31, 2015

1

 

 

Consolidated Statements of Operations for the Three Months Ended March 31, 2016 and March 31, 2015

2

 

 

Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2016 and March 31, 2015

3

 

 

Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2016 and March 31, 2015

4

 

 

Condensed Notes to Consolidated Financial Statements

5

Item 2.

 

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

25

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

38

Item 4.

 

Controls and Procedures

38

 

PART II.

OTHER INFORMATION

 

Item 1.

 

Legal Proceedings

39

Item 1A.

 

Risk Factors

40

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

42

Item 6.

 

Exhibits

43

 

SIGNATURES

44

 

 

 

 


 

Part I. FINANCIAL INFORMATION

 

Item 1.

Financial Statements

 

MGM RESORTS INTERNATIONAL AND SUBSIDIARIES

 

CONSOLIDATED BALANCE SHEETS

 

(In thousands, except share data)

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31,

 

 

December 31,

 

 

2016

 

 

2015

 

 

 

 

 

 

 

 

 

ASSETS

 

Current assets

 

 

 

 

 

 

 

Cash and cash equivalents

$

1,664,905

 

 

$

1,670,312

 

Accounts receivable, net

 

452,751

 

 

 

480,559

 

Inventories

 

97,584

 

 

 

104,200

 

Income tax receivable

 

9,148

 

 

 

15,993

 

Prepaid expenses and other

 

177,256

 

 

 

137,685

 

Total current assets

 

2,401,644

 

 

 

2,408,749

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

15,692,731

 

 

 

15,371,795

 

 

 

 

 

 

 

 

 

Other assets

 

 

 

 

 

 

 

Investments in and advances to unconsolidated affiliates

 

1,478,501

 

 

 

1,491,497

 

Goodwill

 

1,429,547

 

 

 

1,430,767

 

Other intangible assets, net

 

4,116,904

 

 

 

4,164,781

 

Other long-term assets, net

 

377,963

 

 

 

347,589

 

Total other assets

 

7,402,915

 

 

 

7,434,634

 

 

$

25,497,290

 

 

$

25,215,178

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

Current liabilities

 

 

 

 

 

 

 

Accounts payable

$

183,777

 

 

$

182,031

 

Construction payable

 

285,479

 

 

 

250,120

 

Current portion of long-term debt

 

242,900

 

 

 

328,442

 

Accrued interest on long-term debt

 

143,110

 

 

 

165,914

 

Other accrued liabilities

 

1,233,045

 

 

 

1,311,444

 

Total current liabilities

 

2,088,311

 

 

 

2,237,951

 

 

 

 

 

 

 

 

 

Deferred income taxes, net

 

2,687,946

 

 

 

2,680,576

 

Long-term debt

 

12,686,381

 

 

 

12,368,311

 

Other long-term obligations

 

163,392

 

 

 

157,663

 

Commitments and contingencies (Note 5)

 

 

 

 

 

 

 

Redeemable noncontrolling interest

 

6,250

 

 

 

6,250

 

Stockholders' equity

 

 

 

 

 

 

 

Common stock, $.01 par value: authorized 1,000,000,000 shares, issued and outstanding 565,144,008 and 564,838,893 shares

 

5,651

 

 

 

5,648

 

Capital in excess of par value

 

5,671,456

 

 

 

5,655,886

 

Accumulated deficit

 

(488,830

)

 

 

(555,629

)

Accumulated other comprehensive income

 

11,622

 

 

 

14,022

 

Total MGM Resorts International stockholders' equity

 

5,199,899

 

 

 

5,119,927

 

Noncontrolling interests

 

2,665,111

 

 

 

2,644,500

 

Total stockholders' equity

 

7,865,010

 

 

 

7,764,427

 

 

$

25,497,290

 

 

$

25,215,178

 

 

 

 

 

 

 

 

 

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

 

 

March 31,

 

 

2016

 

 

2015

 

Revenues

 

 

 

 

 

 

 

Casino

$

1,134,356

 

 

$

1,278,502

 

Rooms

 

489,486

 

 

 

459,425

 

Food and beverage

 

377,105

 

 

 

384,101

 

Entertainment

 

118,326

 

