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MGM Resorts International 10-Q 2016

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
mgm-10q_20160630.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 June 30, 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 August 4, 2016 

Common Stock, $.01 par value

 

565,614,239 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 June 30, 2016 and December 31, 2015

1

 

 

Consolidated Statements of Operations for the Three Months and Six Months Ended June 30, 2016 and June 30, 2015

2

 

 

Consolidated Statements of Comprehensive Income for the Three Months and Six Months Ended June 30, 2016 and June 30, 2015

3

 

 

Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2016 and June 30, 2015

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

45

Item 4.

 

Controls and Procedures

45

 

PART II.

OTHER INFORMATION

 

Item 1.

 

Legal Proceedings

46

Item 1A.

 

Risk Factors

47

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

49

Item 6.

 

Exhibits

50

 

SIGNATURES

51

 

 

 

 


 

Part I. FINANCIAL INFORMATION

 

Item 1.

Financial Statements

 

MGM RESORTS INTERNATIONAL AND SUBSIDIARIES

 

CONSOLIDATED BALANCE SHEETS

 

(In thousands, except share data)

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

 

December 31,

 

 

2016

 

 

2015

 

 

 

 

 

 

 

 

 

ASSETS

 

Current assets

 

 

 

 

 

 

 

Cash and cash equivalents

$

2,503,255

 

 

$

1,670,312

 

Accounts receivable, net

 

443,903

 

 

 

480,559

 

Inventories

 

97,800

 

 

 

104,200

 

Income tax receivable

 

11,194

 

 

 

15,993

 

Prepaid expenses and other

 

137,635

 

 

 

137,685

 

Total current assets

 

3,193,787

 

 

 

2,408,749

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

16,102,856

 

 

 

15,371,795

 

 

 

 

 

 

 

 

 

Other assets

 

 

 

 

 

 

 

Investments in and advances to unconsolidated affiliates

 

1,364,163

 

 

 

1,491,497

 

Goodwill

 

1,429,279

 

 

 

1,430,767

 

Other intangible assets, net

 

4,072,317

 

 

 

4,164,781

 

Other long-term assets, net

 

386,653

 

 

 

347,589

 

Total other assets

 

7,252,412

 

 

 

7,434,634

 

 

$

26,549,055

 

 

$

25,215,178

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

Current liabilities

 

 

 

 

 

 

 

Accounts payable

$

161,420

 

 

$

182,031

 

Construction payable

 

333,796

 

 

 

250,120

 

Current portion of long-term debt

 

 

 

 

328,442

 

Accrued interest on long-term debt

 

160,445

 

 

 

165,914

 

Other accrued liabilities

 

1,262,118

 

 

 

1,311,444

 

Total current liabilities

 

1,917,779

 

 

 

2,237,951

 

 

 

 

 

 

 

 

 

Deferred income taxes, net

 

2,591,317

 

 

 

2,680,576

 

Long-term debt

 

12,364,920

 

 

 

12,368,311

 

Other long-term obligations

 

141,906

 

 

 

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 565,612,013 and 564,838,893 shares

 

5,656

 

 

 

5,648

 

Capital in excess of par value

 

5,530,592

 

 

 

5,655,886

 

Accumulated deficit

 

(14,477

)

 

 

(555,629

)

Accumulated other comprehensive income

 

10,809

 

 

 

14,022

 

Total MGM Resorts International stockholders' equity

 

5,532,580

 

 

 

5,119,927

 

Noncontrolling interests

 

3,994,303

 

 

 

2,644,500

 

Total stockholders' equity

 

9,526,883

 

 

 

7,764,427

 

 

$

26,549,055

 

 

$

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

 

 

Six Months Ended

 

 

June 30,

 

 

June 30,

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Casino

$

1,127,404

 

 

$

1,235,976

 

 

$

2,261,760

 

 

$

2,514,478

 

Rooms

 

498,904

 

 

 

490,498

 

 

 

988,390

 

 

 

949,923

 

Food and beverage

 

412,766

 

 

 

423,183

 

 

 

789,871

 

 

 

807,284

 

Entertainment

 

121,853

 

 

 

134,972

 

 

 

240,179

 

 

 

260,940

 

Retail

 

52,432

 

 

 

55,482

 

 

 

97,905

 

 

 

100,519

 

Other

 

134,120

 

 

 

137,819

 

 

 

251,645

 

 

 

264,369

 

Reimbursed costs

 

100,795

 

 

 

103,548

 

