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EX-10.3 - EX-10.3 - MGM Resorts Internationalmgm-ex103_141.htm
EX-31.1 - EX-31.1 - MGM Resorts Internationalmgm-ex311_8.htm
EX-32.1 - EX-32.1 - MGM Resorts Internationalmgm-ex321_6.htm
EX-32.2 - EX-32.2 - MGM Resorts Internationalmgm-ex322_7.htm
EX-31.2 - EX-31.2 - MGM Resorts Internationalmgm-ex312_9.htm
EX-99.1 - EX-99.1 - MGM Resorts Internationalmgm-ex991_139.htm

 

 

UNITED STATES

SECURITIES & EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

x

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

For the quarterly period ended June 30, 2015

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, 2015 

Common Stock, $.01 par value

 

563,098,146 shares

 

 

 

 

 

 

 


 

MGM RESORTS INTERNATIONAL AND SUBSIDIARIES

 

FORM 10-Q

 

I N D E X

 

 

 

Page

PART I.

FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements (Unaudited)

1

 

 

Consolidated Balance Sheets at June 30, 2015 and December 31, 2014

1

 

 

Consolidated Statements of Operations for the Three Months and Six Months Ended June 30, 2015 and June 30, 2014

2

 

 

Consolidated Statements of Comprehensive Income for the Three Months and Six Months Ended June 30, 2015 and June 30, 2014

3

 

 

Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2015 and June 30, 2014

4

 

 

Condensed Notes to Consolidated Financial Statements

5

Item 2.

 

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

26

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

40

Item 4.

 

Controls and Procedures

40

 

PART II.

OTHER INFORMATION

 

Item 1.

 

Legal Proceedings

41

Item 1A.

 

Risk Factors

42

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

42

Item 6.

 

Exhibits

43

 

SIGNATURES

44

 

 

 

 


 

Part I. FINANCIAL INFORMATION

 

Item 1.

Financial Statements

 

MGM RESORTS INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)

 

 

June 30,

 

 

December 31,

 

 

2015

 

 

2014

 

 

 

 

 

 

 

 

 

ASSETS

 

Current assets

 

 

 

 

 

 

 

Cash and cash equivalents

$

2,342,340

 

 

$

1,713,715

 

Cash deposits - original maturities longer than 90 days

 

200,205

 

 

 

570,000

 

Accounts receivable, net

 

467,960

 

 

 

473,345

 

Inventories

 

106,914

 

 

 

104,011

 

Income tax receivable

 

12,947

 

 

 

14,675

 

Prepaid expenses and other

 

136,656

 

 

 

151,414

 

Total current assets

 

3,267,022

 

 

 

3,027,160

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

14,791,558

 

 

 

14,441,542

 

 

 

 

 

 

 

 

 

Other assets

 

 

 

 

 

 

 

Investments in and advances to unconsolidated affiliates

 

1,491,052

 

 

 

1,559,034

 

Goodwill

 

2,898,383

 

 

 

2,897,110

 

Other intangible assets, net

 

4,256,409

 

 

 

4,364,856

 

Other long-term assets, net

 

445,163

 

 

 

412,809

 

Total other assets

 

9,091,007

 

 

 

9,233,809

 

 

$

27,149,587

 

 

$

26,702,511

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

Current liabilities

 

 

 

 

 

 

 

Accounts payable

$

174,246

 

 

$

164,252

 

Construction payable

 

203,354

 

 

 

170,439

 

Deferred income taxes, net

 

83,310

 

 

 

62,142

 

Current portion of long-term debt

 

875,029

 

 

 

1,245,320

 

Accrued interest on long-term debt

 

192,357

 

 

 

191,155

 

Other accrued liabilities

 

1,262,499

 

 

 

1,574,617

 

Total current liabilities

 

2,790,795

 

 

 

3,407,925

 

 

 

 

 

 

 

 

 

Deferred income taxes, net

 

2,525,636

 

 

 

2,621,860

 

Long-term debt

 

12,495,209

 

 

 

12,913,882

 

Other long-term obligations

 

156,117

 

 

 

130,570

 

Commitments and contingencies (Note 6)

 

 

 

 

 

 

 

Redeemable noncontrolling interest

 

5,000

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

 

Common stock, $.01 par value: authorized 1,000,000,000 shares, issued and outstanding 563,089,775 and 491,292,117 shares

 

5,631

 

 

 

4,913

 

Capital in excess of par value

 

5,649,288

 

 

 

4,180,922

 

Retained earnings (accumulated deficit)

 

159,400

 

 

 

(107,909

)

Accumulated other comprehensive income

 

13,891

 

 

 

12,991

 

Total MGM Resorts International stockholders' equity

 

5,828,210

 

 

 

4,090,917

 

Noncontrolling interests

 

3,348,620

 

 

 

3,537,357

 

Total stockholders' equity

 

9,176,830

 

 

 

7,628,274

 

 

$

27,149,587

 

 

$

26,702,511

 

 

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

 

 

1


 

MGM RESORTS INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

 

 

Three Months Ended

 

 

Six Months Ended

 

 

June 30,

 

 

June 30,

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Casino

$

1,235,976

 

 

$

1,475,165

 

 

$

2,514,478

 

 

$

3,058,597

 

Rooms

 

490,498

 

 

 

463,151

 

 

 

