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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, 2014

OR

 

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

For the transition period from          to         

Commission File No. 001-10362

 

 

MGM Resorts International

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   88-0215232

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

3600 Las Vegas Boulevard South, Las Vegas, Nevada 89109

(Address of principal executive offices)

(702) 693-7120

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files):    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer   x    Accelerated filer   ¨
Non-accelerated filer   ¨    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):    Yes  ¨    No  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

 

Class

  

Outstanding at August 4, 2014

Common Stock, $.01 par value    490,741,383 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, 2014 and December 31, 2013

     1   
  

Consolidated Statements of Operations for the Three Months and Six Months Ended June  30, 2014 and June 30, 2013

     2   
  

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

     3   
  

Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2014 and June 30, 2013

     4   
  

Condensed Notes to Consolidated Financial Statements

     5-24   

Item 2.

  

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

     25-38   

Item 3.

  

Quantitative and Qualitative Disclosures About Market Risk

     38   

Item 4.

   Controls and Procedures      38   

PART II.  

   OTHER INFORMATION   

Item 1.

  

Legal Proceedings

     39   

Item 1A.

  

Risk Factors

     40   

Item 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds

     40   

Item 6.

  

Exhibits

     40   

SIGNATURES

     42   


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,
2014
     December 31,
2013
 
ASSETS   

Current assets

     

Cash and cash equivalents

   $ 1,365,137      $ 1,803,669  

Accounts receivable, net

     473,922        488,217  

Inventories

     102,524        107,907  

Deferred income taxes, net

     —          80,989  

Prepaid expenses and other

     224,732        238,657  
  

 

 

    

 

 

 

Total current assets

     2,166,315        2,719,439  
  

 

 

    

 

 

 

Property and equipment, net

     14,113,722        14,055,212  

Other assets

     

Investments in and advances to unconsolidated affiliates

     1,420,924        1,374,836  

Goodwill

     2,898,861        2,897,442  

Other intangible assets, net

     4,396,436        4,511,861  

Other long-term assets, net

     576,045        551,395  
  

 

 

    

 

 

 

Total other assets

     9,292,266        9,335,534  
  

 

 

    

 

 

 
   $ 25,572,303      $ 26,110,185  
  

 

 

    

 

 

 
LIABILITIES AND STOCKHOLDERS’ EQUITY   

Current liabilities

     

Accounts payable

   $ 253,475      $ 241,192  

Income taxes payable

     32,817        14,813  

Current portion of long-term debt

     317,194        —    

Deferred income taxes, net

     1,522        —    

Accrued interest on long-term debt

     191,141        188,522  

Other accrued liabilities

     1,764,167        1,770,801  
  

 

 

    

 

 

 

Total current liabilities

     2,560,316        2,215,328  
  

 

 

    

 

 

 

Deferred income taxes

     2,356,998        2,430,414  

Long-term debt

     12,606,520        13,447,230  

Other long-term obligations

     106,941        141,590  

Commitments and contingencies (Note 5)

     

Stockholders’ equity

     

Common stock, $.01 par value: authorized 1,000,000,000 shares; issued and outstanding 490,712,807 and 490,360,628 shares

     4,907        4,904  

Capital in excess of par value

     4,166,365        4,156,680  

Retained earnings

     270,796        57,092  

Accumulated other comprehensive income

     15,235        12,503  
  

 

 

    

 

 

 

Total MGM Resorts International stockholders’ equity

     4,457,303        4,231,179  

Noncontrolling interests

     3,484,225        3,644,444  
  

 

 

    

 

 

 

Total stockholders’ equity

     7,941,528        7,875,623  
  

 

 

    

 

 

 
   $ 25,572,303      $ 26,110,185  
  

 

 

    

 

 

 

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,
 
     2014     2013     2014     2013  

Revenues

        

Casino

   $ 1,475,165     $ 1,443,157     $ 3,058,597     $ 2,844,577  

Rooms

     463,151       437,710       915,537       838,960  

Food and beverage

     412,723       394,247       796,115       754,129  

Entertainment

     138,735       121,001       272,512       234,855  

Retail

     50,811       52,748       95,427       97,455  

Other

     134,068       127,914       259,495       251,740  

Reimbursed costs

     95,745       92,741       190,720       182,977  
  

 

 

   

 

 

   

 

 

   

 

 

 
     2,770,398       2,669,518       5,588,403       5,204,693  

Less: Promotional allowances

     (189,365     (188,253     (376,972     (371,280
  

 

 

   

 

 

   

 

 

   

 

 

 
     2,581,033       2,481,265       5,211,431       4,833,413  
  

 

 

   

 

 

   

 

 

   

 

 

 

Expenses

        

Casino

     916,817       916,807       1,907,651       1,792,053  

Rooms

     142,413       134,001       276,651       261,710  

Food and beverage

     241,124       225,696       461,182       430,436  

Entertainment

     104,761       89,940       203,698       173,665  

Retail

     26,055       27,865       49,531       53,831  

Other

     92,077       92,819       179,654       178,792  

Reimbursed costs

     95,745       92,741       190,720       182,977  

General and administrative

     327,484       314,324       646,730       618,225  

Corporate expense

     54,439       52,364       107,790       98,988  

Preopening and start-up expenses

     9,759       3,506       15,395       5,652  

Property transactions, net

     33,170       88,131       33,728       96,622  

Depreciation and amortization

     203,070       218,151       410,725       430,069  
  

 

 

   

 

 

   

 

 

   

 

 

 
     2,246,914       2,256,345       4,483,455       4,323,020  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from unconsolidated affiliates

     5,868       6,682       24,644       23,026  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     339,987       231,602       752,620       533,419  
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-operating income (expense):

        

Interest expense, net of amounts capitalized

     (203,936     (214,500     (413,323     (439,947

Non-operating items from unconsolidated affiliates

     (14,578     (38,864     (28,301     (60,943

Other, net

     (309     (4,951     (1,743     (6,233
  

 

 

   

 

 

   

 

 

   

 

 

 
     (218,823     (258,315     (443,367     (507,123
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     121,164       (26,713     309,253       26,296  

Benefit (provision) for income taxes

     52,540       (3,865     56,059       (34,296
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     173,704       (30,578     365,312       (8,000

Less: Net income attributable to noncontrolling interests

     (68,160     (62,380     (151,608     (78,412
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to MGM Resorts International

   $ 105,544     $ (92,958   $ 213,704     $ (86,412
  

 

 

   

 

 

   

 

 

   

 

 

 

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

        

Basic

   $ 0.22     $ (0.19   $ 0.44     $ (0.18
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

   $ 0.21     $ (0.19   $ 0.42     $ (0.18
  

 

 

   

 

 

   

 

 

   

 

 

 

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

 

2


Table of Contents

MGM RESORTS INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

(Unaudited)

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2014     2013     2014     2013  

Net income (loss)

   $ 173,704     $ (30,578   $ 365,312     $ (8,000

Other comprehensive income (loss), net of tax:

        

Foreign currency translation adjustment

     5,862       6,416       3,102       (6,225

Other

     —         —         1,250       115  
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss)

     5,862       6,416       4,352       (6,110
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

     179,566       (24,162     369,664       (14,110

Less: Comprehensive income attributable to noncontrolling interests

     (71,023     (65,470     (153,228     (75,297
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to MGM Resorts International

   $ 108,543     $ (89,632   $ 216,436     $ (89,407
  

 

 

   

 

 

   

 

 

   

 

 

 

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

 

3


Table of Contents

MGM RESORTS INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

     Six Months Ended
June 30,
 
     2014     2013  

Cash flows from operating activities

    

Net income (loss)

   $ 365,312     $ (8,000

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

    

Depreciation and amortization

     410,725       430,069  

Amortization of debt discounts, premiums and issuance costs

     18,728       16,876  

Loss on retirement of long-term debt

     —         3,791  

Provision for doubtful accounts

     24,294       16,696  

Stock-based compensation

     16,600       16,555  

Property transactions, net

     33,728       96,622  

Loss from unconsolidated affiliates

     3,777       38,293  

Distributions from unconsolidated affiliates

     7,260       8,075  

Deferred income taxes

     (3,052     69,143  

Change in operating assets and liabilities:

    

Accounts receivable

     (9,964     (13,703

Inventories

     5,391       6,456  

Income taxes receivable and payable, net

     18,005       5,420  

Prepaid expenses and other

     (2,605     (30,646

Prepaid Cotai land concession premium

     (11,206     3,289  

Accounts payable and accrued liabilities

     (78,514     98,230  

Other

     5,145       (27,104
  

 

 

   

 

 

 

Net cash provided by operating activities

     803,624       730,062  
  

 

 

   

 

 

 

Cash flows from investing activities

    

Capital expenditures, net of construction payable

     (370,248     (242,878

Dispositions of property and equipment

     412       323  

Investments in and advances to unconsolidated affiliates

     (53,750     (14,400

Distributions from unconsolidated affiliates in excess of earnings

     790       —    

Investments in treasury securities - maturities longer than 90 days

     (93,137     (120,332

Proceeds from treasury securities - maturities longer than 90 days

     111,238       135,268  

Other

     2,535       1,806  
  

 

 

   

 

 

 

Net cash used in investing activities

     (402,160     (240,213
  

 

 

   

 

 

 

Cash flows from financing activities

    

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

     (1,737,750     (14,000

Borrowings under bank credit facilities - maturities longer than 90 days

     3,451,875       2,793,000  

Repayments under bank credit facilities - maturities longer than 90 days

     (1,728,125     (2,793,000

Retirement of senior notes

     (508,900     (462,234

Debt issuance costs

     —         (17,061

Distributions to noncontrolling interest owners

     (314,447     (259,016

Other

     (2,173     (1,687
  

 

 

   

 

 

 

Net cash used in financing activities

     (839,520     (753,998
  

 

 

   

 

 

 

Effect of exchange rate on cash

     (476     (687
  

 

 

   

 

 

 

Cash and cash equivalents

    

Net decrease for the period

     (438,532     (264,836

Balance, beginning of period

     1,803,669       1,543,509  
  

 

 

   

 

 

 

Balance, end of period

   $ 1,365,137     $ 1,278,673  
  

 

 

   

 

 

 

Supplemental cash flow disclosures

    

Interest paid, net of amounts capitalized

   $ 391,976     $ 436,147  

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

     8,508       1,382  

Non-cash investing and financing activities

    

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

   $ 42,922     $ 43,271  

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

 

4


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

The Company owns 51% and has a controlling interest in MGM China Holdings Limited (“MGM China”), which owns MGM Grand Paradise, S.A. (“MGM Grand Paradise”), the Macau company that owns and operates the MGM Macau resort and casino and the related gaming subconcession and land concession. MGM Grand Paradise has a land concession contract with the government of Macau to develop a second resort and casino on an approximately 17.8 acre site in Cotai, Macau (“MGM Cotai”). MGM Cotai will be an integrated casino, hotel and entertainment complex with up to 1,600 hotel rooms, 500 gaming tables and 2,500 slots. The total estimated project budget is $2.9 billion, excluding development fees eliminated in consolidation, capitalized interest and land.