 

 

201,844

 

 

 

204,608

 

 

 

2,448,274

 

 

 

2,581,478

 

 

 

4,831,594

 

 

 

5,102,121

 

Less: Promotional allowances

 

(178,772

)

 

 

(196,343

)

 

 

(352,406

)

 

 

(384,742

)

 

 

2,269,502

 

 

 

2,385,135

 

 

 

4,479,188

 

 

 

4,717,379

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Casino

 

620,305

 

 

 

738,427

 

 

 

1,260,874

 

 

 

1,521,235

 

Rooms

 

142,252

 

 

 

142,065

 

 

 

286,994

 

 

 

283,378

 

Food and beverage

 

239,452

 

 

 

243,127

 

 

 

460,748

 

 

 

464,648

 

Entertainment

 

98,827

 

 

 

104,397

 

 

 

191,115

 

 

 

201,396

 

Retail

 

24,085

 

 

 

28,398

 

 

 

46,086

 

 

 

52,494

 

Other

 

87,253

 

 

 

95,835

 

 

 

167,021

 

 

 

180,158

 

Reimbursed costs

 

100,795

 

 

 

103,548

 

 

 

201,844

 

 

 

204,608

 

General and administrative

 

321,407

 

 

 

333,708

 

 

 

629,950

 

 

 

661,881

 

Corporate expense

 

81,803

 

 

 

59,602

 

 

 

153,051

 

 

 

109,958

 

Preopening and start-up expenses

 

24,824

 

 

 

17,889

 

 

 

46,784

 

 

 

33,760

 

Property transactions, net

 

854

 

 

 

3,953

 

 

 

5,985

 

 

 

5,542

 

Depreciation and amortization

 

206,899

 

 

 

208,565

 

 

 

406,738

 

 

 

414,977

 

 

 

1,948,756

 

 

 

2,079,514

 

 

 

3,857,190

 

 

 

4,134,035

 

Income from unconsolidated affiliates

 

448,309

 

 

 

42,900

 

 

 

463,011

 

 

 

160,281

 

Operating income

 

769,055

 

 

 

348,521

 

 

 

1,085,009

 

 

 

743,625

 

Non-operating income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net of amounts capitalized

 

(180,352

)

 

 

(203,245

)

 

 

(365,021

)

 

 

(419,507

)

Non-operating items from unconsolidated affiliates

 

(15,885

)

 

 

(17,766

)

 

 

(34,097

)

 

 

(36,777

)

Other, net

 

(49,840

)

 

 

(4,815

)

 

 

(50,405

)

 

 

(8,305

)

 

 

(246,077

)

 

 

(225,826

)

 

 

(449,523

)

 

 

(464,589

)

Income before income taxes

 

522,978

 

 

 

122,695

 

 

 

635,486

 

 

 

279,036

 

Benefit (provision) for income taxes

 

(8,480

)

 

 

3,772

 

 

 

(29,790

)

 

 

60,077

 

Net income

 

514,498

 

 

 

126,467

 

 

 

605,696

 

 

 

339,113

 

Less: Net income attributable to noncontrolling interests

 

(40,145

)

 

 

(29,008

)

 

 

(64,544

)

 

 

(71,804

)

Net income attributable to MGM Resorts International

$

474,353

 

 

$

97,459

 

 

$

541,152

 

 

$

267,309

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

$

0.84

 

 

$

0.18

 

 

$

0.96

 

 

$

0.51

 

Diluted

$

0.83

 

 

$

0.17

 

 

$

0.95

 

 

$

0.50

 

 

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

 

 

Six Months Ended

 

 

June 30,

 

 

June 30,

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Net income

$

514,498

 

 

$

126,467

 

 

$

605,696

 

 

$

339,113

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

(1,370

)

 

 

608

 

 

 

(6,135

)

 

 

3,084

 

Other

 

 

 

 

 

 

 

 

 

 

(672

)

Other comprehensive income (loss)

 

(1,370

)

 

 

608

 

 

 

(6,135

)

 

 

2,412

 

Comprehensive income

 

513,128

 

 

 

127,075

 

 

 

599,561

 

 

 

341,525

 

Less: Comprehensive income attributable to noncontrolling interests

 

(39,588

)

 

 

(29,305

)

 

 

(61,622

)

 

 

(73,316

)

Comprehensive income attributable to MGM Resorts International

$

473,540

 

 

$

97,770

 

 

$

537,939

 

 

$

268,209

 

 

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)

