Attached files

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EX-10.7 - AMENDMENT TO MGM RESORTS INT'L STOCK APPRECIATION RIGHT AGREEMENT - MGM Resorts Internationaldex107.htm
EX-32.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 906 - MGM Resorts Internationaldex321.htm
EX-31.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 - MGM Resorts Internationaldex312.htm
EX-10.5 - MGM RESORTS INT'L TIME- AND PRICE-VESTING STOCK APPRECIATION RIGHT AGREEMENT - MGM Resorts Internationaldex105.htm
EX-10.6 - MGM RESORTS INT'L TIME- AND PRICE-VESTING STOCK APPRECIATION RIGHT AGREEMENT - MGM Resorts Internationaldex106.htm
EX-31.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 - MGM Resorts Internationaldex311.htm
EX-10.8 - MGM RESORTS INT'L AMENDED & RESTATED FREESTANDING STOCK APPRECIATION RIGHT AGMT - MGM Resorts Internationaldex108.htm
EX-32.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 906 - MGM Resorts Internationaldex322.htm
EX-10.2 - LAND CONCESSION AGREEMENT - MGM Resorts Internationaldex102.htm
EX-10.9 - MGM RESORTS INT'L AMENDED & RESTATED RESTRICTED STOCK UNITS AGREEMENT - MGM Resorts Internationaldex109.htm
EX-10.3 - CREDIT FACILITY AGREEMENT - MGM Resorts Internationaldex103.htm
EX-10.4 - MGM RESORTS INTERNATIONAL TIME-VESTING STOCK APPRECIATION RIGHT AGREEMENT - MGM Resorts Internationaldex104.htm
EX-10.20 - AMENDMENT TO MGM RESORTS INT'L FREESTANDING STOCK APPRECIATION RIGHT AGREEMENT - MGM Resorts Internationaldex1020.htm
EX-10.10 - AMENDMENT TO MGM RESORTS INT'L FREESTANDING STOCK APPRECIATION RIGHT AGREEMENT - MGM Resorts Internationaldex1010.htm
EX-10.17 - AMENDMENT TO MGM RESORTS INT'L NONQUALIFIED STOCK OPTION AGREEMENTS - MGM Resorts Internationaldex1017.htm
EX-10.26 - AMENDMENT TO MGM RESORTS INT'L NONQUALIFIED STOCK OPTION AGREEMENTS - MGM Resorts Internationaldex1026.htm
EX-10.12 - AMENDMENT TO MGM RESORTS INT'L FREESTANDING STOCK APPRECIATION RIGHT AGREEMENT - MGM Resorts Internationaldex1012.htm
EX-10.13 - AMENDMENT TO MGM RESORTS INT'L RESTRICTED STOCK UNITS AGREEMENTS - MGM Resorts Internationaldex1013.htm
EX-10.23 - AMENDMENT TO MGM RESORTS INT'L FREESTANDING STOCK APPRECIATION RIGHT AGREEMENT - MGM Resorts Internationaldex1023.htm
EX-10.15 - AMENDMENT TO MGM RESORTS INT'L RESTRICTED STOCK UNITS AGREEMENT - MGM Resorts Internationaldex1015.htm
EX-10.25 - AMENDMENT TO MGM RESORTS INT'L RESTRICTED STOCK UNITS AGREEMENTS - MGM Resorts Internationaldex1025.htm
EX-10.21 - AMENDMENT TO MGM RESORTS INT'L RESTRICTED STOCK UNITS AGREEMENT - MGM Resorts Internationaldex1021.htm
EX-10.19 - AMENDMENT TO MGM RESORTS INT'L NONQUALIFIED STOCK OPTION AGREEMENTS - MGM Resorts Internationaldex1019.htm
EX-10.22 - AMENDMENT TO MGM RESORTS INT'L FREESTANDING STOCK APPRECIATION RIGHT AGREEMENT - MGM Resorts Internationaldex1022.htm
EX-10.27 - AMENDMENT NO. 2 TO AMENDED AND RESTATED JOINT VENTURE AGREEMENT - MGM Resorts Internationaldex1027.htm
EX-10.24 - AMENDMENT TO MGM RESORTS INT'L FREESTANDING STOCK APPRECIATION RIGHT AGREEMENT - MGM Resorts Internationaldex1024.htm
EX-10.14 - AMENDMENT TO MGM RESORTS INT'L NONQUALIFIED STOCK OPTION AGREEMENTS - MGM Resorts Internationaldex1014.htm
EX-10.11 - AMENDMENT TO MGM RESORTS INT'L NONQUALIFIED STOCK OPTION AGREEMENTS - MGM Resorts Internationaldex1011.htm
EX-10.16 - AMENDMENT TO MGM RESORTS INT'L FREESTANDING STOCK APPRECIATON RIGHT AGREEMENTS - MGM Resorts Internationaldex1016.htm
EX-3.1 - AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF THE COMPANY - MGM Resorts Internationaldex31.htm
EX-10.18 - MGM RESORTS INT'L AMENDED & RESTATED FREESTANDING STOCK APPRECIATION RIGHT AGMT - MGM Resorts Internationaldex1018.htm
Table of Contents

 

 

UNITED STATES

SECURITIES & EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

 

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

For the quarterly period ended June 30, 2011

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, or 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 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 2, 2011

Common Stock, $.01 par value

   488,636,870 shares

 

 

 


Table of Contents

MGM RESORTS INTERNATIONAL AND SUBSIDIARIES

FORM 10-Q

I N D E X

 

          Page  
PART I. FINANCIAL INFORMATION   

Item 1.

  

Financial Statements (Unaudited)

  
  

Consolidated Balance Sheets at June 30, 2011 and December 31, 2010

     1   
  

Consolidated Statements of Operations for the Three Months and Six Months Ended June  30, 2011 and June 30, 2010

     2   
  

Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2011 and June 30, 2010

     3   
  

Condensed Notes to Consolidated Financial Statements

     4-25   

Item 2.

  

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

     26-39   

Item 3.

  

Quantitative and Qualitative Disclosures About Market Risk

     39   

Item 4.

  

Controls and Procedures

     40   
PART II. OTHER INFORMATION   

Item 1.

  

Legal Proceedings

     40   

Item 1A.

  

Risk Factors

     41   

Item 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds

     46   

Item 6.

  

Exhibits

     46   

SIGNATURES

     49   


Table of Contents

Part I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

MGM RESORTS INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)

 

     June 30,
2011
    December 31,
2010
 
ASSETS     

Current assets

    

Cash and cash equivalents

   $ 921,553     $ 498,964  

Accounts receivable, net

     370,075       321,894  

Inventories

     105,318       96,392  

Income tax receivable

            175,982  

Deferred income taxes

     151,044       110,092  

Prepaid expenses and other

     245,290       252,321  
  

 

 

   

 

 

 

Total current assets

     1,793,280       1,455,645  
  

 

 

   

 

 

 

Property and equipment, net

     15,017,905       14,554,350  

Other assets

    

Investments in and advances to unconsolidated affiliates

     1,690,136       1,923,155  

Goodwill

     2,906,755       86,353  

Other intangible assets, net

     5,209,866       342,804  

Other long-term assets, net

     598,248       598,738  
  

 

 

   

 

 

 

Total other assets

     10,405,005       2,951,050  
  

 

 

   

 

 

 
   $ 27,216,190     $ 18,961,045  
  

 

 

   

 

 

 
LIABILITIES AND STOCKHOLDERS’ EQUITY     

Current liabilities

    

Accounts payable

   $ 179,703     $ 167,084  

Income taxes payable

     2,244         

Accrued interest on long-term debt

     200,746       211,914  

Other accrued liabilities

     1,202,332       867,223  
  

 

 

   

 

 

 

Total current liabilities

     1,585,025       1,246,221  
  

 

 

   

 

 

 

Deferred income taxes

     2,736,116       2,469,333  

Long-term debt

     12,630,291       12,047,698  

Other long-term obligations

     219,484       199,248  

Commitments and contingencies (Note 8)

    

Stockholders’ equity

    

Common stock, $.01 par value: authorized 1,000,000,000 shares; issued and outstanding 488,627,213 and 488,513,351 shares

     4,886       4,885  

Capital in excess of par value

     4,077,236       4,060,826  

Retained earnings (accumulated deficit)

     2,285,249       (1,066,865

Accumulated other comprehensive loss

     (1,520     (301
  

 

 

   

 

 

 

Total MGM Resorts International stockholders’ equity

     6,365,851       2,998,545  

Noncontrolling interests

     3,679,423         
  

 

 

   

 

 

 

Total stockholders’ equity

     10,045,274       2,998,545  
  

 

 

   

 

 

 
   $ 27,216,190     $ 18,961,045  
  

 

 

   

 

 

 

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

 

1


Table of Contents

MGM RESORTS INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

 

     Three Months Ended
June  30,
    Six Months Ended
June  30,
 
     2011     2010     2011     2010  

Revenues

        

Casino

   $ 797,495     $ 599,026     $ 1,387,715     $ 1,218,644  

Rooms

     396,791       361,030       765,128       686,706  

Food and beverage

     371,960       360,217       708,784       676,373  

Entertainment

     130,094       123,935       249,687       240,617  

Retail

     54,292       51,062       100,442       94,951  

Other

     128,826       121,249       243,049       230,255  

Reimbursed costs

     89,482       90,361       175,770       183,684  
  

 

 

   

 

 

   

 

 

   

 

 

 
     1,968,940       1,706,880       3,630,575       3,331,230  

Less: Promotional allowances

     (162,955     (159,551     (311,739     (317,648
  

 

 

   

 

 

   

 

 

   

 

 

 
     1,805,985       1,547,329       3,318,836       3,013,582  
  

 

 

   

 

 

   

 

 

   

 

 

 

Expenses

        

Casino

     485,965       356,001       836,730       710,807  

Rooms

     123,886       108,009       240,872       208,755  

Food and beverage

     215,899       204,675       414,147       387,287  

Entertainment

     94,505       90,261       182,716       181,257  

Retail

     32,479       30,579       61,638       58,578  

Other

     88,392       84,127       166,689       162,154  

Reimbursed costs

     89,482       90,361       175,770       183,684  

General and administrative

     301,582       282,404       571,144       558,458  

Corporate expense

     40,016       31,950       76,501       56,828  

Preopening and start-up expenses

     (316     537       (316     4,031  

Property transactions, net

     900       1,126,282       991       1,126,971  

Gain on MGM China transaction

     (3,496,005            (3,496,005       

Depreciation and amortization

     177,467       164,766       329,864       327,900  
  

 

 

   

 

 

   

 

 

   

 

 

 
     (1,845,748     2,569,952       (439,259     3,966,710  
  

 

 

   

 

 

   

 

 

   

 

 

 
        

Income (loss) from unconsolidated affiliates

     32,027       (26,194     95,370       (107,112
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     3,683,760       (1,048,817     3,853,465       (1,060,240
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-operating income (expense)

        

Interest expense

     (270,224     (291,169     (540,138     (555,344

Non-operating items from unconsolidated affiliates

     (28,002     (31,574     (68,292     (54,924

Other, net

     (13,017     8,589       (16,972     150,444  
  

 

 

   

 

 

   

 

 

   

 

 

 
     (311,243     (314,154     (625,402     (459,824
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     3,372,517       (1,362,971     3,228,063       (1,520,064

Benefit for income taxes

     78,174       479,495       132,757       539,847  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     3,450,691       (883,476     3,360,820       (980,217

Less: Net income attributable to noncontrolling interests

     (8,706            (8,706       
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to MGM Resorts International

   $ 3,441,985     $ (883,476   $ 3,352,114     $ (980,217
  

 

 

   

 

 

   

 

 

   

 

 

 

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

        

Basic

   $ 7.04     $ (2.00   $ 6.86     $ (2.22
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

   $ 6.22     $ (2.00   $ 6.09     $ (2.22
  

 

 

   

 

 

   

 

 

   

 

 

 

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

 

2


Table of Contents

MGM RESORTS INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

     Six Months Ended June 30,  
     2011     2010  

Cash flows from operating activities

    

Net income (loss)

   $ 3,360,820     $ (980,217

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

    