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

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.

The Company seeks to leverage its management expertise and well-recognized brands through domestic and international expansion opportunities. The Company has entered into management agreements for non-gaming hotels, resorts and residential products in the Middle East, North Africa, India and the United States. In 2014, the Company and the Hakkasan Group formed MGM Hakkasan Hospitality (“MGM Hakkasan”), owned 50% by each member, to design, develop and manage luxury non-gaming hotels, resorts and residences under certain brands licensed from the Company and the Hakkasan Group. The Company will contribute all of the management agreements for non-gaming hotels, resorts and residential projects (outside of the greater China region) that are currently under development to MGM Hakkasan. In addition, the Company will continue to develop and manage properties in the greater China region with Diaoyutai State Guesthouse, including the MGM Grand Sanya on Hainan Island, in the People’s Republic of China, which opened in 2012.

The Maryland Video Lottery Facility Location Commission has awarded MGM National Harbor, LLC (“MGM National Harbor”) the license to build and operate a destination resort casino in Prince George’s County at National Harbor. Currently, the expected cost to develop and construct MGM National Harbor is approximately $1.2 billion, excluding capitalized interest and land related costs. The Company expects the resort to include a casino with approximately 3,600 slots, 160 table games including poker; a 300 suite hotel with luxury spa and rooftop pool; high end branded retail; fine and casual dining; a dedicated 3,000 seat theater venue; 35,000 square feet of meeting and event space; and a 5,000 space parking garage.

On June 13, 2014, the Massachusetts Gaming Commission (the “MGC”) agreed to award the Company’s subsidiary developing MGM Springfield the Category One casino license in Region B, Western Massachusetts, one of three licensing regions designated by legislation. However, on June 24, 2014, the Massachusetts Supreme Judicial Court ruled that a proposed ballot initiative seeking to prohibit local casinos, slot parlors and other wagering in Massachusetts was constitutional and thereby allowed the ballot initiative to appear on the November 4, 2014 ballot. The MGC has agreed that the Company is not required to make the final award payment of licensing fees and other costs unless the ballot initiative fails to pass in the November 2014 elections.

MGM Springfield is proposed to be developed on 14.5 acres of land between Union and State streets, and Columbus Avenue and Main Street in Springfield, Massachusetts. The cost to develop and construct MGM Springfield is currently expected to be approximately $690 million, excluding capitalized interest and land related costs. The Company expects the resort will include a casino with approximately 3,000 slots and 75 table games, a poker room and high limit VIP gambling area, 250 hotel rooms, 55,000 square feet of retail and restaurant space that will accommodate 15 shops and restaurants, and a multi-level parking garage.

 

5


Table of Contents

In 2013, the Company entered into an agreement with a subsidiary of Anschutz Entertainment Group, Inc. (“AEG”) (a leader in sports, entertainment, and promotions) to design, construct, and operate an arena which will be located on a parcel of the Company’s land between Frank Sinatra Drive and New York-New York, adjacent to the Las Vegas Strip. The Company and AEG each own 50% of the developer of the arena. The proposed arena is anticipated to seat between 18,000 – 20,000 people and is currently scheduled to be completed in 2016. Such development is estimated to cost approximately $350 million, excluding capitalized interest and land related costs, and is contingent on obtaining permanent financing.

The Company has two reportable segments: wholly owned domestic resorts and MGM China. See Note 10 for additional information about the Company’s segments.

Borgata. The Company has a 50% economic interest in the Borgata Hotel Casino & Spa (“Borgata”) located on Renaissance Pointe in the Marina area of Atlantic City, New Jersey. Boyd Gaming Corporation owns the other 50% of Borgata and also operates the resort. The Company’s interest is held in trust and was offered for sale pursuant to its amended settlement agreement with the New Jersey Division of Gaming Enforcement and approved by the New Jersey Casino Control Commission (“CCC”). The terms of the amended settlement agreement previously mandated the sale by March 2014. The Company had the right to direct the sale through March 2013 (the “divesture period”), subject to approval of the CCC, and the trustee was responsible for selling the trust property during the following 12-month period (the “terminal sale period”). On February 13, 2013, the settlement agreement was further amended to allow the Company to re-apply to the CCC for licensure in New Jersey and to defer expiration of these periods pending the outcome of the licensure process. The Company has submitted its licensure request to the CCC and there can be no assurances that such request will be approved or with respect to the timing of the licensure process. If the CCC denies the Company’s licensure request, then the divesture period will immediately end, and the terminal sale period will immediately begin, which will result in the Company’s Borgata interest being disposed of by the trustee pursuant to the terms of the settlement agreement.

The Company consolidates the trust because it is the sole economic beneficiary and accounts for its interest in Borgata under the cost method. The Company reviews its investment carrying value whenever indicators of impairment exist. As of June 30, 2014, the trust had $86 million of cash and investments, of which $69 million is held in U.S. treasury securities with maturities greater than three months but less than one year, and is recorded within “Prepaid expenses and other.”

NOTE 2— BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation. As permitted by the rules and regulations of the Securities and Exchange Commission, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted. These consolidated financial statements should be read in conjunction with the Company’s 2013 annual consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company’s interim financial statements. The results for such periods are not necessarily indicative of the results to be expected for the full year.

Fair value measurements. Fair value measurements affect the Company’s accounting and impairment assessments of its long-lived assets, investments in unconsolidated affiliates, cost method investments, assets acquired and liabilities assumed in an acquisition, and goodwill and other intangible assets. Fair value measurements also affect the Company’s accounting for certain of its financial assets and liabilities. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and is measured according to a hierarchy that includes: Level 1 inputs, such as quoted prices in an active market; Level 2 inputs, which are observable inputs for similar assets; or Level 3 inputs, which are unobservable inputs.

 

   

The Company uses Level 2 inputs to measure the fair value of the Company’s treasury securities held by the Borgata trust. See Note 1;

 

   

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

 

   

The Company used Level 3 inputs when assessing the fair value of its investment in Grand Victoria at June 30, 2014 and 2013. See Note 3.

Income tax provision. For interim income tax reporting the Company estimates its annual effective tax rate and applies it to its year-to-date ordinary income. The tax effects of unusual or infrequently occurring items, including changes in judgment about valuation allowances and effects of changes in tax laws or rates are reported in the interim period in which they occur. The Company’s effective income tax rate was (43.4%) and (18.1%) for the three months and six months ended June 30, 2014, respectively.

 

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The Company recognizes deferred tax assets, net of applicable reserves, related to tax loss and credit carryforwards and other temporary differences with a future tax benefit to the extent that realization of such benefit is more likely than not. Otherwise, a valuation allowance is applied. Because of the Company’s history of recent losses in the United States, the Company does not rely on future United States sourced operating income in assessing the realization of its deferred tax assets.

Because MGM China is presently exempt from the Macau 12% complementary tax on gaming profits, the Company believes that payment of the Macau Special Gaming Tax qualifies as a tax paid in lieu of an income tax that is creditable against U.S. taxes. As long as the exemption from Macau’s 12% complementary tax on gaming profits continues, the Company expects that it will generate excess foreign tax credits on an annual basis and that none of the excess foreign credits will be utilized until the exemption expires. Although the Company’s current five-year exemption from the Macau 12% complementary tax on gaming profits ends on December 31, 2016, the Company believes it will be entitled to receive a third five-year exemption from Macau based upon exemptions granted to the Company’s competitors in order to ensure non-discriminatory treatment among gaming concessionaires and subconcessionaires. For all periods beyond December 31, 2021, the Company has assumed that it will be paying the Macau 12% complementary tax on gaming profits and will thus not be able to credit the Macau Special Gaming Tax in such years, and has factored that assumption into both the measurement of its foreign deferred tax assets and liabilities as well as its future projections of foreign sourced income. As a result, the Company projects that it will be able to realize a benefit, and hence, projects that it will record a deferred tax asset for foreign tax credits, net of valuation allowance (“net deferred foreign tax credit asset”), of approximately $335 million as of December 31, 2014 and has reflected this assumption in its annual effective tax rate for 2014. Should the Company in a future period actually receive or be able to assume under the law a fourth five-year exemption, an additional valuation allowance would likely need to be provided on some portion or all of the net deferred foreign tax credit asset, resulting in an increase in the provision for income taxes in such period.

During the quarter ended June 30, 2014 the Company received final approval from the Joint Committee on Taxation of the results of IRS examinations covering its 2005 through 2009 tax years. These examinations are now considered settled for financial reporting purposes. Consequently, the Company reduced unrecognized tax benefits by $81 million and recorded income tax benefit of $31 million to reflect the effects of this settlement. The Company previously made a deposit of $30 million with the IRS to cover the expected cash taxes and interest resulting from the tentatively agreed adjustments for these examinations and does not expect to make any further cash payments as a result of this final settlement. Since the tax and interest had not been assessed by the end of the second quarter, the deposit is included in “Prepaid expenses and other” while the expected amount of the assessment is included in “Income taxes payable” on the balance sheet at June 30, 2014.

Recently issued accounting standards. During the six months ended June 30, 2014, the Company implemented Financial Accounting Standards Board (“FASB”) Accounting Standards Update No. 2013-11 (“ASU 2013-11”), which is effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2013. ASU 2013-11 provides explicit guidance on the financial statement presentation of unrecognized tax benefits when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. As a result of implementing ASU 2013-11, the Company recorded a reduction in liability for unrecognized tax benefits and a corresponding reduction in deferred tax assets of $19 million in the six months ended June 30, 2014.

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

NOTE 3 — INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES

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

 

     June 30,      December 31,  
     2014      2013  
     (In thousands)  

CityCenter Holdings, LLC – CityCenter (50%)

   $ 1,226,940      $ 1,172,087  

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

     140,000        169,579  

Other

     53,984        33,170  
  

 

 

    

 

 

 
   $ 1,420,924      $ 1,374,836  
  

 

 

    

 

 

 

 

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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,
 
     2014     2013     2014     2013  
     (In thousands)  

Income from unconsolidated affiliates

   $ 5,868     $ 6,682     $ 24,644     $ 23,026  

Preopening and start-up expenses

     (101     —         (120     (376

Non-operating items from unconsolidated affiliates

     (14,578     (38,864     (28,301     (60,943
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ (8,811   $ (32,182   $ (3,777   $ (38,293
  

 

 

   

 

 

   

 

 

   

 

 

 

Grand Victoria

At June 30, 2014, the Company reviewed the carrying value of its Grand Victoria investment for impairment due to a greater than anticipated decline in operating results, as well as a decrease in forecasted cash flows for 2014 through 2017 compared to the prior forecast. The Company used a blended discounted cash flow analysis and guideline public company method to determine the estimated fair value from a market participant’s viewpoint. Key assumptions included in the discounted cash flow analysis were estimates of future cash flows including outflows for capital expenditures, a long-term growth rate of 2% and a discount rate of 10.5%. Key assumptions in the guideline public company method included business enterprise value multiples selected based on the range of multiples in Grand Victoria’s peer group. As a result of the analysis, the Company determined that it was necessary to record an other-than-temporary impairment charge of $29 million at June 30, 2014, based on an estimated fair value of $140 million for the Company’s 50% interest. The Company intends to, and believes it will be able to, retain the investment in Grand Victoria; however, due to the extent of the shortfall and the Company’s assessment of the uncertainty of fully recovering its investment, the Company has determined that the impairment was other-than-temporary. At June 30, 2013, the Company recorded an impairment charge of $37 million on its investment in Grand Victoria based on the then estimated fair value of $170 million for its 50% interest.