949,923

 

 

 

915,537

 

Food and beverage

 

423,183

 

 

 

412,723

 

 

 

807,284

 

 

 

796,115

 

Entertainment

 

134,972

 

 

 

138,735

 

 

 

260,940

 

 

 

272,512

 

Retail

 

55,482

 

 

 

50,811

 

 

 

100,519

 

 

 

95,427

 

Other

 

137,819

 

 

 

134,068

 

 

 

264,369

 

 

 

259,495

 

Reimbursed costs

 

103,548

 

 

 

95,745

 

 

 

204,608

 

 

 

190,720

 

 

 

2,581,478

 

 

 

2,770,398

 

 

 

5,102,121

 

 

 

5,588,403

 

Less: Promotional allowances

 

(196,343

)

 

 

(189,365

)

 

 

(384,742

)

 

 

(376,972

)

 

 

2,385,135

 

 

 

2,581,033

 

 

 

4,717,379

 

 

 

5,211,431

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Casino

 

738,427

 

 

 

916,817

 

 

 

1,521,235

 

 

 

1,907,651

 

Rooms

 

142,065

 

 

 

142,413

 

 

 

283,378

 

 

 

276,651

 

Food and beverage

 

243,127

 

 

 

241,124

 

 

 

464,648

 

 

 

461,182

 

Entertainment

 

104,397

 

 

 

104,761

 

 

 

201,396

 

 

 

203,698

 

Retail

 

28,398

 

 

 

26,055

 

 

 

52,494

 

 

 

49,531

 

Other

 

95,835

 

 

 

92,077

 

 

 

180,158

 

 

 

179,654

 

Reimbursed costs

 

103,548

 

 

 

95,745

 

 

 

204,608

 

 

 

190,720

 

General and administrative

 

333,708

 

 

 

327,484

 

 

 

661,881

 

 

 

646,730

 

Corporate expense

 

59,602

 

 

 

54,439

 

 

 

109,958

 

 

 

107,790

 

Preopening and start-up expenses

 

17,889

 

 

 

9,759

 

 

 

33,760

 

 

 

15,395

 

Property transactions, net

 

3,953

 

 

 

33,170

 

 

 

5,542

 

 

 

33,728

 

Depreciation and amortization

 

208,565

 

 

 

203,070

 

 

 

414,977

 

 

 

410,725

 

 

 

2,079,514

 

 

 

2,246,914

 

 

 

4,134,035

 

 

 

4,483,455

 

Income from unconsolidated affiliates

 

42,900

 

 

 

20,345

 

 

 

160,281

 

 

 

42,960

 

Operating income

 

348,521

 

 

 

354,464

 

 

 

743,625

 

 

 

770,936

 

Non-operating income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net of amounts capitalized

 

(203,245

)

 

 

(203,936

)

 

 

(419,507

)

 

 

(413,323

)

Non-operating items from unconsolidated affiliates

 

(17,766

)

 

 

(23,996

)

 

 

(36,777

)

 

 

(46,211

)

Other, net

 

(4,815

)

 

 

(309

)

 

 

(8,305

)

 

 

(1,743

)

 

 

(225,826

)

 

 

(228,241

)

 

 

(464,589

)

 

 

(461,277

)

Income before income taxes

 

122,695

 

 

 

126,223

 

 

 

279,036

 

 

 

309,659

 

Benefit for income taxes

 

3,772

 

 

 

51,945

 

 

 

60,077

 

 

 

54,609

 

Net income

 

126,467

 

 

 

178,168

 

 

 

339,113

 

 

 

364,268

 

Less: Net income attributable to noncontrolling interests

 

(29,008

)

 

 

(68,160

)

 

 

(71,804

)

 

 

(151,608

)

Net income attributable to MGM Resorts International

$

97,459

 

 

$

110,008

 

 

$

267,309

 

 

$

212,660

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

$

0.18

 

 

$

0.22

 

 

$

0.51

 

 

$

0.43

 

Diluted

$

0.17

 

 

$

0.22

 

 

$

0.50

 

 

$

0.42

 

 

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

 

 

2


 

MGM RESORTS INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

 

 

Three Months Ended

 

 

Six Months Ended

 

 

June 30,

 

 

June 30,

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Net income

$

126,467

 

 

$

178,168

 

 

$

339,113

 

 

$

364,268

 

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

608

 

 

 

5,862

 

 

 

3,084

 

 

 

3,102

 

Other

 

 

 

 

 

 

 

(672

)

 

 

1,250

 

Other comprehensive income

 

608

 

 

 

5,862

 

 

 

2,412

 

 

 

4,352

 

Comprehensive income

 

127,075

 

 

 

184,030

 

 

 

341,525

 

 

 

368,620

 

Less: Comprehensive income attributable to noncontrolling interests

 

(29,305

)

 

 

(71,023

)

 

 

(73,316

)

 

 

(153,228

)

Comprehensive income attributable to MGM Resorts International

$

97,770

 

 

$

113,007

 

 

$

268,209

 

 

$

215,392

 

 

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

 

 

 

3


 

MGM RESORTS INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

Six Months Ended

 

 

June 30,

 

 

2015

 

 

2014

 

Cash flows from operating activities

 

 

 

 

 

 

 

Net income

$

339,113

 

 

$

364,268

 

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

 

 

 

 

 