Depreciation and amortization

     329,864       327,900  

Amortization of debt discounts, premiums and issuance costs

     47,182       39,731  

Gain on retirement of long-term debt

            (140,642

Provision for doubtful accounts

     12,539       19,135  

Stock-based compensation

     18,606       17,557  

Property transactions, net

     991       1,126,971  

Gain on MGM China transaction

     (3,496,005       

(Income) loss from unconsolidated affiliates

     (27,078     165,529  

Distributions from unconsolidated affiliates

     48,214       19,909  

Change in deferred income taxes

     (146,131     (349,177

Change in current assets and liabilities:

    

Accounts receivable

     (7,008     (15,316

Inventories

     (641     5,004  

Income taxes receivable and payable, net

     178,284       183,211  

Prepaid expenses and other

     21,199       14,432  

Accounts payable and accrued liabilities

     (43,969     (88,691

Other

     56       4,508  
  

 

 

   

 

 

 

Net cash provided by operating activities

     296,923       349,844  
  

 

 

   

 

 

 

Cash flows from investing activities

    

Capital expenditures, net of construction payable

     (85,178     (79,095

Dispositions of property and equipment

     36       99  

Acquisition of MGM China, net of cash acquired

     407,046         

Investments in and advances to unconsolidated affiliates

     (102,648     (302,000

Distributions from unconsolidated affiliates

     2,799         

Investments in treasury securities - maturities longer than 90 days

     (150,130       

Proceeds from treasury securities - maturities longer than 90 days

     149,999         

Other

     (778     14,810  
  

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     221,146       (366,186
  

 

 

   

 

 

 

Cash flows from financing activities

    

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

     (1,278,106     (3,112,807

Borrowings under bank credit facilities – maturities longer than 90 days

     3,490,856       5,122,565  

Repayments under bank credit facilities – maturities longer than 90 days

     (2,284,128     (4,341,560

Issuance of senior notes

     311,415       1,995,000  

Retirement of senior notes

     (333,906     (508,640

Debt issuance costs

            (98,531

Capped call transactions

            (81,478

Other

     (1,364     (1,206
  

 

 

   

 

 

 

Net cash used in financing activities

     (95,233     (1,026,657
  

 

 

   

 

 

 

Effect of exchange rate on cash

     (247       
  

 

 

   

 

 

 

Cash and cash equivalents

    

Net increase (decrease) for the period

     422,589       (1,042,999

Balance, beginning of period

     498,964       2,056,207  
  

 

 

   

 

 

 

Balance, end of period

   $ 921,553     $ 1,013,208  
  

 

 

   

 

 

 

Supplemental cash flow disclosures

    

Interest paid, net of amounts capitalized

   $ 505,816     $ 500,523  

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

     (172,177     (361,533

Non-cash investing and financing activities

    

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

   $ 18,459     $ 115,892  

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

 

3


Table of Contents

MGM RESORTS INTERNATIONAL AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

 

NOTE 1 — ORGANIZATION

Organization. MGM Resorts International (the “Company”) is a Delaware corporation. As of June 30, 2011, approximately 27% of the outstanding shares of the Company’s common stock were owned by Tracinda Corporation, a Nevada corporation wholly owned by Kirk Kerkorian. Tracinda Corporation has significant influence with respect to the election of directors and other matters, but it does not have the power to solely determine these matters. MGM Resorts International acts largely as a holding company and, through wholly owned subsidiaries, owns and/or operates casino resorts.

The Company owns and operates the following casino resorts in Las Vegas, Nevada: Bellagio, MGM Grand Las Vegas, The Mirage, Mandalay Bay, Luxor, New York-New York, Monte Carlo, Excalibur, and Circus Circus Las Vegas. Operations at MGM Grand Las Vegas include management of The Signature at MGM Grand Las Vegas, a condominium-hotel consisting of three towers. Other Nevada operations include Circus Circus Reno, Gold Strike in Jean, and Railroad Pass in Henderson. The Company and its local partners own and operate MGM Grand Detroit in Detroit, Michigan. The Company owns and operates two resorts in Mississippi: Beau Rivage in Biloxi and Gold Strike Tunica. The Company also owns Shadow Creek, an exclusive world-class golf course located approximately ten miles north of its Las Vegas Strip resorts, Primm Valley Golf Club at the California/Nevada state line and Fallen Oak golf course in Saucier, Mississippi.

The Company owns 51% and has a controlling interest in MGM China Holdings Limited (“MGM China”), which owns MGM Grand Paradise, S.A. (“MGM Grand Paradise”), the Macau company that owns the MGM Macau resort and casino and the related gaming subconcession and land concession. MGM Macau is a five-star integrated resort located on the Macau Peninsula, with a 587-room hotel, over 1,000 slot machines and 427 table games. See Note 3 for additional information related to MGM China.

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

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

MGM Hospitality seeks to leverage the Company’s management expertise and well-recognized brands through strategic partnerships and international expansion opportunities. The Company has entered into management agreements for hotels in the Middle East, North Africa, India and China.

Borgata. The Company has a 50% economic interest in Borgata Hotel Casino & Spa (“Borgata”) located on Renaissance Pointe in the Marina area of Atlantic City, New Jersey. Boyd Gaming Corporation (“Boyd”) owns the other 50% of Borgata and also operates the resort. The Company’s interest is held in trust and currently offered for sale pursuant to the Company’s settlement agreement with New Jersey Department of Gaming Enforcement (“DGE”). In March 2010, the New Jersey Casino Control Commission (“CCC”) approved the Company’s settlement agreement with the DGE pursuant to which the Company placed its 50% ownership interest in Borgata and related leased land in Atlantic City into a divestiture trust. The settlement agreement was amended on July 22, 2011 with the approval of the CCC on August 8, 2011. Following the transfer of these interests into trust, the Company ceased to be regulated by the CCC or the DGE, except as otherwise provided by the trust agreement and the settlement agreement. Boyd’s 50% interest is not affected by the settlement.

 

4


Table of Contents

The terms of the settlement, as amended, mandate the sale of the trust property by March 2014, which represents an 18-month extension compared to the original settlement. During the period ending in March 2013, which also represents an 18-month extension compared to the original settlement, the Company has the right to direct the trustee to sell the trust property, subject to approval of the CCC. If a sale is not concluded by that time, the trustee is responsible for selling the trust property during the following 12-month period. The Company continues to negotiate with certain parties that have expressed interest in the asset, but can provide no assurance that a transaction will be completed. Prior to the consummation of the sale, the divestiture trust will retain any cash flows received in respect of the trust property, but will pay property taxes and other costs attributable to the trust property. The Company is the sole economic beneficiary of the trust and will be permitted to reapply for a New Jersey gaming license beginning 30 months after the completion of the sale of the trust assets. As of June 30, 2011, the trust had $188 million of cash and investments, of which $150 million is held in U.S. treasury securities with maturities greater than 90 days but less than one year, and is recorded within “Prepaid expenses and other.”

As a result of the Company’s ownership interest in Borgata being placed into a trust, the Company no longer has significant influence over Borgata; therefore, the Company discontinued the equity method of accounting for Borgata at the point the assets were placed in the trust in March 2010, and accounts for its investment in Borgata under the cost method of accounting. The carrying value of the investment related to Borgata is included in “Other long-term assets, net.” Earnings and losses that relate to the investment that were previously accrued remain as a part of the carrying amount of the investment. Distributions received by the trust that do not exceed the Company’s share of earnings are recognized currently in earnings. However, distributions received by the trust that exceed the Company’s share of earnings for such periods are applied to reduce the carrying amount of its investment. The Company consolidates the trust as it is the sole economic beneficiary. The trust did not receive distributions from Borgata during the three and six months ended June 30, 2011. In the second quarter of 2010, the trust received distributions from the joint venture of $15 million, of which $6 million was recorded as a reduction of the carrying value and $9 million was recorded as “Other, net” non-operating income.

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 generally accepted accounting principles have been condensed or omitted. These consolidated financial statements should be read in conjunction with the Company’s 2010 annual consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

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 financial position as of June 30, 2011 and the results of its operations and cash flows for the three and six months ended June 30, 2011 and 2010. The results of operations for such periods are not necessarily indicative of the results to be expected for the full year.

As further discussed in Note 3, the Company began consolidating the results of MGM China on June 3, 2011 and ceased recording the results of MGM Macau as an equity method investment.

Certain reclassifications, which have no effect on previously reported net income, have been made to the 2010 financial statements to conform to the 2011 presentation. The Company reclassified hotel resort fees to rooms revenue from other revenue. The total amounts reclassified to rooms revenue for the three and six months ended June 30, 2010 were $16 million and $28 million, respectively. Pursuant to the guidance in the recently issued AICPA Audit and Accounting Guide Gaming, the Company also reclassified certain amounts paid under slot participation agreements from a reduction in casino revenue to casino expense. Slot participation fees were $8 million and $16 million in the three and six months ended June 30, 2011, respectively, and $10 million and $18 million in the three and six months ended June 30, 2010, respectively.

Investments in and advances to unconsolidated affiliates. The Company has investments in unconsolidated affiliates accounted for under the equity method. Under the equity method, carrying value is adjusted for the Company’s share of the investees’ earnings and losses, as well as capital contributions to and distributions from these companies. Distributions in excess of equity method earnings are recognized as a return of investment and recorded as investing cash inflows in the accompanying consolidated statements of cash flows. The Company classifies operating income and losses as well as gains and impairments related to

 

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its investments in unconsolidated affiliates as a component of operating income or loss, as the Company’s investments in such unconsolidated affiliates are an extension of the Company’s core business operations.

The Company evaluates its investments in unconsolidated affiliates for impairment whenever events or changes in circumstances indicate that the carrying value of its investment may have experienced an “other-than-temporary” decline in value. If such conditions exist, the Company compares the estimated fair value of the investment to its carrying value to determine if an impairment is indicated and determines whether the impairment is “other-than-temporary” based on its assessment of all relevant factors, including consideration of the Company’s intent and ability to retain its investment. The Company estimates fair value using a discounted cash flow analysis based on estimated future results of the investee and market indicators of terminal year capitalization rates.

Fair value measurement. 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, 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.

When assessing the impairment of its investment in CityCenter at June 30, 2010, the Company estimated fair value utilizing “Level 3” inputs. See Note 4 for additional discussion. At June 30, 2011, the fair value of the Company’s treasury securities held by the Borgata trust was $150 million, measured using “Level 1” inputs. See Note 1. The Company’s $300 million 4.25% convertible senior notes due 2015 were recorded at fair value on the issue date, measured using “Level 1” inputs. See Note 7 for further discussion of the convertible senior note issuance.

Gaming promoters. A significant portion of the high-end (“VIP”) gaming volume at MGM Macau is generated through the use of gaming promoters, also known as junket operators. These operators introduce high-end gaming players to MGM Macau, assist these customers with travel arrangements, and extend gaming credit to these players. VIP gaming at MGM Macau is conducted by the use of special purpose nonnegotiable gaming chips called “rolling chips.” Gaming promoters purchase these rolling chips from MGM Macau and in turn they sell these chips to their players. The rolling chips allow MGM Macau to track the amount of wagering conducted by each gaming promoters’ clients in order to determine VIP gaming play. In exchange for the gaming promoters’ services, MGM Macau pays them either through rolling chip turnover-based commissions or through revenue-sharing arrangements. The estimated portion of the gaming promoter payments that represent amounts passed through to VIP customers is recorded net against casino revenue, and the estimated portion retained by the gaming promoter for its compensation is recorded to casino expense.

Currency translation. The Company translates the financial statements of foreign subsidiaries that are not denominated in US dollars. Balance sheet accounts are translated at the exchange rate in effect at each balance sheet date. Income statement accounts are translated at the average rate of exchange prevailing during the period. Translation adjustments resulting from this process are charged or credited to other comprehensive income (loss).

Recently issued accounting standards. Certain amendments to Accounting Standards Codification (“ASC”) 820, “Fair Value Measurements,” become effective for the Company for fiscal years ending after December 15, 2011. Such amendments include a consistent definition of fair value, enhanced disclosure requirements for “Level 3” fair value adjustments and other changes to required disclosures. The Company does not expect this amendment to have a material affect on its financial statements and will comply with the disclosure enhancements of this amendment when the amendment is effective.

