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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_20160930.htm

 

 

UNITED STATES

SECURITIES & EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended September 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       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       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

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  

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 4, 2016 

Common Stock, $.01 par value

 

573,366,718 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, 2016 and December 31, 2015

1

 

 

Consolidated Statements of Operations for the Three Months and Nine Months Ended September 30, 2016 and September 30, 2015

2

 

 

Consolidated Statements of Comprehensive Income for the Three Months and Nine Months Ended September 30, 2016 and September 30, 2015

3

 

 

Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2016 and September 30, 2015

4

 

 

Condensed Notes to Consolidated Financial Statements

5

Item 2.

 

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

30

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

48

Item 4.

 

Controls and Procedures

48

 

PART II.

OTHER INFORMATION

 

Item 1.

 

Legal Proceedings

50

Item 1A.

 

Risk Factors

51

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

53

Item 6.

 

Exhibits

54

 

SIGNATURES

55

 

 

 

 


 

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,

 

 

2016

 

 

2015

 

 

 

 

 

 

 

 

 

ASSETS

 

Current assets

 

 

 

 

 

 

 

Cash and cash equivalents

$

1,446,158

 

 

$

1,670,312

 

Accounts receivable, net

 

492,426

 

 

 

480,559

 

Inventories

 

97,400

 

 

 

104,200

 

Income tax receivable

 

478

 

 

 

15,993

 

Prepaid expenses and other

 

177,886

 

 

 

137,685

 

Total current assets

 

2,214,348

 

 

 

2,408,749

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

17,948,045

 

 

 

15,371,795

 

 

 

 

 

 

 

 

 

Other assets

 

 

 

 

 

 

 

Investments in and advances to unconsolidated affiliates

 

1,196,543

 

 

 

1,491,497

 

Goodwill

 

1,815,209

 

 

 

1,430,767

 

Other intangible assets, net

 

4,137,475

 

 

 

4,164,781

 

Other long-term assets, net

 

393,666

 

 

 

347,589

 

Total other assets

 

7,542,893

 

 

 

7,434,634

 

 

$

27,705,286

 

 

$

25,215,178

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

Current liabilities

 

 

 

 

 

 

 

Accounts payable

$

232,490

 

 

$

182,031

 

Construction payable

 

306,969

 

 

 

250,120

 

Current portion of long-term debt

 

 

 

 

328,442

 

Accrued interest on long-term debt

 

115,977

 

 

 

165,914

 

Other accrued liabilities

 

1,475,199

 

 

 

1,311,444

 

Total current liabilities

 

2,130,635

 

 

 

2,237,951

 

 

 

 

 

 

 

 

 

Deferred income taxes, net

 

2,543,815

 

 

 

2,680,576

 

Long-term debt

 

12,786,420

 

 

 

12,368,311

 

Other long-term obligations

 

320,707

 

 

 

157,663

 

Commitments and contingencies (Note 6)

 

 

 

 

 

 

 

Redeemable noncontrolling interest

 

6,250

 

 

 

6,250

 

Stockholders' equity

 

 

 

 

 

 

 

Common stock, $.01 par value: authorized 1,000,000,000 shares, issued and outstanding 572,834,533 and 564,838,893 shares

 

5,728

 

 

 

5,648

 

Capital in excess of par value

 

5,651,160

 

 

 

5,655,886

 

Retained earnings (accumulated deficit)

 

521,142

 

 

 

(555,629

)

Accumulated other comprehensive income

 

12,801

 

 

 

14,022

 

Total MGM Resorts International stockholders' equity

 

6,190,831

 

 

 

5,119,927

 

Noncontrolling interests

 

3,726,628

 

 

 

2,644,500

 

Total stockholders' equity

 

9,917,459

 

 

 

7,764,427

 

 

$

27,705,286

 

 

$

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

 

 

Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Casino

$

1,307,827

 

 

$

1,181,593

 

 

$

3,569,587

 

 

$

3,696,071

 

Rooms

 

530,331

 

 

 

466,032

 

 

 

1,518,721

 

 

 

1,415,955

 

