Attached files

file filename
EX-31.2 - EX-31.2 - MGM Resorts Internationalmgm-ex312_9.htm
EX-32.2 - EX-32.2 - MGM Resorts Internationalmgm-ex322_7.htm
EX-32.1 - EX-32.1 - MGM Resorts Internationalmgm-ex321_6.htm
EX-31.1 - EX-31.1 - MGM Resorts Internationalmgm-ex311_8.htm

 

 

UNITED STATES

SECURITIES & EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended March 31, 2017

OR

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

For the transition period from            to            

Commission File No. 001-10362

 

MGM Resorts International

(Exact name of registrant as specified in its charter)

 

 

Delaware

88-0215232

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.)

3600 Las Vegas Boulevard South, Las Vegas, Nevada 89109

(Address of principal executive offices)

(702) 693-7120

(Registrant’s telephone number, including area code)

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

 

 

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

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

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

 

Large accelerated filer

Accelerated filer

 

Non-accelerated filer

  

Smaller reporting company

 

Emerging growth company

  

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act: Yes    No   

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

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

 

 Class 

 

 Outstanding at May 4, 2017 

Common Stock, $.01 par value

 

574,739,484 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 March 31, 2017 and December 31, 2016

1

 

 

Consolidated Statements of Operations for the Three Months Ended March 31, 2017 and March 31, 2016

2

 

 

Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2017 and March 31, 2016

3

 

 

Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2017 and March 31, 2016

4

 

 

Condensed Notes to Consolidated Financial Statements

5

Item 2.

 

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

23

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

37

Item 4.

 

Controls and Procedures

37

 

PART II.

OTHER INFORMATION

 

Item 1.

 

Legal Proceedings

38

Item 1A.

 

Risk Factors

38

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

39

Item 6.

 

Exhibits

39

 

SIGNATURES

40

 

 

 

 


 

Part I. FINANCIAL INFORMATION

 

Item 1.

Financial Statements

 

MGM RESORTS INTERNATIONAL AND SUBSIDIARIES

 

CONSOLIDATED BALANCE SHEETS

 

(In thousands, except share data)

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31,

 

 

December 31,

 

 

2017

 

 

2016

 

 

 

 

 

 

 

 

 

ASSETS

 

Current assets

 

 

 

 

 

 

 

Cash and cash equivalents

$

1,395,444

 

 

$

1,446,581

 

Accounts receivable, net

 

493,765

 

 

 

542,924

 

Inventories

 

100,502

 

 

 

97,733

 

Prepaid expenses and other

 

183,007

 

 

 

142,349

 

Total current assets

 

2,172,718

 

 

 

2,229,587

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

18,619,666

 

 

 

18,425,023

 

 

 

 

 

 

 

 

 

Other assets

 

 

 

 

 

 

 

Investments in and advances to unconsolidated affiliates

 

1,252,432

 

 

 

1,220,443

 

Goodwill

 

1,814,028

 

 

 

1,817,119

 

Other intangible assets, net

 

4,033,756

 

 

 

4,087,706

 

Other long-term assets, net

 

410,492

 

 

 

393,423

 

Total other assets

 

7,510,708

 

 

 

7,518,691

 

 

$

28,303,092

 

 

$

28,173,301

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

Current liabilities

 

 

 

 

 

 

 

Accounts payable

$

204,835

 

 

$

250,477

 

Construction payable

 

214,861

 

 

 

270,361

 

Income taxes payable

 

77,348

 

 

 

10,654

 

Current portion of long-term debt

 

 

 

 

8,375

 

Accrued interest on long-term debt

 

112,096

 

 

 

159,028

 

Other accrued liabilities

 

1,515,624

 

 

 

1,594,526

 

Total current liabilities

 

2,124,764

 

 

 

2,293,421

 

 

 

 

 

 

 

 

 

Deferred income taxes, net

 

2,541,746

 

 

 

2,551,228

 

Long-term debt, net

 

13,099,190

 

 

 

12,979,220

 

Other long-term obligations

 

340,906

 

 

 

325,981

 

Commitments and contingencies (Note 7)

 

 

 

 

 

 

 

Redeemable noncontrolling interest

 

55,769

 

 

 

54,139

 

Stockholders' equity

 

 

 

 

 

 

 

Common stock, $.01 par value: authorized 1,000,000,000 shares, issued and outstanding 574,466,085 and 574,123,706 shares

 

5,745

 

 

 

5,741

 

Capital in excess of par value

 

5,674,057

 

 

 

5,653,575

 

Retained earnings

 

689,476

 

 

 

545,811

 

Accumulated other comprehensive income

 

7,217

 

 

 

15,053

 

Total MGM Resorts International stockholders' equity

 

6,376,495

 

 

 

6,220,180

 

Noncontrolling interests

 

3,764,222

 

 

 

3,749,132

 

Total stockholders' equity

 

10,140,717

 

 

 

9,969,312

 

 

$

28,303,092

 

 

$

28,173,301

 

 

 

 

 

 

 

 

 

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

 

 

March 31,

 

 

2017

 

 

2016

 

Revenues

 

 

 

 

 

 

 

Casino

$

1,505,389

 

 

$

1,134,356

 

Rooms

 

562,267

 

 

 

489,486

 

Food and beverage

 

444,469

 

 

 

377,105

 

Entertainment

 

130,347

 

 

 

118,326

 

Retail

 

47,976

 

 

 

45,473

 

Other

 

140,575

 

 

 

117,525

 

Reimbursed costs

 

100,215

 

 

 

101,049

 

 

 

2,931,238

 

 

 

2,383,320

 

Less: Promotional allowances

 

(223,059

)

 

 

(173,634

)

 

 

2,708,179

 

 

 

2,209,686

 

Expenses

 

 

 

 

 

 

 

Casino

 

804,595

 

 

 

640,569

 

Rooms

 

154,836

 

 

 

144,742

 

Food and beverage

 

249,845

 

 

 

221,296

 

Entertainment

 

99,939

 

 

 

92,288

 

Retail

 

23,108

 

 

 

22,001

 

Other

 

89,624

 

 

 

79,768

 

Reimbursed costs

 

100,215

 

 

 

101,049

 

General and administrative

 

388,835

 

 

 

308,543

 

Corporate expense

 

73,173

 

 

 

71,248

 

Preopening and start-up expenses

 

15,066

 

 

 

21,960

 

Property transactions, net

 

1,696

 

 

 

5,131

 

Depreciation and amortization

 

249,769

 

 

 

199,839

 

 

 

2,250,701

 

 

 

1,908,434

 

Income from unconsolidated affiliates

 

39,703

 

 

 

14,702

 

Operating income

 

497,181

 

 

 

315,954

 

Non-operating income (expense)

 

 

 

 

 

 

 

Interest expense, net of amounts capitalized

 

