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EX-32.1 - EX-32.1 - MGM Resorts Internationalmgm-ex321_10.htm
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EX-31.1 - EX-31.1 - MGM Resorts Internationalmgm-ex311_7.htm
EX-31.2 - EX-31.2 - MGM Resorts Internationalmgm-ex312_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 June 30, 2018

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 August 1, 2018 

Common Stock, $.01 par value

 

537,902,116 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, 2018 and December 31, 2017

1

 

 

Consolidated Statements of Operations for the Three Months and Six Months Ended June 30, 2018 and June 30, 2017

2

 

 

Consolidated Statements of Comprehensive Income for the Three Months and Six Months Ended June 30, 2018 and June 30, 2017

3

 

 

Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2018 and June 30, 2017

4

 

 

Condensed Notes to Consolidated Financial Statements

5

Item 2.

 

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

25

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

40

Item 4.

 

Controls and Procedures

40

 

PART II.

OTHER INFORMATION

41

Item 1.

 

Legal Proceedings

41

Item 1A.

 

Risk Factors

41

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

42

Item 6.

 

Exhibits

42

 

SIGNATURES

43

 

 

 

 


 

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,

 

 

2018

 

 

2017

 

ASSETS

 

Current assets

 

 

 

 

 

 

 

Cash and cash equivalents

$

1,272,872

 

 

$

1,499,995

 

Accounts receivable, net

 

497,350

 

 

 

542,273

 

Inventories

 

109,130

 

 

 

102,292

 

Income tax receivable

 

23,124

 

 

 

42,551

 

Prepaid expenses and other

 

180,640

 

 

 

189,244

 

Total current assets

 

2,083,116

 

 

 

2,376,355

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

19,863,078

 

 

 

19,635,459

 

 

 

 

 

 

 

 

 

Other assets

 

 

 

 

 

 

 

Investments in and advances to unconsolidated affiliates

 

882,940

 

 

 

1,033,297

 

Goodwill

 

1,801,034

 

 

 

1,806,531

 

Other intangible assets, net

 

3,776,770

 

 

 

3,877,960

 

Other long-term assets, net

 

570,222

 

 

 

430,440

 

Total other assets

 

7,030,966

 

 

 

7,148,228

 

 

$

28,977,160

 

 

$

29,160,042

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

Current liabilities

 

 

 

 

 

 

 

Accounts payable

$

268,140

 

 

$

255,028

 

Construction payable

 

418,945

 

 

 

474,807

 

Current portion of long-term debt, net

 

 

 

 

158,042

 

Accrued interest on long-term debt

 

140,184

 

 

 

135,785

 

Other accrued liabilities

 

2,237,524

 

 

 

2,114,635

 

Total current liabilities

 

3,064,793

 

 

 

3,138,297

 

 

 

 

 

 

 

 

 

Deferred income taxes, net

 

1,226,397

 

 

 

1,295,375

 

Long-term debt, net

 

13,513,341

 

 

 

12,751,052

 

Other long-term obligations

 

245,720

 

 

 

284,416

 

Commitments and contingencies (Note 6)

 

 

 

 

 

 

 

Redeemable noncontrolling interests

 

86,968

 

 

 

79,778

 

Stockholders' equity

 

 

 

 

 

 

 

Common stock, $.01 par value: authorized 1,000,000,000 shares, issued and outstanding 537,866,780 and 566,275,789 shares

 

5,379

 

 

 

5,663

 

Capital in excess of par value

 

4,413,814

 

 

 

5,357,709

 

Retained earnings

 

2,431,186

 

 

 

2,217,299

 

Accumulated other comprehensive loss

 

(3,237

)

 

 

(3,610

)

Total MGM Resorts International stockholders' equity

 

6,847,142

 

 

 

7,577,061

 

Noncontrolling interests

 

3,992,799

 

 

 

4,034,063

 

Total stockholders' equity

 

10,839,941

 

 

 

11,611,124

 

 

$

28,977,160

 

 

$

29,160,042

 

 

 

 

 

 

 

 

 

The accompanying 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,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Casino

 

$

1,332,214

 

 

$

1,172,758

 

 

$

2,726,530

 

 

$

2,444,232

 