Food and beverage

 

448,666

 

 

 

397,332

 

 

 

1,238,537

 

 

 

1,204,616

 

Entertainment

 

140,151

 

 

 

141,085

 

 

 

380,330

 

 

 

402,025

 

Retail

 

52,724

 

 

 

53,272

 

 

 

150,629

 

 

 

153,791

 

Other

 

148,470

 

 

 

126,585

 

 

 

400,115

 

 

 

390,954

 

Reimbursed costs

 

99,316

 

 

 

98,292

 

 

 

301,160

 

 

 

302,900

 

 

 

2,727,485

 

 

 

2,464,191

 

 

 

7,559,079

 

 

 

7,566,312

 

Less: Promotional allowances

 

(212,370

)

 

 

(183,375

)

 

 

(564,776

)

 

 

(568,117

)

 

 

2,515,115

 

 

 

2,280,816

 

 

 

6,994,303

 

 

 

6,998,195

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Casino

 

696,329

 

 

 

699,569

 

 

 

1,957,203

 

 

 

2,220,804

 

Rooms

 

148,317

 

 

 

140,806

 

 

 

435,311

 

 

 

424,184

 

Food and beverage

 

252,108

 

 

 

236,988

 

 

 

712,856

 

 

 

701,636

 

Entertainment

 

108,464

 

 

 

107,478

 

 

 

299,579

 

 

 

308,874

 

Retail

 

27,105

 

 

 

26,767

 

 

 

73,191

 

 

 

79,261

 

Other

 

93,880

 

 

 

88,000

 

 

 

260,901

 

 

 

268,158

 

Reimbursed costs

 

99,316

 

 

 

98,292

 

 

 

301,160

 

 

 

302,900

 

General and administrative

 

371,950

 

 

 

340,495

 

 

 

1,001,900

 

 

 

1,002,376

 

Corporate expense

 

87,782

 

 

 

74,019

 

 

 

240,833

 

 

 

183,977

 

NV Energy exit expense

 

139,335

 

 

 

 

 

 

139,335

 

 

 

 

Preopening and start-up expenses

 

31,660

 

 

 

16,510

 

 

 

78,444

 

 

 

50,270

 

Property transactions, net

 

(1,268

)

 

 

7,123

 

 

 

4,717

 

 

 

12,665

 

Gain on Borgata transaction

 

(429,778

)

 

 

 

 

 

(429,778

)

 

 

 

Depreciation and amortization

 

209,737

 

 

 

204,742

 

 

 

616,475

 

 

 

619,719

 

 

 

1,834,937

 

 

 

2,040,789

 

 

 

5,692,127

 

 

 

6,174,824

 

Income from unconsolidated affiliates

 

32,577

 

 

 

57,350

 

 

 

495,588

 

 

 

217,631

 

Operating income

 

712,755

 

 

 

297,377

 

 

 

1,797,764

 

 

 

1,041,002

 

Non-operating income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net of amounts capitalized

 

(168,048

)

 

 

(191,781

)

 

 

(533,069

)

 

 

(611,288

)

Non-operating items from unconsolidated affiliates

 

(11,132

)

 

 

(22,968

)

 

 

(45,229

)

 

 

(59,745

)

Other, net

 

(17,310

)

 

 

(4,386

)

 

 

(67,715

)

 

 

(12,691

)

 

 

(196,490

)

 

 

(219,135

)

 

 

(646,013

)

 

 

(683,724

)

Income before income taxes

 

516,265

 

 

 

78,242

 

 

 

1,151,751

 

 

 

357,278

 

Benefit for income taxes

 

44,995

 

 

 

16,493

 

 

 

15,205

 

 

 

76,570

 

Net income

 

561,260

 

 

 

94,735

 

 

 

1,166,956

 

 

 

433,848

 

Less: Net income attributable to noncontrolling interests

 

(25,641

)

 

 

(28,310

)

 

 

(90,185

)

 

 

(100,114

)

Net income attributable to MGM Resorts International

$

535,619

 

 

$

66,425

 

 

$

1,076,771

 