(174,059

)

 

 

(184,669

)

Non-operating items from unconsolidated affiliates

 

(6,921

)

 

 

(18,212

)

Other, net

 

(817

)

 

 

(565

)

 

 

(181,797

)

 

 

(203,446

)

Income before income taxes

 

315,384

 

 

 

112,508

 

Provision for income taxes

 

(62,375

)

 

 

(21,310

)

Net income

 

253,009

 

 

 

91,198

 

Less: Net income attributable to noncontrolling interests

 

(46,162

)

 

 

(24,399

)

Net income attributable to MGM Resorts International

$

206,847

 

 

$

66,799

 

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

 

 

 

 

 

 

 

Basic

$

0.36

 

 

$

0.12

 

Diluted

$

0.36

 

 

$

0.12

 

Weighted average common shares outstanding

 

 

 

 

 

 

 

Basic

 

574,403

 

 

 

565,056

 

Diluted

 

580,165

 

 

 

569,455

 

Dividends declared per common share

$

0.11

 

 

$

 

 

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

 

 

March 31,

 

 

2017

 

 

2016

 

Net income

$

253,009

 

 

$

91,198

 

Other comprehensive loss, net of tax:

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

(12,933

)

 

 

(4,765

)

Unrealized loss on cash flow hedges

 

(634

)

 

 

 

Other comprehensive loss

 

(13,567

)

 

 

(4,765

)

Comprehensive income

 

239,442

 

 

 

86,433

 

Less: Comprehensive income attributable to noncontrolling interests

 

(40,431

)

 

 

(22,034

)

Comprehensive income attributable to MGM Resorts International

$

199,011

 

 

$

64,399

 

 

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)

 

 

Three Months Ended

 

 

March 31,

 

 

2017

 

 

2016

 

Cash flows from operating activities

 

 

 

 

 

 

 

Net income

$

253,009

 

 

$

91,198

 

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

 

 

 

 

 

 

 

Depreciation and amortization

 

249,769

 

 

 

199,839

 

Amortization of debt discounts, premiums and issuance costs

 

8,844

 

 

 

12,445

 

Loss on retirement of long-term debt

 

 

 

 

661

 

Provision for doubtful accounts

 

12,867

 

 

 

5,009

 

Stock-based compensation

 

15,960

 

 

 

12,048

 

Property transactions, net

 

1,696

 

 

 

5,131

 

(Income) loss from unconsolidated affiliates

 

(32,782

)

 

 

5,792

 

Distributions from unconsolidated affiliates

 

4,250

 

 

 

6,911

 

Deferred income taxes

 

(9,020

)

 

 

7,653

 

Change in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

36,223

 

 

 

22,747

 

Inventories

 

(2,796

)

 

 

6,602

 

Income taxes receivable and payable, net

 

66,696

 

 

 

6,779

 

Prepaid expenses and other

 

(40,899

)

 

 

(40,381

)

Prepaid Cotai land concession premium

 

(12,947

)

 

 

(12,904

)

Accounts payable and accrued liabilities

 

(141,058

)

 

 

(93,704

)

Other

 

(4,377

)

 

 

(11,230

)

Net cash provided by operating activities

 

405,435

 

 

 

224,596

 

Cash flows from investing activities

 

 

 

 

 

 

 

Capital expenditures, net of construction payable

 

(456,075

)

 

 

(427,499

)

Dispositions of property and equipment

 

180

 

 

 

227

 

Investments in unconsolidated affiliates

 

(3,500

)

 

 

(1,555

)

Distributions from unconsolidated affiliates in excess of cumulative earnings

 

 

 

 

1,629

 

Other

 

(6,554

)

 

 

(2,826

)

Net cash used in investing activities

 

(465,949

)

 

 

(430,024

)

Cash flows from financing activities

 

 

 

 

 

 

 

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

 

107,480

 

 

 

243,000

 

Retirement of senior debentures

 

 

 

 

(2,661

)

Debt issuance costs

 

(4,905

)

 

 

(32,577

)

Dividends paid to common shareholders

 

(63,182

)

 

 

 

Distributions to noncontrolling interest owners

 

(24,843

)

 

 

(2,267

)

Other

 

(4,084

)

 

 

(4,533

)

Net cash provided by financing activities

 

10,466

 

 

 

200,962

 

Effect of exchange rate on cash

 

(1,089

)

 

 

(941

)

Cash and cash equivalents

 

 

 

 

 

 

 

Net decrease for the period

 

(51,137

)

 

 

(5,407

)

Balance, beginning of period

 

1,446,581

 

 

 

1,670,312

 

Balance, end of period

$

1,395,444

 

 

$

1,664,905

 

Supplemental cash flow disclosures

 

 

 

 

 

 

 

Interest paid, net of amounts capitalized

$

212,147

 

 

$

195,028

 

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

 

2,560

 

 

 

4,601

 

 

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 (together with its consolidated subsidiaries, unless otherwise indicated or unless the context requires otherwise, the “Company”) is a Delaware corporation that acts largely as a holding company and, through subsidiaries, owns and operates casino resorts. The Company owns and operates the following integrated casino, hotel and entertainment resorts in Las Vegas, Nevada: Bellagio, MGM Grand Las Vegas, The Mirage, Mandalay Bay, Luxor, New York-New York, Monte Carlo, Excalibur and Circus Circus Las Vegas. Operations at MGM Grand Las Vegas include management of The Signature at MGM Grand Las Vegas, a condominium-hotel consisting of three towers. The Company operates and, along with local investors, owns MGM Grand Detroit in Detroit, Michigan and MGM National Harbor in Prince George’s County, Maryland. The Company also owns and operates the Borgata Hotel Casino & Spa (“Borgata”), located on Renaissance Pointe in the Marina area of Atlantic City, New Jersey and the following resorts in Mississippi: Beau Rivage in Biloxi and Gold Strike in Tunica. Additionally, the Company owns and operates The Park, a dining and entertainment district located between New York-New York and Monte Carlo, 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 indirectly owns 76.3% of the partnership units in MGM Growth Properties Operating Partnership LP (the “Operating Partnership”), a subsidiary of MGM Growth Properties LLC (“MGP”). MGP owns the remaining 23.7% ownership interest in the Operating Partnership units and also owns 100% of the general partner. MGP is organized as an umbrella partnership REIT (commonly referred to as an “UPREIT”) structure in which substantially all of its assets are owned by and substantially all of its businesses are conducted through the Operating Partnership. MGP has two classes of authorized and outstanding voting common shares (collectively, the “shares”): Class A shares and a single Class B share. The Company owns MGP’s Class B share, which does not provide its holder any rights to profits or losses or any rights to receive distributions from operations of MGP or upon liquidation or winding up of MGP. MGP’s Class A shareholders are entitled to one vote per share, while the Company, as the owner of the Class B share, is entitled to an amount of votes representing a majority of the total voting power of MGP’s shares so long as the Company and its controlled affiliates’ (excluding MGP) aggregate beneficial ownership of the combined economic interests in MGP and the Operating Partnership does not fall below 30%. The Operating Partnership units held by the Company are exchangeable into Class A shares of MGP on a one-to-one basis, or cash at the fair value of a Class A share. The determination of settlement method is at the option of MGP’s independent conflicts committee. Pursuant to a master lease agreement between a subsidiary of the Company (the “Tenant”) and a subsidiary of the Operating Partnership (the “Landlord”), the Company leases the real estate assets of The Mirage, Mandalay Bay, Luxor, New York-New York, Monte Carlo, Excalibur, The Park, Borgata, Gold Strike Tunica, MGM Grand Detroit and Beau Rivage from subsidiaries of the Operating Partnership. See Note 11 for additional information related to MGP and certain of the Company’s related intercompany agreements with MGP or the Operating Partnership.