Rooms

 

 

563,871

 

 

 

541,755

 

 

 

1,103,351

 

 

 

1,100,567

 

Food and beverage

 

 

494,808

 

 

 

485,098

 

 

 

950,219

 

 

 

954,434

 

Entertainment, retail and other

 

 

363,242

 

 

 

353,230

 

 

 

692,992

 

 

 

670,959

 

Reimbursed costs

 

 

104,560

 

 

 

99,292

 

 

 

207,840

 

 

 

199,507

 

 

 

 

2,858,695

 

 

 

2,652,133

 

 

 

5,680,932

 

 

 

5,369,699

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Casino

 

 

741,531

 

 

 

627,361

 

 

 

1,504,180

 

 

 

1,294,296

 

Rooms

 

 

202,968

 

 

 

187,116

 

 

 

392,026

 

 

 

375,785

 

Food and beverage

 

 

376,985

 

 

 

363,011

 

 

 

730,374

 

 

 

716,173

 

Entertainment, retail and other

 

 

243,370

 

 

 

243,836

 

 

 

470,204

 

 

 

467,225

 

Reimbursed costs

 

 

104,560

 

 

 

99,292

 

 

 

207,840

 

 

 

199,507

 

General and administrative

 

 

438,453

 

 

 

354,349

 

 

 

856,343

 

 

 

743,137

 

Corporate expense

 

 

103,438

 

 

 

79,448

 

 

 

202,947

 

 

 

152,580

 

Preopening and start-up expenses

 

 

19,077

 

 

 

21,093

 

 

 

85,994

 

 

 

36,159

 

Property transactions, net

 

 

16,970

 

 

 

13,243

 

 

 

22,868

 

 

 

14,939

 

NV Energy exit expense

 

 

 

 

 

(40,629

)

 

 

 

 

 

(40,629

)

Depreciation and amortization

 

 

296,208

 

 

 

244,754

 

 

 

565,030

 

 

 

494,523

 

 

 

 

2,543,560

 

 

 

2,192,874

 

 

 

5,037,806

 

 

 

4,453,695

 

Income from unconsolidated affiliates

 

 

47,940

 

 

 

40,639

 

 

 

79,706

 

 

 

80,405

 

Operating income

 

 

363,075

 

 

 

499,898

 

 

 

722,832

 

 

 

996,409

 

Non-operating income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net of amounts capitalized

 

 

(181,493

)

 

 

(174,058

)

 

 

(349,402

)

 

 

(348,117

)

Non-operating items from unconsolidated affiliates

 

 

(11,068

)

 

 

(10,556

)

 

 

(20,078

)

 

 

(17,477

)

Other, net

 

 

(6,381

)

 

 

(751

)

 

 

(8,297

)

 

 

(1,568

)

 

 

 

(198,942

)

 

 

(185,365

)

 

 

(377,777

)

 

 

(367,162

)

Income before income taxes

 

 

164,133

 

 

 

314,533

 

 

 

345,055

 

 

 

629,247

 

Benefit (provision) for income taxes

 

 

(23,710

)

 

 

(73,660

)

 

 

61,669

 

 

 

(135,800

)

Net income

 

 

140,423

 

 

 

240,873

 

 

 

406,724

 

 

 

493,447

 

Less: Net income attributable to noncontrolling interests

 

 

(16,646

)

 

 

(31,009

)

 

 

(59,503

)

 

 

(77,171

)

Net income attributable to MGM Resorts International

 

$

123,777

 

 

$

209,864

 

 

$

347,221

 

 

$

416,276

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.21

 

 

$

0.36

 

 

$

0.60

 

 

$

0.72

 

Diluted

 

$

0.21

 

 

$

0.36

 

 

$

0.60

 

 

$

0.72

 

Weighted average common shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

548,433

 

 

 

574,931

 

 

 

556,586

 

 

 

574,668

 

Diluted

 

 

554,339

 

 

 

582,056

 

 

 

563,108

 

 

 

581,112

 

Dividends declared per common share

 

$

0.12

 

 

$

0.11

 

 

$

0.24

 

 

$

0.22

 

 

The accompanying 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,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Net income

 

$

140,423

 

 

$

240,873

 

