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 March 31, 2013

 

OR

 

o         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

 

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

incorporation or organization)

 

 

 

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 o

 

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 o

 

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 o

 

 

 

Non-accelerated filer o

 

Smaller reporting company o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act):  Yes o 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 May 1, 2013

 

Common Stock, $.01 par value

 

489,386,004 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 March 31, 2013 and December 31, 2012

1

 

 

 

 

Consolidated Statements of Operations for the Three Months Ended March 31, 2013 and March 31, 2012

2

 

 

 

 

Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended March 31, 2013 and March 31, 2012

3

 

 

 

 

Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2013 and March 31, 2012

4

 

 

 

 

Condensed Notes to Consolidated Financial Statements

5-19

 

 

 

Item 2.

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

20-30

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

30

 

 

 

Item 4.

Controls and Procedures

30

 

 

 

PART II.

OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

30

 

 

 

Item 1A.

Risk Factors

30

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

30

 

 

 

Item 6.

Exhibits

30

 

 

 

SIGNATURES

31

 



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)

 

 

 

March 31,

 

December 31,

 

 

 

2013

 

2012

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

Current assets

 

 

 

 

 

Cash and cash equivalents

 

$

1,480,637

 

$

1,543,509

 

Accounts receivable, net

 

475,581

 

443,677

 

Inventories

 

105,047

 

107,577

 

Deferred income taxes, net

 

119,196

 

179,431

 

Prepaid expenses and other

 

258,784

 

232,898

 

Total current assets

 

2,439,245

 

2,507,092

 

 

 

 

 

 

 

Property and equipment, net

 

14,117,778

 

14,194,652

 

 

 

 

 

 

 

Other assets

 

 

 

 

 

Investments in and advances to unconsolidated affiliates

 

1,435,136

 

1,444,547

 

Goodwill

 

2,898,087

 

2,902,847

 

Other intangible assets, net

 

4,666,659

 

4,737,833

 

Other long-term assets, net

 

500,969

 

497,767

 

Total other assets

 

9,500,851

 

9,582,994

 

 

 

$

26,057,874

 

$

26,284,738

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

Accounts payable

 

$

178,435

 

$

199,620

 

Income taxes payable

 

4,344

 

1,350

 

Accrued interest on long-term debt

 

205,204

 

206,736

 

Other accrued liabilities

 

1,483,005

 

1,517,965

 

Total current liabilities

 

1,870,988

 

1,925,671

 

 

 

 

 

 

 

Deferred income taxes

 

2,476,384

 

2,473,889

 

Long-term debt

 

13,690,699

 

13,589,283

 

Other long-term obligations

 

140,750

 

179,879

 

 

 

 

 

 

 

Commitments and contingencies (Note 5)

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

Common stock, $.01 par value: authorized 1,000,000,000 shares; issued and outstanding 489,379,463 and 489,234,401 shares

 

4,894

 

4,892

 

Capital in excess of par value

 

4,139,737

 

4,132,655

 

Retained earnings

 

220,244

 

213,698

 

Accumulated other comprehensive income

 

7,982

 

14,303

 

Total MGM Resorts International stockholders’ equity

 

4,372,857

 

4,365,548

 

Noncontrolling interests

 

3,506,196

 

3,750,468

 

Total stockholders’ equity

 

7,879,053

 

8,116,016

 

 

 

$

26,057,874

 

$

26,284,738

 

 

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

 

1



Table of Contents

 

MGM RESORTS INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2013

 

2012

 

Revenues

 

 

 

 

 

Casino

 

$

1,401,420

 

$

1,335,034

 

Rooms

 

401,250

 

393,620

 

Food and beverage

 

359,882

 

372,953

 

Entertainment

 

113,854

 

120,400

 

Retail

 

44,707

 

46,624

 

Other

 

123,826

 

113,123

 

Reimbursed costs

 

90,236

 

90,539

 

 

 

2,535,175

 

2,472,293

 

Less: Promotional allowances

 

(183,027

)

(184,703

)

 

 

2,352,148

 

2,287,590

 