 

The Company has an approximately 56% controlling interest in MGM China, which owns MGM Grand Paradise, S.A. (“MGM Grand Paradise”), the Macau company that owns and operates the MGM Macau resort and casino and the related gaming subconcession and land concessions, and is in the process of developing an 18 acre site on the Cotai Strip in Macau (“MGM Cotai”). MGM Cotai will be an integrated casino, hotel and entertainment resort with capacity for up to 500 gaming tables and up to 1,500 slots, and featuring approximately 1,400 hotel rooms. The actual number of gaming tables allocated to MGM Cotai will be determined by the Macau government prior to opening, and such allocation is expected to be less than MGM Cotai’s 500 gaming table capacity. The total estimated project budget is $3.3 billion excluding development fees eliminated in consolidation, capitalized interest and land related costs.

 

The Company owns 50% of and manages CityCenter Holdings, LLC (“CityCenter”), located between Bellagio and Monte Carlo. The other 50% of CityCenter is owned by Infinity World Development Corp, a wholly owned subsidiary of Dubai World, a Dubai, United Arab Emirates government decree entity. CityCenter consists of Aria, an integrated casino, hotel and entertainment resort; Mandarin Oriental Las Vegas, a non-gaming boutique hotel; and Vdara, a luxury condominium-hotel. In addition, CityCenter features residential units in the Residences at Mandarin Oriental and Veer. See Note 4 for additional information related to CityCenter.

 

The Company and a subsidiary of Anschutz Entertainment Group, Inc. (“AEG”) each own 42.5% of the Las Vegas Arena Company, LLC (“Las Vegas Arena Company”), the entity which owns the T-Mobile Arena, and Athena Arena, LLC owns the remaining 15%. The Company manages the T-Mobile Arena, which is located on a parcel of the Company’s land between Frank Sinatra Drive and New York-New York, adjacent to the Las Vegas Strip. The T-Mobile Arena is a 20,000 seat venue designed to host world-class events – from mixed martial arts, boxing, basketball and bull riding, to high profile awards shows and top-name concerts. Beginning with the 2017 – 2018 season, the T-Mobile Arena will be the home of the Vegas Golden Knights of the National Hockey League. Additionally, the Company leases the MGM Grand Garden Arena, located adjacent to the MGM Grand Las Vegas, to the Las Vegas Arena Company. See Note 4 for additional information regarding the Company’s investment in the Las Vegas Arena Company.

 

5


 

The Company also has a 50% interest in Grand Victoria. Grand Victoria is a riverboat casino in Elgin, Illinois; an affiliate of Hyatt Gaming owns the other 50% of Grand Victoria and also operates the resort. See Note 4 for additional information regarding the Company’s investment in Grand Victoria.

 

A subsidiary of the Company was awarded a casino license to build and operate MGM Springfield in Springfield, Massachusetts. MGM Springfield will be developed on approximately 14 acres of land in downtown Springfield. The Company’s plans for the resort currently include a casino with approximately 3,000 slots and 100 table games including poker; a 250-room hotel; 100,000 square feet of retail and restaurant space; 44,000 square feet of meeting and event space; and a 3,375 space parking garage, with an expected development and construction cost of approximately $865 million, excluding capitalized interest and land related costs.  

 

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

 

NOTE 2 — BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

 

Basis of presentation. As permitted by the rules and regulations of the Securities and Exchange Commission, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) have been condensed or omitted. These consolidated financial statements should be read in conjunction with the Company’s 2016 annual consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

 

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

 

Principles of consolidation. For entities not determined to be a variable interest entity (“VIE”), the Company consolidates such entities in which the Company owns 100% of the equity. For entities in which the Company owns less than 100% of the equity interest, the Company consolidates the entity if it has the direct or indirect ability to control the entities’ activities based upon the terms of the respective entities’ ownership agreements. For these entities, the Company records a noncontrolling interest in the consolidated balance sheets. The Company’s investments in unconsolidated affiliates which are 50% or less owned are accounted for under the equity method when the Company can exercise significant influence over or has joint control of the unconsolidated affiliate. All intercompany balances and transactions are eliminated in consolidation.

 

The Company evaluates entities for which control is achieved through means other than voting rights to determine if it is the primary beneficiary of a VIE. A VIE is an entity in which either (i) the equity investors as a group, if any, lack the power through voting or similar rights to direct the activities of such entity that most significantly impact such entity’s economic performance or (ii) the equity investment at risk is insufficient to finance that entity’s activities without additional subordinated financial support. The Company identifies the primary beneficiary of a VIE as the enterprise that has both of the following characteristics: (i) the power to direct the activities of the VIE that most significantly impact the entity’s economic performance; and (ii) the obligation to absorb losses or receive benefits of the VIE that could potentially be significant to the entity. The Company consolidates its investment in a VIE when it determines that it is its primary beneficiary. For these VIEs, the Company records a noncontrolling interest in the consolidated balance sheets. The Company may change its original assessment of a VIE upon subsequent events such as the modification of contractual arrangements that affect the characteristics or adequacy of the entity’s equity investments at risk and the disposition of all or a portion of an interest held by the primary beneficiary. The Company performs this analysis on an ongoing basis.

 

Management has determined that MGP is a VIE because the Class A equity investors as a group lack the power through voting or similar rights to direct the activities of such entity that most significantly impact such entity’s economic performance. The Company has determined that it is the primary beneficiary of MGP and consolidates MGP because (i) its ownership of MGP’s single Class B share entitles it to a majority of the total voting power of MGP’s shares, and (ii) the exchangeable nature of the Operating Partnership units owned provide the Company the right to receive benefits from MGP that could potentially be significant to MGP. The Company has recorded MGP’s 23.7% ownership interest in the Operating Partnership as noncontrolling interest in the Company’s consolidated financial statements. As of March 31, 2017 and December 31, 2016, on a consolidated basis, MGP had total assets of $9.4 billion and $9.5 billion, respectively, primarily related to its real estate investments, and total liabilities of $3.9 billion, as of both March 31, 2017 and December 31, 2016, primarily related to its indebtedness.  