City Center

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

 

     June 30,      December 31,  
     2014      2013  
     (In thousands)  

Current assets

   $ 494,634      $ 451,058  

Property and other assets, net

     8,070,612        8,261,240  

Current liabilities

     511,485        462,487  

Long-term debt and other long-term obligations

     1,552,353        1,688,113  

Equity

     6,501,408        6,561,698  

Summarized income statement information for CityCenter is as follows:

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2014     2013     2014     2013  
     (In thousands)  

Net revenues

   $ 319,875     $ 333,174     $ 656,292     $ 648,316  

Operating expenses

     (344,710     (356,948     (676,164     (672,258
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating loss

     (24,835     (23,774     (19,872     (23,942

Non-operating expenses

     (26,953     (101,992     (52,118     (169,667
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (51,788   $ (125,766   $ (71,990   $ (193,609
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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NOTE 4 — LONG-TERM DEBT

Long-term debt consisted of the following:

 

     June 30,     December 31,  
     2014     2013  
     (In thousands)  

Senior credit facility:

    

$2,758 million ($2,772 million at December 31, 2013) term loans, net

   $ 2,751,575     $ 2,765,041  

MGM Grand Paradise credit facility

     553,520       553,242  

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

     —         508,848  

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

     1,453,795       1,456,153  

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

     875,701       876,022  

$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

     497,459       496,987  

$743 million 7.625% senior notes, due 2017

     743,000       743,000  

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

     468,178       467,451  

$850 million 8.625% senior notes, due 2019

     850,000       850,000  

$500 million 5.25% senior notes, due 2020

     500,000       500,000  

$1,000 million 6.75% senior notes, due 2020

     1,000,000       1,000,000  

$1,250 million 6.625% senior notes, due 2021

     1,250,000       1,250,000  

$1,000 million 7.75% senior notes, due 2022

     1,000,000       1,000,000  

$0.6 million 7% debentures, due 2036, net

     572       572  

$4.3 million 6.7% debentures, due 2096

     4,265       4,265  
  

 

 

   

 

 

 
     12,923,714       13,447,230  

Less: Current portion

     (317,194     —    
  

 

 

   

 

 

 
   $ 12,606,520     $ 13,447,230  
  

 

 

   

 

 

 

As of June 30, 2014, the amount available under the Company’s revolving senior credit facility is less than current maturities related to the Company’s term loan credit facilities and convertible senior notes. The Company has excluded from the current portion of long-term debt the amount available for refinancing under its revolving credit facility.

Senior credit facility. At June 30, 2014, the Company’s senior credit facility consisted of a $1.2 billion revolving credit facility, a $1.03 billion term loan A facility and a $1.72 billion term loan B facility. The revolving and term loan A facilities bear interest at LIBOR plus an applicable rate determined by the Company’s credit rating (2.75% as of June 30, 2014). The term loan B facility bears interest at LIBOR plus 2.50%, with a LIBOR floor of 1.00%. The revolving and term loan A facilities mature in December 2017 and the term loan B facility matures in December 2019. The term loan A and term loan B facilities are subject to scheduled amortization payments on the last day of each calendar quarter in an amount equal to 0.25% of the original principal balance. The Company permanently repaid $7 million and $14 million in the three and six months ended June 30, 2014, respectively, in accordance with the scheduled amortization. The Company had $1.2 billion of available borrowing capacity under its senior credit facility at June 30, 2014. At June 30, 2014, the interest rate on the term loan A was 2.9%, the interest rate on the term loan B was 3.5%.

The land and substantially all of the assets of MGM Grand Las Vegas, Bellagio and The Mirage secure up to $3.35 billion of obligations outstanding under the senior credit facility. In addition, the land and substantially all of the assets of New York-New York and Gold Strike Tunica secure the entire amount of the senior credit facility and the land and substantially all of the assets of MGM Grand Detroit secure its $450 million of obligations as a co-borrower under the senior credit facility. In addition, the senior credit facility is secured by a pledge of the equity or limited liability company interests of the subsidiaries that own the pledged properties.

The senior credit facility contains customary representations and warranties and customary affirmative and negative covenants. In addition, the senior credit facility requires the Company and its restricted subsidiaries to maintain a minimum trailing four-quarter EBITDA and limits the ability of the Company and its restricted subsidiaries to make capital expenditures and investments. As of June 30, 2014, the Company and its restricted subsidiaries are required to maintain a minimum EBITDA (as defined in the senior credit facility) of $1.10 billion. The minimum EBITDA increases to $1.20 billion for September 30, 2014 and December 31, 2014 and to $1.25 billion for March 31, 2015 and June 30, 2015, with periodic increases thereafter. EBITDA for the trailing four quarters ended June 30, 2014, calculated in accordance with the terms of the senior credit facility, was $1.38 billion. The senior credit facility limits the Company and its restricted subsidiaries to capital expenditures of $500 million per fiscal year, with unused amounts in any fiscal year rolling over to the next fiscal year, but not any fiscal year thereafter. The Company’s total capital expenditures allowable under the senior credit facility for fiscal year 2014, after giving effect to unused amounts from 2013, was $681 million. In addition, the senior credit facility limits the Company’s ability to make investments subject to certain thresholds and other important exceptions. As of June 30, 2014, the Company and its restricted subsidiaries were within the limit of capital expenditures and other investments for the calendar year 2014.

 

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The senior credit facility provides for customary events of default, including, without limitation, (i) payment defaults, (ii) covenant defaults, (iii) cross-defaults to certain other indebtedness in excess of specified amounts, (iv) certain events of bankruptcy and insolvency, (v) judgment defaults in excess of specified amounts, (vi) the failure of any loan document by a significant party to be in full force and effect and such circumstance, in the reasonable judgment of the required lenders, is materially adverse to the lenders, or (vii) the security documents cease to create a valid and perfected first priority lien on any material portion of the collateral. In addition, the senior credit facility provides that a cessation of business due to revocation, suspension or loss of any gaming license affecting a specified amount of its revenues or assets, will constitute an event of default.

MGM China credit facility. At June 30, 2014, the MGM China credit facility consisted of approximately $550 million of term loans and an approximately $1.45 billion revolving credit facility due October 2017. The credit facility is subject to scheduled amortization payments beginning in 2016. The outstanding balance at June 30, 2014 was comprised solely of term loans. The interest rate on the facility fluctuates annually based on HIBOR plus a margin, which ranges between 1.75% and 2.50%, based on MGM China’s leverage ratio. The margin was 1.75% at June 30, 2014. MGM China is a joint and several co-borrower with MGM Grand Paradise. The MGM China credit facility is secured by MGM Grand Paradise’s interest in the Cotai land use right, and MGM China, MGM Grand Paradise and their guarantor subsidiaries have granted a security interest in substantially all of their assets to secure the amended facilities; the material subsidiaries of MGM China continue to guarantee the facilities. The credit facility will be used for general corporate purposes and for the development of the Cotai project.

The MGM China credit facility agreement contains customary representations and warranties, events of default, affirmative covenants and negative covenants, which impose restrictions on, among other things, the ability of MGM China and its subsidiaries to make investments, pay dividends and sell assets, and to incur additional debt and additional liens. MGM China is also required to maintain compliance with a maximum consolidated total leverage ratio of 4.50 to 1.00 prior to the first anniversary of the MGM Cotai opening date and 4.00 to 1.00 thereafter, in addition to a minimum interest coverage ratio of 2.50 to 1.00. MGM China was in compliance with its credit facility covenants at June 30, 2014.

Senior notes. The Company repaid its $509 million 5.875% senior notes in February 2014 at maturity.

Senior convertible notes. In April 2010, the Company issued $1.15 billion of 4.25% convertible senior notes due 2015 for net proceeds to the Company of $1.12 billion. The notes are general unsecured obligations of the Company and rank equally in right of payment with the Company’s other existing senior unsecured indebtedness. The notes are convertible at an initial conversion rate of approximately 53.83 shares of the Company’s common stock per $1,000 principal amount of the notes, representing an initial conversion price of approximately $18.58 per share of the Company’s common stock. In connection with the offering, the Company entered into capped call transactions to reduce the potential dilution of the Company’s stock upon conversion of the notes. The capped call transactions have a cap price equal to approximately $21.86 per share.

In June 2011, the Company sold an additional $300 million in aggregate principal amount of 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. The Company received approximately $311 million in proceeds related to this transaction. 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 excess over the principal amount recorded as a premium to be recognized over the term of the Notes.

Fair value of long-term debt. The estimated fair value of the Company’s long-term debt at June 30, 2014 was $14.7 billion. At December 31, 2013, the estimated fair value of the Company’s long-term debt was $14.9 billion. Fair value was estimated using quoted market prices for the Company’s senior notes and senior credit facility. Carrying value of the MGM Grand Paradise credit facility approximates fair value.

NOTE 5 — COMMITMENTS AND CONTINGENCIES

CityCenter construction litigation. In March 2010, Perini Building Company, Inc. (“Perini”), general contractor for CityCenter, 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 asserted that CityCenter 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 CityCenter. The complaint further charged 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 component, and fraudulent inducement of Perini to compromise significant amounts due for its general conditions. The complaint advanced 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”), added a count for foreclosure of Perini’s recorded master mechanic’s lien against the CityCenter property in the amount of approximately $491 million, and asserted the priority of this mechanic’s lien over the interests of the CityCenter Owners, the Condo Owner Defendants and CityCenter lenders in the CityCenter property.

 

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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, property damage and Perini’s failure to perform its obligations to pay certain subcontractors and to prevent filing of liens against CityCenter. Parallel to the court litigation, CityCenter management conducted an extra-judicial program for settlement of CityCenter subcontractor claims. CityCenter has resolved the claims of 219 first-tier Perini subcontractors (including the claims of any lower-tier subcontractors that might have claims through those first-tier subcontractors), with only three 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. Two of the remaining subcontractors are implicated in the defective work at the Harmon. In August 2013, Perini recorded an amended notice of lien reducing its lien to approximately $167 million.