 

$

406,724

 

 

$

493,447

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

1,400

 

 

 

(25,376

)

 

 

(22,752

)

 

 

(38,309

)

Unrealized gain (loss) on cash flow hedges

 

 

5,335

 

 

 

(3,323

)

 

 

19,191

 

 

 

(3,957

)

Other comprehensive income (loss)

 

 

6,735

 

 

 

(28,699

)

 

 

(3,561

)

 

 

(42,266

)

Comprehensive income

 

 

147,158

 

 

 

212,174

 

 

 

403,163

 

 

 

451,181

 

Less: Comprehensive income attributable to noncontrolling interests

 

 

(19,138

)

 

 

(18,675

)

 

 

(55,569

)

 

 

(59,106

)

Comprehensive income attributable to MGM Resorts International

 

$

128,020

 

 

$

193,499

 

 

$

347,594

 

 

$

392,075

 

 

The accompanying 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,

 

 

2018

 

 

2017

 

Cash flows from operating activities

 

 

 

 

 

 

 

Net income

$

406,724

 

 

$

493,447

 

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

 

 

 

 

 

 

 

Depreciation and amortization

 

565,030

 

 

 

494,523

 

Amortization of debt discounts, premiums and issuance costs

 

19,956

 

 

 

17,717

 

Loss on retirement of long-term debt

 

2,636

 

 

 

798

 

Provision for doubtful accounts

 

17,324

 

 

 

10,361

 

Stock-based compensation

 

33,911

 

 

 

30,965

 

Property transactions, net

 

22,868

 

 

 

14,939

 

Income from unconsolidated affiliates

 

(56,307

)

 

 

(62,928

)

Distributions from unconsolidated affiliates

 

9,650

 

 

 

7,100

 

Deferred income taxes

 

(70,986

)

 

 

12,465

 

Change in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

26,157

 

 

 

63,471

 

Inventories

 

(6,928

)

 

 

(5,469

)

Income taxes receivable and payable, net

 

19,428

 

 

 

(18,014

)

Prepaid expenses and other

 

5,415

 

 

 

(6,516

)

Prepaid Cotai land concession premium

 

3,440

 

 

 

(11,216

)

Accounts payable and accrued liabilities

 

116,060

 

 

 

(100,648

)

Other

 

(21,227

)

 

 

(1,869

)

Net cash provided by operating activities

 

1,093,151

 

 

 

939,126

 

Cash flows from investing activities

 

 

 

 

 

 

 

Capital expenditures, net of construction payable

 

(861,761

)

 

 

(872,610

)

Dispositions of property and equipment

 

440

 

 

 

293

 

Investments in unconsolidated affiliates

 

(2,503

)

 

 

(4,773

)

Distributions from unconsolidated affiliates in excess of cumulative earnings

 

200,000

 

 

 

300,000

 

Other

 

(15,609

)

 

 

(15,688

)

Net cash used in investing activities

 

(679,433

)

 

 

(592,778

)

Cash flows from financing activities

 

 

 

 

 

 

 

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

 

(360,874

)

 

 

204,852

 

Issuance of long-term debt

 

1,000,000

 

 

 

 

Debt issuance costs

 

(64,777

)

 

 

(5,403

)

Dividends paid to common shareholders

 

(133,334

)

 

 

(126,429

)

Distributions to noncontrolling interest owners

 

(101,407

)

 

 

(89,872

)

Purchases of common stock

 

(957,264

)

 

 

 

Retirement of debentures

 

(2,265

)

 

 

 

Other

 

(18,230

)

 

 

(16,093

)

Net cash used in financing activities

 

(638,151

)

 

 

(32,945

)

Effect of exchange rate on cash

 

(2,690

)

 

 

(2,922

)

Cash and cash equivalents

 

 

 

 

 

 

 

Net increase (decrease) for the period

 

(227,123

)

 

 

310,481

 

Balance, beginning of period

 

1,499,995

 

 

 

1,446,581

 

Balance, end of period

$

1,272,872

 

 

$

1,757,062

 

Supplemental cash flow disclosures

 

 

 

 

 

 

 

Interest paid, net of amounts capitalized

$

324,779

 

 

$

341,990

 

Federal, state and foreign income taxes paid (received), net of refunds

 

(10,667

)

 

 

140,605

 

 

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

 

 

4


 

MGM RESORTS INTERNATIONAL AND SUBSIDIARIES

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, Park MGM (which had previously been branded as Monte Carlo prior to May 2018), 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 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 Park MGM, 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.