Expenses

 

 

 

 

 

Casino

 

875,246

 

867,474

 

Rooms

 

127,709

 

126,155

 

Food and beverage

 

204,740

 

211,639

 

Entertainment

 

83,725

 

88,788

 

Retail

 

25,966

 

27,583

 

Other

 

85,973

 

86,222

 

Reimbursed costs

 

90,236

 

90,539

 

General and administrative

 

303,901

 

303,289

 

Corporate expense

 

46,624

 

42,260

 

Preopening and start-up expenses

 

2,146

 

 

Property transactions, net

 

8,491

 

917

 

Depreciation and amortization

 

211,918

 

236,809

 

 

 

2,066,675

 

2,081,675

 

 

 

 

 

 

 

Income (loss) from unconsolidated affiliates

 

16,344

 

(13,309

)

 

 

 

 

 

 

Operating income

 

301,817

 

192,606

 

 

 

 

 

 

 

Non-operating income (expense):

 

 

 

 

 

Interest expense, net of amounts capitalized

 

(225,447

)

(284,342

)

Non-operating items from unconsolidated affiliates

 

(22,079

)

(26,866

)

Other, net

 

(1,282

)

(57,576

)

 

 

(248,808

)

(368,784

)

 

 

 

 

 

 

Income (loss) before income taxes

 

53,009

 

(176,178

)

Provision for income taxes

 

(30,431

)

(27,129

)

 

 

 

 

 

 

Net income (loss)

 

22,578

 

(203,307

)

Less: Net income attributable to noncontrolling interests

 

(16,032

)

(13,946

)

Net income (loss) attributable to MGM Resorts International

 

$

6,546

 

$

(217,253

)

 

 

 

 

 

 

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

 

 

 

 

 

Basic

 

$

0.01

 

$

(0.44

)

Diluted

 

$

0.01

 

$

(0.44

)

 

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

 

2



Table of Contents

 

MGM RESORTS INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

(Unaudited)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2013

 

2012

 

Net income (loss)

 

$

22,578

 

$

(203,307

)

 

 

 

 

 

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

Foreign currency translation adjustment

 

(12,641

)

1,688

 

Other

 

115

 

 

Other comprehensive income (loss)

 

(12,526

)

1,688

 

Comprehensive income (loss)

 

10,052

 

(201,619

)

Less: Comprehensive income attributable to noncontrolling interests

 

(9,827

)

(14,775

)

 

 

 

 

 

 

Comprehensive income (loss) attributable to MGM Resorts International

 

$

225

 

$

(216,394

)

 

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

 

3



Table of Contents

 

MGM RESORTS INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2013

 

2012

 

Cash flows from operating activities

 

 

 

 

 

Net income (loss)

 

$

22,578

 

$

(203,307

)

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

 

 

 

 

 

Depreciation and amortization

 

211,918

 

236,809

 

Amortization of debt discounts, premiums and issuance costs

 

8,366

 

22,854

 

Loss on retirement of long-term debt

 

24

 

58,740

 

Provision for doubtful accounts

 

13,604

 

19,542

 

Stock-based compensation

 

8,623

 

10,604

 

Property transactions, net

 

8,491

 

917

 

Loss from unconsolidated affiliates

 

6,111

 

40,175

 

Distributions from unconsolidated affiliates

 

4,397

 

5,199

 

Deferred income taxes

 

63,125

 

(41,862

)

Change in operating assets and liabilities:

 

 

 

 

 

Accounts receivable

 

(45,930

)

(5,243

)

Inventories

 

2,509

 

2,061

 

Income taxes receivable and payable, net

 

2,818

 

54,657

 

Prepaid expenses and other

 

(25,872

)

(34,416

)

Prepaid Cotai land concession premium

 

1,569

 

 

Accounts payable and accrued liabilities

 

(66,476

)

130,230

 

Other

 

(21,199

)

(5,266

)

Net cash provided by operating activities

 

194,656

 

291,694

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

Capital expenditures, net of construction payable

 

(97,415

)

(113,757

)

