Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES & EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

 

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

For the quarterly period ended June 30, 2013

OR

 

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

For the transition period from          to         

Commission File No. 001-10362

 

 

MGM Resorts International

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   88-0215232

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

3600 Las Vegas Boulevard South, Las Vegas, Nevada 89109

(Address of principal executive offices)

(702) 693-7120

(Registrant’s telephone number, including area code)

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

 

 

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

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

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

 

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

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

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

 

Class

  

Outstanding at August 1, 2013

Common Stock, $.01 par value    489,599,080 shares

 

 

 


Table of Contents

MGM RESORTS INTERNATIONAL AND SUBSIDIARIES

FORM 10-Q

I N D E X

 

     Page  

PART I.

   FINANCIAL INFORMATION   

Item 1.

  

Financial Statements (Unaudited)

  
  

Consolidated Balance Sheets at June 30, 2013 and December 31, 2012

     1   
  

Consolidated Statements of Operations for the Three Months and Six Months Ended June 30, 2013 and June 30, 2012

     2   
  

Consolidated Statements of Comprehensive Income (Loss) for the Three Months and Six Months Ended June 30, 2013 and June 30, 2012

     3   
  

Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2013 and June 30, 2012

     4   
  

Condensed Notes to Consolidated Financial Statements

     5-22   

Item 2.

  

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

     23-35   

Item 3.

  

Quantitative and Qualitative Disclosures About Market Risk

     35   

Item 4.

   Controls and Procedures      36   

PART II.  

   OTHER INFORMATION   

Item 1.

  

Legal Proceedings

     36   

Item 1A.

  

Risk Factors

     36   

Item 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds

     36   

Item 6.

  

Exhibits

     36   

SIGNATURES

     37   


Table of Contents

Part I.     FINANCIAL INFORMATION

 

Item 1. Financial Statements

MGM RESORTS INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)

 

     June 30,
2013
     December 31,
2012
 
ASSETS   

Current assets

     

Cash and cash equivalents

   $ 1,278,673      $ 1,543,509  

Accounts receivable, net

     440,326        443,677  

Inventories

     101,110        107,577  

Deferred income taxes, net

     141,516        179,431  

Prepaid expenses and other

     248,615        232,898  
  

 

 

    

 

 

 

Total current assets

     2,210,240        2,507,092  
  

 

 

    

 

 

 

Property and equipment, net

     14,042,309        14,194,652  

Other assets

     

Investments in and advances to unconsolidated affiliates

     1,408,139        1,444,547  

Goodwill

     2,900,543        2,902,847  

Other intangible assets, net

     4,609,088        4,737,833  

Other long-term assets, net

     551,818        497,767  
  

 

 

    

 

 

 

Total other assets

     9,469,588        9,582,994  
  

 

 

    

 

 

 
   $ 25,722,137      $ 26,284,738  
  

 

 

    

 

 

 
LIABILITIES AND STOCKHOLDERS’ EQUITY   

Current liabilities

     

Accounts payable

   $ 229,599      $ 199,620  

Income taxes payable

     7,682        1,350  

Accrued interest on long-term debt

     193,660        206,736  

Other accrued liabilities

     1,667,205        1,517,965  
  

 

 

    

 

 

 

Total current liabilities

     2,098,146        1,925,671  
  

 

 

    

 

 

 

Deferred income taxes

     2,505,000        2,473,889  

Long-term debt

     13,111,961        13,589,283  

Other long-term obligations

     149,864        179,879  

Commitments and contingencies (Note 5)

     

Stockholders’ equity

     

Common stock, $.01 par value: authorized 1,000,000,000 shares; issued and outstanding 489,596,581 and 489,234,401 shares

     4,896        4,892  

Capital in excess of par value

     4,145,571        4,132,655  

Retained earnings

     127,286        213,698  

Accumulated other comprehensive income

     11,308        14,303  
  

 

 

    

 

 

 

Total MGM Resorts International stockholders’ equity

     4,289,061        4,365,548  

Noncontrolling interests

     3,568,105        3,750,468  
  

 

 

    

 

 

 

Total stockholders’ equity

     7,857,166        8,116,016  
  

 

 

    

 

 

 
   $ 25,722,137      $ 26,284,738  
  

 

 

    

 

 

 

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

 

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Table of Contents

MGM RESORTS INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2013     2012     2013     2012  

Revenues

        

Casino

   $ 1,443,157     $ 1,299,196     $ 2,844,577     $ 2,634,230  

Rooms

     437,710       418,766       838,960       812,386  

Food and beverage

     394,247       391,891       754,129       764,844  

Entertainment

     121,001       120,909       234,855       241,309  

Retail

     52,748       52,086       97,455       98,710  

Other

     127,914       132,900       251,740       246,023  

Reimbursed costs

     92,741       90,938       182,977       181,477  
  

 

 

   

 

 

   

 

 

   

 

 

 
     2,669,518       2,506,686       5,204,693       4,978,979  

Less: Promotional allowances

     (188,253     (182,921     (371,280     (367,624
  

 

 

   

 

 

   

 

 

   

 

 

 
     2,481,265       2,323,765       4,833,413       4,611,355  
  

 

 

   

 

 

   

 

 

   

 

 

 

Expenses

        

Casino

     916,807       826,211       1,792,053       1,693,685  

Rooms

     134,001       129,897       261,710       256,052  

Food and beverage

     225,696       222,567       430,436       434,206  

Entertainment

     89,940       88,559       173,665       177,347  

Retail

     27,865       29,241       53,831       56,824  

Other

     92,819       88,835       178,792       175,057  

Reimbursed costs

     92,741       90,938       182,977       181,477  

General and administrative

     314,324       309,478       618,225       612,767  

Corporate expense

     52,364       42,540       98,988       84,800  

Preopening and start-up expenses

     3,506       —         5,652       —    

Property transactions, net

     88,131       90,467       96,622       91,384  

Depreciation and amortization

     218,151       235,643       430,069       472,452  
  

 

 

   

 

 

   

 

 

   

 

 

 
     2,256,345       2,154,376       4,323,020       4,236,051  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from unconsolidated affiliates

     6,682       5,986       23,026       (7,323
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     231,602       175,375       533,419       367,981  
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-operating income (expense):

        

Interest expense, net of amounts capitalized

     (214,500     (276,323     (439,947     (560,665

Non-operating items from unconsolidated affiliates

     (38,864     (20,836     (60,943     (47,702

Other, net

     (4,951     46       (6,233     (57,530
  

 

 

   

 

 

   

 

 

   

 

 

 
     (258,315     (297,113     (507,123     (665,897
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     (26,713     (121,738     26,296       (297,916

Benefit (provision) for income taxes

     (3,865     51,304       (34,296     24,175  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

     (30,578     (70,434     (8,000     (273,741

Less: Net income attributable to noncontrolling interests

     (62,380     (75,018     (78,412     (88,964
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to MGM Resorts International

   $ (92,958   $ (145,452   $ (86,412   $ (362,705
  

 

 

   

 

 

   

 

 

   

 

 

 

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

        

Basic

   $ (0.19   $ (0.30   $ (0.18   $ (0.74
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

   $ (0.19   $ (0.30   $ (0.18   $ (0.74
  

 

 

   

 

 

   

 

 

   

 

 

 

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

 

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Table of Contents

MGM RESORTS INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

(Unaudited)

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2013     2012     2013     2012  

Net loss

   $ (30,578   $ (70,434   $ (8,000   $ (273,741

Other comprehensive income (loss), net of tax:

        

Foreign currency translation adjustment

     6,416       8,313       (6,225     10,001  

Other

     —         —         115       —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss)

     6,416       8,313       (6,110     10,001  
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive loss

     (24,162     (62,121     (14,110     (263,740

Less: Comprehensive income attributable to noncontrolling interests

     (65,470     (79,122     (75,297     (93,897
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive loss attributable to MGM Resorts International

   $ (89,632   $ (141,243   $ (89,407   $ (357,637
  

 

 

   

 

 

   

 

 

   

 

 

 

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

 

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Table of Contents

MGM RESORTS INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

     Six Months Ended June 30,  
     2013     2012  

Cash flows from operating activities

    

Net loss

   $ (8,000   $ (273,741

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

    

Depreciation and amortization

     430,069       472,452  

Amortization of debt discounts, premiums and issuance costs

     16,876       39,388  

Loss on retirement of long-term debt

     3,791       58,740  

Provision for doubtful accounts

     16,696       31,675  

Stock-based compensation

     16,555       20,796  

Property transactions, net

     96,622       91,384  

Loss from unconsolidated affiliates

     38,293       55,025  

Distributions from unconsolidated affiliates

     8,075       10,415  

Deferred income taxes

     69,143       (43,683

Change in operating assets and liabilities:

    

Accounts receivable

     (13,703     (18,395

Inventories

     6,456       (568

Income taxes receivable and payable, net

     5,420       (7,234

Prepaid expenses and other

     (30,646     4,833  

Prepaid Cotai land concession premium

     3,289       —    

Accounts payable and accrued liabilities

     98,230       85,904  

Other

     (27,104     (14,735
  

 

 

   

 

 

 

Net cash provided by operating activities

     730,062       512,256  
  

 

 

   

 

 

 

Cash flows from investing activities

    

Capital expenditures, net of construction payable

     (242,878     (216,230

Dispositions of property and equipment

     323       96  

Investments in and advances to unconsolidated affiliates

     (14,400     (25,000

Distributions from unconsolidated affiliates in excess of earnings

     —         2,085  

Investments in treasury securities - maturities longer than 90 days

     (120,332     (135,179

Proceeds from treasury securities - maturities longer than 90 days

     135,268       150,182  

Other

     1,806       (907
  

 

 

   

 

 

 

Net cash used in investing activities

     (240,213     (224,953
  

 

 

   

 

 

 

Cash flows from financing activities

    

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

     (14,000     257,900  

Borrowings under bank credit facilities – maturities longer than 90 days

     2,793,000       450,000  

Repayments under bank credit facilities – maturities longer than 90 days

     (2,793,000     (2,734,128

Issuance of senior notes

     —         1,850,000  

Retirement of senior notes

     (462,234     —    

Debt issuance costs

     (17,061     (40,447

Distributions to noncontrolling interest owners

     (259,016     (204,074

Other

     (1,687     (1,365
  

 

 

   

 

 

 

Net cash used in financing activities

     (753,998     (422,114
  

 

 

   

 

 

 

Effect of exchange rate on cash

     (687     819  
  

 

 

   

 

 

 