 

MGM Growth Properties LLC (“MGP”), a consolidated subsidiary of the Company, is organized as an umbrella partnership REIT (commonly referred to as an UPREIT) structure in which all of its assets are owned by and all of its businesses are conducted through MGM Growth Properties Operating Partnership LP (the “Operating Partnership”), its subsidiary. 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 Company and MGP each hold Operating Partnership units representing limited partner interests in the Operating Partnership. The general partner of the Operating Partnership is a wholly-owned subsidiary of MGP. 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. As of June 30, 2018, the Company owned 73.3% of the Operating Partnership units and MGP held the remaining 26.7% of the Operating Partnership units.

 

Pursuant to a master lease agreement between a subsidiary of the Company (the “tenant”) and a subsidiary of the Operating Partnership (the “landlord”), the tenant leases the real estate assets of The Mirage, Mandalay Bay, Luxor, New York-New York, Park MGM, Excalibur, The Park, Gold Strike Tunica, MGM Grand Detroit, Beau Rivage, Borgata, and MGM National Harbor from the landlord.

 

On April 4, 2018, MGP entered into an agreement with Milstein Entertainment LLC to acquire the membership interests of Northfield Park Associates, LLC, an Ohio limited liability company that owns the real estate assets and operations of the Hard Rock Rocksino Northfield Park (“Rocksino”) for approximately $1.06 billion, and on July 6, 2018, MGP completed the acquisition of the Rocksino. MGP funded the acquisition through a $200 million draw on the Operating Partnership’s delayed draw Term Loan A, a $655 million draw under the Operating Partnership’s revolving credit facility with the remainder of the purchase price paid with cash on hand. Simultaneously with the close, MGP entered into a new agreement with Hard Rock to continue to serve as the manager of the property.

 

The Company has an approximate 56% controlling interest in MGM China, which owns MGM Grand Paradise, S.A. (“MGM Grand Paradise”). MGM Grand Paradise owns and operates the MGM Macau resort and casino and the related gaming subconcession and land concessions as well as MGM Cotai, an integrated casino, hotel and entertainment resort located on the Cotai Strip in Macau that opened on February 13, 2018.

 

The Company owns 50% of and manages CityCenter Holdings, LLC (“CityCenter”), located between Bellagio and Park MGM. 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; and Vdara, a luxury condominium-hotel. In addition, CityCenter features residential units in the Residences at Veer. In March 2018, a subsidiary of CityCenter entered into an agreement for the sale of the Mandarin Oriental Las Vegas. See Note 3 for additional information related to CityCenter.

 

5


 

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, and is 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 3 for additional information regarding the Company’s investment in the Las Vegas Arena Company.

 

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 April 2018, the Company, along with its venture partner, entered into a definitive agreement to sell the Grand Victoria Casino. See Note 3 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 is in the process of being developed on approximately 14 acres of land in downtown Springfield. The Company’s plans for the resort currently include a casino with approximately 2,500 slots and 120 table games including poker; a 250-room hotel; 110,000 square feet of retail and restaurant space; 46,000 square feet of meeting and event space; and a 3,500 space parking garage, with an expected development and construction cost of approximately $960 million, excluding capitalized interest and land-related costs. MGM Springfield is expected to open on August 24, 2018.

 

On May 28, 2018, the Company entered into an agreement to acquire the real property and operations associated with the Empire City Casino's race track and casino ("Empire City") for total consideration of $850 million, subject to customary working capital and other adjustments, including the assumption of approximately $245 million of debt, the issuance of approximately $260 million of the Company’s common stock, and the remaining balance in cash. If Empire City is awarded a license for live table games on or prior to December 31, 2022 and the Company accepts such license by December 31, 2024, the Company will pay additional consideration of $50 million.