 

 

125,968

 

Retail

 

45,473

 

 

 

45,037

 

Other

 

117,525

 

 

 

126,550

 

Reimbursed costs

 

101,049

 

 

 

101,060

 

 

 

2,383,320

 

 

 

2,520,643

 

Less: Promotional allowances

 

(173,634

)

 

 

(188,399

)

 

 

2,209,686

 

 

 

2,332,244

 

Expenses

 

 

 

 

 

 

 

Casino

 

640,569

 

 

 

782,808

 

Rooms

 

144,742

 

 

 

141,313

 

Food and beverage

 

221,296

 

 

 

221,521

 

Entertainment

 

92,288

 

 

 

96,999

 

Retail

 

22,001

 

 

 

24,096

 

Other

 

79,768

 

 

 

84,323

 

Reimbursed costs

 

101,049

 

 

 

101,060

 

General and administrative

 

308,543

 

 

 

328,173

 

Corporate expense

 

71,248

 

 

 

50,356

 

Preopening and start-up expenses

 

21,960

 

 

 

15,871

 

Property transactions, net

 

5,131

 

 

 

1,589

 

Depreciation and amortization

 

199,839

 

 

 

206,412

 

 

 

1,908,434

 

 

 

2,054,521

 

Income from unconsolidated affiliates

 

14,702

 

 

 

117,381

 

Operating income

 

315,954

 

 

 

395,104

 

Non-operating income (expense)

 

 

 

 

 

 

 

Interest expense, net of amounts capitalized

 

(184,669

)

 

 

(216,262

)

Non-operating items from unconsolidated affiliates

 

(18,212

)

 

 

(19,011

)

Other, net

 

(565

)

 

 

(3,490

)

 

 

(203,446

)

 

 

(238,763

)

Income before income taxes

 

112,508

 

 

 

156,341

 

Benefit (provision) for income taxes

 

(21,310

)

 

 

56,305

 

Net income

 

91,198

 

 

 

212,646

 

Less: Net income attributable to noncontrolling interests

 

(24,399

)

 

 

(42,796

)

Net income attributable to MGM Resorts International

$

66,799

 

 

$

169,850

 

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

 

 

 

 

 

 

 

Basic

$

0.12

 

 

$

0.35

 

Diluted

$

0.12

 

 

$

0.33

 

 

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

 

 

2


 

MGM RESORTS INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

 

 

Three Months Ended

 

 

March 31,

 

 

2016

 

 

2015

 

Net income

$

91,198

 

 

$

212,646

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

(4,765

)

 

 

2,476

 

Other

 

 

 

 

(672

)

Other comprehensive income (loss)

 

(4,765

)

 

 

1,804

 

Comprehensive income

 

86,433

 

 

 

214,450

 

Less: Comprehensive income attributable to noncontrolling interests

 

(22,034

)

 

 

(44,011

)

Comprehensive income attributable to MGM Resorts International

$

64,399

 

 

$

170,439

 

 

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)

 

 

Three Months Ended

 

 

March 31,

 

 

2016

 

 

2015

 

Cash flows from operating activities

 

 

 

 

 

 

 

Net income

$

91,198

 

 

$

212,646

 

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

 

 

 

 

 

 

 

Depreciation and amortization

 

199,839

 

 

 

206,412

 

Amortization of debt discounts, premiums and issuance costs

 

12,445

 

 

 

9,782

 

Loss on retirement of long-term debt

 

661

 

 

 

 

Provision for doubtful accounts

 

5,009

 

 

 

17,955

 

Stock-based compensation

 

12,048

 

 

 

10,676

 

Property transactions, net

 

5,131

 

 

 

1,589

 

(Income) loss from unconsolidated affiliates

 

5,792

 

 

 

(97,697

)

Distributions from unconsolidated affiliates

 

6,911

 

 

 

4,039

 

Deferred income taxes

 

7,653

 

 

 

(68,648

)

Change in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

22,747

 

 

 

(6,350

)

Inventories

 

6,602

 

 

 

731

 

Income taxes receivable and payable, net

 

6,779

 

 

 

6,879

 

Prepaid expenses and other

 

(40,381

)

 

 