Dispositions of property and equipment

 

235

 

20

 

Investments in and advances to unconsolidated affiliates

 

(6,400

)

(12,600

)

Distributions from unconsolidated affiliates in excess of earnings

 

103

 

1,801

 

Investments in treasury securities - maturities longer than 90 days

 

(60,138

)

(45,102

)

Proceeds from treasury securities - maturities longer than 90 days

 

60,112

 

60,108

 

Other

 

(113

)

(411

)

Net cash used in investing activities

 

(103,616

)

(109,941

)

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

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

 

(2,690,000

)

(192,100

)

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

 

 

(2,284,128

)

Issuance of senior notes

 

 

1,850,000

 

Debt issuance costs

 

 

(37,938

)

Distributions to noncontrolling interest owners

 

(254,659

)

(197,848

)

Other

 

(863

)

(908

)

Net cash used in financing activities

 

(152,522

)

(412,922

)

 

 

 

 

 

 

Effect of exchange rate on cash

 

(1,390

)

148

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

 

 

 

Net decrease for the period

 

(62,872

)

(231,021

)

Balance, beginning of period

 

1,543,509

 

1,865,913

 

Balance, end of period

 

$

1,480,637

 

$

1,634,892

 

 

 

 

 

 

 

Supplemental cash flow disclosures

 

 

 

 

 

Interest paid, net of amounts capitalized

 

$

218,613

 

$

211,835

 

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

 

3,736

 

1,830

 

 

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

 

4



Table of Contents

 

MGM RESORTS INTERNATIONAL AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

 

NOTE 1 — ORGANIZATION

 

Organization.  MGM Resorts International (the “Company”) is a Delaware corporation that acts largely as a holding company and, through wholly owned subsidiaries, primarily owns and/or operates casino resorts. The Company owns and operates the following casino resorts in Las Vegas, Nevada:  Bellagio, MGM Grand Las Vegas (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 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.  If the CCC denies the Company’s licensure request, then the divestiture 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 March 31, 2013, the trust had $132 million of cash and investments, of which $120 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 months ended March 31, 2013 and 2012, $3 million and $23 million, respectively, were 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.

 

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.

 

5



Table of Contents

 

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 March 31, 2013, the fair value of the Company’s treasury securities held by the Borgata trust was $120 million, measured using Level 1 inputs. See Note 1; and

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

 

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 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 March 31, 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 $9 million for the three months ended March 31, 2013.

 

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 three months ended March 31, 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 for the three months ended March 31, 2013.  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 three months ended March 31, 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:

 

 

 

March 31,

 

December 31,

 

 

 

2013

 

2012

 

 

 

(In thousands)

 

CityCenter Holdings, LLC — CityCenter (50%)

 

$

1,211,696

 

$

1,220,741

 

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

 

206,193

 

206,296

 

Other

 

17,247

 

17,510

 

 

 

$

1,435,136

 

$

1,444,547

 

 

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

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2013

 

2012

 

 

 

(In thousands)

 

Income (loss) from unconsolidated affiliates

 

$

16,344

 

$

(13,309

)

Preopening and start-up expenses

 

(376

)

 

Non-operating items from unconsolidated affiliates

 

(22,079

)

(26,866

)

 

 

$

(6,111

)

$

(40,175

)

 

6



Table of Contents

 

CityCenter

 

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

 

 

 

March 31,

 

December 31,

 

 

 

2013

 

2012

 

 

 

(In thousands)

 

Current assets

 

$

543,214

 

$

546,851

 

Property and other assets, net

 

8,520,664

 

8,606,163

 

Current liabilities

 

399,944

 

451,332

 

Long-term debt and other long-term obligations

 

2,557,613

 

2,533,918

 

Equity

 

6,106,321

 

6,167,764

 

 

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

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2013

 

2012

 

 

 

(In thousands)

 

Net revenues

 

$

315,142

 

$

238,917

 

Operating expenses

 

(315,310

)

(300,374

)

Operating loss

 

(168

)

(61,457

)

Non-operating expense

 

(67,675

)