In November 2012, Perini filed a second amended complaint which, among other things, added claims against the CityCenter defendants of breach of contract (alleging that CityCenter’s Owner Controlled Insurance Program (“OCIP”) failed to provide adequate project insurance for Perini with broad coverages and high limits), and tortious breach of the implied covenant of good faith and fair dealing (alleging improper administration by CityCenter of the OCIP and Builders Risk insurance programs).

In 2013, CityCenter reached a settlement agreement with certain professional service providers against whom it had asserted claims in this litigation for errors or omissions with respect to the CityCenter project, which settlement has been approved by the court. In April 2014, CityCenter settled for $55 million, net of deductible, its 2008 builder’s risk insurance claim for loss and damage with respect to the Harmon’s defective condition.

Further, CityCenter and Perini have entered a settlement agreement which resolves most but not all of the components of Perini’s non-Harmon-related lien claim against CityCenter. The settlement established a stipulated value for Perini’s mechanic’s lien, which amount will not be paid until resolution of CityCenter’s damages claim for the Harmon and will be offset against any judgment CityCenter obtains against Perini for damages relating to construction of the Harmon. Pursuant to the parties’ stipulation, on February 24, 2014, Perini filed a revised lien for $174 million as the amount claimed by Perini and the remaining Harmon-related subcontractors. The discovery process continues. Trial of the remainder of Perini’s lien claim, the remaining subcontractors’ claims against CityCenter, and CityCenter’s counterclaims against Perini and certain subcontractors for defective work at the Harmon has been rescheduled to commence on September 23, 2014.

CityCenter Owners and the other defendants will continue to vigorously assert and protect their interests in the Perini lawsuit. The Company believes it is probable that the CityCenter Owners and the other defendants will be liable for $170 million in connection with the non-Harmon settlement agreement and remaining claims in this lawsuit. Amounts determined to be owed would be funded in part under the Company’s completion guarantee which is discussed below. The Company does not believe it is reasonably possible it will be liable for any material amount in excess of its estimate of its probable liability. The Company’s estimate of its probable liability does not include any offset for amounts that may be recovered on its counterclaims against Perini and certain subcontractors for defective work at the Harmon.

Please see below for further discussion on the Company’s completion guarantee obligation which may be impacted by the outcome of the above litigation and CityCenter’s extra-judicial settlement process.

CityCenter completion guarantee. In October 2013, the Company entered into a third amended and restated completion and cost overrun guarantee, which is collateralized by substantially all of the assets of Circus Circus Las Vegas, as well as certain undeveloped land adjacent to that property. The terms of the amended and restated completion guarantee provide CityCenter the ability to utilize up to $72 million of net residential proceeds to fund construction costs, or to reimburse the Company for construction costs previously expended. As of June 30, 2014, CityCenter is holding approximately $72 million in a separate bank account representing the remaining condo proceeds available to fund completion guarantee obligations or be reimbursed to the Company. In accordance with the amended and restated completion guarantee such amounts may only be used to fund construction lien obligations or to reimburse the Company once the Perini litigation is settled.

As of June 30, 2014, the Company has funded $727 million under the completion guarantee and has accrued a liability of $128 million, which includes estimated litigation costs related to the resolution of disputes with contractors concerning the final construction costs and estimated amounts to be paid to contractors in connection with the Perini litigation. The Company’s estimated obligation has been offset by the $72 million of condominium proceeds received and held in escrow by CityCenter, which are available to fund construction lien claims upon final resolution of the Perini litigation. Also, the Company’s accrual reflects certain estimated offsets to the amounts claimed by the contractors. The Company does not believe it is reasonably possible it could be liable for amounts in excess of what it has accrued related to the Perini Litigation claims. However, an insurer participating in the OCIP for the CityCenter construction project has initiated an arbitration against the Company in an attempt to recover certain costs it has allegedly incurred in connection with CityCenter’s claims against Perini and certain subcontractors for defective work at the Harmon. The Company disputes that such amounts are owed to the insurance company, but believes it is reasonably possible it may ultimately be found liable for some portion of the claim. The arbitration is in its beginning phase and there are significant factual and legal issues to be determined and resolved. Further, the Company has not had the opportunity to engage in any discovery, and the amount of damages to be sought by the insurer is indeterminate. Because of these factors, the Company does not currently have sufficient information to determine a range of reasonably possible loss.

 

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Harmon demolition. In response to a request by the Clark County Building Division (the “Building Division”), CityCenter engaged an engineer to conduct an analysis, based on all available information, as to the structural stability of the Harmon under building-code-specified load combinations. On July 11, 2011, that engineer 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.” Based on this engineering opinion, the Building Division requested a plan of action from CityCenter. CityCenter informed the Building Division that it decided to abate the potential for structural collapse of the Harmon in the event of a code-level earthquake by demolishing the building, and enclosed a plan of action for demolition by implosion prepared by LVI Environmental Services of Nevada, Inc (“LVI”). CityCenter also advised that prior to undertaking the demolition plan of action, it would seek relief from a standing order of the district court judge presiding over the Perini litigation that prohibits alteration or destruction of the building without court approval. In addition, CityCenter supplied the foundational data for the engineering conclusions stated in the July 11, 2011 letter declaring the Harmon’s structural instability in the event of a code-level earthquake. On November 22, 2011, the Building Division required that CityCenter submit a plan to abate the code deficiencies discovered in the Harmon tower.

In December 2011, CityCenter resubmitted to the Building Division the plan of abatement action prepared by LVI which was first submitted on August 15, 2011, and met with the Building Division about the requirements necessary to obtain demolition permits and approvals. As discussed above, the timing of the demolition of the Harmon is subject to rulings in the Perini litigation.

The district court presiding over the Perini litigation had previously granted CityCenter’s motion to demolish the Harmon, but stayed the demolition to allow CityCenter an opportunity to conduct additional Phase 4 destructive testing at the Harmon following the court’s order prohibiting CityCenter’s structural engineering expert from extrapolating the results of pre-Phase 4 testing to untested portions of the building.

In May 2013, CityCenter completed additional Phase 4 destructive testing of 468 structural elements at the Harmon, analysis of which data confirmed the existence of a wide variety of construction defects throughout the Harmon tower. In his June 2013 expert report CityCenter’s structural engineer opined that the additional test results and extrapolation thereof to untested portions of the building show that after a service-level earthquake (typically defined as an earthquake with a 50% chance of occurring in 30 years), the Harmon can be expected to sustain extensive damage and failure of many structural elements, and in a large earthquake, such as a building code-level earthquake, critical elements of the Harmon are likely to fail and lead to a partial or complete collapse of the tower. In April 2013, Perini’s structural engineering expert John A. Martin & Associates (“JAMA”) had sent a letter to the Building Division which declared in part that JAMA no longer believes that the Harmon Tower can be repaired to a code compliant structure, which condition JAMA attributed to CityCenter’s building testing. On July 18, 2013 CityCenter filed a renewed motion with the district court for permission to demolish the Harmon. On August 23, 2013, the court granted CityCenter’s motion, and CityCenter commenced planning for demolition of the building. On January 31, 2014, the court revoked its prior authorization of demolition of the Harmon, without prejudice to renewal of the application, on the grounds that CityCenter’s non-party builder’s risk insurer requested further testing in the building. That request for further testing was withdrawn pursuant to the insurer’s settlement of CityCenter’s Harmon 2008 policy claim. On April 22, 2014 the court granted CityCenter’s renewed application for permission to demolish the Harmon. The Clark County Building Department has issued the first in a series of permits required for demolition of this building. CityCenter has commenced a controlled deconstruction of the Harmon structure in accordance with the standards set by its expert consultants and the Clark County Building Department.

The Company does not believe it would be responsible for funding any additional amounts under the completion guarantee 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 and other developments related to the CityCenter venture, all of which are subject to change.

Cotai land concession contract. MGM Grand Paradise’s land concession contract for an approximate 17.8 acre site in Cotai, Macau became effective on January 9, 2013 and has an initial term of 25 years. The total land premium payable to the Macau government for the land concession contract is $161 million and is composed of a down payment and eight additional semi-annual payments. As of June 30, 2014, MGM China had paid $86 million of the contract premium recorded within “Other long-term assets, net”. In July 2014, MGM China paid the third semi-annual installment payment of $15 million under the land concession contract. Including interest on the five remaining semi-annual payments, MGM China has $73 million remaining payable for the land concession contract. In addition, MGM Grand Paradise is required to pay the Macau government approximately $269,000 per year in rent during the course of development of the land and approximately $681,000 per year in rent once the development is completed. The annual rent is subject to review by the Macau government every five years. Under the terms of the land concession contract, MGM Grand Paradise is required to complete the development of the land by January 2018.

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 $500 million, and the amount of available borrowings under the senior credit facility is reduced by any outstanding letters of credit. At June 30, 2014, the Company had provided $35 million of letters of credit. MGM China’s senior credit facility limits the amount of letters of credit that can be issued to $100 million, and the amount of available borrowings under the senior credit facility is reduced by any outstanding letters of credit. At June 30, 2014, MGM China had provided $39 million of letters of credit under its credit facility.

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.

 

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NOTE 6 — 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
June 30,
    Six Months Ended
June 30,
 
     2014     2013     2014     2013  
     (In thousands)  

Numerator:

        

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

   $ 105,544     $ (92,958   $ 213,704     $ (86,412

Interest on convertible debt, net of tax

     2,103       —         4,298       —    

Potentially dilutive effect due to MGM China share option plan

     (84     —         (213     —    
  

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ 107,563     $ (92,958   $ 217,789     $ (86,412
  

 

 

   

 

 

   

 

 

   

 

 

 

Denominator:

        

Weighted-average common shares outstanding—basic

     490,786       489,484       490,692       489,388  

Potential dilution from share-based awards

     6,436       —         6,446       —    

Potential dilution from assumed conversion of convertible debt

     16,149       —         16,149       —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average common and common equivalent shares—diluted

     513,371       489,484       513,287       489,388  
  

 

 

   

 

 

   

 

 

   

 

 

 

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

     2,534       18,498       2,580       18,498  
  

 

 

   

 

 

   

 

 

   

 

 

 

For the three and six months ended June 30, 2014, potential dilution from the assumed conversion of convertible debt relates to the $300 million 4.25% senior convertible notes issued in June 2011. The $1.15 billion 4.25% senior convertible notes issued in April 2010 were excluded from the three and six months ended June 30, 2014 calculation of diluted earnings per share as their effect would be antidilutive.

NOTE 7 — STOCKHOLDERS’ EQUITY

MGM China dividends. MGM China paid a $499 million special dividend in March 2014, of which $254 million remained within the consolidated entity and $245 million was distributed to noncontrolling interests, and a $127 million final dividend in June 2014, of which $65 million remained within the consolidated entity and $62 million was distributed to noncontrolling interests.

MGM China paid a $500 million special dividend in March 2013, of which $255 million remained within the consolidated entity and $245 million was distributed to noncontrolling interests.