Cash and cash equivalents

    

Net decrease for the period

     (264,836     (133,992

Balance, beginning of period

     1,543,509       1,865,913  
  

 

 

   

 

 

 

Balance, end of period

   $ 1,278,673     $ 1,731,921  
  

 

 

   

 

 

 

Supplemental cash flow disclosures

    

Interest paid, net of amounts capitalized

   $ 436,147     $ 473,326  

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

     1,382       6,246  

Non-cash investing and financing activities

    

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

   $ 43,271     $ 24,794  

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

 

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Table of Contents

MGM RESORTS INTERNATIONAL AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

NOTE 1 — ORGANIZATION

Organization. MGM Resorts International (the “Company”) is a Delaware corporation that acts largely as a holding company and, through wholly owned subsidiaries, primarily owns and/or operates casino resorts. The Company owns and operates the following casino resorts in Las Vegas, Nevada: Bellagio, MGM Grand Las Vegas (including The Signature), The Mirage, Mandalay Bay, Luxor, New York-New York, Monte Carlo, Excalibur and Circus Circus Las Vegas. Other Nevada operations include Circus Circus Reno, Gold Strike in Jean and Railroad Pass in Henderson. The Company and its local partners own and operate MGM Grand Detroit in Detroit, Michigan. The Company owns and operates two resorts in Mississippi: Beau Rivage in Biloxi and Gold Strike Tunica. The Company also owns Shadow Creek, an exclusive world-class golf course located approximately ten miles north of its Las Vegas Strip resorts, Primm Valley Golf Club at the California/Nevada state line and Fallen Oak golf course in Saucier, Mississippi. The Company has two reportable segments: wholly owned domestic resorts and MGM China.

The Company owns 51% and has a controlling interest in MGM China Holdings Limited (“MGM China”), which owns MGM Grand Paradise, S.A. (“MGM Grand Paradise”), the Macau company that owns and operates the MGM Macau resort and casino and the related gaming subconcession and land concession. On October 18, 2012, MGM Grand Paradise formally accepted a land concession contract with the government of Macau to develop a second resort and casino on an approximately 17.8 acre site in Cotai, Macau. The land concession contract became effective on January 9, 2013 when the Macau government published the agreement in the Official Gazette of Macau.

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

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

MGM Hospitality. MGM Hospitality seeks to leverage the Company’s management expertise and well-recognized brands through strategic partnerships and international expansion opportunities. MGM Hospitality has entered into management agreements for hotels in the Middle East, North Africa, India and, through its joint venture with Diaoyutai State Guesthouse, the People’s Republic of China. MGM Hospitality opened its first resort, MGM Grand Sanya on Hainan Island, in the People’s Republic of China in early 2012.

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

The Company consolidates the trust because it is the sole economic beneficiary and accounts for its interest in Borgata under the cost method. The Company reviews its investment carrying value whenever indicators of impairment exist. As of June 30, 2013, the trust had $118 million of cash and investments, of which $105 million is held in U.S. treasury securities with maturities greater than three months but less than one year, and is recorded within “Prepaid expenses and other.” During the three and six months ended June 30, 2013, $14 million and $18 million, respectively, and for the three and six months ended June 30, 2012, $3 million and $26 million, respectively, was withdrawn from the trust account for the payment of property taxes and interest on the Company’s senior credit facility, as authorized in accordance with the terms of the trust agreement.

 

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Table of Contents

NOTE 2— BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation. As permitted by the rules and regulations of the Securities and Exchange Commission, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted. These consolidated financial statements should be read in conjunction with the Company’s 2012 annual consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.

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

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

 

   

At June 30, 2013, the fair value of the Company’s treasury securities held by the Borgata trust was $105 million, measured using Level 1 inputs. See Note 1;

 

   

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

 

   

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

Income tax provision. The Company recognizes deferred tax assets, net of applicable reserves, related to net operating loss carryforwards and certain 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. Given the negative impact of the U.S. economy on the results of operations in the past several years, the Company no longer relies on projected future domestic operating income in assessing the realization of its domestic deferred tax assets and now relies only on the future reversal of existing domestic taxable temporary differences. As of June 30, 2013, the scheduled future reversal of existing U.S. federal deductible temporary differences exceeds the scheduled future reversal of existing U.S. federal taxable temporary differences. The Company recorded a valuation allowance for U.S. federal deferred tax assets in order to account for this excess, which resulted in an increase in provision for income taxes of $17 million and $26 million for the three and six months ended June 30, 2013, respectively.

Income generated from gaming operations of MGM Grand Paradise is exempted from Macau’s 12% complementary tax for the five-year period ending December 31, 2016 pursuant to approval from the Macau government granted on September 22, 2011. The approval granted in 2011 represented the second five-year exemption period granted to MGM Grand Paradise. The Company measures the net deferred tax liability of MGM Grand Paradise under the assumption that it will receive an additional five-year exemption beyond 2016. Such assumption is based upon the granting of a third five-year exemption to a competitor of MGM Grand Paradise. The Company believes MGM Grand Paradise should also be entitled to a third five-year exemption in order to ensure non-discriminatory treatment among gaming concessionaires and sub-concessionaires, a requirement under Macanese law. The net deferred tax liability of MGM Grand Paradise was re-measured during the first quarter of 2013 due to the extension of the amortization period of the Macau gaming concession in connection with the effectiveness of the Cotai land concession. This resulted in an increase in the net deferred tax liability and a corresponding increase in provision for income taxes of $65 million. While non-gaming operations remain subject to the complementary tax, MGM Grand Paradise has tax net operating losses from non-gaming operations that are fully offset by a valuation allowance.

During the first quarter of 2013, the Company settled all issues under appeal in connection with the IRS audits of the Company’s consolidated federal income tax returns and the Company’s cost method investee returns for the 2003 and 2004 tax years. Unrecognized tax benefits were reduced by $28 million and provision for income taxes was reduced by $38 million, including the impact of the settlement on the valuation allowance, as a result of this settlement.

NOTE 3 — INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES

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

 

     June 30,
2013
     December 31,
2012
 
     (In thousands)  

CityCenter Holdings, LLC – CityCenter (50%)

   $ 1,217,800      $ 1,220,741  

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

     170,000        206,296  

Other

     20,339        17,510  
  

 

 

    

 

 

 
   $ 1,408,139      $ 1,444,547  
  

 

 

    

 

 

 

 

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

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2013     2012     2013     2012  
     (In thousands)  

Income (loss) from unconsolidated affiliates

   $ 6,682     $ 5,986     $ 23,026     $ (7,323

Preopening and start-up expenses

     —         —         (376     —    

Non-operating items from unconsolidated affiliates

     (38,864     (20,836     (60,943     (47,702
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ (32,182   $ (14,850   $ (38,293   $ (55,025
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-operating expense from unconsolidated affiliates for the quarter ended June 30, 2013 includes $17 million related to statutory interest recorded by CityCenter related to estimated amounts owed in connection with the CityCenter construction litigation. The six months ended June 30, 2012 included $4 million related to the Company’s share of CityCenter’s loss on refinancing of long-term debt.

Grand Victoria

At June 30, 2013, the Company reviewed the carrying value of its Grand Victoria investment for impairment due to a higher than anticipated decline in operating results and loss of market share as a result of the opening of a new river boat casino in the Illinois market, as well as a decrease in forecasted cash flows for 2013 through 2017 compared to the prior forecast. The Company used a blended discounted cash flow analysis and guideline public company method to determine the estimated fair value from a market participant’s viewpoint. Key assumptions included in the discounted cash flow analysis were estimates of future cash flows including outflows for capital expenditures, a long-term growth rate of 2% and a discount rate of 11%. Key assumptions in the guideline public company method included business enterprise value multiples selected based on the range of multiples in the Company’s peer group. As a result of the analysis, the Company determined that it was necessary to record an other-than-temporary impairment charge of $37 million at June 30, 2013, based on an estimated fair value of $170 million for the Company’s 50% interest. The Company intends to, and believes it will be able to, retain its investment in Grand Victoria; however, due to the extent of the shortfall and the Company’s assessment of the uncertainty of fully recovering its investment, the Company has determined that the impairment was other-than-temporary. At June 30, 2012, the Company recorded an impairment charge of $85 million on its investment in Grand Victoria based on the then estimated fair value of $205 million for its 50% interest.

CityCenter

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

 

     June 30,
2013
     December 31,
2012
 
     (In thousands)  

Current assets

   $ 683,700      $ 546,851  

Property and other assets, net

     8,440,512        8,606,163  

Current liabilities

     481,643        451,332  

Long-term debt and other long-term obligations

     2,583,396        2,533,918  

Equity

     6,059,173        6,167,764  

Summarized income statement information of the CityCenter joint venture is as follows:

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2013     2012     2013     2012  
     (In thousands)  

Net revenues

   $ 333,174     $ 290,145     $ 648,316     $ 529,062  

Operating expenses

     (356,948     (313,129     (672,258     (613,503
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating loss

     (23,774     (22,984     (23,942     (84,441

Non-operating expense

     (101,992     (64,081     (169,667     (139,459
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (125,766   $ (87,065   $ (193,609   $ (223,900
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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NOTE 4 — LONG-TERM DEBT

Long-term debt consisted of the following:

 

     June 30,
2013
     December 31,
2012
 
     (In thousands)  

Senior credit facility:

     

$2,786 million ($2,800 million at December 31, 2012) term loans, net

   $ 2,778,515      $ 2,791,284  

MGM Grand Paradise credit facility

     553,081        553,531  

$462.2 million 6.75% senior notes, due 2013

     —          462,226  

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

     150,042        150,539  

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

     508,694        508,540  

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

     876,333        876,634  

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

     1,458,480        1,460,780  

$242.9 million 6.875% senior notes, due 2016

     242,900        242,900  

$732.7 million 7.5% senior notes, due 2016

     732,749        732,749  

$500 million 10% senior notes, due 2016, net

     496,538        496,110  

$743 million 7.625% senior notes, due 2017

     743,000        743,000  

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

     466,765        466,117  

$850 million 8.625% senior notes, due 2019

     850,000        850,000  

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

     1,000,000        1,000,000  

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

     1,250,000        1,250,000  

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

     1,000,000        1,000,000  

$0.6 million 7% debentures, due 2036, net

     572        572  

$4.3 million 6.7% debentures, due 2096

     4,265        4,265  

Other notes

     27        36  
  

 

 

    

 

 

 
   $ 13,111,961      $ 13,589,283  
  

 

 

    

 

 

 

Debt due within one year of the June 30, 2013 balance sheet date is classified as long-term as the Company has both the intent and ability to refinance such amounts on a long-term basis under its senior credit facility.