 

 

Depreciation and amortization

 

414,977

 

 

 

410,725

 

Amortization of debt discounts, premiums and issuance costs

 

19,514

 

 

 

18,728

 

Loss on retirement of long-term debt

 

1,924

 

 

 

 

Provision for doubtful accounts

 

35,628

 

 

 

24,294

 

Stock-based compensation

 

20,936

 

 

 

16,600

 

Property transactions, net

 

5,542

 

 

 

33,728

 

(Income) loss from unconsolidated affiliates

 

(122,061

)

 

 

3,371

 

Distributions from unconsolidated affiliates

 

7,814

 

 

 

7,260

 

Deferred income taxes

 

(80,688

)

 

 

(1,602

)

Change in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

(30,117

)

 

 

(9,964

)

Inventories

 

(2,897

)

 

 

5,391

 

Income taxes receivable and payable, net

 

3,838

 

 

 

18,005

 

Prepaid expenses and other

 

(10,038

)

 

 

(2,605

)

Prepaid Cotai land concession premium

 

(11,213

)

 

 

(11,206

)

Accounts payable and accrued liabilities

 

(156,291

)

 

 

(78,514

)

Other

 

11,288

 

 

 

5,145

 

Net cash provided by operating activities

 

447,269

 

 

 

803,624

 

Cash flows from investing activities

 

 

 

 

 

 

 

Capital expenditures, net of construction payable

 

(594,041

)

 

 

(370,248

)

Dispositions of property and equipment

 

259

 

 

 

412

 

Proceeds from sale of assets held for sale

 

19,797

 

 

 

 

Investments in and advances to unconsolidated affiliates

 

(176,679

)

 

 

(53,750

)

Distributions from unconsolidated affiliates in excess of cumulative earnings

 

202,136

 

 

 

790

 

Investments in treasury securities - maturities longer than 90 days

 

 

 

 

(93,137

)

Proceeds from treasury securities - maturities longer than 90 days

 

 

 

 

111,238

 

Investments in cash deposits - maturities longer than 90 days

 

(200,205

)

 

 

 

Proceeds from cash deposits - maturities longer than 90 days

 

570,000

 

 

 

 

Other

 

1,854

 

 

 

2,535

 

Net cash used in investing activities

 

(176,879

)

 

 

(402,160

)

Cash flows from financing activities

 

 

 

 

 

 

 

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

 

(1,046,508

)

 

 

(1,737,750

)

Borrowings under bank credit facilities – maturities longer than 90 days

 

3,416,875

 

 

 

3,451,875

 

Repayments under bank credit facilities – maturities longer than 90 days

 

(1,710,625

)

 

 

(1,728,125

)

Retirement of senior notes

 

(504

)

 

 

(508,900

)

Debt issuance costs

 

(45,639

)

 

 

 

Distributions to noncontrolling interest owners

 

(264,454

)

 

 

(314,447

)

Proceeds from issuance of redeemable noncontrolling interest

 

5,000

 

 

 

 

Other

 

(286

)

 

 

(2,173

)

Net cash provided by (used in) financing activities

 

353,859

 

 

 

(839,520

)

Effect of exchange rate on cash

 

714

 

 

 

(476

)

Cash and cash equivalents

 

 

 

 

 

 

 

Net increase (decrease) for the period

 

624,963

 

 

 

(438,532

)

Change in cash related to assets held for sale

 

3,662

 

 

 

 

Balance, beginning of period

 

1,713,715

 

 

 

1,803,669

 

Balance, end of period

$

2,342,340

 

 

$

1,365,137

 

Supplemental cash flow disclosures

 

 

 

 

 

 

 

Interest paid, net of amounts capitalized

$

398,791

 

 

$

391,976

 

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

 

21,963

 

 

 

8,508

 

Non-cash investing and financing activities

 

 

 

 

 

 

 

Conversion of convertible senior notes to equity

$

1,449,499

 

 

$

 

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

 

(8,198

)

 

 

42,922

 

 

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

 

 

4


 

MGM RESORTS INTERNATIONAL AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)  

 

NOTE 1 — ORGANIZATION

 

Organization. MGM Resorts International (the “Company”) is a Delaware corporation that acts largely as a holding company and, through wholly owned subsidiaries, owns and/or operates casino resorts. The Company owns and operates the following casino resorts in Las Vegas, Nevada: Bellagio, MGM Grand Las Vegas, The Mirage, Mandalay Bay, Luxor, New York-New York, Monte Carlo, Excalibur and Circus Circus Las Vegas. Operations at MGM Grand Las Vegas include management of The Signature at MGM Grand Las Vegas, a condominium-hotel consisting of three towers. In July 2015, the Company entered into an agreement to sell Circus Circus Reno in Reno, Nevada, as discussed in Note 3. Along with local investors, 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 also has a land concession contract with the government of Macau to develop a second resort and casino on an approximately 18 acre site in Cotai, Macau (“MGM Cotai”). MGM Cotai will be an integrated casino, hotel and entertainment resort with approximately 1,500 hotel rooms, and up to 500 gaming tables and 1,500 slots. The total estimated project budget is $3.0 billion, excluding development fees eliminated in consolidation, capitalized interest and land related costs.

 

The Company owns 50% of 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 4 for additional information related to CityCenter.