On August 5, 2014, MGM China’s board of directors announced a dividend of $136 million, which will be paid to shareholders of record as of August 25, 2014 and distributed on or about September 1, 2014. The Company will receive $69 million, representing its 51% share of the dividend.

 

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Supplemental equity information. The following table presents the Company’s changes in stockholders’ equity for the six months ended June 30, 2014:

 

     MGM Resorts
International
Stockholders’
Equity
    Noncontrolling
Interests
    Total
Stockholders’
Equity
 
     (In thousands)  

Balances, January 1, 2014

   $ 4,231,179     $ 3,644,444     $ 7,875,623  

Net income

     213,704       151,608       365,312  

Foreign currency translation adjustment

     1,482       1,620       3,102  

Other comprehensive income from unconsolidated affiliate, net

     1,250       —         1,250  

Stock-based compensation

     15,450       1,684       17,134  

Change in excess tax benefit from stock-based compensation

     (9,263     —         (9,263

Issuance of MGM Resorts common stock pursuant to stock-based compensation awards

     (3,751     —         (3,751

Cash distributions to noncontrolling interest owners

     —         (314,865     (314,865

Issuance of performance share units

     7,529       —         7,529  

Other

     (277     (266     (543
  

 

 

   

 

 

   

 

 

 

Balances, June 30, 2014

   $ 4,457,303     $ 3,484,225     $ 7,941,528  
  

 

 

   

 

 

   

 

 

 

Accumulated other comprehensive income (loss). Changes in accumulated other comprehensive income (loss) by component are as follows:

 

     Foreign
Currency
Translation
Adjustment
     Other
Adjustments
    Total  
     (In thousands)  

Balances, January 1, 2014

   $ 13,082      $ (579   $ 12,503  

Current period other comprehensive income

     1,482        1,250       2,732  
  

 

 

    

 

 

   

 

 

 

Balances, June 30, 2014

   $ 14,564      $ 671     $ 15,235  
  

 

 

    

 

 

   

 

 

 

NOTE 8 — STOCK-BASED COMPENSATION

2005 Omnibus Incentive Plan. As of June 30, 2014, the Company had an aggregate of 16 million shares of common stock available for grant as share-based awards under the Company’s omnibus incentive plan (“Omnibus Plan”). At the Annual Meeting on June 5, 2014, the Company’s stockholders approved an amendment to the Omnibus Plan to increase the number of shares of common stock available for grant by 10 million shares. As of June 30, 2014, the approved shares were pending registration with the Securities and Exchange Commission, and thus were not included in the shares of common stock available for grant. A summary of activity under the Company’s share-based payment plans for the six months ended June 30, 2014 is presented below:

Stock options and stock appreciation rights (“SARs”)

 

     Units
(000’s)
    Weighted
Average
Exercise
Price
 

Outstanding at January 1, 2014

     16,074     $ 15.22  

Granted

     65       25.62  

Exercised

     (1,040     14.91  

Forfeited or expired

     (341     54.82  
  

 

 

   

Outstanding at June 30, 2014

     14,758       14.37  
  

 

 

   

Exercisable at June 30, 2014

     9,295       15.01  
  

 

 

   

 

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Restricted stock units (“RSUs”) and performance share units (“PSUs”)

 

     RSUs      PSUs  
     Units
(000’s)
    Weighted
Average
Grant-Date
Fair Value
     Units
(000’s)
     Weighted
Average
Grant-Date
Fair Value
     Weighted
Average
Target
Price
 

Nonvested at January 1, 2014

     1,339     $ 13.85        1,055      $ 13.91      $ 16.95  

Granted

     50       25.37        —          —          —    

Vested

     (95     13.99        —          —          —    

Forfeited

     (14     13.14        —          —          —    
  

 

 

      

 

 

       

Nonvested at June 30, 2014

     1,280       14.30        1,055        13.91        16.95  
  

 

 

      

 

 

       

The vested RSUs amount in the table above includes approximately 53,000 vested shares deferred by members of the Company’s Board of Directors that will not release until such members’ termination from the Board of Directors. In 2013, the Company began granting PSUs for the portion of any calculated bonus for a Section 16 officer of the Company that is in excess of such officer’s base salary (the “Bonus PSU Policy”). Awards granted under the Bonus PSU Policy have the same terms as PSUs granted under the Omnibus Plan with the exception that as of the grant date the awards will not be subject to forfeiture in the event of the officer’s termination. In March of 2014, the Company granted 265,122 PSUs pursuant to the Bonus PSU Policy with a target price of $31.72. Such awards are excluded from the table above.

MGM China Share Option Plan. As of June 30, 2014, MGM China had an aggregate of 341 million shares of stock available for grant as share-based awards under the MGM China share option plan (“MGM China Plan”). A summary of activity under the MGM China Plan for the six months ended June 30, 2014 is presented below:

Stock options

 

     Units
(000’s)
    Weighted
Average
Exercise
Price
 

Outstanding at January 1, 2014

     16,916     $ 2.06  

Granted

     18,080       3.49  

Exercised

     (258     1.91  

Forfeited or expired

     (263     2.28  
  

 

 

   

Outstanding at June 30, 2014

     34,475       2.81  
  

 

 

   

Exercisable at June 30, 2014

     10,267       2.00  
  

 

 

   

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,
 
     2014     2013     2014     2013  
     (In thousands)  

Compensation cost:

        

Omnibus Plan

   $ 6,695     $ 6,508     $ 13,697     $ 13,768  

MGM China Plan

     1,976       1,686       3,437       3,366  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total compensation cost

     8,671       8,194       17,134       17,134  

Less: Reimbursed costs and other

     (266     (262     (534     (579
  

 

 

   

 

 

   

 

 

   

 

 

 

Compensation cost recognized as expense

     8,405       7,932       16,600       16,555  

Less: Related tax benefit

     (2,209     —         (4,526     —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Compensation expense, net of tax benefit

   $ 6,196     $ 7,932     $ 12,074     $ 16,555  
  

 

 

   

 

 

   

 

 

   

 

 

 

In June 2014, MGM China granted 17 million stock options pursuant to the MGM China Plan. 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. The following weighted average-assumptions were used to determine fair value of awards granted during the second quarter of 2014: expected volatility of 39%, an expected term of 7.8 years, an expected dividend yield of 1.6% and a risk-free interest rate of 1.8%, which resulted in a $1.04 weighted-average per share fair value. Expected volatility is based on historical volatility of MGM China’s stock price. The expected term

 

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considers the contractual term of the option as well as historical exercise behavior of previously granted options. The dividend yield is estimated with reference to the dividend policy of MGM China. The risk-free interest rate is based on rates in effect at the valuation date for the Hong Kong Exchange Fund Notes with maturities matching the relevant expected term of the award.

NOTE 9 — PROPERTY TRANSACTIONS, NET

Property transactions, net includes:

 

     Three Months Ended
June 30,
     Six Months Ended
June 30,
 
     2014      2013      2014      2013  
     (In thousands)  

Grand Victoria investment impairment charge

   $ 28,789      $ 36,607      $ 28,789      $ 36,607  

Corporate buildings impairment charge

     —          44,510        —          44,510  

Other property transactions, net

     4,381        7,014        4,939        15,505  
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 33,170      $ 88,131      $ 33,728      $ 96,622  
  

 

 

    

 

 

    

 

 

    

 

 

 

See Note 3 for discussion of the Grand Victoria investment impairment charges in 2014 and 2013. During the second quarter of 2013, the Company recorded an impairment charge of $45 million related to corporate buildings which were removed from service in connection with the new Las Vegas arena project, of which the Company will own 50%, that will be located on the land underlying these buildings. Other property transactions, net for the three and six months ended June 30, 2014 and 2013 includes miscellaneous asset disposals and demolition costs.

NOTE 10 — 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 and certain other corporate operations and management services 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 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.

The following tables present the Company’s segment information:

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2014     2013     2014     2013  
     (In thousands)  

Net Revenues:

        

Wholly owned domestic resorts

   $ 1,639,270     $ 1,535,996     $ 3,209,504     $ 3,025,184  

MGM China

     827,928       835,149       1,769,376       1,582,706  
  

 

 

   

 

 

   

 

 

   

 

 

 

Reportable segment net revenues

     2,467,198       2,371,145       4,978,880       4,607,890  

Corporate and other

     113,835       110,120       232,551       225,523  
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 2,581,033     $ 2,481,265     $ 5,211,431     $ 4,833,413  
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA:

        

Wholly owned domestic resorts

   $ 414,398     $ 375,603     $ 817,244     $ 736,640  

MGM China

     210,488       204,815       451,213       385,270  
  

 

 

   

 

 

   

 

 

   

 

 

 

Reportable segment Adjusted Property EBITDA

     624,886       580,418       1,268,457       1,121,910  

Corporate and other

     (38,900     (39,028     (55,989     (56,148
  

 

 

   

 

 

   

 

 

   

 

 

 
     585,986       541,390       1,212,468       1,065,762  

 

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Table of Contents

Other operating expense:

        

Preopening and start-up expenses

     (9,759     (3,506     (15,395     (5,652

Property transactions, net

     (33,170     (88,131     (33,728     (96,622

Depreciation and amortization

     (203,070     (218,151     (410,725     (430,069
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     339,987       231,602       752,620       533,419  
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-operating income (expense):

        

Interest expense, net of amounts capitalized

     (203,936     (214,500     (413,323     (439,947

Non-operating items from unconsolidated affiliates

     (14,578     (38,864     (28,301     (60,943

Other, net

     (309     (4,951     (1,743     (6,233
  

 

 

   

 

 

   

 

 

   

 

 

 
     (218,823     (258,315     (443,367     (507,123
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     121,164       (26,713     309,253       26,296  

Benefit (provision) for income taxes

     52,540       (3,865     56,059       (34,296
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     173,704       (30,578     365,312       (8,000

Less: Net income attributable to noncontrolling interests

     (68,160     (62,380     (151,608     (78,412
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to MGM Resorts International

   $ 105,544     $ (92,958   $ 213,704     $ (86,412
  

 

 

   

 

 

   

 

 

   

 

 

 

NOTE 11 — RELATED PARTY TRANSACTIONS

MGM China. MGM Branding and Development Holdings, Ltd., (together with its subsidiary MGM Development Services, Ltd, “MGM Branding and Development”), an entity included in the Company’s consolidated financial statements in which Ms. Pansy Ho indirectly holds a noncontrolling interest, entered into a brand license agreement with MGM China. MGM China pays a license fee to MGM Branding and Development equal to 1.75% of MGM China’s consolidated net revenue, subject to an annual cap of $43 million in 2014 with a 20% increase per annum during the agreement term. During the three and six months ended June 30, 2014, MGM China incurred total license fees of $14 million and $31 million, respectively. During the three and six months ended June 30, 2013, MGM China incurred total license fees of $15 million and $28 million, respectively. Such amounts have been eliminated in consolidation. 