 

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:

6


 

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 used the following inputs in its fair value measurements:

 

 

Level 1 and Level 2 inputs for its long-term debt fair value disclosures (see Note 5); and

 

Level 2 inputs when measuring the fair value of its interest rate swaps (see Note 6).

 

Property and equipment. Property and equipment are stated at cost. A significant amount of the Company’s property and equipment was acquired through business combinations and therefore recognized at fair value at the acquisition date. Gains and losses on dispositions of property and equipment are included in the determination of income or loss. Maintenance costs are expensed as incurred. As of March 31, 2017 and December 31, 2016, the Company had accrued $15 million and $36 million, respectively, for property and equipment within accounts payable and $32 million as of both March 31, 2017 and December 31, 2016, related to construction retention accrued in other long-term liabilities.

 

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 19.8% for the three months ended March 31, 2017.

 

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.

 

The Company has generated significant excess foreign tax credits that are attributable to the Macau Special Gaming Tax which is 35% of gross gaming revenue in Macau. Because MGM Grand Paradise is presently exempt from the Macau 12% complementary tax on gaming profits, the Company believes that payment of the Macau Special Gaming Tax qualifies as a tax paid in lieu of an income tax that is creditable against U.S. taxes. As long as the exemption from Macau’s 12% complementary tax on gaming profits continues and the Company continues to receive distributions from MGM China, the Company expects that it will generate excess foreign tax credits in most years and that most of the excess foreign credits will not be utilized before the exemption expires. On September 7, 2016, MGM Grand Paradise was granted an additional extension of the complementary tax exemption through March 31, 2020, concurrent with the end of the term of its current gaming subconcession. A competitor of MGM Grand Paradise subsequently received an additional extension of its exemption through March 31, 2020, which also runs concurrent with the end of the term of its current gaming concession. Based upon these developments and the uncertainty concerning taxation after the concession renewal process, the Company has assumed that MGM Grand Paradise will pay the Macau 12% complementary tax on gaming profits for all periods beyond March 31, 2020 and it 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 and the measurement of Macau deferred tax liabilities.

 

MGM Grand Paradise’s exemption from the Macau 12% complementary tax on gaming profits does not apply to dividend distributions of such profits to MGM China. However, MGM Grand Paradise has an agreement with the Macau government to settle the 12% complementary tax that would otherwise be due by its shareholder, MGM China, on distributions of its gaming profits by paying a flat annual payment (“annual fee arrangement”) regardless of the amount of distributable dividends. Such annual fee arrangement was effective for distributions of profits earned through December 31, 2016. MGM China was not subject to the complementary tax on distributions covered by the annual fee arrangement. Annual payments of $2 million were required under the annual fee arrangement. MGM Grand Paradise has requested an extension of this agreement to cover distributions of profits earned through December 31, 2021. However, no assurance can be given that an extension will be granted or that the terms, if granted, will not be less favorable than the prior agreement. Since 2017 earnings are not currently covered by an annual fee arrangement, the Company is providing deferred taxes on such earnings in estimating its annual effective tax rate for 2017. If an extension is granted in 2017, the Company will adjust its annual effective tax rate accordingly.

 

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 exemption from Macau’s 12% complementary tax on gaming profits and future profitability of its U.S. operations. As a result, significant judgment is required in assessing the possible need for and amount of 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.

 

7


 

Recently issued accounting standards. In 2015 and 2016, the FASB issued the following ASUs related to revenue recognition, effective for fiscal years beginning after December 15, 2017, pursuant to ASU 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date”:  

 

 

ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” (“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. ASU 2014-09 provides for a new revenue recognition model which includes a five-step analysis in determining when and how revenue is recognized, including identification of separate performance obligations for each contract with a customer. 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;

 

ASU 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net),” (“ASU 2016-08”) clarifies the implementation guidance on principal versus agent considerations as it relates to ASU 2014-09. ASU 2016-08 provides guidance related to the assessment an entity is required to perform to determine whether the nature of its promise is to provide the specified good or service itself (that is, the entity is a principal) or to arrange for that good or service to be provided by the other party (that is, the entity is an agent) when another party is involved in providing goods or services to a customer;

 

ASU 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing,” (“ASU 2016-10”) clarifies guidance related to identifying performance obligations and licensing implementation guidance as it relates to ASU 2014-09. ASU 2016-10 includes targeted improvements based on input the FASB received from the Transition Resource Group for Revenue Recognition and other stakeholders. It seeks to proactively address areas in which diversity in practice potentially could arise, as well as to reduce the cost and complexity of applying certain aspects of the guidance both at implementation and on an ongoing basis; and

 

ASU 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients,” (“ASU 2016-12”) addresses narrow-scope improvements to the guidance on collectability, noncash consideration and completed contracts at transition as it relates to ASU 2014-09. ASU 2016-12 provides for a practical expedient for contract modifications at transition and an accounting policy election related to the presentation of sales taxes and other similar taxes collected from customers.

The Company is currently assessing the impact that the adoption of the above ASUs related to revenue recognition will have on its consolidated financial statements and footnote disclosures. However, the Company has identified a few significant impacts. Under the new guidance, the Company expects it will no longer be permitted to recognize revenues for goods and services provided to customers for free as an inducement to gamble as gross revenue with a corresponding offset to promotional allowances to arrive at net revenues as discussed above. The Company expects the majority of such amounts will offset casino revenues. In addition, accounting for Express Comps granted under the Company’s M life Rewards program as outlined above will also change. Under the new guidance, Express Comps earned by customers through past revenue transactions will be identified as separate performance obligations and recorded as a reduction in gaming revenues when earned at the retail value of such benefits owed to the customer (less estimated breakage). When customers redeem such benefits and the performance obligation is fulfilled by the Company, revenue will be recognized in the department that provides the goods or services (i.e., hotel, food and beverage, or entertainment). In addition, given that M life Rewards is an aspirational loyalty program with multiple customer tiers, which provide certain benefits to tier members, the Company will need to assess if such benefits are deemed to be separate performance obligations under the new guidance.

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842),” (“ASU 2016-02”), which replaces the existing guidance in Accounting Standards Codification (“ASC”) 840, “Leases.” ASU 2016-02 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. ASU 2016-02 requires a dual approach for lessee accounting under which a lessee would account for leases as finance leases or operating leases. Both finance leases and operating leases will result in the lessee recognizing a right-of-use (“ROU”) asset and a corresponding lease liability. For finance leases, the lessee would recognize interest expense and amortization of the ROU asset and for operating leases the lessee would recognize a straight-line total lease expense. The Company is currently assessing the impact the adoption of ASU 2016-02 will have on its consolidated financial statements and footnote disclosures.