 

The Company owns 50% of the Borgata Hotel Casino & Spa (“Borgata”) located on Renaissance Pointe in the Marina area of Atlantic City, New Jersey. Boyd Gaming Corporation owns the other 50% of Borgata and also operates the resort. The Company also has a 50% interest in Grand Victoria. Grand Victoria is a riverboat casino in Elgin, Illinois; an affiliate of Hyatt Gaming owns the other 50% of Grand Victoria and also operates the resort. In July 2015, the Company entered an agreement to sell its 50% interest in Silver Legacy, located in Reno, Nevada. See Note 4 for additional information regarding the Company’s investments in unconsolidated affiliates.

 

The Company has entered into management agreements for future 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. Upon formation, the Company contributed its management agreements for non-gaming hotels, resorts and residential projects (outside of the greater China region) under development to MGM Hakkasan. In May 2015, the Company and the Hakkasan Group mutually agreed to terminate MGM Hakkasan and the brand license from Hakkasan Group. The Company will continue to develop these projects under its brands through MGM Hospitality (a wholly-owned subsidiary). Additionally, the Company will continue to develop and manage properties in the greater China region with Diaoyutai State Guesthouse, including MGM Grand Sanya.

 

The Maryland Video Lottery Facility Location Commission has awarded the Company’s subsidiary developing MGM National Harbor the license to build and operate a destination resort casino in Prince George’s County at National Harbor. The expected cost to develop and construct MGM National Harbor is approximately $1.3 billion, excluding capitalized interest and land related costs. The Company expects the resort to include a casino with approximately 3,600 slots and 160 table games including poker; a 300-room hotel with luxury spa and rooftop pool; 79,000 square feet of high‑end branded retail and fine and casual dining; a 3,000-seat theater venue; 50,000 square feet of meeting and event space; and a 4,700-space parking garage.

 

The Company’s subsidiary that will develop MGM Springfield was awarded the Category One casino license in Region B, Western Massachusetts, one of three licensing regions designated by legislation, to build and operate MGM Springfield. MGM Springfield will be developed on 14.5 acres of land in downtown Springfield, Massachusetts. The expected cost to develop and

5


 

construct MGM Springfield is $760 million, excluding capitalized interest and land related costs. The Company expects the resort will include a casino with approximately 3,000 slots and 100 table games including poker; a 250-room hotel; 90,000 square feet of retail and restaurant space; 45,000 square feet of meeting and event space; and a 3,500-space parking garage.

 

In 2013, the Company formed Las Vegas Arena Company, LLC (the “Las Vegas Arena Company”) with a subsidiary of Anschutz Entertainment Group, Inc. (“AEG”) - a leader in sports, entertainment, and promotions - to design, construct, and operate the Las Vegas 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 Las Vegas Arena Company. The Las Vegas Arena is anticipated to seat between 18,000 – 20,000 people. Such development is estimated to cost approximately $350 million, excluding capitalized interest and land related costs.

 

The Company has two reportable segments: wholly owned domestic resorts and MGM China. See Note 11 for additional information about the Company’s segments.

 

NOTE 2 — BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

 

Basis of presentation. As permitted by the rules and regulations of the Securities and Exchange Commission, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted. These consolidated financial statements should be read in conjunction with the Company’s 2014 annual consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.

 

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.

 

The consolidated financial statements have been retroactively adjusted to reflect the Company’s investment in Borgata under the equity method for all periods presented in this quarterly report. The impact of the retroactive adjustments on net income for the three and six months ended June 30, 2014 was an increase of $4 million and a decrease of $1 million, respectively.

 

Fair value measurements. Fair value measurements affect the Company’s accounting and impairment assessments of its long-lived assets, investments in unconsolidated affiliates, cost method investments, assets acquired and liabilities assumed in an acquisition, and goodwill and other intangible assets. Fair value measurements also affect the Company’s accounting for certain of its financial assets and liabilities. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and is measured according to a hierarchy that includes: Level 1 inputs, such as quoted prices in an active market; Level 2 inputs, which are observable inputs for similar assets; or Level 3 inputs, which are unobservable inputs. The Company uses Level 1 inputs for its long-term debt fair value disclosures. See Note 5.

 

 

Property and equipment. As of June 30, 2015, the Company had accrued $12 million for property and equipment within “Accounts payable” and $33 million related to construction retention in “Other long-term obligations.” In addition, during the six months ended June 30, 2015, the Company entered into capital leases with obligations of $12 million.

 

Goodwill and other intangible assets.  Goodwill represents the excess of purchase price over fair market value of net assets acquired in business combinations.  Goodwill and indefinite-lived intangible assets must be reviewed for impairment at least annually and between annual test dates in certain circumstances. The Company performs its annual impairment tests in the fourth quarter of each fiscal year. Due to a significant decrease in MGM China’s cash flows as well as a decline in the market capitalization of MGM China relative to its net book value, the Company performed an interim impairment test of goodwill related to the MGM China reporting unit in the second quarter of 2015.

 

Goodwill for relevant reporting units is tested for impairment using a discounted cash flow analysis based on the estimated future results of the Company’s reporting units discounted using market discount rates and market indicators of terminal year capitalization rates, and a market approach that utilizes business enterprise value multiples based on a range of multiples from the reporting unit’s peer group.  If the carrying value of the reporting unit exceeds its fair value, an indication of impairment exists and the Company must proceed to measure an impairment loss, if any.  In measuring an impairment loss, the implied fair value of a reporting unit’s goodwill is compared to the carrying value of that goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit to its assets and liabilities and the amount remaining, if any, is the implied fair value of goodwill.  If the implied fair value of goodwill is less than its carrying value then it must be written down to its implied fair value.