 

 

Six Months Ended

 

 

June 30,

 

 

2016

 

 

2015

 

Cash flows from operating activities

 

 

 

 

 

 

 

Net income

$

605,696

 

 

$

339,113

 

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

 

 

 

 

 

 

 

Depreciation and amortization

 

406,738

 

 

 

414,977

 

Amortization of debt discounts, premiums and issuance costs

 

22,386

 

 

 

19,514

 

Loss on retirement of long-term debt

 

50,121

 

 

 

1,924

 

Provision for doubtful accounts

 

(802

)

 

 

35,628

 

Stock-based compensation

 

24,923

 

 

 

20,936

 

Property transactions, net

 

5,985

 

 

 

5,542

 

Income from unconsolidated affiliates

 

(425,826

)

 

 

(122,061

)

Distributions from unconsolidated affiliates

 

10,713

 

 

 

7,814

 

Deferred income taxes

 

(37,544

)

 

 

(80,688

)

Change in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

37,387

 

 

 

(30,117

)

Inventories

 

6,384

 

 

 

(2,897

)

Income taxes receivable and payable, net

 

4,595

 

 

 

3,838

 

Prepaid expenses and other

 

(1,605

)

 

 

(10,038

)

Prepaid Cotai land concession premium

 

(11,167

)

 

 

(11,213

)

Accounts payable and accrued liabilities

 

(72,289

)

 

 

(156,291

)

Other

 

(12,049

)

 

 

11,288

 

Net cash provided by operating activities

 

613,646

 

 

 

447,269

 

Cash flows from investing activities

 

 

 

 

 

 

 

Capital expenditures, net of construction payable

 

(970,571

)

 

 

(594,041

)

Dispositions of property and equipment

 

1,659

 

 

 

259

 

Proceeds from sale of assets held for sale

 

 

 

 

19,797

 

Investments in and advances to unconsolidated affiliates

 

(1,555

)

 

 

(176,679

)

Distributions from unconsolidated affiliates in excess of cumulative earnings

 

543,437

 

 

 

202,136

 

Investments in cash deposits – original maturities longer than 90 days

 

 

 

 

(200,205

)

Proceeds from cash deposits – original maturities longer than 90 days

 

 

 

 

570,000

 

Other

 

(5,196

)

 

 

1,854

 

Net cash used in investing activities

 

(432,226

)

 

 

(176,879

)

Cash flows from financing activities

 

 

 

 

 

 

 

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

 

(1,716,686

)

 

 

(1,046,508

)

Borrowings under bank credit facilities – maturities longer than 90 days

 

1,845,375

 

 

 

3,416,875

 

Repayments under bank credit facilities – maturities longer than 90 days

 

 

 

 

(1,710,625

)

Issuance of long term debt

 

1,050,000

 

 

 

 

Retirement of senior notes

 

(1,498,848

)

 

 

(504

)

Debt issuance costs

 

(123,261

)

 

 

(45,639

)

Issuance of MGM Growth Properties common stock in public offering

 

1,207,500

 

 

 

 

MGM Growth Properties common stock issuance costs

 

(75,032

)

 

 

 

Distributions to noncontrolling interest owners

 

(32,798

)

 

 

(264,454

)

Excess tax benefit from exercise of stock options

 

3,812

 

 

 

208

 

Proceeds from issuance of redeemable noncontrolling interest

 

 

 

 

5,000

 

Other

 

(7,418

)

 

 

(494

)

Net cash provided by financing activities

 

652,644

 

 

 

353,859

 

Effect of exchange rate on cash

 

(1,121

)

 

 

714

 

Cash and cash equivalents

 

 

 

 

 

 

 

Net increase for the period

 

832,943

 

 

 

624,963

 

Change in cash related to assets held for sale

 

 

 

 

3,662

 

Balance, beginning of period

 

1,670,312

 

 

 

1,713,715

 

Balance, end of period

$

2,503,255

 

 

$

2,342,340

 

Supplemental cash flow disclosures

 

 

 

 

 

 

 

Interest paid, net of amounts capitalized

$

348,104

 

 

$

398,791

 

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

 

55,408

 

 

 

21,963

 

Non-cash investing and financing activities

 

 

 

 

 

 

 

Conversion of convertible senior notes to equity

$

 

 

$

1,449,499

 

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.