In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force),” (“ASU 2016-15”), effective for fiscal years beginning after December 15, 2017. ASU 2016-15 amends the guidance of ASC 230 on the classification of certain cash receipts and payments in the statement of cash flows. The primary purpose of ASU 2016-15 is to reduce the diversity in practice that has resulted from the lack of consistent principles, specifically clarifying the guidance on eight cash flow issues. The Company does not expect the adoption of ASU 2016-15 to have a material effect on its consolidated financial statements.

8


 

In January 2017, the Company adopted ASU No. 2016-09, “Compensation – Stock Compensation (Topic 718),” (“ASU 2016-09”). ASU 2016-09 simplifies the accounting for share-based payment transactions, including the income tax consequences, accounting for forfeitures, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 has separate transition guidance for each element of the new standard. The adoption of ASU 2016-09 did not have a material effect on the Company’s consolidated financial statements and footnote disclosures.

In January 2017, the Company adopted ASU No. 2016-17, “Consolidation (Topic 810): Interests Held Through Related Parties that are Under Common Control,” (“ASU 2016-17”). The amendments affect the evaluation of whether to consolidate a VIE in certain situations involving entities under common control. Specifically, the amendments change the evaluation of whether an entity is the primary beneficiary of a VIE for an entity that is a single decision maker of a variable interest by changing how an entity treats indirect interests in the VIE held through related parties that are under common control with the reporting entity. The guidance in ASU 2016-17 must be applied retrospectively to all relevant periods. The adoption of ASU 2016-17 did not have a material effect on the Company’s consolidated financial statements and footnote disclosures.

In January 2017, the Company early adopted ASU No. 2017-04, “IntangiblesGoodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”). ASU 2017-04 simplifies the subsequent measurement of goodwill by eliminating step two from the goodwill impairment test. Under the amended guidance, the Company will perform its annual goodwill impairment tests (and interim tests if any are determined to be necessary) by comparing the fair value of its reporting units with their carrying value, and an impairment charge, if any, will be recognized for the amount by which the carrying value exceeds the reporting unit’s fair value, not to exceed the total amount of goodwill allocated to that reporting unit. The adoption of ASU 2017-04 did not have a material effect on the Company’s consolidated financial statements and footnote disclosures.

 

NOTE 3 — BORGATA ACQUISITION

 

On August 1, 2016, the Company completed the acquisition of Boyd Gaming Corporation’s (“Boyd Gaming”) ownership interest in Borgata. Following the completion of the acquisition of Boyd Gaming’s interest, MGP acquired Borgata’s real property from the Company and leased back the real property to a subsidiary of the Company.

 

As part of the purchase and sale agreement to acquire Borgata, the Company agreed to pay Boyd Gaming half of any net amount received or utilized by the Company as it relates to the Atlantic City property tax refund owed to Borgata at the time of the transaction. Pursuant to tax court judgments, The City of Atlantic City, New Jersey (“Atlantic City”) owed Borgata property tax refunds of approximately $106 million, plus interest, related to the over-assessment of property values for the 2009-2012 tax years. As a result of funding shortfalls, the City of Atlantic City did not pay the refunds due to Borgata and therefore, Borgata withheld current property tax obligations in partial satisfaction of the tax court judgment. Borgata applied $33 million of such credits through December 31, 2016. After taking into account contingent consideration paid related to property tax refunds realized by Borgata, cash paid to Boyd Gaming for its interest in Borgata was $604 million. See Note 7 for information regarding the property tax reimbursement agreement Borgata entered into in February 2017 with the Department of Community Affairs of the State of New Jersey and Atlantic City.

 

Through the acquisition of Boyd Gaming’s interest in Borgata, the Company obtained 100% of the equity interests in Borgata and therefore consolidated Borgata as of August 1, 2016. The Company recognized 100% of the assets and liabilities of Borgata at fair value at the date of the acquisition. Prior to the acquisition, the Company held a 50% ownership interest in Borgata, which was accounted for under the equity method.

 

Pro forma information. The operating results for Borgata are included in the accompanying consolidated statements of operations from the date of acquisition. The following unaudited pro forma consolidated financial information for the Company has been prepared assuming the Company’s acquisition of its controlling interest had occurred as of January 1, 2015. The unaudited pro forma financial information below is not necessarily indicative of either future results of operations or results that might have been achieved had the acquisition been consummated as of January 1, 2015.

 

 

Three Months Ended

 

 

March 31,

 

 

2016

 

 

(In thousands, except

per share data)

 

 

(unaudited)

 

Net revenues

$

2,399,607

 

Net income attributable to MGM Resorts International

 

78,849

 

Basic net income per share

$

0.14

 

Diluted net income per share

$

0.14

 

 

9


 

NOTE 4 — INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES

 

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

 

 

March 31,

 

 

December 31,

 

 

2017

 

 

2016

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

CityCenter Holdings, LLC – CityCenter (50%)

$

1,038,606

 

 

$

1,007,358

 

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

 

122,984

 

 

 

123,585

 

Las Vegas Arena Company, LLC (42.5%)

 

78,198

 

 

 

80,339

 

Other

 

12,644

 

 

 

9,161

 

 

$

1,252,432

 

 

$

1,220,443

 

 

The Company recorded its share of net income (loss) from unconsolidated affiliates, including adjustments for basis differences, as follows:

  

 

Three Months Ended

 

 

March 31,

 

 

2017

 

 

2016

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

Income from unconsolidated affiliates

$

39,703

 

 

$

14,702

 

Preopening and start-up expenses

 

 

 

 

(2,282

)

Non-operating items from unconsolidated affiliates

 

(6,921

)

 

 

(18,212

)

 

$

32,782

 

 

$

(5,792

)

 

CityCenter

 

Summarized balance sheet information for CityCenter is as follows:

 

 

March 31,

 

 

December 31,

 

 

2017

 

 

2016

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

Current assets

$

442,905

 

 

$

394,283

 

Property and other long-term assets, net

 

6,662,105

 

 

 

6,704,485

 

Current liabilities

 

507,564

 

 

 

295,822

 

Long-term debt, net and other long-term obligations

 

1,248,979

 

 

 

1,248,916

 

Equity

 

5,348,467

 

 

 

5,554,030

 

 

Summarized income statement information for CityCenter is as follows:

 

 

Three Months Ended

 

 

March 31,

 

 

2017

 

 

2016

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

Net revenues

$

325,592

 

 

$

301,541

 

Operating expenses

 

(269,013

)

 

 

(328,684

)

Operating income (loss)

 

56,579

 

 

 

(27,143

)

Non-operating expenses

 

(12,142

)

 

 

(21,026

)

Net income (loss) from continuing operations

 

44,437

 

 

 

(48,169

)

Discontinued operations

 

 

 

 

(11,557

)

Net income (loss)

$

44,437

 

 

$

(59,726

)

 

Crystals sale. In April 2016, CityCenter closed the sale of The Shops at Crystals, and the results of operations were classified as discontinued operations in the summarized income statement information for the three months ended March 31, 2016.