In addition, ASC 220, “Comprehensive Income,” was amended in June 2011 and will become effective for the Company for fiscal years ending after December 15, 2011, including retrospective adjustment. Such amendments allow the Company two options for the presentation of comprehensive income. Under either option, the Company is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. As a result of the amendment, the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity is eliminated. The Company does not expect this amendment to have a material affect on its financial statements and will comply with the disclosure enhancements of this amendment when the amendment is effective.

 

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NOTE 3 — MGM CHINA ACQUISITION

On June 3, 2011, the Company and Ms. Ho, Pansy Catilina Chiu King (“Ms. Pansy Ho”) completed a reorganization of the capital structure of MGM China and the initial public offering of 760 million shares of MGM China on The Stock Exchange of Hong Kong Limited (the “IPO”), representing 20% of the post issuance capital stock of MGM China, at an offer price of HKD 15.34 per share. Pursuant to this reorganization, the Company, through a wholly owned subsidiary, acquired an additional 1% of the overall capital stock of MGM China for HKD 15.34 per share, or approximately $75 million, and thereby became the indirect owner of 51% of MGM China. Following the IPO, Ms. Pansy Ho sold an additional 59 million shares of MGM China pursuant to the underwriters’ overallotment option.

Through the acquisition of its additional 1% interest of MGM China, the Company obtained a controlling interest and was required to consolidate MGM China as of June 3, 2011. Prior to the IPO, the Company held a 50% interest in MGM Grand Paradise, which was accounted for under the equity method as discussed in Note 4. The acquisition of the controlling financial interest was accounted for as a business combination and the Company recognized 100% of the assets, liabilities, and noncontrolling interests of MGM China at fair value at the date of acquisition. The fair value of the equity interests of MGM China was determined by the IPO transaction price and equaled approximately $7.5 billion. The carrying value of the Company’s equity method investment was significantly less than its share of the fair value of MGM China at the acquisition date, resulting in a $3.5 billion gain on the acquisition. Under the acquisition method, the fair value was allocated to the assets acquired, liabilities assumed and noncontrolling interests recorded in the transaction. The allocation of fair value for substantially all of the assets and liabilities is preliminary and may be adjusted up to one year after the acquisition date. The following table sets forth the preliminary allocation at June 3, 2011 (in thousands):

 

Current assets

   $ 558,037  

Property and equipment and other long-term assets

     704,823  

Goodwill

     2,821,589  

Gaming subconcession

     4,499,727  

Land concession

     84,466  

Customer relationships

     308,553  

Current liabilities, excluding long-term debt

     (459,518 )

Long-term debt

     (642,818 )

Deferred taxes

     (380,628 )
  

 

 

 
   $ 7,494,231  
  

 

 

 

Noncontrolling interests

   $ (3,672,173
  

 

 

 

As discussed above, the Company recognized the identifiable intangible assets of MGM China at fair value. The gaming subconcession and land concession had historical cost bases which were being amortized by MGM Macau. The customer relationship intangible assets did not have historical cost bases at MGM Macau. The estimated fair values of the intangible assets acquired were primarily determined using the income approach based on significant inputs that were not observable. The gaming subconcession was valued using an excess earnings model based on estimated future cash flows of MGM Macau. All of the recognized intangible assets were determined to have finite lives and are being amortized over their estimated useful lives as discussed below.

Land concession. MGM Grand Paradise entered into a contract with the Macau government to use the land under MGM Macau commencing from April 6, 2006. The land use right has an initial term through April 6, 2031, with rights to renew for additional periods. The land concession intangible asset will be amortized over the remaining initial contractual term.

Gaming subconcession. Pursuant to the agreement dated June 19, 2004 between MGM Grand Paradise and Sociedade de Jogos de Macau, S.A. (“SJM”), a gaming subconcession was acquired by MGM Grand Paradise for the right to operate casino games of chance and other casino games for a period of 15 years commencing on April 20, 2005. The Company cannot provide

 

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any assurance that the gaming subconcession will be extended beyond the original terms of the agreement; however, management believes that the gaming subconcession will be extended, given that the land concession agreement with the government extends significantly beyond the gaming subconcession. In addition, the fair value of MGM China reflected in the IPO pricing suggests that market participants have assumed the gaming subconcession will be extended beyond its initial term. As such, the Company has determined that the gaming subconcession intangible asset should be amortized over the initial term of the land concession through April 2031.

Customer relationships. The Company recognized intangible assets related to gaming promoter relationships with an estimated value of $180 million and customer lists with an estimated value of $129 million, which will be amortized over their estimated useful lives of four years and five years, respectively.

Deferred taxes. The Company recorded a net deferred tax liability of $381 million for the acquisition of the controlling financial interest in MGM China and a corresponding increase to goodwill. The net deferred tax liability represents the excess of the financial reporting amounts of the net assets of MGM China over their respective bases under Macau tax law measured at the enacted tax rates expected to apply to taxable income in the periods such differences are expected to be realized, net of a valuation allowance of $72 million. The tax-effected components of the net deferred tax liability at June 3, 2011 are as follows (in thousands):

 

Deferred tax assets- foreign

  

Accruals, reserves and other

   $ 121  

Bad debt reserve

     3,161  

Long-term debt

     2,816  

Net operating loss carryforward

     58,781  

Preopening and start-up expenses

     3,838  

Property and equipment

     7,822  
  

 

 

 
     76,539  

Less: Valuation allowance

     (71,670
  

 

 

 
     4,869  
  

 

 

 

Deferred tax liabilities- foreign

  

Intangible assets

     (385,497
  

 

 

 

Net deferred tax liability

   $ (380,628
  

 

 

 

Income generated from gaming operations of MGM Grand Paradise is exempted from Macau’s 12% complementary tax for the five-year period ending December 31, 2011 pursuant to approval from the Macau government granted June 19, 2008. A request for an additional five-year exemption through December 31, 2016 is pending with the Macau government. Non-gaming operations remain subject to the complementary tax. MGM Grand Paradise has a complementary tax net operating loss carryforward of $490 million resulting from non-gaming operations that will expire if not utilized against non-gaming income in years 2011 through 2013.

MGM Grand Paradise’s exemption from the Macau 12% complementary tax on gaming profits does not apply to dividend distributions of such profits to MGM China, its sole shareholder. The complementary tax would be levied on MGM China at the time such profits are distributed. MGM Grand Paradise plans to submit a request to the Macau government to settle the complementary tax that would be due on such distributions by paying a flat annual fee regardless of the amount of distributable dividends. MGM China would not be subject to the complementary tax on such distributions if such an arrangement is put in place.

At June 3, 2011, the Company has an excess amount for financial reporting over the US tax basis of its investment in MGM China of $3.6 billion that management does not consider to be essentially permanent in duration. The Company expects this basis difference to resolve through repatriations of future MGM China earnings. The Company has not provided deferred taxes for such excess financial reporting basis because there would be sufficient foreign tax credits to offset all U.S. income tax that would result from the future repatriation of such earnings.

June consolidated results. Net revenue for the 28 days ending June 30, 2011 was $193 million, operating income was $19 million and net income was $16 million.

Pro forma information. The operating results for MGM China and its subsidiaries are included in the accompanying consolidated statements of income from the date of acquisition. The following unaudited pro forma consolidated financial information for the Company has been prepared assuming the Company’s

 

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acquisition of its controlling financial interest had occurred at the beginning of the periods presented and does not include the gain recognized by the Company:

 

     Six Months Ended
June 30,
 
     2011     2010  
     (In thousands, except per share data)  

Net revenues

   $ 4,373,682     $ 3,634,120  

Operating income (loss)

     476,562       (1,145,930

Net loss

     (23,095     (1,072,618

Net loss attributable to MGM Resorts International

     (79,945     (1,037,914

Loss per share of common stock attributable to MGM Resorts International:

    

Basic

   $ (0.16   $ (2.35

Diluted

   $ (0.16   $ (2.35

NOTE 4 — INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES

Investments in and advances to unconsolidated affiliates includes:

 

     June 30,
2011
     December 31,
2010
 
     (In thousands)  

CityCenter Holdings, LLC – CityCenter (50%)

   $ 1,362,729      $ 1,417,843  

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

     291,507        294,305  

MGM Grand Paradise Limited – Macau (50%)

             173,030  

Circus and Eldorado Joint Venture – Silver Legacy (50%)

     24,936        25,408  

Other

     10,964        12,569  
  

 

 

    

 

 

 
   $ 1,690,136      $ 1,923,155  
  

 

 

    

 

 

 

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

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2011     2010     2011     2010  
     (In thousands)  

Income (loss) from unconsolidated affiliates

   $ 32,027     $ (26,194   $ 95,370     $ (107,112

Preopening and start-up expenses

                          (3,493

Non-operating items from unconsolidated affiliates

     (28,002     (31,574     (68,292     (54,924
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 4,025     $ (57,768   $ 27,078     $ (165,529
  

 

 

   

 

 

   

 

 

   

 

 

 

Borgata

As discussed in Note 1, the Company discontinued the equity method of accounting for Borgata in March 2010 at the point the assets were placed in the trust, and accounts for its rights under the trust arrangement under the cost method of accounting.

Silver Legacy

Silver Legacy has approximately $143 million of outstanding senior notes due in March 2012. Silver Legacy is exploring various alternatives for refinancing or restructuring its obligations under the notes. There can be no assurance, however, that it will be able to refinance or restructure the notes on acceptable terms, or at all. If Silver Legacy is unable to refinance or restructure its obligations with respect to the mortgage notes, the holders of the notes will be entitled to exercise the remedies provided in the indenture governing the notes, including foreclosing on the assets securing the mortgage notes.

 

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MGM Macau

MGM China. As discussed in Note 3, the Company obtained a controlling financial interest in MGM China as of June 3, 2011 and therefore was required to consolidate MGM China beginning on that date. Prior thereto, the Company’s investment in MGM Grand Paradise was accounted for under the equity method.

Distributions. The Company did not receive distributions from MGM Macau during the three months ending June 30, 2011. The Company received a distribution of approximately $31 million from MGM Macau in the first quarter of 2011. The Company recognized this distribution as a cash inflow from operating activities in the accompanying consolidated statement of cash flows. No distributions were received from MGM Macau during the three and six months ending June 30, 2010.

CityCenter

January 2011 debt restructuring transactions. In January 2011, CityCenter completed a series of transactions including the issuance of $900 million in aggregate principal amount of 7.625% senior secured first lien notes due 2016 and $600 million in aggregate principal amount of 10.75%/11.50% senior secured second lien PIK toggle notes due 2017 in a private placement. The interest rate on the second lien notes is 10.75% for interest paid in cash, and 11.50% if CityCenter pays interest in the form of additional debt. CityCenter received net proceeds from the offering of the notes of $1.46 billion after initial purchaser’s discounts and commissions but before other offering expenses.

Effective concurrently with the notes offering, CityCenter’s senior credit facility was amended and restated which extended the maturity of $500 million of the $1.85 billion outstanding loans until January 21, 2015. The restated senior credit facility does not include a revolving loan component. All borrowings under the senior credit facility in excess of $500 million were repaid using the proceeds of the first lien notes and the second lien notes. In addition, net proceeds from the note offerings, together with equity contributions of $73 million from the members, were used to fund the interest escrow account of $159 million for the benefit of the holders of the first lien notes and the lenders under the restated senior credit facility. The restated senior credit facility is secured, on a pari passu basis with the first lien notes, by a first priority lien on substantially all of CityCenter’s assets and those of its subsidiaries, except that any proceeds generated by the sale of Crystals outside of bankruptcy or foreclosure proceedings will be paid first to the lenders under the restated senior credit facility. CityCenter recorded a loss on the debt modification of $24 million in the first quarter of 2011 related to the above transactions.

Completion guarantee. The Company entered into an amended completion and cost overrun guarantee in connection with CityCenter’s restated senior credit facility agreement and issuance of $1.5 billion of senior secured first lien notes and senior secured second lien notes, as discussed in Note 8.