MGM China entered into a development services agreement with MGM Branding and Development to provide certain development services to MGM China in connection with future expansion of existing projects and development of future resort gaming projects. Such services are subject to a development fee which is calculated separately for each resort casino property upon commencement of development. For each such property, the fee is 2.625% of project costs, to be paid in installments as certain benchmarks are achieved. Project costs are the total costs incurred for the design, development and construction of the casino, casino hotel, integrated resort and other related sites associated with each project, including costs of construction, fixtures and fittings, signage, gaming and other supplies and equipment and all costs associated with the opening of the business to be conducted at each project but excluding the cost of land and gaming concessions and financing costs. The development fee for MGM Cotai is subject to a cap of $24 million in 2014, which will increase by 10% per annum for each year during the term of the agreement. During the six months ended June 30, 2013, MGM China incurred $15 million of fees to MGM Branding and Development related to development services. Such amounts have been eliminated in consolidation. No fee was incurred during the six months ended June 30, 2014.

An entity owned by Ms. Pansy Ho received distributions of $5 million and $8 million during the three and six months ended June 30, 2014, respectively, in connection with the ownership of a noncontrolling interest in MGM Branding and Development. The entity received distributions of $4 million and $14 million in the three and six months ended June 30, 2013, respectively.

 

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Table of Contents

NOTE 12 — CONDENSED CONSOLIDATING FINANCIAL INFORMATION

The Company’s domestic subsidiaries, excluding certain minor subsidiaries, its domestic insurance subsidiaries and MGM Grand Detroit, LLC, have fully and unconditionally guaranteed, on a joint and several basis, payment of the senior credit facility and the outstanding debt securities. The Company’s international subsidiaries, including MGM China, are not guarantors of such indebtedness. Separate condensed financial statement information for the subsidiary guarantors and non-guarantors as of June 30, 2014 and December 31, 2013, and for the three and six months ended June 30, 2014 and 2013, as presented below. Within the Condensed Consolidating Statements of Cash Flows for the period ending June 30, 2014, the Company has presented net changes in intercompany accounts as investing activities if the applicable entities have a net asset in intercompany accounts, and as a financing activity if the applicable entities have a net intercompany liability balance.

CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION

 

     At June 30, 2014  
     Parent      Guarantor
Subsidiaries
     Non-Guarantor
Subsidiaries
     Elimination     Consolidated  
     (In thousands)  

Current assets

   $ 357,775      $ 891,917      $ 917,115      $ (492   $ 2,166,315  

Property and equipment, net

     —          12,467,651        1,658,043        (11,972     14,113,722  

Investments in subsidiaries

     20,193,503        3,843,505        —          (24,037,008     —    

Investments in and advances to unconsolidated affiliates

     —          1,388,087        7,837        25,000       1,420,924  

Intercompany accounts

     —          1,932,342        —          (1,932,342     —    

Other non-current assets

     158,090        545,733        7,167,519        —         7,871,342  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 
   $ 20,709,368      $ 21,069,235      $ 9,750,514      $ (25,956,814   $ 25,572,303  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Current liabilities

   $ 685,324      $ 961,631      $ 913,853      $ (492   $ 2,560,316  

Intercompany accounts

     1,882,373        —          49,969        (1,932,342     —    

Deferred income taxes

     2,047,103        —          309,895        —         2,356,998  

Long-term debt

     11,599,978        4,836        1,001,706        —         12,606,520  

Other long-term obligations

     37,287        52,511        17,143        —         106,941  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities

     16,252,065        1,018,978        2,292,566        (1,932,834     17,630,775  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

MGM Resorts stockholders’ equity

     4,457,303        20,050,257        3,973,723        (24,023,980     4,457,303  

Noncontrolling interests

     —          —          3,484,225        —         3,484,225  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total stockholders’ equity

     4,457,303        20,050,257        7,457,948        (24,023,980     7,941,528  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 
   $ 20,709,368      $ 21,069,235      $ 9,750,514      $ (25,956,814   $ 25,572,303  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

     At December 31, 2013  
     Parent      Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
     Elimination     Consolidated  
     (In thousands)  

Current assets

   $ 494,296      $ 903,537     $ 1,322,170      $ (564   $ 2,719,439  

Property and equipment, net

     —          12,552,828       1,514,356        (11,972     14,055,212  

Investments in subsidiaries

     20,017,270        4,037,168       —          (24,054,438     —    

Investments in and advances to unconsolidated affiliates

     —          1,367,071       7,765        —         1,374,836  

Other non-current assets

     167,552        542,259       7,250,887        —         7,960,698  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 
   $ 20,679,118      $ 19,402,863     $ 10,095,178      $ (24,066,974   $ 26,110,185  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Current liabilities

   $ 340,343      $ 959,118     $ 941,431      $ (25,564   $ 2,215,328  

Intercompany accounts

     1,446,952        (1,470,305     23,353        —         —    

Deferred income taxes

     2,120,676        —         309,738        —         2,430,414  

Long-term debt

     12,441,112        4,836       1,001,282        —         13,447,230  

Other long-term obligations

     98,856        41,758       976        —         141,590  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total liabilities

     16,447,939        (464,593     2,276,780        (25,564     18,234,562  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

MGM Resorts stockholders’ equity

     4,231,179        19,867,456       4,173,954        (24,041,410     4,231,179  

Noncontrolling interests

     —          —         3,644,444        —         3,644,444  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total stockholders’ equity

     4,231,179        19,867,456       7,818,398        (24,041,410     7,875,623  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 
   $ 20,679,118      $ 19,402,863     $ 10,095,178      $ (24,066,974   $ 26,110,185  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

18


Table of Contents

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME INFORMATION

 

     Three Months Ended June 30, 2014  
     Parent     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Elimination     Consolidated  
     (In thousands)  

Net revenues

   $ —       $ 1,617,302     $ 964,352     $ (621   $ 2,581,033  

Equity in subsidiaries’ earnings

     249,078       85,446       —         (334,524     —    

Expenses:

          

Casino and hotel operations

     1,299       971,928       646,386       (621     1,618,992  

General and administrative

     1,134       272,340       54,010       —         327,484  

Corporate expense

     16,724       36,198       1,517       —         54,439  

Preopening and start-up expenses

     —         1,015       8,744       —         9,759  

Property transactions, net

     —         33,044       126       —         33,170  

Depreciation and amortization

     —         123,853       79,217       —         203,070  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     19,157       1,438,378       790,000       (621     2,246,914  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from unconsolidated affiliates

     —         5,730       138       —         5,868  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     229,921       270,100       174,490       (334,524     339,987  

Interest expense, net of amounts capitalized

     (196,215     (120     (7,601     —         (203,936

Other, net

     16,358       (14,089     (17,156     —         (14,887
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     50,064       255,891       149,733       (334,524     121,164  

Benefit (provision) for income taxes

     55,480       (2,108     (832     —         52,540  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     105,544       253,783       148,901       (334,524     173,704  

Less: Net income attributable to noncontrolling interests

     —         —         (68,160     —         (68,160
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to MGM Resorts International

   $ 105,544     $ 253,783     $ 80,741     $ (334,524   $ 105,544  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 105,544     $ 253,783     $ 148,901     $ (334,524   $ 173,704  

Other comprehensive income (loss), net of tax:

          

Foreign currency translation adjustment

     2,999       2,999       5,862       (5,998     5,862  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss)

     2,999       2,999       5,862       (5,998     5,862  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

     108,543       256,782       154,763       (340,522     179,566  

Less: Comprehensive income attributable to noncontrolling interests

     —         —         (71,023     —         (71,023
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to MGM Resorts International

   $ 108,543     $ 256,782     $ 83,740     $ (340,522   $ 108,543  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

19


Table of Contents
     Six Months Ended June 30, 2014  
     Parent     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Elimination     Consolidated  
     (In thousands)  

Net revenues

   $ —       $ 3,173,631     $ 2,039,014     $ (1,214   $ 5,211,431  

Equity in subsidiaries’ earnings

     556,049       178,815       —         (734,864     —    

Expenses:

          

Casino and hotel operations

     2,553       1,893,902       1,373,846       (1,214     3,269,087  

General and administrative

     2,246       532,980       111,504       —         646,730  

Corporate expense

     33,463       69,784       4,543       —         107,790  

Preopening and start-up expenses

     —         3,006       12,389       —         15,395  

Property transactions, net

     —         33,538       190       —         33,728  

Depreciation and amortization

     —         251,928       158,797       —         410,725  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     38,262       2,785,138       1,661,269       (1,214     4,483,455  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from unconsolidated affiliates

     —         24,453       191       —         24,644  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     517,787       591,761       377,936       (734,864     752,620  

Interest expense, net of amounts capitalized

     (397,112     (224     (15,987     —         (413,323

Other, net

     34,948       (28,452     (36,540     —         (30,044
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     155,623       563,085       325,409       (734,864     309,253  

Benefit (provision) for income taxes

     58,081       (467     (1,555     —         56,059  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     213,704       562,618       323,854       (734,864     365,312  

Less: Net income attributable to noncontrolling interests

     —         —         (151,608     —         (151,608
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to MGM Resorts International

   $ 213,704     $ 562,618     $ 172,246     $ (734,864   $ 213,704  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 213,704     $ 562,618     $ 323,854     $ (734,864   $ 365,312  

Other comprehensive income (loss), net of tax:

          

Foreign currency translation adjustment

     1,482       1,482       3,102       (2,964     3,102  

Other

     1,250       1,250       —         (1,250     1,250  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss)

     2,732       2,732       3,102       (4,214     4,352  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

     216,436       565,350       326,956       (739,078     369,664  

Less: Comprehensive income attributable to noncontrolling interests

     —         —         (153,228     —         (153,228
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to MGM Resorts International

   $ 216,436     $ 565,350     $ 173,728     $ (739,078   $ 216,436  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

20


Table of Contents

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION

 

     Six Months Ended June 30, 2014  
     Parent     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Elimination     Consolidated  
     (In thousands)  

Cash flows from operating activities

          

Net cash provided by (used in) operating activities

   $ (366,066   $ 664,206     $ 480,484     $ 25,000     $ 803,624  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from investing activities

          

Capital expenditures, net of construction payable

     —         (166,418     (203,830     —         (370,248

Dispositions of property and equipment

     —         104       308       —         412  

Investments in and advances to unconsolidated affiliates

     (11,700     (17,050     —         (25,000     (53,750

Distributions from unconsolidated affiliates in excess of earnings

     —         790       —         —         790  

Investments in treasury securities - maturities longer than 90 days

     —         (93,137     —         —         (93,137

Proceeds from treasury securities - maturities longer than 90 days

     —         111,238       —         —         111,238  

Intercompany transactions

     —         (462,037     —         462,037       —    

Other

     —         2,535       —         —         2,535  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     (11,700     (623,975     (203,522     437,037       (402,160
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from financing activities

          