 

The Company and MGP have also entered into a definitive agreement whereby MGP will acquire the developed real property associated with Empire City from the Company for total consideration of approximately $625 million, which will include the assumption of approximately $245 million of debt by MGP, with the balance through the issuance of operating partnership units to the Company. Empire City will be added to the existing Master Lease between the Company and MGP through which MGP will lease the real property back to a subsidiary of the Company, after which a subsidiary of the Company will operate the property. In addition, pursuant to the Master Lease, the Company has agreed to give MGP a right of first offer with respect to certain undeveloped land adjacent to the property to the extent that the Company develops additional gaming facilities and chooses to sell or transfer the property in the future. The transactions are expected to close in the first quarter of 2019, subject to regulatory approvals and other customary closing conditions.

 

The Company has two reportable segments: domestic resorts and MGM China. See Note 9 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 2017 annual consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.

 

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. Management has determined that MGP is a variable interest entity (“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 ownership interest in the Operating Partnership of 26.7% as of June 30, 2018 as noncontrolling interest in the Company’s consolidated financial statements. As of June 30, 2018 and December 31, 2017, on a consolidated basis, MGP had total assets of $10.3 billion and $10.4 billion, respectively, primarily related to its real estate investments, and total liabilities of $4.3 billion as of both dates, primarily related to its indebtedness.

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 June 30, 2018 and December 31, 2017, the Company had accrued $60 million and $28 million, respectively, for property and equipment within accounts payable, and $1 million and $34 million, respectively, related to construction retention within other long-term liabilities.

 

Revenue recognition. The Company’s revenue contracts with customers consist of casino wager transactions, hotel room sales, food and beverage transactions, entertainment shows, and retail transactions.

 

The transaction price for a casino wager is the difference between gaming wins and losses (“net win”). In certain circumstances, the Company offers discounts on markers, which is estimated based upon historical business practice, and recorded as a reduction of casino revenue. Commissions rebated to gaming promoters and VIP players at MGM China are also recorded as a reduction of casino revenue. The Company accounts for casino revenue on a portfolio basis given the similar characteristics of wagers by recognizing net win per gaming day versus on an individual wager basis.

 

For casino wager transactions that include complimentary goods and services provided by the Company to gaming patrons on a discretionary basis to incentivize gaming, the Company allocates revenue to the good or service delivered based upon stand-alone selling price (“SSP”). Discretionary complimentaries provided by the Company and supplied by third parties are recognized as an operating expense. The Company accounts for complimentaries on a portfolio basis given the similar characteristics of the incentives by recognizing redemption per gaming day.

 

For casino wager transactions that include incentives earned by customers under the Company’s loyalty programs, the Company allocates a portion of net win based upon the SSP of such incentive (less estimated breakage). This allocation is deferred and recognized as revenue when the customer redeems the incentive. When redeemed, revenue is recognized in the department that provides the goods or service. Redemption of loyalty incentives at third party outlets are deducted from the loyalty liability and amounts owed are paid to the third party, with any discount received recorded as other revenue. During the three and six months ended June 30, 2018, commissions, complimentaries, and other incentives provided to gaming customers were $520 million and $1.1 billion, respectively. During the three and six months ended June 30, 2017, commissions, complimentaries, and other incentives provided to gaming customers were $473 million and $958 million, respectively. After allocating revenue to other goods and services provided as part of casino wager transactions, the Company records the residual amount to casino revenue.

 

The transaction price of rooms, food and beverage, and retail contracts is the net amount collected from the customer for such good and services. The transaction price for such contracts is recorded as revenue when the good or service is transferred to the customer over their stay at the hotel or when the delivery is made for the food & beverage and retail & other contracts. Sales and usage-based taxes are excluded from revenues. For some arrangements, the Company acts as an agent in that it arranges for another party to transfer goods and services, which primarily include certain of the Company’s entertainment shows as well as customer rooms arranged by online travel agents.

 

The Company also has other contracts that include multiple goods and services, such as packages that bundle food, beverage, or entertainment offerings with hotel stays and convention services. For such arrangements, the Company allocates revenue to each good or service based on its relative SSP. The Company primarily determines the SSP of rooms, food and beverage, entertainment, and retail goods and services based on the amount that the Company charges when sold separately in similar circumstances to similar customers.