 

On April 25, 2016, MGM Growth Properties LLC (“MGP”), a subsidiary of the Company, completed its initial public offering (“IPO”) of 57,500,000 of its Class A shares representing limited liability company interests (inclusive of the full exercise by the underwriters of their option to purchase 7,500,000 Class A shares) at an initial offering price of $21 per share.  In connection with the IPO, the Company and MGP entered into a series of transactions and several agreements that, among other things, set forth the terms and conditions of the IPO and provide a framework for the Company’s relationship with MGP.

 

MGP is organized as an umbrella partnership REIT (commonly referred to as an “UPREIT”) structure in which substantially all of its assets and substantially all of its businesses are conducted through its operating partnership subsidiary, MGM Growth Properties Operating Partnership LP (the “Operating Partnership”). MGP contributed the proceeds from the IPO to the Operating Partnership in exchange for 26.7% of the units in the Operating Partnership. The general partner of the Operating Partnership is also a subsidiary of MGP. MGP has two classes of authorized and outstanding voting common shares (collectively, the “shares”): Class A shares and a single Class B share. The Company owns MGP’s Class B share, which does not provide its holder any rights to profits or losses or any rights to receive distributions from operations of MGP or  upon liquidation or winding up of MGP.  MGP’s Class A shareholders are entitled to one vote per share, while the Company, as the owner of the Class B share, is entitled to an amount of votes representing a majority of the total voting power of MGP’s shares so long as the Company and its controlled affiliates’ (excluding MGP) aggregate beneficial ownership of the combined economic interests in MGP and the Operating Partnership does not fall below 30%. As such, the Company controls MGP through its majority voting rights and consolidates MGP in its financial results. At June 30, 2016, the Company owned 73.3% of the Operating Partnership units of the Operating Partnership, which is controlled and consolidated by MGP (76.3% subsequent to the acquisition of the Borgata Hotel Casino & Spa (“Borgata”) discussed in Note 11). The ownership units of the Operating Partnership are exchangeable into Class A shares of MGP on a one-to-one basis, or cash at the fair value of a Class A share, at the option of MGP.

 

Pursuant to a master contribution agreement by and between the Company, MGP and the Operating Partnership, the Company contributed the real estate assets of The Mirage, Mandalay Bay, Luxor, New York-New York, Monte Carlo, Excalibur, the Park, Gold Strike Tunica, MGM Grand Detroit and Beau Rivage to newly formed subsidiaries and subsequently transferred 100% ownership interest in such subsidiaries to the Operating Partnership in exchange for Operating Partnership units in the Operating Partnership on the closing date of the IPO. See Note 4 and Note 10 for additional information related to MGP, the IPO and certain other intercompany agreements and debt financing transactions entered into in connection therewith.

 

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 $3.1 billion, excluding development fees eliminated in consolidation, capitalized interest and land related costs.

 

The Company owns 50% of and manages CityCenter Holdings, LLC (“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.

 

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Prior to August 1, 2016, the Company owned 50% of Marina District Development Company, the entity which owns Borgata, located on Renaissance Pointe in the Marina area of Atlantic City, New Jersey, and Boyd Gaming Corporation (“Boyd Gaming”) owned the other 50% of Borgata and also operated the resort. In May 2016, the Company entered into a definitive agreement to acquire Boyd Gaming’s interest in Borgata. Further, the Company and MGP entered into a definitive agreement whereby, following the completion of the acquisition of Boyd Gaming’s interest, MGP acquired Borgata’s real property from the Company and leased back the real property to a subsidiary of the Company. The Company completed the transaction on August 1, 2016. See Note 11 for additional information.

 

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 and 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. T-Mobile Arena commenced operations in April 2016. 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.

 

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 $1.4 billion, excluding capitalized interest and land related costs. The Company expects the resort to include a casino with over 3,300 slots and approximately 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. 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.  

 

The Company has two reportable segments: 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 U.S. generally accepted accounting principles (“U.S. GAAP”) 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.

 

Principles of consolidation. The Company identifies entities for which control is achieved through means other than voting rights and to determine which business enterprise is the primary beneficiary of variable interest entities (“VIEs”). A VIE is an entity in which either (i) the equity investors as a group, if any, lack the power through voting or similar rights to direct the activities of such entity that most significantly impact such entity’s economic performance or (ii) the equity investment at risk is insufficient to finance that entity’s activities without additional subordinated financial support. The Company identifies the primary beneficiary of a VIE as the enterprise that has both of the following characteristics: (i) the power to direct the activities of the VIE that most significantly impact the entity’s economic performance; and (ii) the obligation to absorb losses or receive benefits of the VIE that could potentially be significant to the entity. The Company consolidates its investment in a VIE when it determines that it is its primary beneficiary. The Company may change its original assessment of a VIE upon subsequent events such as the modification of contractual

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arrangements that affect the characteristics or adequacy of the entity’s equity investments at risk and the disposition of all or a portion of an interest held by the primary beneficiary. The Company performs this analysis on an ongoing basis.