 

6


 

The results of the Company’s interim impairment test indicated the fair value of the MGM China reporting unit exceeded its carrying value by 9%. Therefore, the Company concluded that the carrying value of goodwill of $2.8 billion related to MGM China was not impaired based on the interim test. The Company will continue to monitor the results of this reporting unit.

 

Redeemable noncontrolling interest. In April 2015, MGM National Harbor issued non-voting membership interests in MGM National Harbor (“Membership Interests”) to Radio One, Inc. (“Radio One”), a noncontrolling interest party, for a purchase price of $5 million. In addition, Radio One was given the right to make one additional capital contribution of up to $35 million prior to July 1, 2016 for the purchase of additional Membership Interests.

 

The Membership Interests provide for annual preferred distributions by MGM National Harbor to Radio One based on a percentage of its annual net gaming revenue (as defined in the MGM National Harbor operating agreement). Such distributions will begin within ninety days after the end of the fiscal year in which the opening date of MGM National Harbor occurs, and after the end of each subsequent fiscal year. Also, beginning on the third anniversary of the last day of the calendar quarter in which the opening date of MGM National Harbor occurs (and on each subsequent anniversary thereof) Radio One will have the ability to require the Company to purchase all or a portion of its Membership Interests for a purchase price that is based on a contractually agreed upon formula.  Radio One also has the right to sell back all or a portion of its Membership Interest prior to such date if MGM National Harbor were to guarantee or grant liens to secure any indebtedness of the Company other than the indebtedness of MGM National Harbor.

 

The Company has recorded the Membership Interests as “Redeemable noncontrolling interest” in the mezzanine section of the accompanying consolidated balance sheets and not stockholders’ equity because their redemption is not exclusively in the Company’s control.  Membership Interests are initially accounted for at fair value. Subsequently, the Company will recognize changes in the redemption value as they occur and adjust the carrying amount of the redeemable noncontrolling interests to equal the maximum redemption value, provided such amount does not fall below the initial carrying value, at the end of each reporting period.  The Company will reflect any changes caused by such an adjustment in retained earnings.

 

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 (3.1)% and (21.5)% for the three and six months ended June 30, 2015, respectively.

 

The Company recognizes deferred tax assets, net of applicable reserves, related to tax loss and credit carryforwards and other temporary differences with a future tax benefit to the extent that realization of such benefit is more likely than not. Otherwise, a valuation allowance is applied. As of December 31, 2014, the scheduled future reversal of existing U.S. federal taxable temporary differences exceeded the scheduled future reversal of existing U.S. federal deductible temporary differences.  Consequently, the Company no longer applies a valuation allowance against its domestic deferred tax assets other than its foreign tax credit deferred tax asset.

 

The Company generates significant excess foreign tax credits each year that are attributable to the Macau Special Gaming Tax which is 35% of gross gaming revenue in Macau.  Because MGM China is presently exempt from the Macau 12% complementary tax on gaming profits, the Company believes that payment of the Macau Special Gaming Tax qualifies as a tax paid in lieu of an income tax that is creditable against U.S. taxes. As long as the exemption from Macau’s 12% complementary tax on gaming profits continues and the Company continues to receive distributions from MGM China, the Company expects that it will generate excess foreign tax credits 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 its assessment of the realization of the foreign tax credit deferred tax asset.  Furthermore, the Company does not rely on future U.S. source operating income in assessing future foreign tax credit realization due to its history of recent losses in the U.S. and therefore only relies on U.S. federal taxable temporary differences that it expects will reverse during the 10-year foreign tax credit carryover period.

 

7


 

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

 

The Company projects that it will be able to realize a benefit and, hence, projects that it will record a deferred tax asset for foreign tax credits, net of valuation allowance, of approximately $181 million as of December 31, 2015 and has reflected this assumption in its annual effective tax rate for 2015.  During the three and six months ended June 30, 2015, the Company reassessed the foreign tax credit valuation allowance as a result of the continued decline in market conditions in Macau.  The valuation allowance was increased by $71 million and $82 million, respectively, of which $30 million and $40 million was recorded as a direct reduction in income tax benefit during the three and six months ended June 30, 2015, respectively, with the remainder impacting the effective tax rate for 2015.

 

 

Recently issued accounting standards. In May 2014, the Financial Accounting Standards Board (“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, 2017. ASU 2014-09 outlines a new, single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. This new revenue recognition model provides a five-step analysis in determining when and how revenue is recognized. Additionally, the new model will require revenue recognition to depict the transfer of promised goods or services to customers in an amount that reflects the consideration a company expects to receive in exchange for those goods or services. The Company is currently assessing the impact that adoption of ASU 2014-09 will have on its consolidated financial statements and footnote disclosures.