(37,386

)

Prepaid Cotai land concession premium

 

(12,904

)

 

 

(12,953

)

Accounts payable and accrued liabilities

 

(93,704

)

 

 

(77,428

)

Other

 

(11,230

)

 

 

5,401

 

Net cash provided by operating activities

 

224,596

 

 

 

175,648

 

Cash flows from investing activities

 

 

 

 

 

 

 

Capital expenditures, net of construction payable

 

(427,499

)

 

 

(292,329

)

Dispositions of property and equipment

 

227

 

 

 

164

 

Investments in and advances to unconsolidated affiliates

 

(1,555

)

 

 

(160,079

)

Distributions from unconsolidated affiliates in excess of cumulative earnings

 

1,629

 

 

 

1,111

 

Proceeds from cash deposits - original maturities longer than 90 days

 

 

 

 

570,000

 

Other

 

(2,826

)

 

 

(2,070

)

Net cash provided by (used in) investing activities

 

(430,024

)

 

 

116,797

 

Cash flows from financing activities

 

 

 

 

 

 

 

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

 

243,000

 

 

 

(1,318,626

)

Borrowings under bank credit facilities – maturities longer than 90 days

 

 

 

 

1,710,625

 

Retirement of senior debentures

 

(2,661

)

 

 

 

Debt issuance costs

 

(32,577

)

 

 

 

Excess tax benefit from exercise of stock options

 

1,035

 

 

 

142

 

Distributions to noncontrolling interest owners

 

(2,267

)

 

 

(202,624

)

Other

 

(5,568

)

 

 

(294

)

Net cash provided by financing activities

 

200,962

 

 

 

189,223

 

Effect of exchange rate on cash

 

(941

)

 

 

704

 

Cash and cash equivalents

 

 

 

 

 

 

 

Net increase (decrease) for the period

 

(5,407

)

 

 

482,372

 

Change in cash related to assets held for sale

 

 

 

 

(552

)

Balance, beginning of period

 

1,670,312

 

 

 

1,713,715

 

Balance, end of period

$

1,664,905

 

 

$

2,195,535

 

Supplemental cash flow disclosures

 

 

 

 

 

 

 

Interest paid, net of amounts capitalized

$

195,028

 

 

$

213,430

 

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

 

4,601

 

 

 

4,747

 

Non-cash investing and financing activities

 

 

 

 

 

 

 

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

 

 

 

 

(8,198

)

 

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 subsidiaries, owns and/or operates casino resorts. The Company owns and operates the following integrated casino, hotel and entertainment 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. Along with local investors, the Company owns and operates MGM Grand Detroit in Detroit, Michigan. The Company owns and operates the following resorts in Mississippi: Beau Rivage in Biloxi and Gold Strike in 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 concessions, and is in the process of developing an 18 acre site on the Cotai Strip in Macau (“MGM Cotai”). MGM Cotai will be an integrated casino, hotel and entertainment resort with capacity for up to 500 gaming tables and up to 1,500 slots, and featuring approximately 1,500 hotel rooms. The actual number of gaming tables allocated to MGM Cotai will be determined by the Macau government prior to opening, and such allocation may be less than MGM Cotai’s 500 gaming table capacity. The total estimated project budget is $3.0 billion, excluding development fees eliminated in consolidation, capitalized interest and land related costs.

 

The Company owns 50% of and manages 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, an integrated casino, hotel and entertainment resort; Mandarin Oriental Las Vegas, a non-gaming boutique hotel; and Vdara, a luxury condominium-hotel. In addition, CityCenter features residential units in the Residences at Mandarin Oriental and Veer. In April 2016, CityCenter closed the sale of The Shops at Crystals (“Crystals”), a retail, dining and entertainment district. See Note 3 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. The Company also has a 50% interest in Grand Victoria. 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. See Note 3 for additional information regarding the Company’s investments in unconsolidated affiliates.