Senior credit facility. At June 30, 2013, the Company’s senior credit facility consisted of $1.2 billion of revolving loans, a $1.04 billion term loan A facility and a $1.74 billion term loan B facility. The revolving and term loan A facilities bear interest at LIBOR plus an applicable rate determined by the Company’s credit rating (2.75% as of June 30, 2013). The term loan B facility was re-priced in May 2013 and bears interest at LIBOR plus 2.50%, with a LIBOR floor of 1.00%, a 75 basis point reduction compared to the prior rate. The revolving and term loan A facilities mature in December 2017 and the term loan B facility matures in December 2019. The term loan A and term loan B facilities are subject to scheduled amortization payments on the last day of each calendar quarter from and after March 31, 2013 in an amount equal to 0.25% of the original principal balance. The Company permanently repaid $14 million in the six months ended June 30, 2013 in accordance with the scheduled amortization. The Company had $1.16 billion of available borrowing capacity under its senior credit facility at June 30, 2013. At June 30, 2013, the interest rate on the term loan A was 2.95% and the interest rate on the term loan B was 3.50%.

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

The senior credit facility contains customary representations and warranties and customary affirmative and negative covenants. In addition, the senior credit facility requires the Company and its restricted subsidiaries to maintain a minimum trailing four-quarter EBITDA and limits the ability of the Company and its restricted subsidiaries to make capital expenditures. As of June 30, 2013, the Company and its restricted subsidiaries are required to maintain a minimum EBITDA (as defined) of $1.0 billion. The minimum EBITDA increases to $1.05 billion for September 30, 2013 and December 31, 2013, with periodic increases thereafter. EBITDA for the trailing twelve months ended June 30, 2013 calculated in accordance with the terms of the senior credit facility was $1.2 billion. The Company and its restricted subsidiaries are within the limit of $500 million of capital expenditures for the calendar year 2013.

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

MGM China credit facility. The MGM China credit facility consists of approximately $550 million of term loans and an approximately $1.45 billion revolving credit facility due October 2017. The credit facility is subject to scheduled amortization payments beginning in 2016. The outstanding balance at June 30, 2013 was comprised solely of term

 

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loans. The interest rate on the facility fluctuates annually based on HIBOR plus a margin, which was set at 2.5% until April 2013 and ranges between 1.75% and 2.5% thereafter based on MGM China’s leverage ratio. The margin was 1.75% at June 30, 2013. MGM China is a joint and several co-borrower with MGM Grand Paradise. MGM Grand Paradise’s interest in the Cotai land use right agreement will become collateral under the MGM China credit facility upon finalization of the appropriate government approvals. The material subsidiaries of MGM China continue to guarantee the facilities, and MGM China, MGM Grand Paradise and their guarantor subsidiaries have granted a security interest in substantially all of their assets to secure the amended facilities. The credit facility will be used for general corporate purposes and for the development of the Cotai project.

The MGM China credit facility agreement contains customary representations and warranties, events of default, affirmative covenants and negative covenants, which impose restrictions on, among other things, the ability of MGM China and its subsidiaries to make investments, pay dividends and sell assets, and to incur additional debt and additional liens. MGM China is also required to maintain compliance with a maximum consolidated total leverage ratio of 4.50 to 1.00 prior to the first anniversary of the MGM Cotai opening date and 4.00 to 1.00 thereafter, in addition to a minimum interest coverage ratio of 2.50 to 1.00. MGM China was in compliance with its credit facility covenants at June 30, 2013.

Senior notes. The Company repaid its $462 million 6.75% senior notes in April 2013 at maturity.

Fair value of long-term debt. The estimated fair value of the Company’s long-term debt at June 30, 2013 was $13.9 billion. At December 31, 2012, the estimated fair value of the Company’s long-term debt was $14.3 billion. Fair value was estimated using quoted market prices for the Company’s senior notes, senior subordinated notes and senior credit facility. Carrying value of the MGM China credit facility approximates fair value.

NOTE 5 — COMMITMENTS AND CONTINGENCIES

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

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

The CityCenter Owners and the other defendants dispute Perini’s allegations, and contend that the defendants are entitled to substantial amounts from Perini, including offsets against amounts claimed to be owed to Perini and its subcontractors and damages based on breach of their contractual and other duties to CityCenter, duplicative payment requests, non-conforming work, lack of proof of alleged work performance, defective work related to the Harmon, property damage and Perini’s failure to perform its obligations to pay certain subcontractors and to prevent filing of liens against CityCenter. Parallel to the court litigation, CityCenter management conducted an extra-judicial program for settlement of CityCenter subcontractor claims. Prior to June 30, 2013, CityCenter resolved the claims of 215 first-tier Perini subcontractors (including the claims of any lower-tier subcontractors that might have claims through those first-tier subcontractors), with only seven remaining for further proceedings along with trial of Perini’s claims and CityCenter’s Harmon-related counterclaim and other claims by CityCenter against Perini and its parent guarantor, Tutor Perini. Subsequent to June 30, 2013, CityCenter reached settlement with four additional subcontractors; of the three remaining, two are implicated in the defective work at the Harmon. In August 2012, Perini recorded an amended notice of lien reducing its lien to approximately $191 million. In May 2013, Perini served an expert witness disclosure which asserted an increase in Perini’s claim for its work and materials on the CityCenter project, but Perini has not filed with the court an amended lien reflecting such additional amounts.

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

Trial of all claims, including the Perini and remaining subcontractor lien claims against CityCenter, and CityCenter’s counterclaims against Perini and certain subcontractors for defective work at the Harmon has been set to commence on February 10, 2014.

 

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The CityCenter Owners and the other defendants will continue to vigorously assert and protect their interests in the Perini lawsuit. The Company believes it is reasonably possible that the CityCenter Owners and the other defendants could be liable for up to $178 million in connection with this lawsuit. Such amounts would be funded in part under the Company’s completion guarantee which is discussed below. The Company’s estimation of reasonably possible liability does not include any offset for amounts that may be recovered on its counterclaims against Perini and certain subcontractors for defective work at the Harmon.

CityCenter completion guarantee. In January 2011, the Company entered into an amended completion and cost overrun guarantee, which is collateralized by substantially all of the assets of Circus Circus Las Vegas, as well as certain undeveloped land adjacent to that property. The terms of the amended completion guarantee provide CityCenter the ability to utilize up to $124 million of subsequent net residential proceeds to fund construction costs, or to reimburse the Company for construction costs previously expended. As of June 30, 2013, CityCenter had received net residential proceeds in excess of the $124 million and is holding $112 million in a separate bank account representing the remaining condo proceeds available to fund completion guarantee obligations or be reimbursed to the Company. In accordance with CityCenter’s credit agreement and bond indentures such amounts can only be used to fund construction lien obligations or reimbursed to the Company once the Perini litigation is settled.

As of June 30, 2013, the Company has funded $704 million under the completion guarantee and has accrued a liability of $59 million which includes estimated litigation costs related to the resolution of disputes with contractors concerning the final construction costs and estimated amounts to be paid to contractors through the legal process related to the Perini litigation. The Company believes it is reasonably possible it could be liable for an additional $20 million in excess of the amount it has accrued. The Company’s estimated obligation has been offset by $112 million of condominium proceeds received by CityCenter, which are available to fund construction lien claims upon the resolution of the Perini litigation. Also, the Company’s accrual reflects certain estimated offsets to the amounts claimed by the contractors. Moreover, the Company has not accrued for any contingent payments to CityCenter related to the Harmon component, which will not be completed using the building as it now stands.

Harmon demolition. In response to a request by the Clark County Building Division (the “Building Division”), CityCenter engaged an engineer to conduct an analysis, based on all available information, as to the structural stability of the Harmon under building-code-specified load combinations. On July 11, 2011, that engineer submitted the results of his analysis of the Harmon tower and podium in its current as-built condition. The engineer opined, among other things, that “[i]n a code-level earthquake, using either the permitted or current code specified loads, it is likely that critical structural members in the tower will fail and become incapable of supporting gravity loads, leading to a partial or complete collapse of the tower. There is missing or misplaced reinforcing steel in columns, beams, shear walls, and transfer walls throughout the structure of the tower below the twenty-first floor.” Based on this engineering opinion, the Building Division requested a plan of action from CityCenter. CityCenter informed the Building Division that it decided to abate the potential for structural collapse of the Harmon in the event of a code-level earthquake by demolishing the building, and enclosed a plan of action for demolition by implosion prepared by LVI Environmental Services of Nevada, Inc (“LVI”). CityCenter also advised that prior to undertaking the demolition plan of action, it would seek relief from a standing order of the district court judge presiding over the Perini litigation that prohibits alteration or destruction of the building without court approval. In addition, CityCenter supplied the foundational data for the engineering conclusions stated in the July 11, 2011 letter declaring the Harmon’s structural instability in the event of a code-level earthquake. On November 22, 2011, the Building Division required that CityCenter submit a plan to abate the code deficiencies discovered in the Harmon tower.

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

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

In May 2013 CityCenter completed additional Phase 4 destructive testing of 468 structural elements at the Harmon, analysis of which data confirmed the existence of a wide variety of construction defects throughout the Harmon tower. In his June 2013 expert report CityCenter’s structural engineer opined that the additional test results and extrapolation thereof to untested portions of the building show that after a service-level earthquake (typically defined as an earthquake with a 50% chance of occurring in 30 years), the Harmon can be expected to sustain extensive damage and failure of many structural elements, and in a large earthquake, such as a building code-level earthquake, critical elements of the Harmon are likely to fail and lead to a partial or complete collapse of the tower. In April 2013 Perini’s structural engineering expert John A. Martin & Associates (“JAMA”) had sent a letter to the Clark County Building Division which declared in part that JAMA no longer believes that the Harmon Tower can be repaired to a code compliant structure, which condition JAMA attributed to CityCenter’s building testing. On July 18, 2013 CityCenter filed a renewed motion with the district court for permission to demolish the Harmon. That motion has been set for hearing on August 30, 2013.

The Company does not believe it would be responsible for funding under the completion guarantee any additional remediation efforts that might be required with respect to the Harmon; however, the Company’s view is based on a number of developing factors, including with respect to on-going litigation with CityCenter’s contractors, actions by local officials and other developments related to the CityCenter venture, all of which are subject to change. CityCenter’s revolving credit facility provides that certain demolition or repair expenses may be funded only from (i) member

 

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contributions designated for demolition of the Harmon, (ii) the proceeds of certain specified extraordinary receipts (which include any proceeds from the Perini litigation) or (iii) cash or cash equivalents in an amount not to exceed $30 million in the aggregate. Based on current estimates, which are subject to change, the Company believes the demolition of the Harmon would cost approximately $30 million.