Investment impairment. At June 30, 2010, the Company reviewed its CityCenter investment for impairment using revised operating forecasts developed by CityCenter management late in the second quarter. Based on the then current and forecasted market conditions and because CityCenter’s results of operations through June 30, 2010 were below previous forecasts, and the revised operating forecasts were lower than previous forecasts, management concluded it should review the carrying value of its investment. The Company’s discounted cash flow analysis for CityCenter included future cash inflows from operations, including residential sales, and estimated future cash outflows for capital expenditures. The analysis used an 11% discount rate and a long term growth rate of 4% related to forecasted cash flows for CityCenter’s operating assets. Based on its analysis, the Company determined that the carrying value of its investment exceeded its fair value and therefore an impairment was indicated. The Company intends to and believes it will be able to retain its investment in CityCenter; however, due to the extent of the shortfall and the Company’s assessment of the uncertainty of fully recovering its investment, the Company determined that the impairment was “other-than-temporary” and recorded an impairment charge of $1.12 billion included in “Property transactions, net.”

Residential inventory impairment. Upon substantial completion of construction of the Mandarin Oriental residential inventory in the first quarter of 2010 and the Veer residential inventory in the second quarter of 2010, CityCenter is required to carry its residential inventory at the lower of its carrying value or fair value less costs to sell. Fair value of the residential inventory is determined using a discounted cash flow analysis based on management’s current expectations of future cash flows. The key inputs in the discounted cash flow analysis include estimated sales prices of units currently under contract and new unit sales, the absorption rate over the sell-out period, and the discount rate.

 

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CityCenter recorded a $53 million impairment charge in the second quarter of 2011. The Company recognized 50% of such impairment charge, resulting in a pre-tax charge of approximately $26 million. CityCenter recorded impairment charges of $57 million and $228 million in the three and six months ended June 30, 2010, respectively. The Company recognized 50% of such impairment charges, resulting in pre-tax charges of approximately $29 million and $114 million in the three and six month periods ended June 30, 2010, respectively.

CityCenter summary financial information. Summarized balance sheet information of the CityCenter joint venture is as follows:

 

     June 30,
2011
     December 31,
2010
 
     (In thousands)  

Current assets

   $ 424,110      $ 211,646  

Property and other assets, net

     9,267,577        9,430,171  

Current liabilities

     340,501        381,314  

Long-term debt and other liabilities

     2,561,990        2,752,196  

Equity

     6,789,196        6,508,307  

Summary results of operations for CityCenter are provided below:

 

     Three Months Ended
June 30,
    Six Months Ended
June  30,
 
     2011     2010     2011     2010  
     (In thousands)  

Net revenues

   $ 281,281     $ 401,076     $ 552,904     $ 661,394  

Operating expenses, except preopening expenses

     (371,034     (529,088     (679,549     (1,038,613

Preopening and start-up expenses

                          (6,202
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating loss

     (89,753     (128,012     (126,645     (383,421

Other non-operating expense

     (66,216     (58,385     (154,351     (113,445
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (155,969   $ (186,397   $ (280,996   $ (496,866
  

 

 

   

 

 

   

 

 

   

 

 

 

Net revenues related to residential operations were $6 million and $15 million in the three and six months ended June 30, 2011 and $218 million and $298 million in the three and six months ended June 30, 2010.

NOTE 5 — GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill and other intangible assets consisted of the following:

 

     June 30,
2011
     December 31,
2010
 
     (In thousands)  

Goodwill:

     

Mirage Resorts acquisition (2000)

   $ 39,648      $ 39,648  

Mandalay Resort Group acquisition (2005)

     45,510        45,510  

MGM China acquisition (2011)

     2,820,402          

Other

     1,195        1,195  
  

 

 

    

 

 

 
   $ 2,906,755      $ 86,353  
  

 

 

    

 

 

 

Indefinite-lived intangible assets:

     

Detroit development rights

   $ 98,098      $ 98,098  

Trademarks, license rights and other

     235,672        235,672  
  

 

 

    

 

 

 
     333,770        333,770  

Finite-lived intangible assets:

     

Macau gaming subconcession

     4,480,320          

Macau land concession

     84,102          

Macau customer relationships

     302,996          

Other intangible assets, net

     8,678        9,034  
  

 

 

    

 

 

 
     4,876,096        9,034  
  

 

 

    

 

 

 
   $ 5,209,866      $ 342,804  
  

 

 

    

 

 

 

 

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See Note 3 for additional information related to the goodwill and intangible assets recognized as part of the MGM China transaction.

NOTE 6 — OTHER ACCRUED LIABILITIES

Other accrued liabilities includes:

 

     June 30,
2011
     December 31,
2010
 
     (In thousands)  

Payroll and related

   $ 296,473      $ 256,305  

Advance deposits and ticket sales

     117,530        114,808  

Casino outstanding chip liability

     257,717        79,987  

Casino front money deposits

     90,270        97,586  

Other gaming related accruals

     111,772        79,062  

Taxes, other than income taxes

     175,503        63,888  

CityCenter completion guarantee

     18,499        79,583  

Other

     134,568        96,004  
  

 

 

    

 

 

 
   $ 1,202,332      $ 867,223  
  

 

 

    

 

 

 

NOTE 7 — LONG-TERM DEBT

Long-term debt consists of the following:

 

     June 30,
2011
     December 31,
2010
 
     (In thousands)  

Senior credit facility:

     

$1,834 million term loans, net

   $ 1,706,748      $ 1,686,043  

Revolving loans

     450,000        470,000  

MGM Grand Paradise credit facility

     591,126          

$325.5 million 8.375% senior subordinated notes, repaid in 2011

             325,470  

$128.7 million 6.375% senior notes, due 2011, net

     128,791        128,913  

$544.7 million 6.75% senior notes, due 2012

     544,650        544,650  

$484.2 million 6.75% senior notes, due 2013

     484,226        484,226  

$150 million 7.625% senior subordinated debentures, due 2013, net

     151,932        152,366  

$750 million 13% senior secured notes, due 2013, net

     721,003        716,045  

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

     508,076        507,922  

$650 million 10.375% senior secured notes, due 2014, net

     638,268        636,578  

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

     877,482        877,747  

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

     1,467,441        1,150,000  

$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, net

     494,949        494,600  

$743 million 7.625% senior notes, due 2017

     743,000        743,000  

$850 million 11.125% senior secured notes, due 2017, net

     831,211        830,234  

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

     464,383        463,869  

$845 million 9% senior secured notes, due 2020

     845,000        845,000  

Floating rate convertible senior debentures, due 2033

     36        8,472  

$0.6 million 7% debentures, due 2036, net

     573        573  

$4.3 million 6.7% debentures, due 2096

     4,265        4,265  

Other notes

     1,482        2,076  
  

 

 

    

 

 

 
   $ 12,630,291      $ 12,047,698  
  

 

 

    

 

 

 

As of June 30, 2011 and December 31, 2010, long-term debt due within one year of the balance sheet date is classified as long-term because the Company has both the intent and ability to repay these amounts with

 

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available borrowings under the senior credit facility. The Company did not capitalize interest in the three and six months ending June 30, 2011 and 2010.

Senior credit facility. The Company’s senior credit facility matures in February 2014 and consists of approximately $1.8 billion in term loans and a $1.7 billion revolving loan. The Company had approximately $1.2 billion of available borrowing capacity under its senior credit facility at June 30, 2011. Substantially all of the assets of MGM Grand Detroit serve as collateral to secure its $450 million obligation outstanding as a co-borrower under the Company’s senior credit facility. In addition, substantially all of the assets of Gold Strike Tunica and certain land across from the Luxor serve as collateral to secure up to $300 million of obligations outstanding under the Company’s senior credit facility.

Interest on the senior credit facility is based on a LIBOR margin of 5.00%, with a LIBOR floor of 2.00%, and a base rate margin of 4.00%, with a base rate floor of 4.00%. The interest rate on outstanding borrowings under the senior credit facility at June 30, 2011 and December 31, 2010 was 7.0%.

At June 30, 2011, the Company and its restricted subsidiaries were required under the senior credit facility to maintain a minimum trailing annual EBITDA (as defined in the agreement governing the Company’s senior credit facility) of $1.1 billion, which increases to $1.15 billion as of September 30, 2011 and to $1.2 billion as of December 31, 2011, with periodic increases thereafter. EBITDA for the trailing twelve months ended June 30, 2011 calculated in accordance with the terms of the senior credit facility was $1.25 billion. Additionally, the Company and its restricted subsidiaries are limited to $500 million of annual capital expenditures (as defined) during 2011 and were in compliance with the maximum capital expenditures covenants at June 30, 2011.

MGM Grand Paradise credit facility. MGM Grand Paradise’s credit facility is equivalent to approximately $551 million in term loans and a $40 million revolving loan at June 30, 2011 based on exchange rates at that date. Scheduled amortization on the term loan begins in July 2012 with a lump sum payment of $276 million upon final maturity in July 2015. The revolving loan may be redrawn, but is required to be repaid in full on the last date of the respective term loan, no later than July 2015. Interest on the term loan facility is based on HIBOR plus a margin ranging between 3% and 4.5%, based on MGM Grand Paradise’s adjusted leverage ratio, as defined in its credit facility agreement. Interest on the revolving facility can be denominated in either Hong Kong dollars or US dollars and is based on the same margin range, plus HIBOR or LIBOR, as appropriate. As of June 30, 2011, the credit facility is denominated entirely in Hong Kong dollars and interest is based on the margin range of 3%, plus HIBOR. Substantially all of the assets of MGM Grand Paradise serve as collateral for the MGM Grand Paradise credit facility, which is guaranteed by MGM China and certain of its direct and indirect subsidiaries.

At June 30, 2011, MGM Grand Paradise was required to maintain a specified adjusted leverage ratio, as defined, at the end of each quarter while the loans are outstanding. The adjusted leverage ratio is required to be no greater than 4.00 to 1.00 for each quarter during 2011 and no greater than 3.50 to 1.00 thereafter. In addition, MGM Grand Paradise is required to maintain a debt service coverage ratio, as defined of no less than 1.50 to 1.00 at each quarter end. At June 30, 2011, MGM Grand Paradise was in compliance with its adjusted leverage ratio and debt service coverage ratios.

Convertible notes. In June 2011, the Company sold $300 million in aggregate principal amount of the Company’s 4.25% convertible senior notes due 2015 (the “Notes”) on terms that were consistent with those governing the Company’s existing convertible senior notes due 2015 for a purchase price of 103.805% of the principal amount to an indirect wholly owned subsidiary of Ms. Pansy Ho in a transaction exempt from registration under the Securities Act of 1933, as amended. The Notes are convertible at an initial conversion rate, subject to adjustment under certain circumstances, of approximately 53.83 shares of the Company’s common stock per $1,000 principal amount of the Notes. The Company received approximately $311 million in proceeds related to this transaction.

The initial agreement to sell the Notes occurred in April 2011, and the Notes were not sold until June 2011. The agreement to issue the Notes at a later date based on the fixed terms described above constituted a derivative instrument. At issuance, the fair value of the derivative instrument was equal to the difference between the fair value of the Notes and the Notes’ issuance price. The Notes were recorded at fair value determined by the trading price (105.872%) of the Company’s existing convertible notes on the date of issuance of the Notes, with the difference recorded as a premium to be recognized over the term of the Notes. The Company recorded a loss of $6 million related to the change in fair value of the derivative in “Other, net” non-operating income (expense) during the three and six months ended June 30, 2011.

Senior and senior secured notes. In February 2011, the Company repaid the $325 million of outstanding principal amount of its 8.375% senior subordinated notes due 2011 at maturity.

Substantially all of the assets of New York-New York serve as collateral for the Company’s 13% senior secured notes due 2013, substantially all of the assets of Bellagio and The Mirage serve as collateral for the Company’s 10.375% senior secured notes due 2014 and the 11.125% senior secured notes due 2017, and substantially all of the assets of MGM Grand serve as collateral for the Company’s 9.00% senior secured notes due 2020. Upon the issuance of the 10.375%, 11.125% and 9.00% notes, the holders of the Company’s 13% senior secured notes due 2013 obtained an equal and ratable lien in all collateral securing these notes.