 

The Company owns 50% of the Las Vegas Arena Company, LLC, the entity which owns the T-Mobile Arena. The other 50% is owned by a subsidiary of Anschutz Entertainment Group, Inc. (AEG). The Company manages the T-Mobile Arena, which is 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 T-Mobile Arena is a 20,000 seat venue designed to host world-class events – from mixed martial arts, boxing, hockey, basketball and bull riding to high profile awards shows and top-name concerts. Effective January 1, 2016, the Company leases the MGM Grand Garden Arena, located adjacent to the MGM Grand Las Vegas, to the Las Vegas Arena Company, LLC. In addition, the Company operates The Park, a dining and entertainment district, which opened in April 2016 and which connects to New York-New York, Monte Carlo and T-Mobile Arena. T-Mobile Arena commenced operations in April 2016.

 

The Maryland Video Lottery Facility Location Commission has awarded the Company’s subsidiary developing MGM National Harbor a license to build and operate a destination integrated casino, hotel and entertainment resort in Prince George’s County at National Harbor, which is a waterfront development located on the Potomac River just outside of Washington D.C. The expected cost to develop and construct MGM National Harbor is approximately $1.3 billion, excluding capitalized interest and land related costs. The Company expects the resort to include a casino with approximately 3,600 slots and 160 table games including poker; a 300-room hotel with luxury spa and rooftop pool; 93,100 square feet of high‑end branded retail and fine and casual dining; a 3,000-seat theater venue; 50,000 square feet of meeting and event space; and a 4,700-space parking garage.

 

A subsidiary of the Company was awarded a casino license to build and operate MGM Springfield in Springfield, Massachusetts. MGM Springfield will be developed on approximately 14 acres of land in downtown Springfield, Massachusetts. The Company’s plans for the resort currently include a casino with approximately 3,000 slots and 100 table games including poker; a 250-room hotel; 100,000 square feet of retail and restaurant space; 44,000 square feet of meeting and event space; and a 3,375 space parking garage, with an expected development and construction cost of approximately $865 million, excluding capitalized interest and land related costs.  

5


 

 

In April 2016, the Company’s subsidiary, MGM Growth Properties LLC (“MGP”), completed its initial public offering of Class A shares (the “IPO”). Following the IPO, the Company will continue to control MGP through its ownership of the sole Class B share (which entitles the Company to an amount of votes representing a majority of the total voting power of MGP’s shares). See Note 11 for additional information related to MGP, the IPO and certain other intercompany agreements and debt financing transactions entered into in connection therewith.

 

The Company has two reportable segments: wholly owned domestic resorts and MGM China. See Note 9 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 accounting principles generally accepted in the United States have been condensed or omitted. These consolidated financial statements should be read in conjunction with the Company’s 2015 annual consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.

 

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

 

Property and equipment. The Company had accrued $19 million and $17 million for property and equipment as of March 31, 2016 and December 31, 2015, respectively, within “Accounts payable” and $53 million and $44 million as of March 31, 2016 and December 31, 2015, respectively, related to construction retention in “Other long-term obligations.”

 

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 18.9% for the three months ended March 31, 2016.

 

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. As of December 31, 2015, the scheduled future reversal of existing U.S. federal taxable temporary differences exceeded the scheduled future reversal of existing U.S. federal deductible temporary differences. Consequently, the Company no longer applies a valuation allowance against its domestic deferred tax assets other than its foreign tax credit deferred tax asset.

 

The Company has generated significant excess foreign tax credits that are attributable to the Macau Special Gaming Tax which is 35% of gross gaming revenue in Macau. 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 and the Company continues to receive distributions from MGM China, the Company expects that it will generate excess foreign tax credits in most years and that most of the excess foreign credits will not be utilized before 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 its assessment of the realization of the foreign tax credit deferred tax asset.

 

6


 

The Company’s assessment of realization of its foreign tax credit deferred tax asset is based on available evidence, including assumptions about future profitability of and distributions from MGM China, as well as its assumption concerning renewals of the five-year exemption from Macau’s 12% complementary tax on gaming profits and future profitability of its U.S. operations. As a result, significant judgment is required in assessing the possible need for a valuation allowance and changes to such assumptions may have a material impact on the amount of the valuation allowance. For example, should the Company in a future period actually receive or be able to assume an additional five-year exemption, an additional valuation allowance would likely need to be provided on some portion or all of the foreign tax credit deferred tax asset, resulting in an increase in the provision for income taxes in such period and such increase may be material. In addition, a change to forecasts of future profitability of, and distributions from, MGM China could also result in a material change in the valuation allowance with a corresponding impact on the provision for income taxes in such period.