Sales and use tax on complimentary meals. In March 2008, the Nevada Supreme Court ruled, in a case involving another gaming company, that food and non-alcoholic beverages purchased for use in providing complimentary meals to customers and to employees were exempt from use tax. The Company had previously paid use tax on these items and had generally filed for refunds for the periods from January 2001 to February 2008 related to this matter, which refunds had not been paid. The Company claimed the exemption on sales and use tax returns for periods after February 2008 in light of this Nevada Supreme Court decision and had not accrued or paid any sales or use tax for those periods. In February 2012, the Nevada Department of Taxation asserted that customer complimentary meals and employee meals were subject to sales tax on a prospective basis commencing February 15, 2012. In July 2012, the Nevada Department of Taxation announced that sales taxes applicable to such meals would be due and payable without penalty or interest at the earlier of certain regulatory, judicial or legislative events or June 30, 2013. The Nevada Department of Taxation’s position stemmed from a Nevada Tax Commission decision concerning another gaming company which stated that complimentary meals provided to customers are subject to sales tax at the retail value of the meal and employee meals are subject to sales tax at the cost of the meal. The Clark County District Court subsequently issued a ruling in such case that held that complementary meals provided to customers were subject to sales tax, while meals provided to employees were not subject to sales tax. This decision had been appealed to the Nevada Supreme Court.

In June 2013, the Company and other similarly situated companies entered into a global settlement agreement with the Nevada Department of Taxation that, when combined with the contemporaneous passage of legislation governing the prospective treatment of complimentary meals (“AB 506”), resolved all matters concerning the prior and future taxability of such meals. AB 506 provides that complimentary meals provided to customers and employees after the effective date of the bill are not subject to either sales or use tax. Under the terms of the global settlement, the Company agreed to withdraw its refund requests and the Nevada Department of Tax agreed to drop its assertion that sales tax was due on such meals up to the effective date of AB 506. Since the Company did not previously accrue either the claims for refund of use taxes or any liability for sales taxes that the Nevada Department of Tax may have asserted prior to entering the global settlement agreement, there is no financial statement impact of entering into the settlement agreement.

Cotai land concession contract. MGM Grand Paradise’s land concession contract for an approximately 17.8 acre site in Cotai, Macau became effective on January 9, 2013 and has an initial term of 25 years. The land premium payable to the Macau government for the land concession contract is $161 million and is composed of a down payment and eight additional semi-annual payments. As of June 30, 2013, MGM China had paid $56 million as the initial down payment of the contract premium recorded within other long-term assets, net of amortization, discussed below. Including interest on the eight semi-annual payments, MGM China has $118 million remaining payable for the land concession contract. The Company accounts for the Cotai land concession contract as an operating lease. As such, the required upfront payments are amortized over the initial 25-year contract term. As of the three and six months ended June 30, 2013, the Company had amortized $2 million and $4 million, respectively, which is classified as preopening expense during the construction of the project. In addition, in connection with the effectiveness of the Cotai land concession, the Company extended the useful life of its Macau gaming concession and is amortizing it on a straight-line basis through the initial term of the Cotai land concession.

Other guarantees. The Company is party to various guarantee contracts in the normal course of business, which are generally supported by letters of credit issued by financial institutions. The Company’s senior credit facility limits the amount of letters of credit that can be issued to $500 million, and the amount of available borrowings under the senior credit facility is reduced by any outstanding letters of credit. At June 30, 2013, the Company had provided $35 million of total letters of credit. At June 30, 2013, MGM China had provided $39 million of guarantees under its credit facility.

Other litigation. The Company is 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 6 — INCOME (LOSS) PER SHARE OF COMMON STOCK

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

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2013     2012     2013     2012  
     (In thousands)  

Numerator:

        

Net loss attributable to MGM Resorts International

   $ (92,958   $ (145,452   $ (86,412   $ (362,705
  

 

 

   

 

 

   

 

 

   

 

 

 

Denominator:

        

Weighted-average common shares outstanding

     489,484       488,931       489,388       488,896  
  

 

 

   

 

 

   

 

 

   

 

 

 

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

     18,498       23,942       18,498       23,942  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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NOTE 7 — STOCKHOLDERS’ EQUITY AND NONCONTROLLING INTERESTS

Noncontrolling interests. The noncontrolling interests in MGM China and other minor subsidiaries are presented as a separate component of stockholders’ equity in the Company’s consolidated balance sheets and the net income attributable to noncontrolling interests is presented on the Company’s consolidated statements of operations. For the six months ended June 30, 2013 and 2012, distributions to noncontrolling interests were $259 million and $204 million, respectively, related primarily to MGM China dividends discussed below.

MGM China dividends. MGM China paid a $500 million special dividend in March 2013, of which $255 million remained within the consolidated entity and $245 million was distributed to noncontrolling interests. MGM China paid a $400 million special dividend in March 2012, of which $204 million remained within the consolidated entity and $196 million was distributed to noncontrolling interests.

On August 6, 2013, MGM China’s board of directors announced a dividend of $113 million, which will be paid to shareholders of record as of August 26, 2013 and distributed on or about September 2, 2013. The Company will receive $57 million, representing its 51% share of the dividend.

Supplemental equity information. The following table presents the Company’s changes in stockholders’ equity for the six months ended June 30, 2013:

 

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

Balances, January 1, 2013

   $ 4,365,548     $ 3,750,468     $ 8,116,016  

Net income (loss)

     (86,412     78,412       (8,000

Foreign currency translation adjustment

     (3,110     (3,115     (6,225

Other comprehensive income from unconsolidated affiliate, net

     115       —         115  

Stock-based compensation

     15,485       1,649       17,134  

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

     (2,260     —         (2,260

Cash distributions to noncontrolling interest owners

     —         (259,017     (259,017

Other

     (305     (292     (597
  

 

 

   

 

 

   

 

 

 

Balances, June 30, 2013

   $ 4,289,061     $ 3,568,105     $ 7,857,166  
  

 

 

   

 

 

   

 

 

 

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

 

     Foreign
Currency
Translation
Adjustment
    Other
Adjustments
    Total  
     (In thousands)  

Balance at January 1, 2013

   $ 14,997     $ (694   $ 14,303  

Current period other comprehensive income (loss)

     (3,110     115       (2,995
  

 

 

   

 

 

   

 

 

 

Balance at June 30, 2013

   $ 11,887     $ (579   $ 11,308  
  

 

 

   

 

 

   

 

 

 

NOTE 8 — STOCK-BASED COMPENSATION

2005 Omnibus Incentive Plan. As of June 30, 2013, the Company had an aggregate of 16 million shares of common stock available for grant as share-based awards under the Company’s omnibus incentive plan (“Omnibus Plan”). A summary of activity under the Omnibus Plan for the six months ended June 30, 2013 is presented below:

Stock options and stock appreciation rights (“SARs”)

 

     Units
(000’s)
    Weighted
Average
Exercise
Price
 

Outstanding at January 1, 2013

     22,929     $ 14.44  

Granted

     60       12.80  

Exercised

     (1,394     9.36  

Forfeited or expired

     (5,121     14.98  
  

 

 

   

Outstanding at June 30, 2013

     16,474       14.69  
  

 

 

   

Exercisable at June 30, 2013

     9,596       17.81  
  

 

 

   

 

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

 

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

Nonvested at January 1, 2013

     1,424     $ 10.17        688     $ 10.03  

Granted

     103       14.93        —         —    

Vested

     (133     12.51        —         —    

Forfeited

     (52     9.94        (6     10.03  
  

 

 

      

 

 

   

Nonvested at June 30, 2013

     1,342       10.31        682       10.03  
  

 

 

      

 

 

   

MGM China Share Option Plan. As of June 30, 2013, MGM China had an aggregate of 1.0 billion shares of options available for grant as share-based awards under the MGM China share option plan (“MGM China Plan”). A summary of activity under the MGM China Plan for the six months ended June 30, 2013 is presented below:

Stock options

 

     Units
(000’s)
    Weighted
Average
Exercise
Price
 

Outstanding at January 1, 2013

     19,235     $ 1.98  

Granted

     280       2.45  

Exercised

     (715     2.01  

Forfeited or expired

     (170     2.01  
  

 

 

   

Outstanding at June 30, 2013

     18,630       2.19  
  

 

 

   

Exercisable at June 30, 2013

     8,081       2.00  
  

 

 

   

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

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2013     2012     2013     2012  
     (In thousands)  

Compensation cost:

        

Omnibus Plan

   $ 6,508     $ 9,763     $ 13,768     $ 20,156  

MGM China Plan

     1,686        1,424       3,366       2,695  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total compensation cost

     8,194       11,187       17,134       22,851  

Less: Reimbursed costs and other

     (262     (995     (579     (2,055
  

 

 

   

 

 

   

 

 

   

 

 

 

Compensation cost recognized as expense

     7,932       10,192       16,555       20,796  

Less: Related tax expense (benefit)

     —         36       —         (417
  

 

 

   

 

 

   

 

 

   

 

 

 

Compensation expense, net of tax expense (benefit)

   $ 7,932     $ 10,228     $ 16,555     $ 20,379  
  

 

 

   

 

 

   

 

 

   

 

 

 

NOTE 9 — PROPERTY TRANSACTIONS, NET

Property transactions, net includes:

 

     Three Months Ended
June 30,
     Six Months Ended
June 30,
 
     2013      2012      2013      2012  
     (In thousands)  

Grand Victoria investment impairment charge

   $ 36,607      $ 85,009      $ 36,607      $ 85,009  

Corporate buildings impairment charge

     44,510        —          44,510        —    

Other property transactions, net

     7,014        5,458        15,505        6,375  
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 88,131      $ 90,467      $ 96,622      $ 91,384  
  

 

 

    

 

 

    

 

 

    

 

 

 

See Note 3 for discussion of the Grand Victoria investment impairment charge in 2013 and 2012. During the second quarter of 2013, the Company recorded an impairment charge of $45 million related to corporate buildings which are expected to be removed from service. In June 2013, the Company executed agreements formalizing the details of a joint venture to build a new Las Vegas arena project, of which the Company will own 50%, that will be located on the land underlying these buildings. Other property transactions, net for the three and six months ended June 30, 2013 and 2012 include miscellaneous asset disposals and demolition costs.