 

In February 2015, the FASB issued Accounting Standards Update No. 2015-02, “Amendments to the Consolidation Analysis,” (“ASU 2015-02”), which is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015.  ASU 2015-02 amends: the assessment of whether a limited partnership is a variable interest entity; the effect that fees paid to a decision maker have on the consolidation analysis; how variable interests held by a reporting entity’s related parties or de facto agents affect its consolidation conclusion; and for entities other than limited partnerships, clarifies how to determine whether the equity holders as a group have power over an entity. The Company is currently assessing the impact that adoption of ASU 2015-02 will have on its consolidated financial statements and footnote disclosures.

 

NOTE 3 — ASSETS HELD FOR SALE

 

On April 1, 2015, the Company closed the sale of Railroad Pass.  At closing, the Company received $8 million in cash proceeds. The assets and liabilities of Railroad Pass were classified as held for sale as of December 31, 2014. At December 31, 2014, assets held for sale of $9 million, comprised predominantly of property and equipment, were classified within “Prepaid expenses and other” and liabilities related to assets held for sale of $2 million, comprised of accounts payable and other accrued liabilities, were classified within “Other accrued liabilities.”

 

On April 30, 2015, the Company closed the sale of Gold Strike and related assets in Jean, Nevada. At closing, the Company received $12 million in cash proceeds. The assets and liabilities of Gold Strike were classified as held for sale as of December 31, 2014. At December 31, 2014, assets held for sale of $14 million, comprised predominantly of property and equipment, were classified within “Prepaid expenses and other” and liabilities related to assets held for sale of $2 million, comprised of accounts payable and other accrued liabilities, were classified within “Other accrued liabilities.”

 

Railroad Pass and Gold Strike were not classified as discontinued operations because the Company concluded that the sales will not have a major effect on the Company’s operations or its financial results and they do not represent a disposal of a major geographic segment or product line.

 

On July 7, 2015, the Company entered into an agreement with Eldorado Resorts, Inc. to sell Circus Circus Reno, as well as the Company’s 50% interest in Silver Legacy and associated real property, for total consideration of $73 million plus Circus Circus Reno’s working capital. The Company allocated $20 million of the $73 million to Circus Circus Reno in accordance with the purchase and sale agreement. The sale is contingent upon regulatory approvals and other customary closing conditions.  The carrying value of the Circus Circus Reno assets and liabilities to be sold of $28 million and $8 million, respectively, were not classified as held for sale as of June 30, 2015. Circus Circus Reno will not be classified as discontinued operations because the Company has concluded that the

8


 

sale will not have a major effect on the Company’s operations or its financial results and it does not represent a disposal of a major geographic segment or product line. See Note 4 for further discussion of the sale of the Company’s 50% investment in Silver Legacy.  

 

 

 

NOTE 4 — INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES

 

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

 

 

June 30,

 

 

December 31,

 

 

2015

 

 

2014

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

CityCenter Holdings, LLC – CityCenter (50%)

$

1,118,691

 

 

$

1,221,306

 

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

 

139,026

 

 

 

141,162

 

Marina District Development Company – Borgata (50%)

 

120,408

 

 

 

109,252

 

Other

 

112,927

 

 

 

87,314

 

 

$

1,491,052

 

 

$

1,559,034

 

 

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

  

 

Three Months Ended

 

 

Six Months Ended

 

 

June 30,

 

 

June 30,

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

Income from unconsolidated affiliates

$

42,900

 

 

$

20,345

 

 

$

160,281

 

 

$

42,960

 

Preopening and start-up expenses

 

(770

)

 

 

(101

)

 

 

(1,443

)

 

 

(120

)

Non-operating items from unconsolidated affiliates

 

(17,766

)

 

 

(23,996

)

 

 

(36,777

)

 

 

(46,211

)

 

 

24,364

 

 

 

(3,752

)

 

 

122,061

 

 

 

(3,371

)

 

CityCenter

 

Summarized balance sheet information for CityCenter is as follows:

 

 

June 30,

 

 

December 31,

 

 

2015

 

 

2014

 

 

(In thousands)

 

Current assets

$

354,211

 

 

$

561,904

 

Property and other assets, net

 

7,766,755

 

 

 

7,883,709

 

Current liabilities

 

274,216

 

 

 

508,168

 

Long-term debt and other long-term obligations

 

1,553,233

 

 

 

1,552,913

 

Equity

 

6,293,517

 

 

 

6,384,532

 

 

Summarized income statement information for CityCenter is as follows:

 

 

Three Months Ended

 

 

Six Months Ended

 

 

June 30,

 

 

June 30,

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

 

(In thousands)

 

Net revenues

$

321,982

 

 

$

319,875

 

 

$

640,221

 

 

$

656,292

 

Operating expenses

 

(299,769

)

 

 

(344,710

)

 

 

(436,402

)

 

 

(676,164

)

Operating income

 

22,213

 

 

 

(24,835

)

 

 

203,819

 

 

 

(19,872

)

Non-operating expenses

 

(18,059

)

 

 

(26,953

)

 

 

(36,064

)

 

 

(52,118

)

Net income (loss)

$

4,154

 

 

$

(51,788

)

 

$

167,755

 

 

$

(71,990

)

 

CityCenter litigation settlement. In December 2014, the Company and CityCenter entered into a settlement agreement with Perini Building Company, Inc. (“Perini”), general contractor for CityCenter, the remaining Perini subcontractors and relevant insurers to resolve all outstanding project lien claims and CityCenter’s counterclaims relating to the Harmon Hotel and Spa. The settlement was subject to execution of a global settlement agreement among the parties described above, which was subsequently executed, and CityCenter’s procurement of replacement general liability insurance covering construction of the CityCenter development, which was

9


 

obtained in January 2015. The proceeds pursuant to such global settlement agreement, combined with certain prior Harmon-related insurance settlement proceeds, resulted in a gain of $160 million recorded by CityCenter during the first quarter of 2015, of which the Company recorded its 50% share of $80 million.