 

Management has determined that MGP is a VIE because the Class A equity investors as a group lack the power through voting or similar rights to direct the activities of such entity that most significantly impact such entity’s economic performance. The Company has determined that it is the primary beneficiary of MGP and consolidates MGP because (1) its ownership of MGP’s single Class B share entitles it to a majority of the total voting power of MGP’s shares, and (2) the exchangeable nature of the operating partnership units owned provide the Company the right to receive benefits from MGP that could potentially be significant to MGP. The Company has recorded MGP’s 26.7% interest in the Operating Partnership as noncontrolling interest in the Company’s consolidated financial statements.  

 

As of June 30, 2016, MGP had total assets of $8.2 billion, primarily related to its real estate investments, and total liabilities of $3.2 billion, primarily related to its indebtedness.

 

For entities not determined to be VIEs, the Company consolidates such entities in which the Company owns 100% of the equity. For entities in which the Company owns less than 100% of the equity interest, the Company consolidates the entity if it has the direct or indirect ability to control the entities’ activities based upon the terms of the respective entities’ ownership agreements. For these entities, the Company records a noncontrolling interest in the consolidated balance sheets. All intercompany balances and transactions are eliminated in consolidation.

 

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.

 

Property and equipment. The Company had accrued $8 million and $17 million for property and equipment as of June 30, 2016 and December 31, 2015, respectively, within “Accounts payable” and $29 million and $44 million as of June 30, 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 1.6% and 4.7% for the three and six months ended June 30, 2016, 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. 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.

 

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

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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. This could happen as early as the fourth quarter of 2016. 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.

 

Due to improvements in its U.S. operations, the Company has generated U.S. operating profits for the past six consecutive quarters and as of June 30, 2016 no longer has cumulative U.S. losses in recent years. Consequently, during the three months ended June 30, 2016 the Company began to rely on future U.S. source operating income in assessing future foreign tax credit realization during the 10-year foreign tax credit carryover period. This change resulted in a reduction in the valuation allowance and a corresponding reduction in the provision for income taxes during the period of approximately $85 million. Specifically, as of March 31, 2016, the Company projected that it would be able to record a deferred tax asset for foreign tax credits, net of valuation allowance, of approximately $106 million as of December 31, 2016. The Company now projects that it will record a deferred tax asset for foreign tax credits, net of valuation allowance, of approximately $191 million as of December 31, 2016.

 

Recently issued accounting standards. 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. 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 May 2016, the FASB issued Accounting Standards Update No. 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing,” (“ASU 2016-10”), effective for fiscal years beginning after December 15, 2017. ASU 2016-10 clarifies guidance related to identifying performance obligations and licensing implementation guidance as it relates to ASU 2014-09. The update includes targeted improvements based on input the FASB received from the Transition Resource Group for Revenue Recognition and other stakeholders. It seeks to proactively address areas in which diversity in practice potentially could arise, as well as to reduce the cost and complexity of applying certain aspects of the guidance both at implementation and on an ongoing basis. The Company is currently assessing the impact that adoption of ASU 2016-10 will have on its consolidated financial statements and footnote disclosures.

 

In May 2016, the FASB issued Accounting Standards Update No. 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients,” (“ASU 2016-12”), effective for fiscal years beginning after December 15, 2017. ASU 2016-12 addresses narrow-scope improvements to the guidance on collectability, noncash consideration and completed contracts at transition as it relates to ASU 2014-09. The amendments provide a practical expedient for contract modifications at transition and an accounting policy election related to the presentation of sales taxes and other similar taxes collected from customers. The Company is currently assessing the impact that adoption of ASU 2016-12 will have on its consolidated financial statements and footnote disclosures.

 

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

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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 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.

 

NOTE 3 — INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES

 

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

 

 

June 30,

 

 

December 31,

 

 

2016

 

 

2015

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

CityCenter Holdings, LLC – CityCenter (50%)

$

983,772

 

 

$

1,136,452

 

Marina District Development Company – Borgata (50%)

 

162,642

 

 

 

134,454