Fair value of long-term debt. The estimated fair value of the Company’s long-term debt at June 30, 2011 was approximately $13.2 billion. Fair value was estimated using quoted market prices for the

 

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Company’s senior notes, senior subordinated notes and senior credit facility. Carrying value of the MGM Grand Paradise credit facility approximates fair value. At December 31, 2010, the estimated fair value of the Company’s long-term debt was approximately $12.4 billion, and was based on quoted market prices.

NOTE 8 — COMMITMENTS AND CONTINGENCIES

CityCenter completion guarantee. In January 2011, the Company entered into an amended completion and cost overrun guarantee in connection with CityCenter’s restated senior credit facility agreement and issuance of $1.5 billion of senior secured first lien notes and senior secured second lien toggle notes, as previously discussed. Consistent with the terms of the previous completion guarantee, the terms of the amended completion guarantee provide for the ability to utilize the then remaining $124 million of net residential proceeds to fund construction costs, or to reimburse the Company for construction costs previously expended, though the timing of receipt of such proceeds is uncertain. The completion guarantee is collateralized by substantially all of the assets of Circus Circus Las Vegas, as well as certain undeveloped land adjacent to that property.

As of June 30, 2011, the Company has funded $619 million under the completion guarantee. The Company has recorded a receivable from CityCenter of $110 million related to these amounts, which represents amounts reimbursable to the Company from CityCenter from future residential proceeds. The Company has a remaining estimated net obligation under the completion guarantee of $18 million which includes estimated litigation costs related to the resolution of disputes with contractors as to the final construction costs and estimated amounts to be paid to contractors either through the joint venture’s extra-judicial settlement process or through the legal process related to the Perini litigation. The Company’s accrual also reflects certain estimated offsets to the amounts claimed by the contractors. CityCenter has reached, or expects to reach, settlement agreements with most of the construction subcontractors. However, significant disputes remain with the general contractor and certain subcontractors. Amounts claimed by such parties exceed amounts included in the Company’s completion guarantee accrual by approximately $200 million, as such amounts exceed the Company’s best estimate of its liability. Moreover, the Company has not accrued for any contingent payments to CityCenter related to the Harmon Hotel & Spa component, which is unlikely to be completed using the building as it now stands. The Clark County Building Division (“Building Division”) requested that CityCenter conduct an analysis, based on all available information, as to whether the current structure of the Harmon building complies with applicable building codes. On July 11, 2011 a consulting engineer engaged by CityCenter for this review submitted the results of his analysis of the Harmon tower and podium in its current as-built condition. The engineer opined, among other things, that “[i]n a code-level earthquake, using either the permitted or current code specified loads, it is likely that critical structural members in the tower will fail and become incapable of supporting gravity loads, leading to a partial or complete collapse of the tower. There is missing or misplaced reinforcing steel in columns, beams, shear walls, and transfer walls throughout the structure of the tower below the twenty-first floor.” In response to this opinion, the Building Division required CityCenter, no later than August 15, 2011, “to provide a plan of action that will abate the potential for structural collapse and protect impacted uses and occupancies.” Under the relevant building code provision, “abate” means repair, rehabilitation, demolition or removal of the subject building. CityCenter is preparing its response to the Building Division’s request. The Company does not believe it would be responsible for funding under the completion guarantee any additional remediation efforts that might be required with respect to the Harmon; however, the Company’s view is based on a number of developing factors, including with respect to on-going litigation with CityCenter’s contractors, actions by local officials and other developments related to the CityCenter venture, that are subject to change.

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

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

The CityCenter Owners and the other defendants dispute Perini’s allegations, and contend that the defendants are entitled to substantial amounts from Perini, including offsets against amounts claimed to be owed to Perini and its subcontractors and damages based on breach of their contractual and other duties to CityCenter, duplicative payment requests, non-conforming work, lack of proof of alleged work performance, defective work related to the Harmon Hotel & Spa component, property damage and Perini’s failure to perform its obligations to pay Project subcontractors and to prevent filing of liens against the Project. Parallel

 

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to the court litigation CityCenter management conducted an extra-judicial program for settlement of Project subcontractor claims. CityCenter has resolved the claims of the majority of the 223 first-tier subcontractors, with only several remaining for further proceedings along with trial of Perini’s claims and CityCenter’s Harmon-related counterclaim and other claims by CityCenter against Perini and its parent guarantor, Tutor Perini. In December 2010, Perini recorded an amended notice of lien reducing its lien to approximately $313 million.

The CityCenter Owners and the other defendants will continue to vigorously assert and protect their interests in the lawsuit. The Company believes that a loss with respect to Perini’s punitive damages claim is neither probable nor reasonably possible. Please refer to the disclosure above for further discussion on the Company’s completion guarantee obligation which may be impacted by the outcome of the above litigation and the joint venture’s extra-judicial settlement process.

Call center litigation. Lori Zaragoza v. MGM MIRAGE, Inc. and MGM Resorts International, Case No. BC 461912, Los Angeles County Superior Court, filed May 18, 2011. This putative class action complaint alleges that during the one year prior to the filing defendant’s call center reservation agents monitored and recorded consumer telephone calls for hotel room and other hospitality-related bookings, without prior notice to plaintiff and other California consumers in violation of various provisions of the California Penal Code. The plaintiff seeks certification of a class action, compensatory damages including consequential or statutory damages pursuant to California Penal Code §637.2, whichever is greater, injunctive relief, prejudgment interest and costs of suit. The case is in its early stages and the Company cannot reasonably estimate a possible range of loss at this time. The Company contests that the complaint has merit and will vigorously defend itself against the claims in this lawsuit.

Other guarantees. The Company is party to various guarantee contracts in the normal course of business, which are generally supported by letters of credit issued by financial institutions. The Company’s senior credit facility limits the amount of letters of credit that can be issued to $250 million, and the amount of available borrowings under the senior credit facility is reduced by any outstanding letters of credit. At June 30, 2011, the Company had provided $37 million of total letters of credit.

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 9 — INCOME (LOSS) PER SHARE OF COMMON STOCK

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

 

     Three Months Ended     Six Months Ended  
     June 30,     June 30,  
     2011      2010     2011      2010  
     (In thousands)  

Numerator:

          

Net income (loss) attributable to MGM Resorts International - basic

   $ 3,441,985      $ (883,476   $ 3,352,114      $ (980,217

Interest on convertible debt, net of tax

     9,054               17,902          
  

 

 

    

 

 

   

 

 

    

 

 

 

Net income (loss) attributable to MGM Resorts International - diluted

   $ 3,451,039      $ (883,476   $ 3,370,016      $ (980,217
  

 

 

    

 

 

   

 

 

    

 

 

 

Denominator:

          

Weighted-average common shares outstanding - basic

     488,609        441,297       488,574        441,269  

Potential dilution from share-based awards

     1,891               1,962          

Potential dilution from assumed conversion of convertible debt

     64,390               63,154          
  

 

 

    

 

 

   

 

 

    

 

 

 

Weighted-average common and common equivalent shares - diluted

     554,890        441,297       553,690        441,269  
  

 

 

    

 

 

   

 

 

    

 

 

 

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

     18,004        26,180       18,224        26,180  
  

 

 

    

 

 

   

 

 

    

 

 

 

NOTE 10 — STOCKHOLDERS’ EQUITY, NONCONTROLLING INTERESTS AND COMPREHENSIVE INCOME (LOSS)

Authorized common stock. In June 2011, the stockholders of the Company approved a proposal to amend and restate the Amended and Restated Certificate of Incorporation of the Company to increase the Company’s number of authorized shares of common stock to 1,000,000,000 shares.

 

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Noncontrolling interests. As discussed in Note 3, the Company became the controlling shareholder of MGM China and began consolidating the financial position of MGM China in its financial statements as of June 3, 2011. The noncontrolling interests in MGM China and other minor subsidiaries are presented as a separate component of stockholders’ equity in the Company’s consolidated balance sheets, and the net income attributable to noncontrolling interests is presented on the Company’s consolidated statements of operations. Net income attributable to noncontrolling interests was $9 million for the three and six months ended June 30, 2011.

Supplemental equity information. The following table presents the Company’s changes in equity and accumulated other comprehensive income (loss) for the six months ended June 30, 2011:

 

     Common
Stock
     Capital in
Excess of
Par Value
    Retained
Earnings
(Accumulated
Deficit)
    Accumulated
Other
Comprehensive
Loss
    Total
MGM  Resorts
International
Stockholders’
Equity
    Noncontrolling
Interests
    Total
Stockholders’
Equity
 
     (In thousands)  

Balances, January 1, 2011

   $ 4,885      $ 4,060,826     $ (1,066,865   $ (301   $ 2,998,545     $      $ 2,998,545  

Net income

                    3,352,114              3,352,114       8,706       3,360,820  

Currency translation adjustment

                           (1,182 )     (1,182 )     (1,652     (2,834

Other comprehensive loss from unconsolidated affiliate, net

                           (37     (37            (37
           

 

 

   

 

 

   

 

 

 

Total comprehensive income

              3,350,895       7,054       3,357,949  

MGM China acquisition

                                         3,672,173       3,672,173  

Stock-based compensation

             20,619                     20,619       196       20,815  

Change in excess tax benefit from stock-based compensation

             (3,696                   (3,696            (3,696

Issuance of common stock pursuant to stock-based compensation awards

     1        (605                   (604            (604

Other

             92                     92              92  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balances, June 30, 2011

   $ 4,886      $ 4,077,236     $ 2,285,249     $ (1,520   $ 6,365,851     $ 3,679,423     $ 10,045,274  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss). Comprehensive income (loss) consisted of the following:

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2011     2010     2011     2010  
     (In thousands)  

Net income (loss) including noncontrolling interests

   $ 3,450,691     $ (883,476   $ 3,360,820     $ (980,217

Currency translation adjustment

     (5,433     (763     (2,834     (763

Other

                   (37     (70
  

 

 

   

 

 

   

 

 

   

 

 

 
     3,445,258       (884,239     3,357,949       (981,050

Less: comprehensive income attributable to noncontrolling interests

     (7,054            (7,054       
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to MGM Resorts International

   $ 3,438,204     $ (884,239   $ 3,350,895     $ (981,050
  

 

 

   

 

 

   

 

 

   

 

 

 

NOTE 11 — STOCK-BASED COMPENSATION

2005 Omnibus Incentive Plan. The Company’s omnibus incentive plan, as amended (“Omnibus Plan”), allows it to grant stock options, stock appreciation rights (“SARs”), restricted stock, restricted stock units (“RSUs”), and other stock-based awards to eligible directors, officers and employees of the Company and its subsidiaries. The plans are administered by the Compensation Committee (the “Committee”) of the Board of Directors. The Committee has discretion under the omnibus plan regarding which type of awards to grant, the vesting and service requirements, exercise price and other conditions, in all cases subject to certain limits, including:

 

   

As amended, the omnibus plan allows for the issuance of up to 35 million shares or share-based awards; and

 

   

For stock options and SARs, the exercise price of the award must be at least equal to the fair market value of the stock on the date of grant and the maximum term of such an award is 10 years.

 

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Stock options and SARs granted under all plans generally have terms of either seven or ten years, and in most cases vest in either four or five equal annual installments. RSUs granted vest ratably over 4 years.

As of June 30, 2011, the Company had an aggregate of approximately 11 million shares of common stock available for grant as share-based awards under the Company’s omnibus incentive plan. A summary of activity under the Company’s share-based payment plans for the six months ended June 30, 2011 is presented below:

Stock options and stock appreciation rights (“SARs”)

 

     Shares
(000’s)
    Weighted
Average
Exercise
Price
 

Outstanding at January 1, 2011

     28,129     $ 21.73  

Granted

     320       13.20  

Exercised

     (205     9.69  

Forfeited or expired

     (390     23.54  
  

 

 

   

Outstanding at June 30, 2011

     27,854       21.70  
  

 

 

   

Exercisable at June 30, 2011

     18,835       25.75  
  

 

 

   

As of June 30, 2011, there was a total of $48 million of unamortized compensation related to stock options and stock appreciation rights expected to vest, which is expected to be recognized over a weighted-average period of 1.7 years.