 

CityCenter dividend. In April 2015, CityCenter adopted an annual distribution policy and declared a special dividend of $400 million, of which the Company received its 50% share of $200 million. Under the annual distribution policy, CityCenter will distribute up to 35% of excess cash flow, subject to the approval of the CityCenter board of directors.

 

Grand Victoria

 

At June 30, 2014, the Company recorded an impairment charge of $29 million on its investment in Grand Victoria based on the then estimated fair value of $140 million for its 50% interest.

 

Silver Legacy

 

As discussed in Note 3, the Company entered into an agreement to sell its 50% interest in Silver Legacy and associated real property for approximately $53 million. The carrying value of the Company’s 50% interest in Silver Legacy and the associated real property was $33 million as of June 30, 2015.  The Company’s investment in Silver Legacy was not classified as held for sale as of June 30, 2015 and will not be classified as discontinued operations because the Company has concluded that the sale will not have a major effect on the Company’s operations or its financial results and it does not represent a disposal of a major geographic segment or product line.

 

Las Vegas Arena

 

See Note 6 for discussion of the Company’s joint and several completion and repayment guarantees and equity contribution commitments related to the Las Vegas Arena.

 

NOTE 5 — LONG-TERM DEBT

 

Long-term debt consisted of the following:

 

 

June 30,

 

 

December 31,

 

 

2015

 

 

2014

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

Senior credit facility:

 

 

 

 

 

 

 

$2,730 million ($2,744 million at December 31, 2014) term loans, net

$

2,724,669

 

 

$

2,738,118

 

MGM Grand Paradise credit facility:

 

 

 

 

 

 

 

Term loans

 

630,829

 

 

 

553,177

 

Revolving loans

 

597,287

 

 

 

 

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

 

 

 

 

1,451,405

 

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

 

875,029

 

 

 

875,370

 

$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

 

498,477

 

 

 

497,955

 

$743 million 7.625% senior notes, due 2017

 

743,000

 

 

 

743,000

 

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

 

469,763

 

 

 

468,949

 

$850 million 8.625% senior notes, due 2019

 

850,000

 

 

 

850,000

 

$500 million 5.25% senior notes, due 2020

 

500,000

 

 

 

500,000

 

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

 

1,000,000

 

 

 

1,000,000

 

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

 

1,250,000

 

 

 

1,250,000

 

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

 

1,000,000

 

 

 

1,000,000

 

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

 

1,250,698

 

 

 

1,250,742

 

$0.6 million 7% debentures, due 2036, net

 

572

 

 

 

572

 

$4.3 million 6.7% debentures, due 2096

 

4,265

 

 

 

4,265

 

 

 

13,370,238

 

 

 

14,159,202

 

Less: Current portion

 

(875,029

)

 

 

(1,245,320

)

 

$

12,495,209

 

 

$

12,913,882

 

 

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As of June 30, 2015, the amount available under the Company’s revolving senior credit facility was less than current maturities related to the Company’s term loan credit facilities and senior notes. The Company excluded from the June 30, 2015 current portion of long-term debt the amount available for refinancing under its revolving credit facility, with the exception that all of its $875 million of senior notes were classified as current because the Company used cash to repay such notes at maturity in July 2015. At December 31, 2014, the amount available under the Company’s revolving senior credit facility was less than current maturities related to the Company’s term loan credit facilities, convertible senior notes and senior notes. The Company excluded from the December 31, 2014 current portion of long-term debt the amount available for refinancing under its revolving credit facility.

 

Senior credit facility. At June 30, 2015, the Company’s senior credit facility consisted of a $1.2 billion revolving credit facility, a $1.02 billion term loan A facility and a $1.71 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, 2015). 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, 2015, respectively, in accordance with the scheduled amortization. The Company had $1.1 billion of available borrowing capacity under its senior credit facility at June 30, 2015. At June 30, 2015, the interest rate on the term loan A was 2.9% and 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 (the “Restricted Group”) to maintain a minimum trailing four-quarter EBITDA (as defined in the senior credit facility) and limits the ability of the Restricted Group to make capital expenditures and investments. As of June 30, 2015, the Restricted Group was required to maintain a minimum EBITDA of $1.25 billion. The minimum EBITDA requirement increases to $1.30 billion for September 30, 2015 and December 31, 2015 and to $1.35 billion for March 31, 2016 and June 30, 2016, with periodic increases thereafter. EBITDA for the trailing four quarters ended June 30, 2015, calculated in accordance with the terms of the senior credit facility (which includes cash distributions from unconsolidated affiliates, such as the CityCenter dividend), was $1.59 billion. The senior credit facility limits the Restricted Group 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 Restricted Group’s total capital expenditures allowable under the senior credit facility for fiscal year 2015, after giving effect to unused amounts from 2014, was $794 million. In addition, the senior credit facility limits the Restricted Group’s ability to make investments subject to certain thresholds and other important exceptions. As of June 30, 2015, the Restricted Group was within the limit of capital expenditures and other investments for the 2015 calendar year.