 

$

333,734

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

$

0.94

 

 

$

0.12

 

 

$

1.90

 

 

$

0.62

 

Diluted

$

0.93

 

 

$

0.12

 

 

$

1.88

 

 

$

0.61

 

 

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

 

 

Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Net income

$

561,260

 

 

$

94,735

 

 

$

1,166,956

 

 

$

433,848

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

1,734

 

 

 

1,291

 

 

 

(4,402

)

 

 

4,375

 

Other

 

 

 

 

 

 

 

 

 

 

(672

)

Other comprehensive income (loss)

 

1,734

 

 

 

1,291

 

 

 

(4,402

)

 

 

3,703

 

Comprehensive income

 

562,994

 

 

 

96,026

 

 

 

1,162,554

 

 

 

437,551

 

Less: Comprehensive income attributable to noncontrolling interests

 

(26,456

)

 

 

(29,045

)

 

 

(88,078

)

 

 

(102,361

)

Comprehensive income attributable to MGM Resorts International

$

536,538

 

 

$

66,981

 

 

$

1,074,476

 

 

$

335,190

 

 

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,

 

 

2016

 

 

2015

 

Cash flows from operating activities

 

 

 

 

 

 

 

Net income

$

1,166,956

 

 

$

433,848

 

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

 

 

 

 

 

 

 

Depreciation and amortization

 

616,475

 

 

 

619,719

 

Amortization of debt discounts, premiums and issuance costs

 

31,661

 

 

 

34,829

 

Loss on retirement of long-term debt

 

66,904

 

 

 

1,924

 

Provision for doubtful accounts

 

2,984

 

 

 

46,971

 

Stock-based compensation

 

38,877

 

 

 

30,624

 

Property transactions, net

 

4,717

 

 

 

12,665

 

Gain on Borgata transaction

 

(429,778

)

 

 

 

Income from unconsolidated affiliates

 

(447,191

)

 

 

(155,473

)

Distributions from unconsolidated affiliates

 

14,016

 

 

 

11,200

 

Deferred income taxes

 

(89,658

)

 

 

(106,223

)

Change in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

24,740

 

 

 

(45,251

)

Inventories

 

11,135

 

 

 

1,055

 

Income taxes receivable and payable, net

 

2,073

 

 

 

1,456

 

Prepaid expenses and other

 

(15,619

)

 

 

(28,584

)

Prepaid Cotai land concession premium

 

(24,113

)

 

 

(24,167

)

Accounts payable and accrued liabilities

 

88,630

 

 

 

(108,002

)

Other

 

(13,804

)

 

 

11,189

 

Net cash provided by operating activities

 

1,049,005

 

 

 

737,780

 

Cash flows from investing activities

 

 

 

 

 

 

 

Capital expenditures, net of construction payable

 

(1,590,308

)

 

 

(1,000,578

)

Dispositions of property and equipment

 

3,290

 

 

 

343

 

Proceeds from partial disposition of investment in unconsolidated affiliate

 

15,000

 

 

 

 

Proceeds from sale of assets held for sale

 

 

 

 

19,797

 

Acquisition of Borgata, net of cash acquired

 

(550,975

)

 

 

 

Investments in and advances to unconsolidated affiliates

 

(1,555

)

 

 

(194,524

)

Distributions from unconsolidated affiliates in excess of cumulative earnings

 

543,036

 

 

 

202,850

 

Investments in cash deposits – original maturities longer than 90 days

 

 

 

 

(200,205

)

Proceeds from cash deposits – original maturities longer than 90 days

 

 

 

 

770,205

 

Other

 

(8,257

)

 

 

59

 

Net cash used in investing activities

 

(1,589,769

)

 

 

(402,053

)

Cash flows from financing activities

 

 

 

 

 

 

 

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

 

298,448

 

 

 

(717,600

)

Borrowings under bank credit facilities – maturities longer than 90 days

 

1,845,375

 

 

 

5,118,750

 

Repayments under bank credit facilities – maturities longer than 90 days

 

(1,845,375

)

 

 

(3,416,875

)