 

CityCenter credit facility. In April 2017, CityCenter completed a refinancing of its senior credit facility. The new senior credit facility consists of a $1.6 billion term loan B facility maturing in April 2024 and a $125 million revolving credit facility maturing in April 2022. The term loan B was issued at 99.5% and will bear interest at LIBOR plus 2.50% with a LIBOR floor of 0.75%. The revolving facility will bear interest at LIBOR plus 2.00%.

10


 

 

CityCenter distributions. In April 2017, CityCenter paid a $600 million dividend, consisting of a $350 million dividend using proceeds from the upsized senior credit facilities and a $250 million dividend from cash on hand, of which $78 million was part of its annual dividend policy. MGM Resorts received its 50% share, or $300 million.

 

Borgata

 

Borgata transaction. As discussed in Note 3, the Company acquired Boyd Gaming’s ownership interest in Borgata on August 1, 2016, and therefore began to consolidate Borgata beginning on that date. Prior thereto, the Company’s investment in Borgata was accounted for under the equity method.

 

NOTE 5 — LONG-TERM DEBT

 

Long-term debt consisted of the following:

 

 

March 31,

 

 

December 31,

 

 

2017

 

 

2016

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

Senior credit facility

$

296,875

 

 

$

250,000

 

MGM Growth Properties senior credit facility

 

2,116,500

 

 

 

2,133,250

 

MGM China credit facility

 

2,006,125

 

 

 

1,933,313

 

MGM National Harbor credit facility

 

450,000

 

 

 

450,000

 

$475 million 11.375% senior notes, due 2018

 

475,000

 

 

 

475,000

 

$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

 

1,250,000

 

 

 

1,250,000

 

$1,050 million 5.625% MGM Growth Properties senior notes, due 2024

 

1,050,000

 

 

 

1,050,000

 

$500 million 4.5% MGM Growth Properties senior notes, due 2026

 

500,000

 

 

 

500,000

 

$500 million 4.625% senior notes, due 2026

 

500,000

 

 

 

500,000

 

$0.6 million 7% debentures, due 2036

 

552

 

 

 

552

 

$2.3 million 6.7% debentures, due 2096

 

2,265

 

 

 

2,265

 

 

 

13,247,317

 

 

 

13,144,380

 

Less: Premiums, discounts, and unamortized debt issuance costs, net

 

(148,127

)

 

 

(156,785

)

 

 

13,099,190

 

 

 

12,987,595

 

Less: Current portion

 

 

 

 

(8,375

)

 

$

13,099,190

 

 

$

12,979,220

 

 

Debt due within one year of the March 31, 2017 and December 31, 2016 balance sheets was classified as long-term as the Company had both the intent and ability to refinance current maturities on a long-term basis under its revolving senior credit facilities, with the exception that $8 million of MGP’s quarterly amortization payments under its senior credit facility were classified as current at December 31, 2016 because MGP used cash to make such amortization payments in January 2017.

 

Senior credit facility. At March 31, 2017, the Company’s senior credit facility consisted of a $1.25 billion revolving facility and a $250 million term loan A facility. The revolving facility and the term loan A facility bear interest determined by reference to a total net leverage ratio pricing grid which results in an interest rate of LIBOR plus 1.75% to 2.75%. Both the term loan A facility and the revolving facility will mature in April 2021. The term loan A facility is subject to amortization of principal in equal quarterly installments (commencing with the fiscal quarter ended March 31, 2017), with 5.0% of the initial aggregate principal amount of the term loan A facility to be payable each year. The Company permanently repaid $3 million of the term loan A facility in the three months ended March 31, 2017. The outstanding balance at March 31, 2017 was composed of $247 million of term loans and $50 million drawn on the revolving credit facility. At March 31, 2017, the interest rate on the term loan A facility was 3.23% and the interest rate on the revolving credit facility was 3.19%.

The senior credit facility contains representations and warranties, customary events of default, and positive, negative and financial covenants, including that the Company maintain compliance with a maximum total net leverage ratio, a maximum first lien

11


 

net leverage ratio and a minimum interest coverage ratio. The Company was in compliance with its credit facility covenants at March 31, 2017.

The senior credit facility is secured by (i) a mortgage on the real properties comprising the MGM Grand Las Vegas and the Bellagio, (ii) a pledge of substantially all existing and future personal property of the subsidiaries of the Company that own the MGM Grand Las Vegas and the Bellagio; and (iii) a pledge of the equity or limited liability company interests of the entities that own MGM Grand Las Vegas and the Bellagio.

Mandatory prepayments of the credit facilities will be required upon the occurrence of certain events, including sales of certain assets, casualty events and the incurrence of certain additional indebtedness, subject to certain exceptions and reinvestment rights.

 

MGM Growth Properties senior credit facility. At March 31, 2017, the Operating Partnership’s senior credit facility consisted of a $285 million senior secured term loan A facility, a $1.83 billion senior secured term loan B facility, and a $600 million senior secured revolving credit facility. The revolving credit facility and term loan A facility bear interest determined by reference to a total net leverage ratio pricing grid which results in an interest rate of LIBOR plus 2.25% to 2.75%. Prior to February 2017, the term loan B facility bore interest at LIBOR plus 2.75%, with a LIBOR floor of 0.75%. In February 2017, the Operating Partnership received a reduction of its term loan B interest rate to LIBOR plus 2.50%, with a LIBOR floor of 0.75% upon achieving a minimum corporate family rating of Ba3/BB-. On May 1, 2017, the Operating Partnership repriced its term loan B interest rate to LIBOR plus 2.25% with a LIBOR floor of 0%. All other principal provisions of the existing credit facility remain unchanged. The revolving credit facility and the term loan A facility will mature in 2021 and the term loan B facility will mature in 2023.

 

The term loan facilities are subject to amortization of principal in equal quarterly installments, with 5.0% of the initial aggregate principal amount of the term loan A facility and 1.0% of the initial aggregate principal amount of the term loan B facility to be payable each year. The Operating Partnership permanently repaid $8 million of the term loan A facility and $9 million of the term loan B facility in the three months ended March 31, 2017. At March 31, 2017, the interest rate on the term loan A facility was 3.73% and the interest rate on the term loan B facility was 3.48%. No amounts have been drawn on the revolving credit facility.