 

The Company does not currently rely on future U.S. source operating income in assessing future foreign tax credit realization due to its recent history of cumulative losses in the U.S. and therefore only relies on U.S. federal taxable temporary differences that it expects will reverse during the 10-year foreign tax credit carryover period.  However, due to improvements in its U.S. operations the Company has generated U.S. operating profits for the past five consecutive quarters.  Should these profits continue in future periods, the Company may be able to utilize projections of future U.S. source operating income in its assessment of the realizability of its foreign tax credit deferred tax asset.  This change, which could occur as early as the second quarter of 2016, could result in a reduction in the valuation allowance and a corresponding reduction in the provision for income taxes in such period.  However, the exact timing and amount of reduction in the valuation allowance are subject to change on the basis of the level of profitability that the Company is able to actually achieve.

 

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, of approximately $106 million as of December 31, 2016 and has reflected this assumption in its annual effective tax rate for 2016.

 

Recently issued accounting standards. In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2016-02, “Leases (Topic 842),” (“ASU 2016-02”), which replaces the existing guidance in Accounting Standard Codification 840, “Leases.” ASU 2016-02 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. ASU 2016-02 requires a dual approach for lessee accounting under which a lessee would account for leases as finance leases or operating leases. Both finance leases and operating leases will result in the lessee recognizing a right-of-use (“ROU”) asset and a corresponding lease liability. For finance leases the lessee would recognize interest expense and amortization of the ROU asset and for operating leases the lessee would recognize a straight-line total lease expense. The Company is currently assessing the impact that adoption of this guidance will have on its consolidated financial statements and footnote disclosures.

 

In August 2015, the FASB issued Accounting Standards Update No. 2015-14, “Revenue From Contracts With Customers (Topic 606): Deferral of the Effective Date,” which defers the effective date of Accounting Standards Update No. 2014-09, “Revenue From Contracts With Customers,” (“ASU 2014-09”) to the fiscal year, and interim periods within the year, beginning on or after December 15, 2017. FASB 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 guidance will have on its consolidated financial statements and footnote disclosures.

 

In March 2016, the FASB issued Accounting Standards Update No. 2016-08, “Revenue From Contracts With Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net),” (“ASU 2016-08”), effective for the fiscal years beginning after December 15, 2017. ASU 2016-08 clarifies the implementation guidance on principal versus agent considerations as it relates to ASU 2014-09. The amendment relates to the assessment an entity is required to perform to determine whether the nature of its promise is to provide the specified good or service itself (that is, the entity is a principal) or to arrange for that good or service to be provided by the other party (that is, the entity is an agent) when another party is involved in providing goods or services to a customer. The Company is currently assessing the impact that adoption of ASU 2016-08 will have on its consolidated financial statements and footnote disclosures.

 

In March 2016, the FASB issued Accounting Standards Update No. 2016-09, “Compensation – Stock Compensation (Topic 718),” (“ASU 2016-09”), effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. ASU 2016-09 simplifies the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The Company is currently assessing the impact that adoption of this guidance will have on its consolidated financial statements and footnote disclosures.

 

7


 

In March 2016, the FASB issued Accounting Standards Update No. 2016-07, “Investments – Equity Method and Joint Ventures (Topic 323),” (“ASU 2016-07”), effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. ASU 2016-07 eliminates the requirement that an entity retroactively adopt the equity method of accounting if an investment qualifies for use of the equity method as a result of an increase in the level of ownership or degree of influence. The amendments require that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. The Company does not expect the adoption of ASU 2016-07 to have a material effect on its consolidated financial statements and footnote disclosures.

 

In July 2015, the FASB issued Accounting Standards Update No. 2015-11, “Simplifying the Measurement of Inventory,” (“ASU 2015-11”), effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. ASU 2015-11 requires inventory that is measured using first-in, first-out (FIFO) or average cost method to be measured “at the lower of cost and net realizable value,” thereby simplifying the current guidance under which an entity must measure inventory at the lower of cost or market (market in this context is defined as one of three different measures). ASU No. 2015-11 will not apply to inventories that are measured by using either the LIFO method or the retail inventory method. The Company does not expect the adoption of ASU 2015-11 to have a material effect on its consolidated financial statements and footnote disclosures.