(75,378

)

Net loss

 

$

(67,843

)

$

(136,835

)

 

NOTE 4 — LONG-TERM DEBT

 

Long-term debt consisted of the following:

 

 

 

March 31,

 

December 31,

 

 

 

2013

 

2012

 

 

 

(In thousands)

 

Senior credit facility:

 

 

 

 

 

$2,793 million ($2,800 million at December 31, 2012) term loans, net

 

$

2,784,566

 

$

2,791,284

 

Revolving loans

 

110,000

 

 

MGM Grand Paradise credit facility

 

552,601

 

553,531

 

$462.2 million 6.75% senior notes, due 2013

 

462,226

 

462,226

 

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

 

150,292

 

150,539

 

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

 

508,617

 

508,540

 

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

 

876,484

 

876,634

 

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

 

1,459,636

 

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

 

496,320

 

496,110

 

$743 million 7.625% senior notes, due 2017

 

743,000

 

743,000

 

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

 

466,435

 

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

 

36

 

36

 

 

 

$

13,690,699

 

$

13,589,283

 

 

Debt due within one year of the March 31, 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, including amounts borrowed on March 28, 2013 to repay a portion of the Company’s senior notes that matured on April 1, 2013.

 

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Senior credit facility.  At March 31, 2013, Company’s senior credit facility consisted of $1.2 billion of revolving loans, a $1.05 billion term loan A facility and a $1.75 billion term loan B facility.  The revolving and term loan A facilities bear interest at LIBOR plus 3.00% and are subject to credit rating adjustments six months after the initial loan.  The term loan B facility bears interest at LIBOR plus 3.25% with a LIBOR floor of 1.00%.  The revolving and term loan A facilities mature in December 2017 and the term loan B facility matures in December 2019.  The term loan A and term loan B facilities are subject to scheduled amortization payments on the last day of each calendar quarter from and after March 31, 2013 in an amount equal to 0.25% of the original principal balance.  The Company permanently repaid $7 million in the first quarter of 2013 in accordance with the scheduled amortization. The Company had $1.05 billion of available borrowing capacity under its senior credit facility at March 31, 2013.  At March 31, 2013, the interest rate on the term loan A was 3.28%, the interest rate on the term loan B was 4.25%, and the interest rate on the revolving loans was 3.18%.

 

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 obligations as a co-borrower under the senior credit facility, initially equal to $450 million and subject to gaming authority required annual amortization.  In addition, the senior credit facility, upon receipt of the necessary gaming approvals with respect to the properties located in Nevada, will be 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. Beginning with the quarter ended March 31, 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 March 31, 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 $550 million of term loans and a $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 March 31, 2013 was comprised solely of term loans. The interest rate on the facility fluctuates annually based on HIBOR plus a margin, set at 2.5% until April 2013 and ranging between 1.75% and 2.5% thereafter based on MGM China’s leverage ratio. The margin reduced to 1.75% effective on April 29, 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 amended and restated 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 March 31, 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 March 31, 2013 was $14.7 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 Grand Paradise credit facility approximates fair value.

 

NOTE 5 — COMMITMENTS AND CONTINGENCIES

 

CityCenter construction litigation. In March 2010, Perini Building Company, Inc. (“Perini”), general contractor for CityCenter, filed a lawsuit in the Eighth Judicial District Court for Clark County, State of Nevada, against MGM MIRAGE Design Group (a wholly owned subsidiary of the Company which was the original party to the Perini construction agreement) and certain direct or indirect subsidiaries of CityCenter Holdings, LLC (the “CityCenter Owners”). Perini asserted that CityCenter was substantially completed, but the defendants failed to pay Perini approximately $490 million allegedly due and owing under the construction agreement for labor, equipment and

 

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Table of Contents

 

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.  CityCenter has 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.  Three of the remaining subcontractors 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 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 January 14, 2014.

 

The CityCenter Owners and the other defendants will continue to vigorously assert and protect their interests in the Perini lawsuit. The Company believes that a loss with respect to Perini’s punitive damages claim is neither probable nor reasonably possible.