 

The Operating Partnership credit facility contains customary representations and warranties, events of default, and positive, negative and financial covenants, including that the Operating Partnership maintain compliance with a maximum senior secured net debt to adjusted total assets ratio, maximum total net debt to adjusted assets ratio and a minimum interest coverage ratio. The Operating Partnership was in compliance with its credit facility covenants at March 31, 2017. 

    

MGM China credit facility. At March 31, 2017, the MGM China credit facility consisted of $1.55 billion of term loans and a $1.45 billion revolving credit facility, which bear interest at a fluctuating rate per annum based on HIBOR plus a margin that ranges between 1.375% and 2.5% based on MGM China’s leverage ratio. The MGM China credit facility matures in April 2019, with scheduled amortization payments of the term loans beginning in October 2017. 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 facility. The outstanding balance at March 31, 2017 was comprised of $1.56 billion of term loans and $450 million drawn on the revolving credit facility. At March 31, 2017, the weighted average interest rate on the term loans was 2.44% and the interest rate on the revolving credit facility was 2.45%.

 

The MGM China credit facility contains customary representations and warranties, events of default, and positive, negative and financial covenants, including that MGM China maintains compliance with a maximum leverage ratio and a minimum interest coverage ratio. In February 2017, the MGM China credit facility was amended to increase the maximum total leverage ratio to 6.00 to 1.00 through December 31, 2017, declining to 5.50 to 1.00 at March 31, 2018, 5.00 to 1.00 at June 30, 2018 and 4.50 to 1.00 at September 30, 2018 and thereafter. MGM China was in compliance with its credit facility covenants at March 31, 2017.

 

MGM National Harbor credit facility. At March 31, 2017, the MGM National Harbor, LLC credit facility consisted of a $425 million term loan facility and a $100 million revolving credit facility. The term loan and revolving facilities bear interest at LIBOR plus an applicable rate determined by MGM National Harbor, LLC’s total leverage ratio (2.25% as of March 31, 2017). The term loan and revolving facilities are scheduled to mature in January 2021 and the term loan facilities are subject to scheduled amortization payments on the last day of each calendar quarter beginning December 31, 2017, initially in an amount equal to 1.25% of the aggregate principal balance and increasing to 1.875% and 2.50% of the aggregate principal balance on December 31, 2019 and December 31, 2020, respectively. The outstanding balance at March 31, 2017 consisted of $425 million of term loans and $25 million drawn on the revolving credit facility. At March 31, 2017, the interest rate on the term loan A was 3.23% and the interest rate on the revolving credit facility was 3.10%.

 

The credit agreement is secured by a leasehold mortgage on MGM National Harbor and substantially all of the existing and future property of MGM National Harbor. Mandatory prepayments will be required upon the occurrence of certain events, including sales of certain assets, casualty events and the incurrence of certain additional indebtedness, subject to certain exceptions and

12


 

reinvestment rights. In addition, to the extent MGM National Harbor generates excess cash flow (as defined in the credit agreement), a percentage of such excess cash flow (ranging from 0% to 50% based on a total leverage ratio) will be required to be used to prepay the term loan facilities commencing with the fiscal year ending 2017.  

 

The credit agreement contains customary representations and warranties, events of default, and positive, negative and financial covenants, including that MGM National Harbor, LLC and its restricted subsidiaries maintain compliance with a maximum total leverage ratio and a minimum interest coverage ratio. MGM National Harbor, LLC was in compliance with its credit agreement covenants at March 31, 2017.

 

Fair value of long-term debt. The estimated fair value of the Company’s long-term debt was $13.9 billion at March 31, 2017 and December 31, 2016. Fair value was estimated using quoted market prices for the Company’s senior notes and senior credit facilities.

 

 

NOTE 6 — DERIVATIVES AND HEDGING ACTIVITIES

 

The Operating Partnership uses derivative instruments to mitigate the effects of interest rate volatility inherent in its variable rate debt, which could unfavorably impact its future earnings and forecasted cash flows. The Operating Partnership does not use derivative instruments for speculative or trading purposes.

 

The Operating Partnership is party to interest rate swaps that are designated as cash flow hedges to mitigate the interest rate risk inherent in its senior secured term loan B facility. The Operating Partnership paid a fixed rate and received a variable rate that resets monthly to the one-month LIBOR subject to a minimum rate of 0.75%. The principle terms at March 31, 2017 and December 31, 2016 are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Asset (Liability)

 

Effective Date

 

Maturity Date

 

Notional Amount

 

 

Fixed Rate

 

 

March 31, 2017

 

 

December 31, 2016

 

(In thousands)

 

December 8, 2016

 

November 30, 2021

 

$

500,000

 

 

 

1.825

%

 

$

2,770

 

 

$

1,879

 

January 31, 2017

 

November 30, 2021

 

 

700,000

 

 

 

1.964

%

 

 

(1,525

)

 

N/A

 

 

 

 

 

$

1,200,000

 

 

 

 

 

 

$

1,245

 

 

$

1,879

 

 

Interest rate swaps valued in net unrealized gain positions are recognized as asset balances within “Other long-term assets, net.”  Interest rate swaps valued in net unrealized loss positions are recognized as liability balances within “Other long-term obligations.” For the three months ended March 31, 2017, the amount recorded in other comprehensive income related to the derivative instruments was a net loss of $0.6 million. There was no ineffective portion of the change in fair value derivatives. During the three months ended March 31, 2017, the Operating Partnership recorded interest expense of $3 million related to the swap agreements.

 

In May 2017, the Company amended its outstanding interest rate swap agreements. Under the new agreements the Company will pay a weighted average fixed rate of 1.844% on total notional amount of $1.2 billion and the variable rate received will reset monthly to the one-month LIBOR, with no minimum rate.

 

NOTE 7 — COMMITMENTS AND CONTINGENCIES

 

Borgata property tax reimbursement agreement. On February 15, 2017, Borgata, the Department of Community Affairs of the State of New Jersey and Atlantic City entered into an agreement wherein Borgata will be reimbursed $72 million as settlement for property tax refunds, subject to certain terms and conditions. The payment of the settlement amount is in satisfaction of existing New Jersey Tax Court and Superior Court judgments totaling approximately $106 million, plus interest for the 2009-2012 tax years and the settlement of pending tax appeals for the tax years 2013-2015. Those pending tax appeals could potentially have resulted in Borgata being awarded additional refunds due amounting to approximately $65 million. Under the terms of the agreement, Atlantic City will pay Borgata the reimbursement amount of $72 million in up to two installments, with the first installment of $52 million due on or before July 31, 2017 and the second installment for the remaining balance of $20 million due on or before October 1, 2017. In order to finance the reimbursement, Atlantic City and the State of New Jersey have agreed to use their best efforts to issue and sell bonds. Should Atlantic City fail to pay either of the installment payments or petition for relief from creditors under state or federal law, or should any other event occur that would cause termination of the agreement, Borgata will be entitled to enforce a consent judgment that was entered into as part of the settlement for the 2009-2015 tax years in an amount totaling approximately $158 million.