 

In 2016, the Company adopted FASB Accounting Standards Update No. 2015-02, “Amendments to the Consolidation Analysis,” (“ASU 2015-02”). ASU 2015-02 amended: the assessment of whether a limited partnership is a variable interest entity; the effect that fees paid to a decision-maker have on the consolidation analysis; how variable interests held by a reporting entity’s related parties or de facto agents affect its consolidation conclusion; and for entities other than limited partnerships, clarifies how to determine whether the equity holders as a group have power over an entity. The adoption of ASU 2015-02 did not have a material impact on the Company’s consolidated financial statements and footnote disclosures.

 

 

NOTE 3 — INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES

 

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

 

 

March 31,

 

 

December 31,

 

 

2016

 

 

2015

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

CityCenter Holdings, LLC – CityCenter (50%)

$

1,116,405

 

 

$

1,136,452

 

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

 

121,257

 

 

 

122,500

 

Marina District Development Company – Borgata (50%)

 

143,254

 

 

 

134,454

 

Las Vegas Arena Company, LLC (50%)

 

89,884

 

 

 

90,352

 

Other

 

7,701

 

 

 

7,739

 

 

$

1,478,501

 

 

$

1,491,497

 

 

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

  

 

Three Months Ended

 

 

March 31,

 

 

2016

 

 

2015

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

Income from unconsolidated affiliates

$

14,702

 

 

$

117,381

 

Preopening and start-up expenses

 

(2,282

)

 

 

(673

)

Non-operating items from unconsolidated affiliates

 

(18,212

)

 

 

(19,011

)

 

$

(5,792

)

 

$

97,697

 

 

8


 

CityCenter

 

Summarized balance sheet information for CityCenter is as follows:

 

 

March 31,

 

 

December 31,

 

 

2016

 

 

2015

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

Current assets

$

900,730

 

 

$

1,092,094

 

Property and other long-term assets, net

 

6,864,048

 

 

 

6,966,689

 

Current liabilities

 

394,184

 

 

 

271,773

 

Long-term debt and other long-term obligations

 

1,232,952

 

 

 

1,499,255

 

Equity

 

6,137,642

 

 

 

6,287,755

 

 

Summarized income statement information for CityCenter is as follows:

 

 

Three Months Ended

 

 

March 31,

 

 

2016

 

 

2015

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

Net revenues

$

301,541

 

 

$

302,177

 

Operating expenses

 

(328,684

)

 

 

(126,370

)

Operating income (loss)

 

(27,143

)

 

 

175,807

 

Non-operating expenses

 

(21,026

)

 

 

(18,067

)

Net income (loss) from continuing operations

 

(48,169

)

 

 

157,740

 

Discontinued operations

 

(11,557

)

 

 

5,861

 

Net income (loss)

$

(59,726

)

 

$

163,601

 

 

Crystals sale. In April 2016, CityCenter closed the sale of Crystals for approximately $1.1 billion. The carrying value of the Crystals net assets included in the sale was $663 million as of March 31, 2016. As such, CityCenter will recognize a gain on the sale, less costs to sell, during the second quarter of 2016. The Company will recognize its 50% share of such gain, adjusted for the resolution of certain basis differences, during the second quarter of 2016.

 

As of March 31, 2016 and December 31, 2015, assets held for sale related to Crystals of $664 million and $668 million, respectively, and associated liabilities of Crystals were classified as current within the summarized balance sheet information. The results of Crystals are classified as discontinued operations in the summarized income statement information.

 

CityCenter distributions. In March 2016, a $90 million distribution was declared in accordance with CityCenter’s annual distribution policy and in April 2016, CityCenter declared a $990 million special distribution in connection with the Crystals sale. The $90 million distribution was included in current liabilities in the March 31, 2016 summarized balance sheet information. The Company’s $540 million share of such distributions was paid in May 2016.