 

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

 

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 March 31, 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 March 31, 2013, the Company has funded $698 million under the completion guarantee and has accrued a liability of $21 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’s estimated obligation has been offset by the portion of the condominium proceeds received by CityCenter estimated to be used to settle construction lien claims upon the resolution of the Perini litigation but has not been offset by the remaining amount that it currently estimates it will be reimbursed from condominium proceeds that have been received by CityCenter.  Also, the Company’s accrual reflects certain estimated offsets to the amounts claimed by the contractors. CityCenter has reached settlement agreements with all but seven of Perini’s first-tier subcontractors.  However, significant disputes remain with the general contractor and the remaining subcontractors.  Amounts claimed by such parties exceed amounts included in the Company’s completion guarantee accrual by approximately $154 million, as such amounts exceed the Company’s best estimate of its liability. Moreover, the Company has not accrued for any contingent payments to CityCenter related to the Harmon Hotel & Spa 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

 

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Table of Contents

 

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 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 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 $32 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 has generally filed for refunds for the periods from January 2001 to February 2008 related to this matter. The Company is claiming the exemption on sales and use tax returns for periods after February 2008 in light of this Nevada Supreme Court decision and has 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 are 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 are 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 stems from a Nevada Tax Commission decision concerning another gaming company which states 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 other gaming company filed in Clark County District Court a petition for judicial review of the Nevada Tax Commission decision and the court recently issued a ruling in such case holding that complementary meals provided to customers were subject to sales tax, while meals provided to employees were not subject to sales tax. This decision has been appealed to the Nevada Supreme Court.  The Company continues to disagree with the Nevada Department of Taxation assertions.  Based on an analysis of the facts and circumstances as of the date of these financial statements, the Company does not believe it is probable it will incur a liability with respect to such assertions.  Any reasonably possible range of loss would not be material to the Company’s financial statements as of March 31, 2013.

 

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 March 31, 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 March 31, 2013, the Company had amortized $2 million, 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 March 31, 2013, the Company had provided $35 million of total letters of credit.  At March 31, 2013, MGM China had provided $39 million of guarantees under its credit facility.

 

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

 

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Table of Contents

 

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

 

 

 

March 31,

 

 

 

2013

 

2012

 

 

 

(In thousands)

 

Numerator:

 

 

 

 

 

Net income (loss) attributable to MGM Resorts International

 

$

6,546

 

$

(217,253

)

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding - basic

 

489,291

 

488,861

 

Potential dilution from share-based awards

 

3,014

 

 

Weighted-average common and common equivalent shares - diluted

 

492,305

 

488,861

 

 

 

 

 

 

 

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

 

10,974

 

30,589

 

 

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 three months ended March 31, 2013 and 2012, distributions to noncontrolling interests were $255 million and $198 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.

 

Supplemental equity information.  The following table presents the Company’s changes in stockholders’ equity for the three months ended March 31, 2013:

 

 

 

MGM Resorts

 

 

 

 

 

 

 

International

 

 

 

Total

 

 

 

Stockholders’

 

Noncontrolling

 

Stockholders’

 

 

 

Equity

 

Interests

 

Equity

 

 

 

(In thousands)

 

Balances, January 1, 2013

 

$

4,365,548

 

$

3,750,468

 

$

8,116,016

 

Net income

 

6,546

 

16,032

 

22,578

 

Foreign currency translation adjustment

 

(6,436

)

(6,205

)

(12,641

)

Other comprehensive income from unconsolidated affiliate, net

 

115

 

 

115

 

Stock-based compensation

 

8,117

 

823

 

8,940

 

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

 

(760

)

 

(760

)

Cash distributions to noncontrolling interest owners

 

 

(254,660

)

(254,660

)

Other

 

(273

)

(262

)

(535

)

Balances, March 31, 2013

 

$

4,372,857

 

$

3,506,196

 

$

7,879,053

 

 

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

 

 

 

Foreign

 

 

 

 

 

 

 

Currency

 

 

 

 

 

 

 