 

As part of the purchase and sale agreement to acquire Borgata in August 2016, the Company agreed to pay Boyd Gaming half of any net amount received by the Company as it relates to the property tax refund owed to Borgata. The Company will recognize the

13


 

amounts received pursuant to the reimbursement agreement and amounts paid to Boyd Gaming in current earnings in the periods in which payments are received and paid.  

 

T-Mobile Arena senior credit facility. The Company is party to a repayment guarantee for the term loan B facility under the Las Vegas Arena Company’s senior credit facility. As of March 31, 2017, the term loan B was $50 million.

 

Other guarantees. The Company and its subsidiaries are party to various guarantee contracts in the normal course of business, which are generally supported by letters of credit issued by financial institutions. The Company’s senior credit facility limits the amount of letters of credit that can be issued to $250 million, MGP’s senior credit facility limits the amount to $75 million, MGM China’s credit facility limits the amount to $100 million, and MGM National Harbor’s credit facility limits the amount to $30 million. At March 31, 2017, $15 million in letters of credit were outstanding under the Company’s senior credit facility and $39 million in letters of credit were outstanding under MGM China’s credit facility. No amounts were outstanding under the MGP senior credit facility and the MGM National Harbor credit facility at March 31, 2017. The amount of available borrowings under each of the credit facilities are reduced by any outstanding letters of credit.

 

Other litigation. The Company is a party to various legal proceedings, most of which relate to routine matters incidental to its business. Management does not believe that the outcome of such proceedings will have a material adverse effect on the Company’s financial position, results of operations or cash flows.

 

NOTE 8 — INCOME PER SHARE OF COMMON STOCK

 

The table below reconciles basic and diluted income per share of common stock. Diluted net income attributable to common stockholders includes adjustments for redeemable noncontrolling interests and the potentially dilutive effect on the Company’s equity interests in MGP and MGM China due to shares outstanding under their respective stock compensation plans. Diluted weighted-average common and common equivalent shares includes adjustments for potential dilution of share-based awards outstanding under the Company’s stock compensation plan.   

 

 

Three Months Ended

 

 

March 31,

 

 

2017

 

 

2016

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

Numerator:

 

 

 

 

 

 

 

Net income attributable to MGM Resorts International

$

206,847

 

 

$

66,799

 

Adjustment related to redeemable noncontrolling interests

 

(28

)

 

 

 

Net income available to common stockholders - basic

 

206,819

 

 

 

66,799

 

Potentially dilutive effect due to MGP Omnibus Plan

 

(37

)

 

 

 

Potentially dilutive effect due to MGM China Share Option Plan

 

(19

)

 

 

 

Net income attributable to common stockholders - diluted

$

206,763

 

 

$

66,799

 

Denominator:

 

 

 

 

 

 

 

Weighted-average common shares outstanding - basic

 

574,403

 

 

 

565,056

 

Potential dilution from share-based awards

 

5,762

 

 

 

4,399

 

Weighted-average common and common equivalent shares - diluted

 

580,165

 

 

 

569,455

 

Antidilutive share-based awards excluded from the calculation of diluted

   earnings per share

 

3,205

 

 

 

6,456

 

 

NOTE 9 — STOCKHOLDERS’ EQUITY

 

MGM Resorts International dividends. On April 26, 2017, the Company’s Board of Directors approved a quarterly dividend to holders of record on June 9, 2017 of $0.11 per share, totaling $63 million, which will be paid on June 15, 2017. On March 15, 2017, the Company paid a quarterly dividend of $0.11 per share, totaling $63 million.

 

MGM China dividends. On February 16, 2017, as part of its regular dividend policy, MGM China’s Board of Directors announced it will recommend a final dividend for 2016 of $78 million to MGM China shareholders subject to approval at the MGM China 2017 annual shareholders meeting to be held in May. If approved, the Company will receive its 56% share of the dividend, or $44 million, of which $4 million will be paid to Grand Paradise Macau under the previously disclosed deferred cash payment arrangement.

 

MGP dividends. On March 15, 2017, MGP’s Board of Directors declared a quarterly dividend of $0.3875 per Class A share totaling $22 million, which was paid on April 13, 2017 to holders of record on March 31, 2017. The Company concurrently received a

14


 

$72 million distribution attributable to its ownership of Operating Partnership units. In January 2017, MGP paid a quarterly dividend of $0.3875 per Class A share totaling $22 million. The Company concurrently received a $72 million distribution attributable to its ownership of Operating Partnership units.

 

Supplemental equity information. The following table presents the Company’s changes in stockholders’ equity for the three months ended March 31, 2017:

 

 

MGM Resorts

 

 

 

 

 

 

 

 

 

 

International

 

 

 

 

 

 

Total

 

 

Stockholders'

 

 

Noncontrolling

 

 

Stockholders'

 

 

Equity

 

 

Interests

 

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

Balances, January 1, 2017

$

6,220,180

 

 

$

3,749,132

 

 

$

9,969,312

 

Net income

 

206,847

 

 

 

44,042

 

 

 

250,889

 

Currency translation adjustment

 

(7,352

)

 

 

(5,581

)

 

 

(12,933

)

Other comprehensive loss - cash flow hedges

 

(484

)

 

 

(150

)

 

 

(634

)

Stock-based compensation

 

14,946

 

 

 

1,020

 

 

 

15,966

 

Issuance of common stock pursuant to stock-based compensation awards

 

(4,074

)

 

 

 

 

 

(4,074

)

Issuance of performance share units

 

9,648

 

 

 

95

 

 

 

9,743

 

Distributions to noncontrolling interest owners

 

 

 

 

(2,044

)

 

 

(2,044

)

Dividend paid to common shareholders

 

(63,182

)

 

 

 

 

 

(63,182

)

Dividend payable to noncontrolling interest owners

 

 

 

 

(22,281

)

 

 

(22,281

)

Other

 

(34

)

 

 

(11

)

 

 

(45

)

Balances, March 31, 2017

$

6,376,495

 

 

$

3,764,222

 

 

$

10,140,717

 

 

Net income attributable to noncontrolling interests in the above table excludes $2 million related to redeemable noncontrolling interests in the three months ended March 31, 2017.

 

Accumulated other comprehensive income. Changes in accumulated other comprehensive income attributable to MGM Resorts International are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Currency

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Translation

 

 

Cash Flow

 

 

 

 

 

 

 

 

 

 

Adjustments

 

 

Hedges

 

 

Other

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

Balance, January 1, 2017

$

12,545

 

 

$

1,434

 

 

$

1,074

 

 

$

15,053

 

Other comprehensive loss before reclassifications

 

(12,933

)

 

 

(3,320

)