Restricted stock units (“RSUs”)

 

     Shares
(000’s)
    Weighted
Average
Grant-Date
Fair Value
 

Nonvested at January 1, 2011

     1,144     $ 13.90  

Granted

              

Vested

     (92     18.85  

Forfeited

     (69     14.18  
  

 

 

   

Nonvested at June 30, 2011

     983       13.42  
  

 

 

   

As of June 30, 2011, there was a total of $25 million of unamortized compensation related to RSUs which is expected to be recognized over a weighted-average period of 1.3 years.

The following table includes additional information related to stock options, SARs and RSUs:

 

     Six Months Ended
June 30,
 
     2011      2010  
     (In thousands)  

Intrinsic value of share-based awards exercised or RSUs vested

   $ 2,192      $ 1,766  

Income tax benefit from share-based awards exercised or RSUs vested

     760        613  

The Company net settles stock option exercises, whereby shares of common stock are issued equivalent to the intrinsic value of the option less applicable taxes. Accordingly, the Company does not receive proceeds from the exercise of stock options.

MGM China Share Option Plan. The Company’s subsidiary, MGM China, adopted an equity award plan in 2011 for grants of stock options to purchase ordinary shares of MGM China to eligible directors and employees of MGM China and its subsidiaries (“MGM China Plan”). The MGM China Plan is administered by MGM China’s Board of Directors, which has the discretion to determine the exercise price and term of the award, as well as other conditions, in all cases subject to certain limits, including:

 

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The current MGM China Plan allows for a maximum of 10% of the total number of shares of MGM China in issue at the date of approval of the MGM China Plan to be issued upon exercise;

 

   

The exercise price of the award must be at least equal to the fair market value of the stock on the offer date, or the average of the closing price for the five business days immediately preceding the offer date, and the maximum term of the award must not exceed ten years.

Stock options currently granted under the MGM China Plan have a term of ten years, and vest in four equal annual installments. Expense is recognized on a straight-line basis over the vesting period of the awards net of estimated forfeitures. Forfeitures are estimated at the time of grant, with such estimate updated periodically and with actual forfeitures recognized currently to the extent they differ from the estimate. The Company estimates the fair value of stock options granted under the MGM China Plan using the Black-Scholes model. Expected volatilities are based on historical volatility from a selection of companies in MGM China’s peer group due to MGM China’s lack of historical information. The Company determined expected term based on a binomial model. The risk-free interest rate was based on rates in effect at the grant date for the Hong Kong Exchange Fund Note with maturities matching the relevant expected term of the award.

On June 3, 2011, MGM China granted 17 million options under the MGM China Plan, with an estimated fair value as of the date of grant of $22 million. Weighted average assumptions used in estimating the fair value of each award are listed in the table under “Recognition of compensation cost.” As of June 30, 2011, MGM China had an aggregate of approximately 363 million shares of options available for grant as share-based awards.

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

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2011     2010     2011     2010  
     (In thousands)  

Omnibus Plan:

        

Stock options and SARS

   $ 5,789     $ 4,223     $ 11,656     $ 10,020  

RSUs

     4,152       4,964       8,758       10,126  

MGM China Plan

     401              401         
  

 

 

   

 

 

   

 

 

   

 

 

 

Total compensation cost

     10,342       9,187       20,815       20,146  

Less: CityCenter reimbursed costs

     (946     (1,185     (2,209     (2,589
  

 

 

   

 

 

   

 

 

   

 

 

 

Compensation cost recognized as expense

     9,396       8,002       18,606       17,557  

Less: Related tax benefit

     (3,132     (2,781     (6,337     (6,106
  

 

 

   

 

 

   

 

 

   

 

 

 

Compensation expense, net of tax benefit

   $ 6,264     $ 5,221     $ 12,269     $ 11,451  
  

 

 

   

 

 

   

 

 

   

 

 

 

Compensation cost for SARs granted under the 2005 Omnibus Plan is based on the fair value of each award, measured by applying the Black-Scholes model on the date of grant, using the following weighted-average assumptions:

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2011     2010     2011     2010  

Expected volatility

     66     74     67     74

Expected term

     4.9  yrs.      4.8  yrs.      4.9  yrs.      4.8  yrs. 

Expected dividend yield

     0     0     0     0

Risk-free interest rate

     1.7     1.7     1.8     1.8

Forfeiture rate

     6.1     4.8     6.1     4.8

Weighted-average fair value of options granted

   $ 7.25     $ 7.88     $ 7.37     $ 7.80  

 

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Expected volatility is based in part on historical volatility and in part on implied volatility based on traded options on the Company’s stock. The expected term considers the contractual term of the option as well as historical exercise and forfeiture behavior. The risk-free interest rate is based on the rates in effect on the grant date for U.S. Treasury instruments with maturities matching the relevant expected term of the award.

Compensation cost for stock options granted under the MGM China Plan is based on the fair value of each award, measured by applying the Black-Scholes model on the date of grant, using the following weighted-average assumptions:

 

     Three Months Ended
June 30,
   Six Months Ended
June 30,
     2011     2010    2011     2010

Expected volatility

     60   NA      60   NA

Expected term

     8.0  yrs.    NA      8.0  yrs.    NA

Expected dividend yield

     0   NA      0   NA

Risk-free interest rate

     1.6   NA      1.6   NA

Weighted-average fair value of options granted

   $ 1.27     NA    $ 1.27     NA

NOTE 12 — PROPERTY TRANSACTIONS, NET

Property transactions, net includes:

 

     Three Months Ended
June 30,
     Six Months Ended
June 30,
 
     2011      2010      2011      2010  
     (In thousands)  

CityCenter investment impairment charge

   $       $ 1,122,456      $       $ 1,122,456  

Other property transactions, net

     900        3,826        991        4,515  
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 900      $ 1,126,282      $ 991      $ 1,126,971  
  

 

 

    

 

 

    

 

 

    

 

 

 

See Note 4 for discussion of the CityCenter investment impairment charge.

NOTE 13 — SEGMENT INFORMATION

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

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

 

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The following table presents the Company’s segment information:

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2011     2010     2011     2010  
     (In thousands)  

Net Revenues:

        

Wholly owned domestic resorts

   $ 1,505,308     $ 1,441,731     $ 2,911,738     $ 2,804,141  

MGM China

     192,984              192,984         
  

 

 

   

 

 

   

 

 

   

 

 

 

Reportable segment net revenues

     1,698,292       1,441,731       3,104,722       2,804,141  

Corporate and other

     107,693       105,598       214,114       209,441  
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 1,805,985     $ 1,547,329     $ 3,318,836     $ 3,013,582  
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA:

        

Wholly owned domestic resorts

   $ 331,386     $ 308,788     $ 631,348     $ 580,085  

MGM China

     46,422              46,422         
  

 

 

   

 

 

   

 

 

   

 

 

 

Reportable segment Adjusted Property EBITDA

     377,808       308,788       677,770       580,085  

Corporate and other

     (12,002     (66,020     10,229       (181,423
  

 

 

   

 

 

   

 

 

   

 

 

 
     365,806       242,768       687,999       398,662  

Other operating income (expense):

        

Preopening and start-up expenses

     316       (537     316       (4,031

Property transactions, net

     (900     (1,126,282     (991     (1,126,971

Gain on MGM China transaction

     3,496,005              3,496,005         

Depreciation and amortization

     (177,467     (164,766     (329,864     (327,900
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     3,683,760       (1,048,817     3,853,465       (1,060,240
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-operating income (expense):

        

Interest expense, net

     (270,224     (291,169     (540,138     (555,344

Non-operating items from unconsolidated affiliates

     (28,002     (31,574     (68,292     (54,924

Other, net

     (13,017     8,589       (16,972     150,444  
  

 

 

   

 

 

   

 

 

   

 

 

 
     (311,243     (314,154     (625,402     (459,824
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     3,372,517       (1,362,971     3,228,063       (1,520,064

Benefit for income taxes

     78,174       479,495       132,757       539,847  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     3,450,691       (883,476     3,360,820       (980,217

Less: Net income attributable to noncontrolling interests

     (8,706            (8,706       
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to MGM Resorts International

   $ 3,441,985     $ (883,476   $ 3,352,114     $ (980,217
  

 

 

   

 

 

   

 

 

   

 

 

 

 

     June 30,
2011
     December 31,
2010
 
     (In thousands)  

Total assets:

  

Wholly owned domestic resorts

   $ 13,734,651      $ 14,047,237  

MGM China

     8,892,296          
  

 

 

    

 

 

 

Reportable segment total assets

     22,626,947        14,047,237  

Corporate and other

     4,589,243        4,913,808  
  

 

 

    

 

 

 
   $ 27,216,190      $ 18,961,045  
  

 

 

    

 

 

 
     Six Months Ended
June 30,
 
     2011      2010  
     (In thousands)  

Capital expenditures:

     

Wholly owned domestic resorts

   $ 71,115      $ 36,468  

MGM China

     2,615          
  

 

 

    

 

 

 

Reportable segment capital expenditures

     73,730        36,468  

Corporate and other

     11,448        42,627  
  

 

 

    

 

 

 
   $ 85,178      $ 79,095  
  

 

 

    

 

 

 

 

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NOTE 14 — CONSOLIDATING CONDENSED FINANCIAL INFORMATION

Excluding MGM Grand Detroit, LLC, MGM China and certain minor subsidiaries, the Company’s subsidiaries that are 100% directly or indirectly owned have fully and unconditionally guaranteed, on a joint and several basis, payment of the senior credit facility, the senior notes, senior secured notes and the senior subordinated notes. Separate condensed financial statement information for the subsidiary guarantors and non-guarantors as of June 30, 2011 and December 31, 2010 and for the three and six month periods ended June 30, 2011 and 2010 is as follows:

CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION

 

     At June 30, 2011  
     Parent     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
     Elimination     Consolidated  
     (In thousands)  

Current assets

   $ 358,169     $ 831,861     $ 603,250      $      $ 1,793,280  

Property and equipment, net

            13,704,121       1,325,756        (11,972     15,017,905  

Investments in subsidiaries

     23,861,757       7,697,771               (31,559,528       

Investments in and advances to unconsolidated affiliates

            1,690,136                      1,690,136  

Other non-current assets

     277,291       623,309       7,814,269               8,714,869  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 
   $ 24,497,217     $ 24,547,198     $ 9,743,275      $ (31,571,500   $ 27,216,190  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Current liabilities

   $ 243,799     $ 893,621     $ 447,605      $      $ 1,585,025  

Intercompany accounts

     374,754       (394,484     19,730                 

Deferred income taxes

     2,353,408              382,708               2,736,116  

Long-term debt

     11,302,086       287,079       1,041,126               12,630,291  

Other long-term obligations

     177,896       41,008       580               219,484  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total liabilities

     14,451,943       827,224       1,891,749               17,170,916  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

MGM Resorts stockholders’ equity

     10,045,274       23,719,974       4,172,103        (31,571,500     6,365,851  

Noncontrolling interests

                   3,679,423               3,679,423  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total stockholders’ equity

     10,045,274       23,719,974       7,851,526        (31,571,500     10,045,274  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 
   $ 24,497,217     $ 24,547,198     $ 9,743,275      $ (31,571,500   $ 27,216,190  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 
     At December 31, 2010  
     Parent     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
     Elimination     Consolidated  
     (In thousands)  

Current assets

   $ 358,725     $ 930,936     $ 165,984      $      $ 1,455,645  

Property and equipment, net

            13,925,224       641,098        (11,972     14,554,350  

Investments in subsidiaries

     16,520,722       471,283               (16,992,005       

Investments in and advances to unconsolidated affiliates

            1,923,155                      1,923,155  

Other non-current assets

     294,165       436,353       297,377               1,027,895  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 
   $ 17,173,612     $ 17,686,951     $ 1,104,459      $ (17,003,977   $ 18,961,045  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Current liabilities