 

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NOTE 10 — SEGMENT INFORMATION

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

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

The following tables present the Company’s segment information:

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2013     2012     2013     2012  
     (In thousands)  

Net Revenues:

        

Wholly owned domestic resorts

   $ 1,535,996     $ 1,505,228     $ 3,025,184     $ 2,984,826  

MGM China

     835,149       709,296       1,582,706       1,411,386  
  

 

 

   

 

 

   

 

 

   

 

 

 

Reportable segment net revenues

     2,371,145       2,214,524       4,607,890       4,396,212  

Corporate and other

     110,120       109,241       225,523       215,143  
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 2,481,265     $ 2,323,765     $ 4,833,413     $ 4,611,355  
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA:

        

Wholly owned domestic resorts

   $ 375,603     $ 345,158     $ 736,640     $ 666,130  

MGM China

     204,815       186,560       385,270       351,081  
  

 

 

   

 

 

   

 

 

   

 

 

 

Reportable segment Adjusted Property EBITDA

     580,418       531,718       1,121,910       1,017,211  

Corporate and other

     (39,028     (30,233     (56,148     (85,394
  

 

 

   

 

 

   

 

 

   

 

 

 
     541,390       501,485       1,065,762       931,817  

Other operating expense:

        

Preopening and start-up expenses

     (3,506     —         (5,652     —    

Property transactions, net

     (88,131     (90,467     (96,622     (91,384

Depreciation and amortization

     (218,151     (235,643     (430,069     (472,452
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     231,602       175,375       533,419       367,981  
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-operating income (expense):

        

Interest expense, net of amounts capitalized

     (214,500     (276,323     (439,947     (560,665

Non-operating items from unconsolidated affiliates

     (38,864     (20,836     (60,943     (47,702

Other, net

     (4,951     46       (6,233     (57,530
  

 

 

   

 

 

   

 

 

   

 

 

 
     (258,315     (297,113     (507,123     (665,897
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     (26,713     (121,738     26,296       (297,916

Benefit (provision) for income taxes

     (3,865     51,304       (34,296     24,175  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

     (30,578     (70,434     (8,000     (273,741

Less: Net income attributable to noncontrolling interests

     (62,380     (75,018     (78,412     (88,964
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to MGM Resorts International

   $ (92,958   $ (145,452   $ (86,412   $ (362,705
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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NOTE 11 — RELATED PARTY TRANSACTIONS

MGM China. MGM Branding and Development Holdings, Ltd., (together with its subsidiary MGM Development Services, Ltd, “MGM Branding and Development”), an entity included in the Company’s consolidated financial statements in which Ms. Pansy Ho indirectly holds a noncontrolling interest, has a brand license agreement with MGM China. MGM China pays a license fee to MGM Branding and Development equal to 1.75% of MGM China’s consolidated net revenue, subject to an annual cap of $36 million in 2013 with a 20% increase per annum during the agreement term. During the three and six months ended June 30, 2013, MGM China incurred total license fees of $15 million and $28 million, respectively. In the three and six months ended June 30, 2012 total license fees of $12 million and $25 million, respectively, were incurred by MGM China. Such amounts have been eliminated in consolidation.

MGM China also has a development services agreement with MGM Branding and Development to provide certain development services to MGM China in connection with future expansion of existing projects and development of future resort gaming projects. Such services are subject to a development fee which is calculated separately for each resort casino property upon commencement of development. For each such property, the fee is 2.625% of project costs, to be paid in installments as certain benchmarks are achieved. Project costs are the total costs incurred for the design, development and construction of the casino, casino hotel, integrated resort and other related sites associated with each project, including costs of construction, fixtures and fittings, signage, gaming and other supplies and equipment and all costs associated with the opening of the business to be conducted at each project but excluding the cost of land and gaming concessions and financing costs. The development fee for MGM Cotai is subject to a cap of $22 million in 2013, which will increase by 10% per annum for each year during the term of the agreement. During the six months ended June 30, 2013, MGM China incurred $15 million of fees to MGM Branding and Development related to development services. During the three and six months ended June 30, 2012, MGM China incurred $6 million of fees to MGM Branding and Development related to development services. Such amounts have been eliminated in consolidation.

An entity owned by Ms. Pansy Ho received distributions of $4 million and $14 million during the three and six months ended June 30, 2013, respectively, in connection with the ownership of a noncontrolling interest in MGM Branding and Development. The entity received distributions of $6 million and $9 million in the three and six months ended June 30, 2012, respectively.

 

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Table of Contents

NOTE 12 — CONDENSED CONSOLIDATING FINANCIAL INFORMATION

The Company’s domestic subsidiaries, excluding certain minor subsidiaries, its domestic insurance subsidiaries and MGM Grand Detroit, LLC, have fully and unconditionally guaranteed, on a joint and several basis, payment of the senior credit facility and the outstanding debt securities. The Company’s international subsidiaries, including MGM China, are not guarantors of such indebtedness. The Company has corrected certain prior year amounts in the current year’s presentation of the Company’s condensed consolidating statement of operations and comprehensive income and condensed consolidating statement of cash flows for intercompany balances between the parent and its guarantor and non-guarantor subsidiaries as required by Regulation S-X, Rule 3-10. Separate condensed financial statement information for the subsidiary guarantors and non-guarantors as of June 30, 2013 and December 31, 2012 and for the three and six months ended June 30, 2013 and 2012 is as follows:

CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION

 

     At June 30, 2013  
     Parent      Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
     Elimination     Consolidated  
     (In thousands)  

Current assets

   $ 245,269      $ 860,178     $ 1,105,100      $ (307   $ 2,210,240  

Property and equipment, net

     —          12,665,396       1,388,885        (11,972     14,042,309  

Investments in subsidiaries

     19,732,256        3,920,363       —          (23,652,619     —    

Investments in and advances to unconsolidated affiliates

     —          1,399,500       8,639        —         1,408,139  

Other non-current assets

     164,732        552,185       7,344,532        —         8,061,449  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 
   $ 20,142,257      $ 19,397,622     $ 9,847,156      $ (23,664,898   $ 25,722,137  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Current liabilities

   $ 268,962      $ 976,498     $ 860,993      $ (8,307   $ 2,098,146  

Intercompany accounts

     1,331,204        (1,349,059     17,855        —         —    

Deferred income taxes

     2,188,705        —         316,295        —         2,505,000  

Long-term debt

     11,956,077        154,905       1,000,979        —         13,111,961  

Other long-term obligations

     108,248        40,780       836        —         149,864  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total liabilities

     15,853,196        (176,876     2,196,958        (8,307     17,864,971  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

MGM Resorts stockholders’ equity

     4,289,061        19,574,498       4,082,093        (23,656,591     4,289,061  

Noncontrolling interests

     —          —         3,568,105        —         3,568,105  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total stockholders’ equity

     4,289,061        19,574,498       7,650,198        (23,656,591     7,857,166  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 
   $ 20,142,257      $ 19,397,622     $ 9,847,156      $ (23,664,898   $ 25,722,137  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

     At December 31, 2012  
     Parent      Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
     Elimination     Consolidated  
     (In thousands)  

Current assets

   $ 438,878      $ 891,826     $ 1,176,844      $ (456   $ 2,507,092  

Property and equipment, net

     —          12,881,152       1,325,472        (11,972     14,194,652  

Investments in subsidiaries

     19,785,312        4,077,228       —          (23,862,540     —    

Investments in and advances to unconsolidated affiliates

     —          1,437,151       7,396        —         1,444,547  

Other non-current assets

     163,372        541,634       7,433,441        —         8,138,447  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 
   $ 20,387,562      $ 19,828,991     $ 9,943,153      $ (23,874,968   $ 26,284,738  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Current liabilities

   $ 272,138      $ 989,864     $ 672,125      $ (8,456   $ 1,925,671  

Intercompany accounts

     960,610        (983,288     22,678        —         —    

Deferred income taxes

     2,222,823        —         251,066        —         2,473,889  

Long-term debt

     12,432,581        155,413       1,001,289        —         13,589,283  

Other long-term obligations

     133,862        45,303       714        —         179,879  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total liabilities

     16,022,014        207,292       1,947,872        (8,456     18,168,722  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

MGM Resorts stockholders’ equity

     4,365,548        19,621,699       4,244,813        (23,866,512     4,365,548  

Noncontrolling interests

     —          —         3,750,468        —         3,750,468  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total stockholders’ equity

     4,365,548        19,621,699       7,995,281        (23,866,512     8,116,016  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 
   $ 20,387,562      $ 19,828,991     $ 9,943,153      $ (23,874,968   $ 26,284,738  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

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Table of Contents

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME INFORMATION

 

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

Net revenues

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

Equity in subsidiaries’ earnings

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

Casino and hotel operations

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

General and administrative

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

Corporate expense

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

Preopening and start-up expenses

     —         1,248       2,258       —         3,506  

Property transactions, net

     —         87,980       151       —         88,131  

Depreciation and amortization

     —         135,887       82,264       —         218,151  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from unconsolidated affiliates

     —         5,620       1,062       —         6,682  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

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

Interest expense, net of amounts capitalized

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

Other, net

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

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

Benefit (provision) for income taxes

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

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

Less: Net income attributable to noncontrolling interests

     —         —         (62,380     —         (62,380
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to MGM Resorts International

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

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

Other comprehensive income (loss), net of tax:

          

Foreign currency translation adjustment

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss)

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

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

Less: Comprehensive income attributable to noncontrolling interests

     —         —         (65,470     —         (65,470
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to MGM Resorts International

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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

Net revenues

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

Equity in subsidiaries’ earnings

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

Expenses:

          

Casino and hotel operations

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

General and administrative

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

Corporate expense

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

Preopening and start-up expenses

     —         1,020       4,632       —         5,652  

Property transactions, net

     —         96,275       347       —         96,622  

Depreciation and amortization

     —         263,718       166,351       —         430,069  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from unconsolidated affiliates

     —         21,958       1,068       —         23,026  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

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

Interest expense, net of amounts capitalized

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

Other, net

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

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

Benefit (provision) for income taxes

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

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

Less: Net income attributable to noncontrolling interests

     —         —         (78,412     —         (78,412
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to MGM Resorts International

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

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

Other comprehensive income (loss), net of tax:

          

Foreign currency translation adjustment

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

Other

     115       115       —         (115     115  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss)

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

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

Less: Comprehensive income attributable to noncontrolling interests

     —         —         (75,297     —         (75,297
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to MGM Resorts International