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

     (1,287,750     —         (450,000     —         (1,737,750

Borrowings under bank credit facilities - maturities longer than 90 days

     3,001,875       —         450,000       —         3,451,875  

Repayments under bank credit facilities - maturities longer than 90 days

     (1,728,125     —         —         —         (1,728,125

Retirement of senior notes

     (508,900     —         —         —         (508,900

Intercompany accounts

     849,275       (38,418     (348,820     (462,037     —    

Distributions to noncontrolling interest owners

     —         —         (314,447     —         (314,447

Other

     (1,696     —         (477     —         (2,173
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     324,679       (38,418     (663,744     (462,037     (839,520
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Effect of exchange rate on cash

     —         —         (476     —         (476
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents

          

Net increase (decrease) for the period

     (53,087     1,813       (387,258     —         (438,532

Balance, beginning of period

     378,660       237,457       1,187,552       —         1,803,669  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, end of period

   $ 325,573     $ 239,270     $ 800,294     $ —       $ 1,365,137  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

21


Table of Contents

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME INFORMATION

 

     Three Months Ended June 30, 2013  
     Parent     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Elimination     Consolidated  
     (In thousands)  

Net revenues

   $ —       $ 1,513,692     $ 968,039     $ (466   $ 2,481,265  

Equity in subsidiaries’ earnings

     120,773       78,596       —         (199,369     —    

Expenses:

          

Casino and hotel operations

     1,366       920,319       658,650       (466     1,579,869  

General and administrative

     1,037       260,928       52,359       —         314,324  

Corporate expense

     14,646       30,375       7,343       —         52,364  

Preopening and start-up expenses

     —         1,248       2,258       —         3,506  

Property transactions, net

     —         87,980       151       —         88,131  

Depreciation and amortization

     —         135,887       82,264       —         218,151  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     17,049       1,436,737       803,025       (466     2,256,345  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from unconsolidated affiliates

     —         5,620       1,062       —         6,682  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     103,724       161,171       166,076       (199,369     231,602  

Interest expense, net of amounts capitalized

     (199,982     (2,714     (11,804     —         (214,500

Other, net

     12,595       (39,034     (17,376     —         (43,815
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     (83,663     119,423       136,896       (199,369     (26,713

Benefit (provision) for income taxes

     (9,295     5,955       (525     —         (3,865
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     (92,958     125,378       136,371       (199,369     (30,578

Less: Net income attributable to noncontrolling interests

     —         —         (62,380     —         (62,380
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to MGM Resorts International

   $ (92,958   $ 125,378     $ 73,991     $ (199,369   $ (92,958
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ (92,958   $ 125,378     $ 136,371     $ (199,369   $ (30,578

Other comprehensive income (loss), net of tax:

          

Foreign currency translation adjustment

     3,326       3,326       6,416       (6,652     6,416  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss)

     3,326       3,326       6,416       (6,652     6,416  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

     (89,632     128,704       142,787       (206,021     (24,162

Less: Comprehensive income attributable to noncontrolling interests

     —         —         (65,470     —         (65,470
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to MGM Resorts International

   $ (89,632   $ 128,704     $ 77,317     $ (206,021   $ (89,632
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

22


Table of Contents
     Six Months Ended June 30, 2013  
     Parent     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Elimination     Consolidated  
     (In thousands)  

Net revenues

   $ —       $ 2,977,657     $ 1,856,701     $ (945   $ 4,833,413  

Equity in subsidiaries’ earnings

     304,196       108,582       —         (412,778     —    

Expenses:

          

Casino and hotel operations

     2,876       1,806,402       1,265,131       (945     3,073,464  

General and administrative

     2,127       512,477       103,621       —         618,225  

Corporate expense

     29,454       58,114       11,420       —         98,988  

Preopening and start-up expenses

     —         1,020       4,632       —         5,652  

Property transactions, net

     —         96,275       347       —         96,622  

Depreciation and amortization

     —         263,718       166,351       —         430,069  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     34,457       2,738,006       1,551,502       (945     4,323,020  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from unconsolidated affiliates

     —         21,958       1,068       —         23,026  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     269,739       370,191       306,267       (412,778     533,419  

Interest expense, net of amounts capitalized

     (408,665     (5,699     (25,583     —         (439,947

Other, net

     27,761       (61,852     (33,085     —         (67,176
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     (111,165     302,640       247,599       (412,778     26,296  

Benefit (provision) for income taxes

     24,753       7,412       (66,461     —         (34,296
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     (86,412     310,052       181,138       (412,778     (8,000

Less: Net income attributable to noncontrolling interests

     —         —         (78,412     —         (78,412
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to MGM Resorts International

   $ (86,412   $ 310,052     $ 102,726     $ (412,778   $ (86,412
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ (86,412   $ 310,052     $ 181,138     $ (412,778   $ (8,000

Other comprehensive income (loss), net of tax:

          

Foreign currency translation adjustment

     (3,110     (3,110     (6,225     6,220       (6,225

Other

     115       115       —         (115     115  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss)

     (2,995     (2,995     (6,225     6,105       (6,110
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

     (89,407     307,057       174,913       (406,673     (14,110

Less: Comprehensive income attributable to noncontrolling interests

     —         —         (75,297     —         (75,297
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to MGM Resorts International

   $ (89,407   $ 307,057     $ 99,616     $ (406,673   $ (89,407
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION

 

     Six Months Ended June 30, 2013  
     Parent     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Elimination      Consolidated  
     (In thousands)  

Cash flows from operating activities

           

Net cash provided by (used in) operating activities

   $ (402,258   $ 565,476     $ 566,844     $ —        $ 730,062  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Cash flows from investing activities

           

Capital expenditures, net of construction payable

     —         (108,574     (134,304     —          (242,878

Dispositions of property and equipment

     —         127       196       —          323  

Investments in and advances to unconsolidated affiliates

     (12,400     (2,000     —         —          (14,400

Investments in treasury securities - maturities longer than 90 days

     —         (120,332     —         —          (120,332

Proceeds from treasury securities - maturities longer than 90 days

     —         135,268       —         —          135,268  

Other

     —         1,806       —         —          1,806  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net cash used in investing activities

     (12,400     (93,705     (134,108     —          (240,213
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Cash flows from financing activities

           

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

     (14,000     —         —         —          (14,000

Borrowings under bank credit facilities - maturities longer than 90 days

     2,343,000       —         450,000       —          2,793,000  

Repayments under bank credit facilities - maturities longer than 90 days

     (2,343,000     —         (450,000     —          (2,793,000

Retirement of senior notes

     (462,226     (8     —         —          (462,234

Debt issuance costs

     (17,061     —         —         —          (17,061

Intercompany accounts

     756,926       (488,344     (268,582     —          —    

Distributions to noncontrolling interest owners

     —         —         (259,016     —          (259,016

Other

     (1,346     —         (341     —          (1,687
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net cash provided by (used in) financing activities

     262,293       (488,352     (527,939     —          (753,998
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Effect of exchange rate on cash

     —         —         (687     —          (687
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Cash and cash equivalents

           

Net decrease for the period

     (152,365     (16,581     (95,890     —          (264,836

Balance, beginning of period

     254,385       226,242       1,062,882       —          1,543,509  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Balance, end of period

   $ 102,020     $ 209,661     $ 966,992     $ —        $ 1,278,673  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

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Table of Contents
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 “Cautionary Statement Concerning 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, 2013, which were included in our Form 10-K, filed with the Securities and Exchange Commission on March 3, 2014. 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, convention, dining, entertainment, retail and other resort amenities. We believe that we own and invest in several of the premier casino resorts in the world and have continually reinvested in our resorts to maintain our competitive advantage. Most of our revenue is cash-based, through customers wagering with cash or paying for non-gaming services with cash or credit cards. We rely heavily on the ability of our resorts to generate operating cash flow to repay debt financings, fund capital expenditures and provide excess cash flow for future development. We make significant investments in our resorts through newly remodeled hotel rooms, restaurants, entertainment and nightlife offerings, as well as other new features and amenities.

Results of operations from our wholly owned domestic resorts in the second quarter of 2014 improved compared to the second quarter of 2013, primarily as a result of increased casino and hotel revenues as general economic conditions continue to improve. During the six months ended June 30, 2014, visitor volume to Las Vegas increased 4.2% and the average daily Las Vegas Strip room rate increased 6.9% compared to the same period in the prior year, as reported by the Las Vegas Convention and Visitors Authority. We expect our resorts to benefit from a continued trend of improvements in general economic conditions in 2014.

In Macau, results of operations also improved in the second quarter of 2014 compared to the prior year period primarily as a result of strong main floor gaming volume. VIP gaming volumes were negatively impacted during the current year quarter due in part to macroeconomic factors in mainland China. Despite continued concerns about the sustainability of economic growth in China, we expect the Macau market to continue to grow as a result of a large and growing Asian middle class and infrastructure improvements expected to facilitate more convenient travel to and within Macau. According to statistics published by the Statistics Census Service of the Macau government, visitor arrivals were 15 million for the six months ended June 30, 2014, an 8% increase compared to the prior year period. Gross casino revenues for the Macau market increased 13% for the six months ended June 30, 2014, compared to the prior year period, with increases in main floor volumes.

Our results of operations are affected by decisions we make related to our capital allocation, our access to capital and our cost of capital. While we continue to be focused on improving our financial position, we are also dedicated to capitalizing on development opportunities. In Macau, we plan to spend approximately $2.9 billion, excluding development fees eliminated in consolidation, capitalized interest and land related costs, to develop a resort and casino featuring up to 1,600 hotel rooms, 500 gaming tables, and 2,500 slots built on an approximately 17.8 acre site in Cotai, Macau (“MGM Cotai”). MGM Cotai is anticipated to open in 2016.

In December 2013, our subsidiary MGM National Harbor, LLC (“MGM National Harbor”) was awarded the sixth and final casino license under current statutes in the State of Maryland by the Maryland Video Lottery Facility Location Commission to build and operate a destination resort casino in Prince George’s County at National Harbor. We currently expect the cost to develop and construct MGM National Harbor to be approximately $1.2 billion, excluding capitalized interest and land related costs. We expect that the resort will include a casino with approximately 3,600 slots and 160 table games including poker; a 300-suite hotel with luxury spa and rooftop pool; high-end branded retail; fine and casual dining; a dedicated 3,000 seat theater venue; 35,000 square feet of meeting and event space; and a 5,000-space parking structure. Construction of MGM National Harbor has commenced with estimated completion in the second half of 2016.

On June 13, 2014, the Massachusetts Gaming Commission (the “MGC”) agreed to award our subsidiary developing MGM Springfield the Category One casino license in Region B, Western Massachusetts, one of three licensing regions designated by legislation. However, on June 24, 2014, the Massachusetts Supreme Judicial Court ruled that a proposed ballot initiative seeking to prohibit local casinos, slot parlors and other wagering in Massachusetts was constitutional and thereby allowed the ballot initiative to appear on the November 4, 2014 ballot. The MGC has agreed that we are not required to make the final award payment of licensing fees and other costs unless the ballot initiative fails to pass in the November 2014 elections.