 

CityCenter litigation settlement. During the first quarter of 2015, CityCenter recognized a $160 million gain as a result of the final resolution of its construction litigation and related settlements, of which the Company recorded $80 million, its 50% share of the gain.

 

9


 

NOTE 4 — LONG-TERM DEBT

 

Long-term debt consisted of the following:

 

 

March 31,

 

 

December 31,

 

 

2016

 

 

2015

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

Senior credit facility

$

2,709,000

 

 

$

2,716,000

 

MGM China credit facility

 

1,558,510

 

 

 

1,559,909

 

MGM National Harbor credit agreement

 

250,000

 

 

 

 

$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

 

500,000

 

 

 

500,000

 

$743 million 7.625% senior notes, due 2017

 

743,000

 

 

 

743,000

 

$475 million 11.375% senior notes, due 2018

 

475,000

 

 

 

475,000

 

$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

 

$1,250 million 6% senior notes, due 2023

 

1,250,000

 

 

 

1,250,000

 

$0.6 million 7% debentures, due 2036

 

552

 

 

 

552

 

$4.3 million 6.7% debentures, due 2096

 

2,265

 

 

 

4,265

 

 

 

13,063,976

 

 

 

12,824,375

 

Less: Premiums, discounts, and unamortized debt issuance costs, net

 

(134,695

)

 

 

(127,622

)

 

 

12,929,281

 

 

 

12,696,753

 

Less: Current portion, net of discounts and unamortized debt issuance costs

 

(242,900

)

 

 

(328,442

)

 

$

12,686,381

 

 

$

12,368,311

 

 

Debt due within one year of the March 31, 2016 balance sheet was classified as long-term other than the $242.9 million 6.875% senior notes due April 2016, which were classified as current because the Company used cash to repay such notes at maturity. The Company has refinanced its other current maturities on a long-term basis as part of the series of subsequent transactions completed on April 25, 2016 in connection with the MGP IPO as further discussed in Note 11.  At December 31, 2015, the amount available under the Company’s revolving senior credit facility was less than current maturities related to the Company’s term loan credit facilities and senior notes. The Company excluded from the December 31, 2015 current portion of long-term debt the amount available for refinancing under its revolving credit facility.

 

Senior credit facility. At March 31, 2016, the Company’s senior credit facility consisted of a $1.2 billion revolving credit facility, a $1.02 billion term loan A facility and a $1.70 billion term loan B facility. The revolving and term loan A facilities were originally scheduled to mature in December 2017 and the term loan B facility was originally scheduled to mature in December 2019. In April 2016, the senior credit facility was amended and restated as discussed further in Note 11.

 

MGM China credit facility. At March 31, 2016, the MGM China credit facility consisted of $1.55 billion of term loans and a $1.45 billion revolving credit facility, which bear interest at a fluctuating rate per annum based on HIBOR plus a margin that ranges between 1.375% and 2.5% based on MGM China’s leverage ratio. The MGM China credit facility matures in April 2019, with scheduled amortization payments of the term loans beginning in October 2017. The MGM China credit facility is secured by MGM Grand Paradise’s interest in the Cotai land use right, and MGM China, MGM Grand Paradise and their guarantor subsidiaries have granted a security interest in substantially all of their assets to secure the facility. The outstanding balance at March 31, 2016 was comprised solely of term loans. At March 31, 2016, the weighted average interest rate on the term loans was 1.98%.

 

The MGM China credit facility 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 liens. As of March 31, 2016, MGM China was required to maintain compliance with a maximum leverage ratio of 4.50 to 1.00 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, 2016. In February 2016, the MGM China credit facility was amended. The amendment included changes to the required maximum leverage ratio which increases to 6.00 to 1.00 beginning September 30, 2016 through June 30, 2017, then decreases to 5.50 to 1.00 for September 30, 2017, 5.00 to 1.00 for December 31, 2017, and 4.50 to 1.00 for March 31, 2018 and thereafter.