 

Contract and Contract-Related Liabilities. There may be a difference between the timing of cash receipts from the customer and the recognition of revenue, resulting in a contract or contract-related liability. The Company generally has three types of liabilities related to contracts with customers: (1) outstanding chip liability, which represents the amounts owned in exchange for gaming chips held by a customer, (2) loyalty program obligations, which represents the deferred allocation of revenue relating to loyalty program incentives earned, as discussed above, and (3) customer advances and other, which is primarily funds deposited by customers before gaming play occurs (“casino front money”) and advance payments on goods and services yet to be provided such as advance ticket sales and deposits on rooms and convention space or for unpaid wagers. These liabilities are generally expected to be recognized as revenue within one year of being purchased, earned, or deposited and are recorded within “Other accrued liabilities” on the Company’s consolidated balance sheets.

 

7


 

The following table summarizes the activity related to contract and contract-related liabilities:

 

 

Outstanding Chip Liability

 

 

Loyalty Program

 

 

Customer Advances and Other

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

(in thousands)

 

Balance at January 1

$

597,753

 

 

$

227,538

 

 

$

91,119

 

 

$

88,379

 

 

$

539,626

 

 

$

437,287

 

Balance at June 30

 

759,049

 

 

 

319,878

 

 

 

98,308

 

 

 

88,195

 

 

 

510,750

 

 

 

425,197

 

Increase / (decrease)

$

161,296

 

 

$

92,340

 

 

$

7,189

 

 

$

(184

)

 

$

(28,876

)

 

$

(12,090

)

 

Reimbursed costs. Costs reimbursed pursuant to management services are recognized as revenue in the period it incurs the costs as this reflects when the Company performs its related performance obligation and is entitled to reimbursement. Reimbursed costs relate primarily to the Company’s management of CityCenter.

 

Revenue by source. The Company presents the revenue earned disaggregated by the type or nature of the good or service (casino, room, food and beverage, and entertainment, retail and other) and by relevant geographic region within Note 9. Lease revenues earned by the Company from third-parties are classified within the line item corresponding to the type or nature of the tenant’s good or service. During the three and six months ended June 30, 2018, lease revenues include $12 million and $25 million recorded within food and beverage revenue, respectively, and $22 million and $43 million recorded within entertainment, retail, and other revenue for the same such periods, respectively. During the three and six months ended June 30, 2017, lease revenues include $14 million and $26 million recorded within food and beverage revenue, respectively, and $19 million and $39 million recorded within entertainment, retail, and other revenue for the same such periods, respectively.

 

Recently issued accounting standards. In May 2014, the FASB issued the ASC 606, “Revenue from Contracts with Customers (Topic 606)” which 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. Under the standard, revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration the entity expects to receive in exchange for those goods and services.

 

The Company adopted ASC 606 on a full retrospective basis effective January 1, 2018. The most significant impacts of adoption of the new accounting pronouncement were as follows:

 

 

Promotional Allowances: The Company no longer recognizes 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, and accordingly the promotional allowances line item has been removed. The majority of such amounts previously included in promotional allowances now offset casino revenues based on an allocation of revenues to performance obligations using stand-alone selling price. This change resulted in a reclassification of revenue between revenue line items;

 

 

Loyalty Accounting: As discussed within Revenue Recognition above, the outstanding performance obligations of the loyalty program liability are now recognized at retail value of such benefits owed to the customer (less estimated breakage). This change resulted in a decrease to retained earnings as of January 1, 2015 of $29 million, net of tax of $15 million, with a corresponding increase primarily to other accrued liabilities, as a result of the initial application of the standard and did not have a significant impact to other balance sheet accounts or earnings;

 

 

Gaming Promoter Commission: Commissions paid to gaming promoters under MGM China’s incentive program are now fully reflected as a reduction in casino revenue. This change resulted in a decrease in casino expense and a corresponding decrease in casino revenue;

 

 

Gross versus Net Presentation: Mandatory service charges on food and beverage and wide area progressive operator fees are recorded gross, that is, the amount received from the customer has been recorded as revenue with the corresponding amount paid as an expense. These changes resulted in an increase in revenue with a corresponding increase in expense;

 

 

Estimated Cost of Promotional Allowances: The Company no longer reclassifies the estimated cost of complimentaries provided to the gaming patron from other expense line items to the casino expense line item. This change resulted in a reclassification between expense line items.