MGM Springfield is proposed to be developed on 14.5 acres of land between Union and State streets, and Columbus Avenue and Main Street in Springfield, Massachusetts. We currently expect the cost to develop and construct MGM Springfield to be approximately $690 million, excluding capitalized interest and land related costs. We expect the resort will include a casino with approximately 3,000 slots and 75 table games, a poker room and high limit VIP gambling area, 250 hotel rooms, 55,000 square feet of retail and restaurant space that will accommodate 15 shops and restaurants, and a multi-level parking garage.

 

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Table of Contents

In 2013, we entered into an agreement with a subsidiary of Anschutz Entertainment Group, Inc. (“AEG”) (a leader in sports, entertainment, and promotions) to design, construct, and operate an arena which will be located on a parcel of our land between Frank Sinatra Drive and New York-New York, adjacent to the Las Vegas Strip. We and AEG each own 50% of the developer of the arena. The proposed arena is anticipated to seat between 18,000 – 20,000 people and is currently scheduled to be completed in 2016. Such development is estimated to cost approximately $350 million, excluding capitalized interest and land related costs, and is contingent on obtaining permanent financing.

Wholly Owned Domestic Resorts

Over half of the net revenue from our wholly owned domestic resorts is derived from non-gaming operations including hotel, food and beverage, entertainment and other non-gaming amenities. We market to different customer groups and utilize our significant convention and meeting facilities 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. As a result of our leveraged business model, our operating results are significantly affected by our ability to generate operating revenues. Also, we generate a significant portion of our 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 the United States generally.

Key performance indicators related to gaming and hotel revenue at our wholly owned domestic resorts are:

 

   

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 18% to 22% of table games drop and our normal slots hold percentage is in the range of 8.0% to 8.5% of slots handle; and

 

   

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). Our calculation of ADR, which is the average price of occupied rooms per day, includes the impact of complimentary rooms. Complimentary room rates are determined based on an analysis of retail or “cash” rates for each customer segment and each type of room product to estimate complimentary rates which are consistent with retail rates. Complimentary rates are reviewed at least annually and on an interim basis if there are significant changes in market conditions. Because the mix of rooms provided on a complimentary basis, particularly to casino customers, includes a disproportionate suite component, the composite ADR including complimentary rooms is slightly higher than the ADR for cash rooms, reflecting the higher retail value of suites.

MGM China

We own 51% and have 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 and is in the process of developing a gaming resort in Cotai. We believe our investment in MGM China 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.

Revenues at MGM Macau are generated from three primary customer segments in the Macau gaming market: VIP casino gaming operations, main floor gaming operations, and slot machine operations. 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. Gaming promoters introduce VIP gaming players to MGM Macau, assist these customers with travel arrangements, and extend gaming credit to these players. In exchange for their services, gaming promoters are compensated through payment of commissions. In-house VIP players also typically receive a commission based on the program in which they participate. The main floor gaming operation in Macau is also referred to as the “mass gaming operation.” MGM Macau main floor operations primarily consist of walk-in and day trip visitors. Unlike VIP players, main floor players do not receive commissions. The profit contribution from the main floor segment exceeds the VIP segment due to commission costs paid to gaming promoters. Gaming revenues from the main gaming floors have grown significantly in recent years and we believe this segment represents the most potential for sustainable growth in the future.

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. Gaming promoter commissions are based on either a percentage of actual win plus a monthly complimentary allowance based on a percentage of the rolling chip turnover their customers generate, or a percentage of the rolling chip turnover plus discounted offerings on nongaming amenities. The estimated portion of the gaming promoter payments that represent amounts passed through to VIP customers is recorded as a reduction of casino revenue, and the estimated portion retained by the gaming promoter for its compensation is recorded as casino expense. In-house VIP commissions are based on a percentage of rolling chip turnover and are recorded as a reduction of casino revenue.

 

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Table of Contents

Main floor table games wagers at MGM Macau are conducted by the use of cash chips. In addition to purchasing cash chips at gaming tables, main floor customers may also purchase cash chips at the casino cage. As a result of recent significant increases in cash chips purchased at the casino cage, we now adjust main floor table games drop to include such purchases in order to more meaningfully reflect main floor table games volume and hold percentage. MGM Macau’s main floor normal table games hold percentage, as calculated on this basis, is in the range of 20% to 28% of table games drop. Slots hold percentage at MGM Macau is in the range of 4.3% to 5.3% of slots handle.

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 calculated as rolling chips purchased plus rolling chips exchanged less rolling chips returned. Turnover provides a basis for measuring VIP casino win percentage. Win for VIP gaming operations at MGM Macau is in the range of 2.7% to 3.0% of turnover.

Corporate and Other

Corporate and other includes our investments in unconsolidated affiliates and certain management and other operations.

CityCenter. We own 50% of CityCenter. 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 and entertainment district; and Vdara, a luxury condominium-hotel. In addition, CityCenter includes residential units in the Residences at Mandarin Oriental and Veer. We receive a management fee of 2% of revenues for the management of Aria and Vdara, and 5% of EBITDA (as defined in the agreements governing our management of Aria and Vdara). In addition, we receive an annual fee of $3 million for the management of Crystals.

Other unconsolidated affiliates and management services. We also own 50% interests in Grand Victoria and Silver Legacy. Grand Victoria is a riverboat casino in Elgin, Illinois; an affiliate of Hyatt Gaming owns the other 50% of Grand Victoria and also operates the resort. Silver Legacy is located in Reno, adjacent to Circus Circus Reno, and the other 50% is owned by Eldorado LLC, which operates the resort.

We seek to leverage our management expertise and well-recognized brands through domestic and international expansion opportunities. We have entered into management agreements for non-gaming hotels, resorts and residential products in the Middle East, North Africa, India and the United States. In 2014, we and the Hakkasan Group formed MGM Hakkasan Hospitality (“MGM Hakkasan”), owned 50% by each member, to design, develop and manage luxury non-gaming hotels, resorts and residences under certain brands licensed from us and the Hakkasan Group. We will contribute all of the management agreements for non-gaming hotels, resorts and residential projects (outside of the greater China region) that are currently under development to MGM Hakkasan. In addition, we will continue to develop and manage properties in the greater China region with Diaoyutai State Guesthouse, including the MGM Grand Sanya on Hainan Island, in the People’s Republic of China, which opened in early 2012.

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 owns the other 50% of Borgata and also operates the resort. Our interest is held in trust and was offered for sale pursuant to our amended settlement agreement with the New Jersey Division of Gaming Enforcement and approved by the New Jersey Casino Control Commission (“CCC”). The terms of the amended settlement agreement previously mandated the sale by March 2014. We had the right to direct the sale through March 2013 (the “divesture period”), subject to approval of the CCC, and the trustee was responsible for selling the trust property during the following 12-month period (the “terminal sale period”). On February 13, 2013, the settlement agreement was further amended to allow the Company to re-apply to the CCC for licensure in New Jersey and to defer expiration of these periods pending the outcome of the licensure process. We have submitted our licensure request to the CCC and there can be no assurances that such request will be approved or with respect to the timing of the licensure process. If the CCC denies our licensure request, then the divesture period will immediately end, and the terminal sale period will immediately begin, which will result in our Borgata interest being disposed of by the trustee pursuant to the terms of the settlement agreement.

We consolidate the trust because we are the sole economic beneficiary and we account for our interest in Borgata under the cost method. As of June 30, 2014, the trust had $86 million of cash and investments, of which $69 million is held in U.S. treasury securities with maturities greater than three months but less than one year, and is recorded within “Prepaid expenses and other.”

 

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Table of Contents

Results of Operations

The following discussion is based on our consolidated financial statements for the three and six months ended June 30, 2014 and 2013.

Summary Financial Results

The following table summarizes our financial results:

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2014      2013     2014      2013  
     (In thousands)  

Net revenues

   $ 2,581,033      $ 2,481,265     $ 5,211,431      $ 4,833,413  

Operating income

     339,987        231,602       752,620        533,419  

Net income (loss)

     173,704        (30,578     365,312        (8,000

Net income (loss) attributable to MGM Resorts International

     105,544        (92,958     213,704        (86,412

Consolidated net revenues for the three months ended June 30, 2014 increased 4% over the prior year period due to increases in both casino and non-casino revenues at our wholly owned domestic resorts. Consolidated net revenues for the six months ended June 30, 2014 increased 8% over the prior year period as a result of an increase in casino revenues at MGM China and an increase at our wholly owned domestic resorts primarily related to non-casino revenues. See below for additional information related to segment revenues.

Consolidated operating income for the three months ended June 30, 2014 benefited from increased revenues at our wholly owned domestic resorts and a decrease in depreciation and amortization expense primarily due to accelerated depreciation recognized in 2013 for assets to be disposed in the Bellagio and Mandalay Bay room remodels. General and administrative expense increased compared to the prior year quarter as a result of an increase in payroll costs and utility costs. Operating income for the second quarter of 2014 was negatively impacted by an impairment charge of $29 million related to our investment in Grand Victoria recorded in “Property transactions, net.” In the prior year quarter, operating income was negatively impacted by impairment charges of $37 million related to our investment in Grand Victoria and $45 million related to certain corporate buildings.

Consolidated operating income for the six months ended June 30, 2014 benefited from increases in revenues at our wholly owned domestic resorts and MGM China and a decrease in depreciation and amortization expense due to the accelerated depreciation recognized in 2013 as noted above, as well as assets that had become fully depreciated at MGM China in the fourth quarter of 2013. General and administrative expense increased in the year to date period as a result of an increase in the items noted above, and property transactions, net was negatively impacted in the current and prior year to date periods for the impairment charges noted above. Corporate expense increased 9% over the prior year period to $108 million due to an increase in personnel costs and professional fees.

Operating Results – Detailed Segment Information

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

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2014     2013     2014     2013  
     (In thousands)  

Net revenues:

        

Wholly owned domestic resorts

   $ 1,639,270     $ 1,535,996     $ 3,209,504     $ 3,025,184  

MGM China

     827,928       835,149       1,769,376       1,582,706  
  

 

 

   

 

 

   

 

 

   

 

 

 

Reportable segment net revenues

     2,467,198       2,371,145       4,978,880       4,607,890  

Corporate and other

     113,835       110,120       232,551       225,523  
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 2,581,033     $ 2,481,265     $ 5,211,431     $ 4,833,413  
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA:

        

Wholly owned domestic resorts

   $ 414,398     $ 375,603     $ 817,244     $ 736,640  

MGM China

     210,488       204,815       451,213       385,270  
  

 

 

   

 

 

   

 

 

   

 

 

 

Reportable segment Adjusted Property EBITDA

     624,886       580,418       1,268,457       1,121,910  

Corporate and other

     (38,900     (39,028     (55,989