10


 

 

MGM National Harbor credit agreement. In January 2016, MGM National Harbor, LLC, the Company’s wholly owned subsidiary developing and constructing MGM National Harbor, entered into a credit agreement consisting of a $100 million revolving credit facility and a $425 million delayed draw term loan facility, of which $250 million was funded at closing. In connection with any future draws under the delayed draw term loan facility and any revolver draws in excess of $25 million prior to the opening date of the project the Company is required to make a matching cash equity contribution in MGM National Harbor. The revolving and term loan facilities bear interest at LIBOR plus an applicable rate determined by the Company’s total leverage ratio (2.25% as of March 31, 2016). The term loan and revolving facilities are scheduled to mature in January 2021 and the term loan facilities are subject to scheduled amortization payments on the last day of each calendar quarter beginning the fourth full fiscal quarter following the opening date of MGM National Harbor, initially in an amount equal to 1.25% of the aggregate principal balance and increasing to 1.875% and 2.50% of the aggregate principal balance on the last day of the twelfth and sixteenth full fiscal quarters, respectively.  The Company had $275 million of available borrowing capacity under the MGM National Harbor credit agreement as of March 31, 2016.  At March 31, 2016, the interest rate on the term loan A was 2.7%.

 

The credit agreement is secured by a leasehold mortgage on MGM National Harbor and substantially all of the existing and future property of MGM National Harbor. Mandatory prepayments will be required upon the occurrence of certain events, including sales of certain assets, casualty events and the incurrence of certain additional indebtedness, subject to certain exceptions and reinvestment rights. In addition, to the extent MGM National Harbor generates excess cash flow (as defined in the credit agreement), a percentage of such excess cash flow (ranging from 0% to 50% based on a total leverage ratio) will be required to be used to prepay the term loan facilities commencing with the fiscal year ended 2017.  

 

The credit 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 National Harbor, LLC and its restricted subsidiaries to make investments, pay dividends, sell assets, and to incur additional debt and additional liens. In addition, the credit agreement requires MGM National Harbor, LLC and its restricted subsidiaries to maintain a maximum total leverage ratio and a minimum interest coverage ratio. In addition, borrowings under the credit agreement are subject to a customary “in balance test” (as defined in the credit agreement), which requires that, as of the date of determination prior to the opening date, the available funds (including resources that may be available from the Company) are equal to or exceed the remaining costs for MGM National Harbor.

 

Fair value of long-term debt. The estimated fair value of the Company’s long-term debt at March 31, 2016 was $13.6 billion. At December 31, 2015, the estimated fair value of the Company’s long-term debt was $13.1 billion. Fair value was estimated using quoted market prices for the Company’s senior notes and senior credit facility.

 

NOTE 5 — COMMITMENTS AND CONTINGENCIES

 

Cotai land concession contract. MGM Grand Paradise’s land concession contract for an approximate 18 acre site on the Cotai Strip in 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 installments. As of March 31, 2016, MGM China had paid $145 million of the contract premium, including interest due on the semi-annual installments, and the amount paid is recorded within “Other long-term assets, net.” Including interest on the two remaining semi-annual installments, MGM China has approximately $29 million remaining payable for the land concession contract. Under the terms of the land concession contract, MGM Grand Paradise is required to build and open MGM Cotai by January 2018.

 

T-Mobile Arena. In conjunction with Las Vegas Arena Company entering a senior secured credit facility in 2014, the Company and AEG each entered joint and several completion guarantees for the project, as well as a repayment guarantee for term loan B (which is subject to increases and decreases in the event of a rebalancing of the principal amount of indebtedness between term loan A and term loan B facilities). As of March 31, 2016, term loan A was $120 million and term loan B was $80 million.

 

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. At March 31, 2016, 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, 2016, the Company had $26 million in letters of credit outstanding. MGM China’s senior credit facility limits the amount of letters of credit that can be issued to $100 million, and the amount of available borrowings under the senior credit facility is reduced by any outstanding letters of credit.  At March 31, 2016, MGM China had provided approximately $39 million of letters of credit outstanding under its credit facility.  MGM National Harbor’s credit agreement limits the amount of letters of credit that can be issued to $30 million, and the amount of available borrowings under the credit agreement is reduced by any outstanding letters of credit.  At March 31, 2016, no letters of credit were outstanding under the MGM National Harbor credit agreement.

 

11


 

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.

 

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,