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION

 

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

Cash flows from operating activities

           

Net cash provided by (used in) operating activities

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

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Cash flows from investing activities

           

Capital expenditures, net of construction payable

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

Dispositions of property and equipment

     —         127       196       —          323  

Investments in and advances to unconsolidated affiliates

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

Investments in treasury securities - maturities longer than 90 days

     —         (120,332     —         —          (120,332

Proceeds from treasury securities - maturities longer than 90 days

     —         135,268       —         —          135,268  

Other

     —         1,806       —         —          1,806  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net cash used in investing activities

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

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Cash flows from financing activities

           

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

     (14,000     —         —         —          (14,000

Borrowings under bank credit facilities - maturities longer than 90 days

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

Repayments under bank credit facilities - maturities longer than 90 days

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

Retirement of senior notes

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

Debt issuance costs

     (17,061     —         —         —          (17,061

Intercompany accounts

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

Distributions to noncontrolling interest owners

     —         —         (259,016     —          (259,016

Other

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

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net cash provided by (used in) financing activities

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

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Effect of exchange rate on cash

     —         —         (687     —          (687
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Cash and cash equivalents

           

Net decrease for the period

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

Balance, beginning of period

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

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Balance, end of period

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

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

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Table of Contents

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME INFORMATION

 

     Three Months Ended June 30, 2012  
      Parent     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Elimination     Consolidated  
     (In thousands)  

Net revenues

   $ —       $ 1,472,301     $ 852,001     $ (537   $ 2,323,765  

Equity in subsidiaries’ earnings

     126,765       87,809       —         (214,574     —    

Expenses:

          

Casino and hotel operations

     1,912       916,172       558,701       (537     1,476,248  

General and administrative

     1,873       255,863       51,742       —         309,478  

Corporate expense

     14,678       27,850       12       —         42,540  

Property transactions, net

     —         88,120       2,347       —         90,467  

Depreciation and amortization

     —         130,705       104,938       —         235,643  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     18,463       1,418,710       717,740       (537     2,154,376  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from unconsolidated affiliates

     —         6,062       (76     —         5,986  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     108,302       147,462       134,185       (214,574     175,375  

Interest expense, net of amounts capitalized

     (261,601     (2,747     (11,975     —         (276,323

Other, net

     13,942       (20,525     (14,207     —         (20,790
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     (139,357     124,190       108,003       (214,574     (121,738

Benefit (provision) for income taxes

     (6,095     (677     58,076       —         51,304  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     (145,452     123,513       166,079       (214,574     (70,434

Less: Net income attributable to noncontrolling interests

     —         —         (75,018     —         (75,018
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to MGM Resorts International

   $ (145,452   $ 123,513     $ 91,061     $ (214,574   $ (145,452
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ (145,452   $ 123,513     $ 166,079     $ (214,574   $ (70,434

Other comprehensive income (loss), net of tax:

          

Foreign currency translation adjustment

     4,209       4,209       8,313       (8,418     8,313  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss)

     4,209       4,209       8,313       (8,418     8,313  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

     (141,243     127,722       174,392       (222,992     (62,121

Less: Comprehensive income attributable to noncontrolling interests

     —         —         (79,122     —         (79,122
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to MGM Resorts International

   $ (141,243   $ 127,722     $ 95,270     $ (222,992   $ (141,243
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents
     Six Months Ended June 30, 2012  
      Parent     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Elimination     Consolidated  
     (In thousands)  

Net revenues

   $ —       $ 2,906,836     $ 1,705,056     $ (537   $ 4,611,355  

Equity in subsidiaries’ earnings

     227,723       112,501       —         (340,224     —    

Expenses:

          

Casino and hotel operations

     4,243       1,828,522       1,142,420       (537     2,974,648  

General and administrative

     3,830       506,540       102,397       —         612,767  

Corporate expense

     32,329       52,692       (221     —         84,800  

Property transactions, net

     —         89,037       2,347       —         91,384  

Depreciation and amortization

     —         261,185       211,267       —         472,452  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     40,402       2,737,976       1,458,210       (537     4,236,051  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss from unconsolidated affiliates

     —         (7,212     (111     —         (7,323
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     187,321       274,149       246,735       (340,224     367,981  

Interest expense, net of amounts capitalized

     (529,909     (5,508     (25,248     —         (560,665

Other, net

     (30,715     (46,738     (27,779     —         (105,232
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     (373,303     221,903       193,708       (340,224     (297,916

Benefit (provision) for income taxes

     10,598       (972     14,549       —         24,175  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     (362,705     220,931       208,257       (340,224     (273,741

Less: Net income attributable to noncontrolling interests

     —         —         (88,964     —         (88,964
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to MGM Resorts International

   $ (362,705   $ 220,931     $ 119,293     $ (340,224   $ (362,705
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ (362,705   $ 220,931     $ 208,257     $ (340,224   $ (273,741

Other comprehensive income (loss), net of tax:

          

Foreign currency translation adjustment

     5,068       5,068       10,001       (10,136     10,001  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss)

     5,068       5,068       10,001       (10,136     10,001  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

     (357,637     225,999       218,258       (350,360     (263,740

Less: Comprehensive income attributable to noncontrolling interests

     —         —         (93,897     —         (93,897
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to MGM Resorts International

   $ (357,637   $ 225,999     $ 124,361     $ (350,360   $ (357,637
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION

 

     Six Months Ended June 30, 2012  
     Parent     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Elimination      Consolidated  
     (In thousands)  

Cash flows from operating activities

           

Net cash provided by (used in) operating activities

   $ (428,840   $ 502,816     $ 438,280     $ —        $ 512,256  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Cash flows from investing activities

           

Capital expenditures, net of construction payable

     —         (190,895     (25,335     —          (216,230

Dispositions of property and equipment

     —         30       66       —          96  

Investments in and advances to unconsolidated affiliates

     (25,000     —         —         —          (25,000

Distributions from unconsolidated affiliates in excess of earnings

     —         2,085       —         —          2,085  

Investments in treasury securities- maturities longer than 90 days

     —         (135,179     —         —          (135,179

Proceeds from treasury securities- maturities longer than 90 days

     —         150,182       —         —          150,182  

Other

     —         (907     —         —          (907
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net cash used in investing activities

     (25,000     (174,684     (25,269     —          (224,953
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Cash flows from financing activities

           

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

     (192,100     —         450,000       —          257,900  

Borrowings under bank credit facilities maturities - longer than 90 days

     —         —         450,000       —          450,000  

Repayments under bank credit facilities maturities - longer than 90 days

     (1,834,128     —         (900,000     —          (2,734,128

Issuance of senior notes

     1,850,000       —         —         —          1,850,000  

Debt issuance costs

     (40,447     —         —         —          (40,447

Intercompany accounts

     405,077       (345,477     (59,600     —          —    

Distributions to noncontrolling interest owners

     —         —         (204,074     —          (204,074

Other

     (698     (629     (38     —          (1,365
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net cash provided by (used in) financing activities

     187,704       (346,106     (263,712     —          (422,114
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Effect of exchange rate on cash

     —         —         819       —          819  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Cash and cash equivalents

           

Net increase (decrease) for the period

     (266,136     (17,974     150,118       —          (133,992

Balance, beginning of period

     795,326       230,888       839,699       —          1,865,913  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Balance, end of period

   $ 529,190     $ 212,914     $ 989,817     $ —        $ 1,731,921  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

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

This management’s discussion and analysis of financial condition and results of operations (“MD&A”) contains forward-looking statements that involve risks and uncertainties. Please see “Cautionary Statement Concerning Forward-Looking Statements” for a discussion of the uncertainties, risks and assumptions that may cause our actual results to differ materially from those discussed in the forward-looking statements. This discussion should be read in conjunction with our historical financial statements and related notes thereto and the other disclosures contained elsewhere in this Quarterly Report on Form 10-Q, and the audited consolidated financial statements and notes for the fiscal year ended December 31, 2012, which were included in our Form 10-K, filed with the SEC on March 1, 2013. The results of operations for the periods reflected herein are not necessarily indicative of results that may be expected for future periods. MGM Resorts International together with its subsidiaries may be referred to as “we,” “us” or “our.” MGM China Holdings Limited together with its subsidiaries is referred to as “MGM China.”

Executive Overview

Our primary business is the ownership and operation of casino resorts, which includes offering gaming, hotel, convention, dining, entertainment, retail and other resort amenities. We believe that we own and invest in several of the premier casino resorts in the world and have continually reinvested in our resorts to maintain our competitive advantage. Most of our revenue is cash-based, through customers wagering with cash or paying for non-gaming services with cash or credit cards. We rely heavily on the ability of our resorts to generate operating cash flow to repay debt financings, fund capital expenditures and provide excess cash flow for future development. We make significant investments in our resorts through exciting newly remodeled hotel rooms, restaurants, entertainment and nightlife offerings, as well as other new features and amenities.

Results of operations from our wholly owned domestic resorts in the second quarter of 2013 improved compared to the second quarter of 2012 as a result of increased casino and hotel revenues as economic conditions continue to improve. In the Las Vegas Strip market, as reported by the Las Vegas Convention and Visitors Authority, casino revenues increased 3% through June of 2013, and although visitation to Las Vegas was flat for the same period, the average room rate increased 3% compared to the same period in the prior year. We expect our resorts to benefit from the continuation of these trends through the remainder of 2013.

In Macau, results of operations also improved in the second quarter of 2013 compared to the prior year period led by strong gaming volumes. Despite continued concerns about economic uncertainty in China and the implementation of new smoking restrictions in Macau, we expect the Macau market to continue to grow. Gross casino revenues for the Macau market increased 16% in the second quarter of 2013, with increases in both high-end (“VIP”) and main floor volumes.

Our results of operations are affected by decisions we make related to our capital allocation, our access to capital and our cost of capital. In December 2012, we completed a comprehensive refinancing transaction that allows us to maximize free cash flow and further enhance our deleveraging efforts. While we are focused on continuing to improve our financial position and lower our interest costs, we are also dedicated to capitalizing on development opportunities. In Macau, we plan to spend approximately $2.6 billion, excluding land and capitalized interest, to develop a resort and casino featuring approximately 1,600 hotel rooms, 500 gaming tables, and 2,500 slots built on an approximately 17.8 acre site in Cotai, Macau. In addition, we have been actively pursuing development opportunities in markets such as Maryland and Massachusetts.