 

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 Grand Paradise credit facility. In June 2015, MGM China and MGM Grand Paradise, as co-borrowers, entered into a second amended and restated credit facility which consists of $1.55 billion of term loans and a $1.45 billion revolving credit facility. The term of the original facilities was extended for an eighteen month period to April 2019, with scheduled amortization payments of the term loans beginning in October 2017. The MGM Grand Paradise credit facility bears interest at a fluctuating rate per annum based on HIBOR plus a margin, initially set for a six month period at 1.75% per annum, but thereafter will range between 1.375% and 2.50% based on MGM China’s leverage ratio. The MGM Grand Paradise credit facility is secured by MGM Grand Paradise’s interest in the Cotai land use right, and MGM China, MGM Grand Paradise and their guarantor subsidiaries have granted a security interest in substantially all of their assets to secure the facility.

 

As of June 30, 2015, $631 million of term loans and $597 million of revolving loans were outstanding under the MGM Grand Paradise credit facility. In July 2015, MGM China repaid the full amount of revolving loans outstanding and borrowed the remaining capacity under the term loan facility for total term loans outstanding of $1.55 billion. At June 30, 2015, the interest rate on the term loans and outstanding revolving loans was 1.99%.

 

11


 

The MGM Grand Paradise credit facility contains customary representations and warranties, events of default, affirmative covenants and negative covenants, which impose restrictions on, among other things, the ability of MGM China and its subsidiaries to make investments, pay dividends and sell assets, and to incur additional liens. 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, 2015.

 

Convertible senior notes. In April 2015, holders of substantially all of the $1.45 billion in aggregate principle amount of 4.25% convertible senior notes elected to convert the notes into approximately 78 million shares of the Company’s common stock.  The notes were converted at 53.83 shares of common stock per $1,000 principle amount, which is equivalent to a conversion price of approximately $18.58 per share.  In addition, the Company settled the capped call transactions entered into in connection with the initial issuance of $1.15 billion aggregate principle amount of notes and received approximately 6 million shares from such financial institutions. Such shares received in connection with the capped call transactions were subsequently retired.  

 

Fair value of long-term debt. The estimated fair value of the Company’s long-term debt at June 30, 2015 was $13.9 billion. At December 31, 2014, the estimated fair value of the Company’s long-term debt was $15.1 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 6 — COMMITMENTS AND CONTINGENCIES

 

CityCenter completion guarantee. In October 2013, the Company entered into a third amended and restated completion and cost overrun guarantee, which was collateralized by substantially all of the assets of Circus Circus Las Vegas, as well as certain land adjacent to that property. As of June 30, 2015, the Company had funded $888 million under the completion guarantee. During the first quarter of 2015, the Company fulfilled its remaining significant obligations under the completion guarantee in conjunction with the resolution of the Perini litigation and related settlement agreements. In June 2015, the completion guarantee was terminated and the collateral assets securing such completion guarantee were released.

 

Cotai land concession contract. MGM Grand Paradise’s land concession contract for an approximate 18 acre site on the Cotai Strip in Macau became effective on January 9, 2013 and has an initial term of 25 years. The total land premium payable to the Macau government for the land concession contract is $161 million and is composed of a down payment and eight additional semi-annual installments. As of June 30, 2015, MGM China had paid $115 million of the contract premium, including interest due on the semi-annual installments, and the amount paid is recorded within “Other long-term assets, net.” In July 2015, MGM China paid the fifth semi-annual installment of $15 million under the land concession contract. Including interest on the three remaining semi-annual installments, MGM China has approximately $44 million remaining payable for the land concession contract. Under the terms of the land concession contract, MGM Grand Paradise is required to complete the development of the land by January 2018.

 

Las Vegas Arena. In conjunction with Las Vegas Arena Company entering a senior secured credit facility in 2014, the Company and AEG each entered joint and several completion guarantees for the project, as well as a repayment guarantee for the $75 million term loan B (subject to increases and decreases in the event of a rebalancing of the principal amount of indebtedness between the term loan A and term loan B facilities). Additionally, in conjunction with the Las Vegas Arena Company’s senior secured credit facility, the Company and AEG have pledged to contribute equal amounts totaling $175 million for construction, of which $143 million has been contributed as of June 30, 2015.

 

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, 2015, the Company had provided $52 million of letters of credit. MGM Grand Paradise’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, 2015, MGM China had provided approximately $39 million of guarantees under its credit facility.

 

In connection with the development of MGM Springfield as discussed in Note 1, the Company obtained a surety bond of $52 million naming the Commonwealth of Massachusetts as beneficiary, and payable thereto, in the event that the Company’s subsidiary is unable to complete the gaming establishment.

 

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 7 — INCOME PER SHARE OF COMMON STOCK

 

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

 

 

Three Months Ended

 

 

Six Months Ended

 

 

June 30,

 

 

June 30,

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to MGM Resorts International - basic

$

97,459

 

 

$

110,008

 

 

$

267,309

 

 

$

212,660

 

Interest on convertible debt, net of tax

 

(1,095

)

 

 

2,103

 

 

 

18,872

 

 

 

4,298

 

Potentially dilutive effect due to MGM China Share Option Plan