   $ 305,354     $ 911,731     $ 29,136      $      $ 1,246,221  

Intercompany accounts

     (44,380     38,277       6,103                 

Deferred income taxes

     2,469,333                             2,469,333  

Long-term debt

     11,301,034       296,664       450,000               12,047,698  

Other long-term obligations

     143,726       54,828       694               199,248  

Stockholders’ equity

     2,998,545       16,385,451       618,526        (17,003,977     2,998,545  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 
   $ 17,173,612     $ 17,686,951     $ 1,104,459      $ (17,003,977   $ 18,961,045  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

 

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CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION

 

     For the Three Months Ended June 30, 2011  
     Parent     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Elimination     Consolidated  
     (In thousands)  

Net revenues

   $      $ 1,465,275     $ 340,710     $      $ 1,805,985  

Equity in subsidiaries’ earnings

     3,717,944       3,568,881              (7,286,825       

Expenses:

          

Casino and hotel operations

     2,488       917,709       210,411              1,130,608  

General and administrative

     2,438       262,693       36,451              301,582  

Corporate expense

     15,414       24,364       238              40,016  

Preopening and start-up expenses

            (316                   (316

Property transactions, net

            622       278              900  

Gain on MGM China transaction

                   (3,496,005            (3,496,005

Depreciation and amortization

            140,727       36,740              177,467  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     20,340       1,345,799       (3,211,887            (1,845,748
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from unconsolidated affiliates

            (21,471     53,498              32,027  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     3,697,604       3,666,886       3,606,095       (7,286,825     3,683,760  

Interest expense

     (255,619     (4,832     (9,773            (270,224

Other, net

            (24,151     (16,868            (41,019
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     3,441,985       3,637,903       3,579,454       (7,286,825     3,372,517  

Benefit (provision) for income taxes

            80,043       (1,869            78,174  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     3,441,985       3,717,946       3,577,585       (7,286,825     3,450,691  

Less: net income attributable to noncontrolling interests

                   (8,706            (8,706
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to

          

MGM Resorts International

   $ 3,441,985     $ 3,717,946     $ 3,568,879     $ (7,286,825   $ 3,441,985  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     For the Three Months Ended June 30, 2010  
     Parent     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Elimination     Consolidated  
     (In thousands)  

Net revenues

   $      $ 1,407,620     $ 139,709     $      $ 1,547,329  

Equity in subsidiaries’ earnings

     (1,080,285     24,099              1,056,186         

Expenses:

          

Casino and hotel operations

     2,263       886,246       75,504              964,013  

General and administrative

     2,182       255,437       24,785              282,404  

Corporate expense

     4,865       27,625       (540            31,950  

Preopening and start-up expenses

            537                     537  

Property transactions, net

            1,126,282                     1,126,282  

Depreciation and amortization

            154,593       10,173              164,766  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     9,310       2,450,720       109,922              2,569,952  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from unconsolidated affiliates

            (44,965     18,771              (26,194
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (1,089,595     (1,063,966     48,558       1,056,186       (1,048,817

Interest expense

     (284,564     1,180       (7,785            (291,169

Other, net

     (3,217     (4,895     (14,873            (22,985
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     (1,377,376     (1,067,681     25,900       1,056,186       (1,362,971

Benefit (provision) for income taxes

     493,900       (13,156     (1,249            479,495  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ (883,476   $ (1,080,837   $ 24,651     $ 1,056,186     $ (883,476
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION

 

     For the Six Months Ended June 30, 2011  
     Parent     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Elimination     Consolidated  
     (In thousands)  

Net revenues

   $      $ 2,834,440     $ 484,396     $      $ 3,318,836  

Equity in subsidiaries’ earnings

     3,831,543       3,634,251              (7,465,794       

Expenses:

          

Casino and hotel operations

     5,294       1,787,880       285,388              2,078,562  

General and administrative

     4,868       504,425       61,851              571,144  

Corporate expense

     31,124       45,373       4              76,501  

Preopening and start-up expenses

            (316                   (316

Property transactions, net

            611       380              991  

Gain on MGM China transaction

                   (3,496,005            (3,496,005

Depreciation and amortization

            283,359       46,505              329,864  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     41,286       2,621,332       (3,101,877            (439,259
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from unconsolidated affiliates

            (19,719     115,089              95,370  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     3,790,257       3,827,640       3,701,362       (7,465,794     3,853,465  

Interest expense

     (512,843     (9,645     (17,650            (540,138

Other, net

     10,982       (66,769     (29,477            (85,264
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     3,288,396       3,751,226       3,654,235       (7,465,794     3,228,063  

Benefit (provision) for income taxes

     63,718       79,943       (10,904            132,757  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     3,352,114       3,831,169       3,643,331       (7,465,794     3,360,820  

Less: net income attributable to noncontrolling interests

                   (8,706            (8,706
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to MGM Resorts International

   $ 3,352,114     $ 3,831,169     $ 3,634,625     $ (7,465,794   $ 3,352,114  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     For the Six Months Ended June 30, 2010  
     Parent     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Elimination     Consolidated  
     (In thousands)  

Net Revenues

   $      $ 2,727,503     $ 286,079     $      $ 3,013,582  

Equity in subsidiaries’ earnings

     (1,123,509     64,654              1,058,855         

Expenses:

          

Casino and hotel operations

     5,720       1,734,095       152,707              1,892,522  

General and administrative

     4,631       502,679       51,148              558,458  

Corporate Expense

     8,514       49,731       (1,417            56,828  

Preopening and start-up expenses

            4,031                     4,031  

Property transactions, net

            1,126,971                     1,126,971  

Depreciation and amortization

            307,557       20,343              327,900  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     18,865       3,725,064       222,781              3,966,710  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from unconsolidated affiliates

            (149,096     41,984              (107,112
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (1,142,374     (1,082,003     105,282       1,058,855       (1,060,240

Interest expense

     (535,369     (5,270     (14,705            (555,344

Other, net

     149,106       (31,650     (21,936            95,520  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     (1,528,637     (1,118,923     68,641       1,058,855       (1,520,064

Benefit (provision) for income taxes

     548,420       (6,018     (2,555            539,847  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net Income (loss)

   $ (980,217   $ (1,124,941   $ 66,086     $ 1,058,855     $ (980,217
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION

 

     For the Six Months Ended June 30, 2011  
     Parent     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Elimination      Consolidated  
     (In thousands)  

Cash flows from operating activities

           

Net cash provided by (used in) operating activities

   $ (269,860   $ 504,578     $ 62,205     $       $ 296,923  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Cash flows from investing activities

           

Capital expenditures, net of construction payable

            (80,265     (4,913             (85,178

Dispositions of property and equipment

            34       2               36  

Acquisition of MGM China, net of cash paid

                   407,046               407,046  

Investments in and advances to unconsolidated affiliates

     (66,000     (36,648                    (102,648

Distributions from unconsolidated affiliates

            2,799                      2,799  

Investments in treasury securities - maturities longer than 90 days

            (150,130                    (150,130

Proceeds from treasury securities - maturities longer than 90 days

            149,999                      149,999  

Other

            (778                    (778
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net cash provided by (used in) investing activities

     (66,000     (114,989     402,135               221,146  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Cash flows from financing activities

           

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

     (844,609            (433,497             (1,278,106

Borrowings under bank credit facilities - maturities longer than 90 days

     2,658,737              832,119               3,490,856  

Repayments under bank credit facilities - maturities longer than 90 days

     (1,834,128            (450,000             (2,284,128

Issuance of senior notes, net

     311,415                             311,415  

Retirement of senior notes

     (325,470     (8,436                    (333,906

Intercompany accounts

     503,189       (448,287     (54,902               

Other

     (698     (630     (36             (1,364
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net cash provided by (used in) financing activities

     468,436       (457,353     (106,316             (95,233
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Effect of exchange rate on cash

                   (247             (247

Cash and cash equivalents

           

Net increase (decrease) for the period

     132,576       (67,764     357,777               422,589  

Balance, beginning of period

     72,457       278,801       147,706               498,964  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Balance, end of period

   $ 205,033     $ 211,037     $ 505,483     $       $ 921,553  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

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CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION

 

     For the Six Months Ended June 30, 2010  
     Parent     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Elimination      Consolidated  
     (In thousands)  

Cash flows from operating activities

           

Net cash provided by (used in) operating activities

   $ (58,908   $ 356,410     $ 52,342     $       $ 349,844  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Cash flows from investing activities

           

Capital expenditures, net of construction payable

            (77,112     (1,983             (79,095

Dispositions of property and equipment

            99                      99  

Investments in and advances to unconsolidated affiliates

            (302,000                    (302,000

Other

            14,810                      14,810  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net cash used in investing activities

            (364,203     (1,983             (366,186
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Cash flows from financing activities

           

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

     (2,942,807            (170,000             (3,112,807

Borrowings under bank credit facilities maturities longer than 90 days

     4,672,565              450,000               5,122,565  

Repayments under bank credit facilities maturities longer than 90 days

     (4,061,560            (280,000             (4,341,560

Issuance of senior notes, net

     1,995,000                             1,995,000  

Retirement of senior notes

     (211,684     (296,956                    (508,640

Debt issuance costs

     (98,531                           (98,531

Issuance of common stock upon exercise

           

Intercompany accounts

     (193,999     245,673       (51,674               

Capped call transactions

     (81,478                           (81,478

Other

     (539     (633     (34             (1,206
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net cash used in financing activities

     (923,033     (51,916     (51,708             (1,026,657
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Cash and cash equivalents

           

Net decrease for the period

     (981,941     (59,709     (1,349             (1,042,999

Balance, beginning of period

     1,718,616       263,386       74,205               2,056,207  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Balance, end of period

   $ 736,675     $ 203,677     $ 72,856     $       $ 1,013,208  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

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

This management’s discussion and analysis of financial condition and results of operations (“MD&A”) contains forward-looking statements that involve risks and uncertainties. Please see “Forward-Looking Statements” for a discussion of the uncertainties, risks and assumptions that may cause our actual results to differ materially from those discussed in the forward-looking statements. This discussion should be read in conjunction with our historical financial statements and related notes thereto and the other disclosures contained elsewhere in this Quarterly Report on Form 10-Q, and the audited consolidated financial statements and notes for the fiscal year ended December 31, 2010, which were included in our Form 10-K, filed with the SEC on February 28, 2011. The results of operations for the periods reflected herein are not necessarily indicative of results that may be expected for future periods. MGM Resorts International together with its subsidiaries may be referred to as “we,” “us” or “our.” MGM China Holdings Limited together with its subsidiaries is referred to as “MGM China.”

Executive Overview

Our primary business is the ownership and operation of casino resorts, which includes offering gaming, hotel, dining, entertainment, retail and other resort amenities. Most of our revenue is essentially cash-based, through customers wagering with cash or paying for non-gaming services with cash or credit cards.

Our industry is capital intensive and we rely heavily on the ability of our resorts to generate operating cash flow to repay debt financing, fund maintenance capital expenditures and provide excess cash for future development. We believe that we own several of the premier casino resorts in the world and have continually reinvested in our resorts to maintain our competitive advantage.

Our results of operations are affected by decisions we make related to our capital allocation, our access to capital, and our cost of capital. Our general cost of debt has increased over the past few years due to the global recession and instability in the capital markets. We have been able to access the capital markets to meet our near term liquidity needs but our ability to refinance our debt at more favorable rates depends on the future state of the economy and credit markets.

Our results of operations do not tend to be seasonal in nature, though a variety of factors may affect the results of any interim period, including the timing of major conventions, the amount and timing of marketing and special events for our high-end gaming customers, and the level of play during major holidays, including New Year and Chinese New Year. Our results do not depend on key individual customers, although our success in marketing to customer groups, such as convention customers, and the financial health of customer segments, such as business travelers or high-end gaming customers from a particular country or region, can affect our results. We are also exposed to risks related to tourism and the general economy, including national and global economic conditions and terrorist attacks or other global events.

We have two reportable segments that are based on the regions in which we operate: wholly owned domestic resorts and MGM China. We currently operate 15 wholly owned resorts in the United States. MGM China’s operations currently consist of the MGM Macau resort and casino. We have additional business activities including our investments in unconsolidated affiliates, our MGM Hospitality operations, and certain other corporate and management operations. CityCenter is our most significant unconsolidated affiliate, which we also manage for a fee. Our operations which have not been segregated into separate reportable segments are reported as corporate and other operations in our reconciliations of segment results to consolidated results.