Wholly Owned Domestic Resorts

Over half of the net revenue from our wholly owned domestic resorts is derived from non-gaming operations including hotel, food and beverage, entertainment and other non-gaming amenities. We utilize our significant convention and meeting facilities to maximize hotel occupancy and customer volumes during off-peak times such as mid-week or during traditionally slower leisure travel periods, which also leads to better labor utilization. Our operating results are highly dependent on the volume of customers at our resorts, which in turn affects the price we can charge for our hotel rooms and other amenities. We market to different customer groups to manage our hotel occupancy, such as targeting large conventions to increase mid-week occupancy. As a result of our leveraged business model, our operating results are significantly affected by our ability to generate operating revenues. Also, we generate a significant portion of our revenue from our wholly owned domestic resorts in Las Vegas, Nevada, which exposes us to certain risks, such as increased competition from new or expanded Las Vegas resorts, and from the expansion of gaming in the United States generally.

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

 

   

Gaming revenue indicators – table games drop and slots handle (volume indicators); “win” or “hold” percentage, which is not fully controllable by us. Our normal table games hold percentage is in the range of 19% to 22% of table games drop and our normal slots hold percentage is in the range of 7.5% to 8.5% of slots handle; and

 

   

Hotel revenue indicators – hotel occupancy (a volume indicator); average daily rate (“ADR,” a price indicator); and revenue per available room (“REVPAR,” a summary measure of hotel results, combining ADR and occupancy rate). Our calculation of ADR, which is the average price of occupied rooms per day, includes the impact of complimentary rooms. Complimentary room rates are determined based on an analysis of retail or “cash” rates for each customer segment and each type of room product to estimate complimentary rates which

 

23


Table of Contents
 

are consistent with retail rates. Complimentary rates are reviewed at least annually and on an interim basis if there are significant changes in market conditions. Because the mix of rooms provided on a complimentary basis, particularly to casino customers, includes a disproportionate suite component, the composite ADR including complimentary rooms is slightly higher than the ADR for cash rooms, reflecting the higher retail value of suites.

MGM China

We own 51% and have a controlling interest in MGM China Holdings Limited (“MGM China”), which owns MGM Grand Paradise, S.A. (“MGM Grand Paradise”), the Macau company that owns and operates the MGM Macau resort and casino and the related gaming subconcession and land concession, and is in the process of developing a gaming resort in Cotai. We believe our investment in MGM China plays an important role in extending our reach internationally and will foster future growth and profitability. Asia is the fastest growing gaming market in the world and Macau is the world’s largest gaming destination in terms of revenue, and has continued to grow over the past few years despite the global economic downturn.

Our current MGM China operations consist of MGM Macau and the development of the new gaming resort in Cotai. Revenues at MGM Macau are generated primarily from gaming operations made up of two distinct market segments: main floor and high-end, or VIP. MGM Macau main floor operations consist of both table games and slot machines offered to the public, which usually consists of walk-in and day trip visitors. VIP players play mostly in dedicated VIP rooms or designated gaming areas. VIP customers can be further divided into customers sourced by in-house VIP programs and those sourced through gaming promoters. A significant portion of our VIP volume is generated through the use of gaming promoters, also known as junket operators. These operators introduce VIP gaming players to MGM Macau, assist these customers with travel arrangements and extend gaming credit to these players.

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

In addition to the key performance indicators used by our wholly owned domestic resorts, MGM Macau utilizes “turnover,” which is the sum of rolling chip wagers won by MGM Macau (rolling chips purchased, plus rolling chips exchanged, less rolling chips returned). Turnover provides a basis for measuring VIP casino win percentage. Normal win for VIP gaming operations at MGM Macau is in the range of 2.7% to 3.0% of turnover. MGM Macau’s main floor normal table games hold percentage is in the range of 25% to 35% of table games drop. Comparability of table games drop and resulting hold percentage indicators between periods can be affected by the volume of casino chips purchased at the cage versus the gaming tables. Normal slots hold percentage at MGM Macau is in the range of 5% to 6% of slots handle.

Corporate and Other

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

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

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

MGM Hospitality. MGM Hospitality seeks to leverage our management expertise and well-recognized brands through strategic partnerships and international expansion opportunities. MGM Hospitality has entered into management agreements for hotels in the Middle East, North Africa, India and, through its joint venture with Diaoyutai State Guesthouse, the People’s Republic of China. MGM Hospitality opened its first resort, MGM Grand Sanya on Hainan Island, in the People’s Republic of China in early 2012.

Borgata. We have a 50% economic interest in Borgata Hotel Casino & Spa (“Borgata”) located on Renaissance Pointe in the Marina area of Atlantic City, New Jersey. Boyd Gaming Corporation owns the other 50% of Borgata and also operates the resort. Our interest is held in trust and was offered for sale pursuant to our amended settlement agreement with the New Jersey Division of Gaming Enforcement and approved by the New Jersey Casino Control Commission (“CCC”). The terms of the amended settlement agreement previously mandated the sale by March 2014. We had the right to direct the sale through March 2013 (the “divesture period”), subject to approval of the CCC, and the

 

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trustee was responsible for selling the trust property during the following 12-month period (the “terminal sale period”). On February 13, 2013, the settlement agreement was further amended to allow us to re-apply to the CCC for licensure in New Jersey and to defer expiration of these periods pending the outcome of the licensure process. We have submitted our licensure request to the CCC and there can be no assurances that such request will be approved or with respect to the timing of the licensure process. If the CCC denies our licensure request, then the divesture period will immediately end, and the terminal sale period will immediately begin, which will result in our Borgata interest being disposed of by the trustee pursuant to the terms of the settlement agreement.

We consolidate the trust because we are the sole economic beneficiary and we account for our interest in Borgata under the cost method. As of June 30, 2013, the trust had $118 million of cash and investments, of which $105 million is held in U.S. treasury securities with maturities greater than three months but less than one year, and is recorded within “Prepaid expenses and other.” During the three and six months ended June 30, 2013, $14 million and $18 million, respectively, were withdrawn from the trust account for the payment of property taxes and interest on our senior credit facility, as authorized in accordance with the terms of the trust agreement. For the three and six months ended June 30, 2012, $3 million and $26 million, respectively, were withdrawn from the trust account.

Results of Operations

The following discussion is based on our consolidated financial statements for the three and six months ended June 30, 2013 and 2012.

Summary Financial Results

The following table summarizes our financial results:

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2013     2012     2013     2012  
           (In thousands)        

Net revenues

   $ 2,481,265     $ 2,323,765     $ 4,833,413     $ 4,611,355  

Operating income

     231,602       175,375       533,419       367,981  

Net loss

     (30,578     (70,434     (8,000     (273,741

Net loss attributable to MGM Resorts International

     (92,958     (145,452     (86,412     (362,705

Consolidated net revenue for the three months ended June 30, 2013 increased 7% over the prior year quarter due primarily to an 11% increase in casino revenue. Consolidated net revenue for the six months ended June 30, 2013 increased 5% over the prior year period due primarily to an increase of 8% in casino revenues. See below for additional information related to segment revenues.

Consolidated operating income of $232 million for the three months ended June 30, 2013 benefited from increased revenues at our wholly owned domestic resorts and MGM China. In addition, depreciation and amortization decreased $17 million and $42 million in the three and six months ended June 30, 2013, respectively, compared to the three and six months of 2012, due primarily to lower amortization expense at MGM China as a result of extending the useful life of the gaming subconcession upon effectiveness of our Cotai land concession agreement. Corporate expense increased 23% to $52 million for the quarter ended June 30, 2013 and 17% to $99 million for the six months ended June 30, 2013, due primarily to costs associated with development efforts in Massachusetts and Maryland.

Operating Results – Detailed Segment Information

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

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2013     2012     2013     2012  
     (In thousands)  

Net revenues:

        

Wholly owned domestic resorts

   $ 1,535,996     $ 1,505,228     $ 3,025,184     $ 2,984,826  

MGM China

     835,149       709,296       1,582,706       1,411,386  
  

 

 

   

 

 

   

 

 

   

 

 

 

Reportable segment net revenues

     2,371,145       2,214,524       4,607,890       4,396,212  

Corporate and other

     110,120       109,241       225,523       215,143  
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 2,481,265     $ 2,323,765     $ 4,833,413     $ 4,611,355  
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA:

        

Wholly owned domestic resorts

   $ 375,603     $ 345,158     $ 736,640     $ 666,130  

MGM China

     204,815       186,560       385,270       351,081  
  

 

 

   

 

 

   

 

 

   

 

 

 

Reportable segment Adjusted Property EBITDA

     580,418       531,718       1,121,910       1,017,211  

Corporate and other

     (39,028     (30,233     (56,148     (85,394
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 541,390     $ 501,485     $ 1,065,762     $ 931,817  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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Wholly owned domestic resorts. The following table presents detailed net revenue at our wholly owned domestic resorts:

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2013     Percentage
Change
    2012     2013     Percentage
Change
    2012  
     (In thousands)  

Casino revenue:

            

Table games

   $ 184,546       4   $ 177,783     $ 424,139       10   $ 384,245  

Slots

     418,528       3     406,887       826,562       0     824,242  

Other

     14,567       (4 %)      15,251       30,974       (11 %)      34,962  
  

 

 

     

 

 

   

 

 

     

 

 

 

Casino revenue

     617,641       3     599,921       1,281,675       3     1,243,449  

Non-casino revenue:

            

Rooms

     423,285       5     404,570       811,127       3     784,043  

Food and beverage

     373,414       0     373,169       712,448       (2 %)      726,295  

Entertainment, retail and other

     283,564       (1 %)      286,629       539,990       (2 %)      550,824  
  

 

 

     

 

 

   

 

 

     

 

 

 

Non-casino revenue

     1,080,263       1     1,064,368       2,063,565       0     2,061,162  
  

 

 

     

 

 

   

 

 

     

 

 

 
     1,697,904       2     1,664,289       3,345,240       1     3,304,611  

Less: Promotional allowances

     (161,908     2     (159,061     (320,056     0     (319,785
  

 

 

     

 

 

   

 

 

     

 

 

 
   $ 1,535,996       2   $ 1,505,228     $ 3,025,184       1   $ 2,984,826  
  

 

 

     

 

 

   

 

 

     

 

 

 

Net revenue related to wholly owned domestic resorts increased 2% for the quarter ended June 30, 2013, primarily as a result of increased casino revenue and rooms revenue. Table games hold percentage was 18.1% for the current quarter compared to 17.7% in the prior year period. Overall table games volumes decreased 3% for the second quarter due primarily to lower baccarat drop which was offset by the increase in hold percentage. Slots revenue increased 3% compared to the prior year quarter. Net revenue related to wholly owned domestic resorts increased 1% for the six months ended June 30, 2013, primarily as a result of increased casino revenue. Table games hold percentage was 20.1% for the six months ended June 30, 2013, compared to 18.3% for the six months ended June 30, 2012, and total table games volume decreased 4% compared to the six month period ended June 30, 2012. Slots revenue was flat for the six months ended June 30, 2013 compared to the six months ended June 30, 2012.