Issuance of long-term debt

 

2,050,000

 

 

 

 

Retirement of senior notes

 

(2,258,053

)

 

 

(875,504

)

Repayment of Borgata credit facility

 

(583,598

)

 

 

 

Debt issuance costs

 

(138,454

)

 

 

(46,170

)

Issuance of MGM Growth Properties common stock in public offering

 

1,207,500

 

 

 

 

MGM Growth Properties common stock issuance costs

 

(75,032

)

 

 

 

Acquisition of MGM China shares

 

(100,000

)

 

 

 

Distributions to noncontrolling interest owners

 

(78,690

)

 

 

(304,562

)

Excess tax benefit from exercise of stock options

 

4,770

 

 

 

514

 

Proceeds from issuance of redeemable noncontrolling interest

 

 

 

 

5,000

 

Other

 

(9,179

)

 

 

(1,564

)

Net cash provided by (used in) financing activities

 

317,712

 

 

 

(238,011

)

Effect of exchange rate on cash

 

(1,102

)

 

 

845

 

Cash and cash equivalents

 

 

 

 

 

 

 

Net increase (decrease) for the period

 

(224,154

)

 

 

98,561

 

Change in cash related to assets held for sale

 

 

 

 

(4,481

)

Balance, beginning of period

 

1,670,312

 

 

 

1,713,715

 

Balance, end of period

$

1,446,158

 

 

$

1,807,795

 

Supplemental cash flow disclosures

 

 

 

 

 

 

 

Interest paid, net of amounts capitalized

$

551,345

 

 

$

624,253

 

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

 

63,322

 

 

 

31,440

 

Non-cash investing and financing activities

 

 

 

 

 

 

 

Common stock issued for acquisition of MGM China shares

 

174,041

 

 

 

 

Deferred cash payment for acquisition of MGM China shares

 

42,612

 

 

 

 

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 operates casino resorts. The Company owns and/or 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. Additionally, subsequent to its acquisition on August 1, 2016, the Company owns and operates the Borgata Hotel Casino & Spa (“Borgata”), located on Renaissance Pointe in the Marina area of Atlantic City, New Jersey. See Note 3 for additional information on the Borgata acquisition. The Company also owns and operates 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.

 

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 73.3% of the Operating Partnership units in the Operating Partnership on the closing date of the IPO. At September 30, 2016, following the completion of the Company’s acquisition of Borgata and the subsequent contribution of Borgata’s real property to MGP, as discussed in Note 11, the Company indirectly owned 76.3% of the Operating Partnership units and MGP’s Class A shareholders owned 23.7% of the Operating Partnership units in the Operating Partnership, which is controlled and consolidated by MGP. 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. The determination of settlement method is at the option of MGP’s independent conflicts committee. See Note 5 and 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 acquired an additional 4.95% interest in MGM China Holdings Limited (“MGM China”) on September 1, 2016, which increased its ownership to approximately 56%. See Note 8 for additional information. The Company has a controlling interest in 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 is expected to 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

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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 4 for additional information related to CityCenter.

 

The Company and a subsidiary of Anschutz Entertainment Group, Inc. (“AEG”) each own 42.5% of the Las Vegas Arena Company, LLC, the entity which owns the T-Mobile Arena, subsequent to the sale of a 7.5% ownership interest by each of the Company and AEG to Athena Arena, LLC on September 1, 2016. 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. See Note 4 for additional information regarding the Company’s investment in the Las Vegas Arena Company, LLC. In addition, the Company owns and 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 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 4 for additional information regarding the Company’s investments in its unconsolidated affiliates.

 

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 10 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 (i) its ownership of MGP’s single Class B share entitles it to a majority of the total voting power of MGP’s shares, and (ii) 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 prior to the Borgata acquisition and 23.7% interest subsequent to the Borgata acquisition as noncontrolling interest in the Company’s consolidated financial statements.  

 

As of September 30, 2016, MGP had total assets of $9.5 billion, primarily related to its real estate investments, and total liabilities of $3.9 billion, primarily related to its indebtedness.