 

8


 

These changes, and other less significant adjustments that were required upon adoption, did not have an aggregate material impact on operating income, net income, or cash flows. The following tables show the increase/(decrease) to our 2017 quarters and full-year 2017, 2016, and 2015 income statement line items as follows:

 

 

Three Months Ended

 

 

Twelve Months Ended

 

 

Dec 31, 2017

 

Sep 30, 2017

 

June 30, 2017

 

Mar 31, 2017

 

 

Dec 31, 2017

 

Dec 31, 2016

 

Dec 31, 2015

 

(in thousands)

Increase/(decrease)

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Casino

$

(241,045

)

$

(260,644

)

$

(232,305

)

$

(233,915

)

 

$

(967,909

)

$

(828,364

)

$

(782,222

)

Rooms

 

(2,987

)

 

8,518

 

 

(715

)

 

(3,455

)

 

 

1,361

 

 

(20,814

)

 

(42,152

)

Food and beverage

 

16,296

 

 

21,967

 

 

18,552

 

 

24,867

 

 

 

81,682

 

 

87,895

 

 

72,990

 

Entertainment, retail, and other

 

(1,204

)

 

(2,867

)

 

(3,328

)

 

(1,169

)

 

 

(8,568

)

 

(9,142

)

 

(10,867

)

 

 

(228,940

)

 

(233,026

)

 

(217,796

)

 

(213,672

)

 

 

(893,434

)

 

(770,425

)

 

(762,251

)

Promotional allowances

 

229,297

 

 

236,460

 

 

228,193

 

 

223,059

 

 

 

917,009

 

 

793,571

 

 

751,773

 

 

 

357

 

 

3,434

 

 

10,397

 

 

9,387

 

 

 

23,575

 

 

23,146

 

 

(10,478

)

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Casino

 

(147,081

)

 

(147,144

)

 

(135,898

)

 

(137,660

)

 

 

(567,783

)

 

(504,561

)

 

(519,569

)

Rooms

 

37,260

 

 

35,370

 

 

34,381

 

 

33,833

 

 

 

140,844

 

 

121,551

 

 

113,560

 

Food and beverage

 

100,043

 

 

104,786

 

 

101,516

 

 

103,317

 

 

 

409,662

 

 

367,166

 

 

353,364

 

Entertainment, retail, and other

 

10,220

 

 

11,779

 

 

11,676

 

 

10,718

 

 

 

44,393

 

 

41,401

 

 

39,306

 

General and administrative

 

(68

)

 

(111

)

 

(114

)

 

(47

)

 

 

(340

)

 

(83

)

 

9

 

Corporate expense

 

(2

)

 

 

 

40

 

 

(41

)

 

 

(3

)

 

(69

)

 

(71

)

 

 

372

 

 

4,680

 

 

11,601

 

 

10,120

 

 

 

26,773

 

 

25,405

 

 

(13,401

)

Income from unconsolidated affiliates

 

25

 

 

89

 

 

56

 

 

63

 

 

 

233

 

 

671

 

 

471

 

Operating income (loss)

 

10

 

 

(1,157

)

 

(1,148

)

 

(670

)

 

 

(2,965

)

 

(1,588

)

 

3,394

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before income taxes

 

10

 

 

(1,157

)

 

(1,148

)

 

(670

)

 

 

(2,965

)

 

(1,588

)

 

3,394

 

Benefit (provision) for income taxes

 

(6,310

)

 

405

 

 

401

 

 

235

 

 

 

(5,269

)

 

556

 

 

(1,189

)

Net income (loss)

 

(6,300

)

 

(752

)

 

(747

)

 

(435

)

 

 

(8,234

)

 

(1,032

)

 

2,205

 

Net income (loss) attributable to MGM Resorts International

$

(6,300

)

$

(752

)

$

(747

)

$

(435

)

 

$

(8,234

)

$

(1,032

)

$

2,205

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

$

(0.01

)

$

 

$

(0.01

)

$

 

 

$

(0.01

)

$

 

$

 

Diluted