Wholly Owned Domestic Resorts

Historically, over half of our net revenue from wholly owned domestic resorts is derived from non-gaming activities, as our operating philosophy is to provide a complete resort experience for our guests, including non-gaming amenities for which our guests are willing to pay a premium. Our significant convention and meeting facilities allow us to maximize hotel occupancy and customer volumes during off-peak times such as mid-week or during traditionally slower leisure travel periods, which also leads to better labor utilization. Our operating results are highly dependent on the volume of customers at our resorts, which in turn affects the price we can charge for our hotel rooms and other amenities. We market to different customer segments to manage our hotel occupancy, such as targeting large conventions to increase mid-week occupancy.

A significant portion of our operating results for our wholly owned domestic resorts is dependent upon the high-end gaming business, which can be a cause for variability in our results. Key performance indicators related to gaming and hotel revenue at our wholly owned domestic resorts are:

 

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Gaming revenue indicators – table games drop and slots handle (volume indicators); “win” or “hold” percentage, which is not fully controllable by us. Our normal table games hold percentage is in the range of 19% to 23% of table games drop and our normal slots hold percentage is in the range of 7.5% to 8.5% of slots handle;

 

   

Hotel revenue indicators – hotel occupancy (a volume indicator); average daily rate (“ADR,” a price indicator); and revenue per available room (“REVPAR,” a summary measure of hotel results, combining ADR and occupancy rate).

We generate a majority of the net revenue from our wholly owned domestic resorts in Las Vegas, Nevada, which exposes us to certain risks, such as increased competition from new or expanded Las Vegas resorts, and from the expansion of gaming in California.

The state of the U.S. economy has negatively affected the results of our wholly owned domestic resorts over the past several years, and we expect these operations to continue to be sensitive to certain aspects of the current economic conditions, such as weaknesses in employment and constrained consumer spending. While we have begun to see a rebound in our U.S. customer groups, including convention business, and we have achieved increases in REVPAR in the first half of 2011, we expect adverse conditions currently or recently present in the economic environment to continue to negatively affect our operating results.

MGM China

On June 3, 2011, we and Ms. Ho, Pansy Catilina Chiu King (“Ms. Pansy Ho”) completed a reorganization of the capital structure and the initial public offering of 760 million shares of MGM China on The Stock Exchange of Hong Kong Limited (the “IPO”), representing 20% of the post issuance base capital stock of MGM China, at an offer price of HKD 15.34 per share. Pursuant to this reorganization, we acquired, through a wholly owned subsidiary, an additional 1% of the overall capital stock of MGM China for HKD 15.34 per share, or approximately $75 million, and thereby became the indirect owner of 51% of MGM China. Following the IPO, the underwriters partially exercised their overallotment option and Ms. Pansy Ho sold an additional 59 million shares of MGM China.

Through our acquisition of the additional 1% interest of MGM China, we obtained a controlling interest and were required to consolidate MGM China as of June 3, 2011. Prior to the IPO, we held a 50% interest in MGM Grand Paradise, which was accounted for under the equity method. The acquisition of the controlling financial interest was accounted for as a business combination and we recognized 100% of the assets, liabilities, and noncontrolling interests of MGM China at fair value at the date of acquisition. The fair value of the equity of MGM China was determined by the IPO transaction price and equaled approximately $7.5 billion. The carrying value of our equity method investment was significantly less than our share of the fair value of MGM China, resulting in a $3.5 billion gain on the acquisition.

We believe this acquisition plays an important role in extending our reach internationally and will foster future growth and profitability. Asia is the fastest-growing gaming market in the world and Macau is the world’s largest gaming destination in terms of revenue and has continued to grow over the past few years despite the global economic downturn.

Our MGM China operations primarily relate to operations at MGM Macau resort and casino. Revenues at MGM Macau are generated primarily from gaming operations made up of two distinct market segments: main floor and high-end (“VIP”). MGM China main floor operations consist of both table games and slot machines on the main gaming floors for the public, which usually consists of walk-in and day trip visitors. VIP players play mostly in dedicated VIP rooms or designated gaming areas. VIP customers can be further divided into customers sourced by in-house VIP programs and those sourced through gaming promoters.

A significant portion of our VIP volume is generated through the use of gaming promoters, also known as junket operators. These operators introduce high-end gaming players to MGM Macau, assist these customers with travel arrangements, and extend gaming credit to these players. VIP gaming at MGM Macau is conducted by the use of special purpose nonnegotiable gaming chips called “rolling chips.” Gaming promoters purchase these rolling chips from MGM Macau and in turn they sell these chips to their players. The rolling chips allow MGM Macau to track the amount of wagering conducted by each gaming promoters’ clients in order to determine VIP gaming play. In exchange for the gaming promoters’ services, MGM Macau pays them either through rolling chip turnover-based commissions or through revenue-sharing arrangements. The estimated portion of the gaming promoter payments that represent amounts passed through to VIP customers is recorded net against casino revenue, and the estimated portion retained by the gaming promoter for its compensation is recorded to casino expense.

 

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In addition to the key performance indicators used by our wholly owned domestic resorts, MGM Macau utilizes “turnover” which is the sum of rolling chip wagers won by MGM Macau (rolling chips purchased plus rolling chips exchanged less rolling chips returned). Turnover provides a basis for measuring VIP casino win percentage. Normal win for VIP gaming operations at MGM Macau is in the range of 2.7% to 3.0% of turnover. MGM Macau’s main floor table games historical hold percentage is in the range of 20% to 27% of table games drop. Normal slots hold percentage at MGM Macau is in the range of 5.5% to 7.5% of slots handle.

Other Executive Overview Items

Borgata. We have a 50% economic interest in Borgata Hotel Casino & Spa (“Borgata”) located on Renaissance Pointe in the Marina area of Atlantic City, New Jersey. Boyd Gaming Corporation (“Boyd”) owns the other 50% of Borgata and also operates the resort. Our interest is held in trust and currently offered for sale pursuant to our settlement agreement with New Jersey Department of Gaming Enforcement (“DGE”). In March 2010, the New Jersey Casino Control Commission (“CCC”) approved our settlement agreement with the DGE pursuant to which we placed our 50% ownership interest in Borgata and related leased land in Atlantic City into a divestiture trust. The settlement agreement was amended on July 22, 2011 with the approval of the CCC on August 8, 2011. Following the transfer of these interests into trust, we ceased to be regulated by the CCC or the DGE, except as otherwise provided by the trust agreement and the settlement agreement. Boyd’s 50% interest is not affected by the settlement.

The terms of the settlement, as amended, mandate the sale of the trust property by March 2014, which represents an 18-month extension compared to the original settlement. During the period ending in March 2013, which also represents an 18-month extension compared to the original settlement we have the right to direct the trustee to sell the trust property, subject to approval of the CCC. If a sale is not concluded by that time, the trustee is responsible for selling the trust property during the following 12-month period. We continue to negotiate with certain parties that have expressed interest in the asset, but can provide no assurance that a transaction will be completed. Prior to the consummation of the sale, the divestiture trust will retain any cash flows received in respect of the trust property, but will pay property taxes and other costs attributable to the trust property. We are the sole economic beneficiary of the trust and will be permitted to reapply for a New Jersey gaming license beginning 30 months after the completion of the sale of the trust assets. As of June 30, 2011, the trust had $188 million of cash and investments, of which $150 million is held in treasury securities with maturities greater than 90 days but less than one year, and is recorded within “Prepaid expenses and other.”

As a result of our ownership interest in Borgata being placed into a trust we no longer have significant influence over Borgata; therefore, we discontinued the equity method of accounting for Borgata at the point the assets were placed in the trust in March 2010, and account for our rights under the trust agreement under the cost method of accounting. The carrying value of our investment related to Borgata is included in “Other long-term assets, net.” Earnings and losses that relate to the investment that were previously accrued remain as a part of the carrying amount of the investment. Distributions received by the trust that do not exceed our share of earnings are recognized currently in earnings. However, distributions received by the trust that exceed our share of earnings for such periods are applied to reduce the carrying amount of our investment. We consolidate the trust as we are the sole economic beneficiary. The trust did not receive distributions from Borgata during the six months ended June 30, 2011. In the second quarter of 2010, the trust received distributions from the joint venture of $15 million, of which $6 million was recorded as a reduction of the carrying value and $9 million was recorded as “Other, net” non-operating income.

Gold Strike Tunica. On May 2, 2011 the Mississippi Department of Environmental Quality mandated the closure of Gold Strike Tunica along with eight other Tunica area casino resorts. The property reopened on May 18, 2011. We recorded $8 million in “General and administrative” expense related to costs associated with flood prevention and other costs incurred during the time the property was closed. We carry flood and business interruption insurance, but we cannot determine the amount or timing of any reimbursements until we submit our claims and receive notice of approval from our insurers.

Impairments. A complete discussion of our critical accounting policies related to impairments of long-lived assets and investments in unconsolidated affiliates is included in our Form 10-K for the period ending December 31, 2010. We did not identify circumstances that existed that would indicate the carrying value of our long-lived assets may not be recoverable; therefore, we did not review any of our wholly owned long-lived asset groups – generally our operating resorts – for impairment as of June 30, 2011. Historically, the undiscounted cash flows of our significant long-lived assets have exceeded their carrying values by a substantial margin such that any recent decline in operating performance would not be indicative of a potential impairment. See “Operating Results – Details of Certain Charges” for discussion of impairment charges recorded for the period presented.

 

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Results of Operations

The following discussion is based on our consolidated financial statements for the three and six months ended June 30, 2011 and 2010.

Summary Financial Results

The following table presents selected summary consolidated financial results:

 

     Three Months Ended     Six Months Ended  
     June 30,     June 30,  
     2011      2010     2011      2010  
     (In thousands)  

Net revenues

   $ 1,805,985      $ 1,547,329     $ 3,318,836      $ 3,013,582  

Operating income (loss)

     3,683,760        (1,048,817     3,853,465        (1,060,240

Net income (loss)

     3,450,691        (883,476     3,360,820        (980,217

Net income (loss) attributable to MGM Resorts International

     3,441,985        (883,476     3,352,114        (980,217

Our results of operations for the three and six months ending June 30, 2011 include the results of MGM China for the 28 days ending June 30, 2011 on a consolidated basis. Prior thereto, results of operations of MGM China were reflected under the equity method of accounting – see “Operating Results – Income from Unconsolidated Affiliates.” Net revenue and operating income attributable to MGM China for the 28 days ending June 30, 2011 were $193 million and $19 million, respectively.

The following items also affected comparability in our operating results:

 

   

A gain of $3.5 billion related to the MGM China transaction during the second quarter of 2011;

 

   

Our share of CityCenter residential inventory impairment of $26 million in the second quarter of 2011, $29 million in the second quarter of 2010, and $114 million for the six month period of 2010;

 

   

Our share of CityCenter forfeited residential deposits of $28 million and $40 million in the three and six month periods of 2010, respectively; and

 

   

A $1.12 billion impairment on our investment in CityCenter in the second quarter of 2010.

Excluding these items, operating income for the three and six months ended June 30, 2011 increased $140 million and $247 million, respectively. Operating income was positively affected by improved performance at MGM Macau, CityCenter resort operations and our wholly owned domestic resorts.

Operating Results – Detailed Segment Information

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

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2011     2010     2011      2010  
     (In thousands)  

Net revenue:

         

Wholly owned domestic resorts

   $ 1,505,308     $ 1,441,731     $ 2,911,738      $ 2,804,141  

MGM China

     192,984              192,984          
  

 

 

   

 

 

   

 

 

    

 

 

 

Reportable segment net revenue

     1,698,292       1,441,731       3,104,722        2,804,141  

Corporate and other

     107,693       105,598       214,114        209,441  
  

 

 

   

 

 

   

 

 

    

 

 

 
   $ 1,805,985     $ 1,547,329     $ 3,318,836      $ 3,013,582  
  

 

 

   

 

 

   

 

 

    

 

 

 

Adjusted EBITDA:

         

Wholly owned domestic resorts

   $ 331,386     $ 308,788     $ 631,348      $ 580,085  

MGM China

     46,422              46,422