Rooms revenue for the quarter ended June 30, 2013 increased 5%, with a 3% increase in Las Vegas Strip REVPAR. Rooms revenue for the six months ended June 30, 2013 increased 3% with a 2% increase in Las Vegas Strip REVPAR. Occupancy at our Las Vegas Strip resorts was up slightly in the three months ended June 30, 2013 and relatively flat for the six months ended June 30, 2013.

The following table shows key hotel statistics for our Las Vegas Strip resorts.

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2013     2012     2013     2012  

Occupancy

     95     94     92     92

Average Daily Rate (ADR)

   $ 134     $ 131     $ 133     $ 131  

Revenue per Available Room (REVPAR)

     127       124       123       121  

Food and beverage revenue for the three months ended June 30, 2013 was flat compared to the same period in the prior year. The decrease from closure of certain restaurants for remodeling was offset by an increase in convention and banquet revenue. Food and beverage revenue for the six months ended June 30, 2013 decreased 2% compared to the prior year due primarily to the closure of several restaurants for remodeling. Entertainment, retail and other revenue decreased for the three and six months ended June 30, 2013 due primarily to lower revenue at our Cirque du Soleil production shows.

Adjusted Property EBITDA at our wholly owned domestic resorts increased 9% and 11% for the three and six months ended June 30, 2013, respectively, primarily as a result of an increase in casino margin driven by higher table games revenue, as well as an increase in rooms revenue, as discussed above.

MGM China. For the quarter ended June 30, 2013, net revenue for MGM China increased 18% driven by increases in VIP table games turnover and main floor table games volume of 34% and 11%, respectively. VIP table games hold percentage decreased from 3.3% in the quarter ended June 30, 2012 to 2.9% in the quarter ended June 30, 2013 and main floor table games hold percentage increased from 30.4% to 35.3% in the same period comparison. Slots revenue increased due to an 11% increase in volume. MGM China’s Adjusted EBITDA for the quarter ended June 30, 2013 was $205 million. Excluding branding fees of $15 million and $12 million for the quarter ended June 30, 2013 and 2012, respectively, Adjusted EBITDA increased 10%.

 

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Net revenue for the six months ended June 30, 2013 increased 12% compared to the same period in the prior year, due to increases in both VIP table games turnover and main floor table games volumes of 24% and 9%, respectively. VIP table games hold percentage was 2.8% in the current six month period compared to 3.2% in the prior year, while main floor table games hold increased from 28.9% in the prior year period to 33.8% in the current year. Slots volume for the six months ended June 30, 2013 increased 19% compared to prior year. MGM China’s Adjusted EBITDA for the six months ended June 30, 2013 was $385 million, which included branding fees of $28 million. Excluding branding fees, Adjusted EBITDA increased 10% compared to the same period in the prior year.

Corporate and other. Corporate and other revenue includes revenues from MGM Hospitality and management operations and reimbursed revenue related primarily to our CityCenter management agreement. Corporate and other Adjusted EBITDA loss for the second quarter of 2013 increased $9 million from the comparable prior year period due primarily to increased corporate expense related to development initiatives in Massachusetts and Maryland. Adjusted EBITDA loss for the six month period ended June 30, 2013 decreased $29 million due mainly to an increase in our share of operating income from CityCenter and a reduction in stock compensation expense, partially offset by an increase in corporate expense as discussed above.

Operating Results — Details of Certain Charges

Property transactions, net consisted of the following:

 

     Three Months Ended
June 30,
     Six Months Ended
June 30,
 
     2013      2012      2013      2012  
     (In thousands)  

Grand Victoria investment impairment charge

   $ 36,607      $ 85,009      $ 36,607      $ 85,009  

Corporate buildings impairment charge

     44,510        —          44,510        —    

Other property transactions, net

     7,014        5,458        15,505        6,375  
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 88,131      $ 90,467      $ 96,622      $ 91,384  
  

 

 

    

 

 

    

 

 

    

 

 

 

At June 30, 2013, we reviewed the carrying value of our Grand Victoria investment for impairment due to a higher than anticipated decline in operating results and loss of market share as a result of the opening of a new river boat casino in the Illinois market, as well as a decrease in forecasted cash flows for 2013 through 2017 compared to the prior forecast. We used a blended discounted cash flow analysis and guideline public company method to determine the estimated fair value from a market participant’s viewpoint. Key assumptions included in the discounted cash flow analysis were estimates of future cash flows including outflows for capital expenditures, a long-term growth rate of 2% and a discount rate of 11%. Key assumptions in the guideline public company method included business enterprise value multiples selected based on the range of multiples in the Company’s peer group. As a result of the analysis, we determined that it was necessary to record an other-than-temporary impairment charge of $37 million at June 30, 2013, based on an estimated fair value of $170 million for our 50% interest. We intend to, and believe we will be able to, retain our investment in Grand Victoria; however, due to the extent of the shortfall and our assessment of the uncertainty of fully recovering our investment, we have determined that the impairment was other-than-temporary. At June 30, 2012, we recorded an impairment charge of $85 million on our investment in Grand Victoria based on the then estimated fair value of $205 million for our 50% interest.

During the three months ended June 30, 2013 we recorded an impairment charge of $45 million related to corporate buildings which are expected to be removed from service. In June 2013, we executed agreements formalizing the details of a joint venture to build a new Las Vegas arena project, of which we will own 50%, that will be located on the land underlying these buildings. Other property transactions, net for the three and six months ended June 30, 2013 and 2012 include miscellaneous asset disposals and demolition costs.

Operating Results – Income (loss) from Unconsolidated Affiliates

The following table summarizes information related to our income (loss) from unconsolidated affiliates:

 

     Three Months Ended
June 30,
     Six Months Ended
June 30,
 
     2013      2012      2013      2012  
     (In thousands)  

CityCenter

   $ 861      $ 642      $ 12,556      $ (17,931

Other

     5,821        5,344        10,470        10,608  
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 6,682      $ 5,986      $ 23,026      $ (7,323
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Our share of CityCenter’s operating income, including certain basis difference adjustments, increased slightly for the quarter ended June 30, 2013 compared to the prior year quarter. CityCenter’s net revenues increased 15% due primarily to increased residential revenues. Casino revenue decreased 16% due to lower table games hold percentage, which was 20.8% in the current year quarter and 24.0% in the prior year quarter. In addition, CityCenter’s second quarter results were also negatively affected by $10 million of property transactions.

For the six months ended June 30, 2013, our share of operating income was $13 million compared to an operating loss of $18 million in the prior year period. CityCenter’s net revenue for the six months ended June 30, 2013 increased 23% compared to the six months ended June 30, 2012, related to an increase in casino revenue as well as increased residential revenues. Aria’s casino revenue benefited from an increase in table games volume and a table games hold percentage of 25.1% in 2013 compared to 20.2% in the prior year.

Non-operating Results

Interest expense. Interest expense decreased $62 million and $121 million for the three and six months ended June 30, 2013, respectively, compared to 2012, primarily as a result of the December 2012 refinancing transactions. At MGM China, interest expense was $7 million and $16 million, respectively, for the three and six months of 2013 compared to $6 million and $11 million in the prior year three and six month periods. We had minimal capitalized interest in the three and six months of 2013 and 2012.

Non-operating items from unconsolidated affiliates. Non-operating expense from unconsolidated affiliates increased to $39 million for the quarter ended June 30, 2013 as a result of statutory interest recorded by CityCenter related to estimated amounts owed in connection with the CityCenter construction litigation. The prior year included $4 million related to our share of CityCenter’s loss on refinancing of long-term debt.

Other, net. During the second quarter of 2013, we recorded a loss on early retirement of debt of $4 million related to the re-pricing of the term loan B credit facility. In connection with the amendment of our senior credit facility in the first quarter of 2012 and subsequent repayment of the non-extending loans, we recorded a loss on early retirement of debt of $59 million in the first quarter of 2012 related to previously recorded discounts and certain debt issuance costs.

Income taxes. We remeasured the net deferred tax liability of MGM Grand Paradise due to the extension of the amortization period of the Macau gaming concession in connection with the effectiveness of the Cotai land concession, resulting in an increase in the net deferred tax liability and a corresponding increase in provision for income taxes of $65 million in the first quarter of 2013. In addition, we settled all issues under appeal in connection with the IRS audits of our consolidated federal income tax returns and our cost method investee returns for the 2003 and 2004 tax years, resulting in a reduction in provision for income taxes of $38 million, including the impact of the settlement on the valuation allowance, in the first quarter of 2013. Finally, we recorded a valuation allowance for U.S. federal deferred tax assets, resulting in an increase in provision for income taxes of $17 million and $26 million for the three and six months ended June 30, 2013, respectively. See Note 2 in the accompanying financial statements for further discussion of the valuation allowance and complementary tax.

Non-GAAP Measures

“Adjusted EBITDA” is earnings before interest and other non-operating income (expense), taxes, depreciation and amortization, preopening and start-up expenses and property transactions, net. “Adjusted Property EBITDA” is Adjusted EBITDA before corporate expense and stock compensation expense related to the MGM Resorts stock option plan, which is not allocated to each property. MGM China recognizes stock compensation expense related to its stock compensation plan which is included in the calculation of Adjusted EBITDA for MGM China. Adjusted EBITDA information is presented solely as a supplemental disclosure to reported GAAP measures because management believes these measures are 1) widely used measures of operating performance in the gaming and hospitality industry, and 2) a principal basis for valuation of gaming and hospitality companies.

We believe that while items excluded from Adjusted EBITDA and Adjusted Property EBITDA may be recurring in nature and should not be disregarded in evaluation of our earnings performance, it is useful to exclude such items when analyzing current results and trends compared to other periods because these items can vary significantly depending on specific underlying transactions or events that may not be comparable between the periods being presented. Also, we believe excluded items may not relate specifically to current operating trends or be indicative of future results. For example, preopening and start-up expenses will be significantly different in periods when we are developing and constructing a major expansion project and will depend on where the current period lies within the development cycle, as well as the size and scope of the project(s). “Property transactions, net” includes normal recurring disposals, gains and losses on sales of asse