Translation

 

Other

 

 

 

 

 

Adjustment

 

Adjustments

 

Total

 

 

 

(In thousands)

 

Balance at January 1, 2013

 

$

14,997

 

$

(694

)

$

14,303

 

Current period other comprehensive income (loss)

 

(6,436

)

115

 

(6,321

)

Balance at March 31, 2013

 

$

8,561

 

$

(579

)

$

7,982

 

 

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Table of Contents

 

NOTE 8 — STOCK-BASED COMPENSATION

 

2005 Omnibus Incentive Plan. As of March 31, 2013, the Company had an aggregate of 14 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 Company’s share-based payment plans for the three months ended March 31, 2013 is presented below:

 

Stock options and stock appreciation rights (“SARs”)

 

 

 

 

 

Weighted

 

 

 

 

 

Average

 

 

 

Units

 

Exercise

 

 

 

(000’s)

 

Price

 

 

 

 

 

 

 

Outstanding at January 1, 2013

 

22,929

 

$

14.44

 

Granted

 

20

 

12.16

 

Exercised

 

(813

)

10.16

 

Forfeited or expired

 

(3,986

)

13.18

 

Outstanding at March 31, 2013

 

18,150

 

14.88

 

Exercisable at March 31, 2013

 

10,433

 

18.31

 

 

Restricted stock units (“RSUs”)

 

 

 

 

 

Weighted

 

 

 

 

 

Average

 

 

 

Units

 

Grant-Date

 

 

 

(000’s)

 

Fair Value

 

 

 

 

 

 

 

Nonvested at January 1, 2013

 

1,424

 

$

10.17

 

Granted

 

 

 

Vested

 

(19

)

18.64

 

Forfeited

 

(30

)

9.93

 

Nonvested at March 31, 2013

 

1,375

 

10.06

 

 

Performance share units (“PSUs”)

 

 

 

 

 

Weighted

 

 

 

 

 

Average

 

 

 

Units

 

Grant-Date

 

 

 

(000’s)

 

Fair Value

 

 

 

 

 

 

 

Nonvested at January 1, 2013

 

688

 

$

10.03

 

Granted

 

 

 

Forfeited

 

(6

)

10.03

 

Nonvested at March 31, 2013

 

682

 

10.03

 

 

MGM China Share Option Plan. As of March 31, 2013, MGM China had an aggregate of 1.0 billion shares of options available for grant as share-based awards (“MGM China Plan”). A summary of activity under the MGM China Plan for the three months ended March 31, 2013 is presented below:

 

Stock options

 

 

 

 

 

Weighted

 

 

 

 

 

Average

 

 

 

Units

 

Exercise

 

 

 

(000’s)

 

Price

 

 

 

 

 

 

 

Outstanding at January 1, 2013

 

19,235

 

$

1.98

 

Granted

 

230

 

2.42

 

Exercised

 

(625

)

2.01

 

Forfeited or expired

 

(130

)

2.01

 

Outstanding at March 31, 2013

 

18,710

 

2.17

 

Exercisable at March 31, 2013

 

4,151

 

1.98

 

 

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Table of Contents

 

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

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2013

 

2012

 

 

 

(In thousands)

 

Compensation cost:

 

 

 

 

 

Omnibus Plan

 

$

7,260

 

$

10,393

 

MGM China Plan

 

1,680

 

1,271

 

Total compensation cost

 

8,940

 

11,664

 

Less:    Reimbursed costs and other

 

(317

)

(1,060

)

Compensation cost recognized as expense

 

8,623

 

10,604

 

Less:    Related tax benefit

 

 

(454

)

Compensation expense, net of tax benefit

 

$

8,623

 

$

10,150

 

 

NOTE 9 — 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

 

 

 

March 31,

 

 

 

2013

 

2012

 

 

 

(In thousands)

 

Net Revenues:

 

 

 

 

 

Wholly owned domestic resorts

 

$

1,489,188

 

$

1,479,598

 

MGM China

 

747,557

 

702,090

 

Reportable segment net revenues

 

2,236,745

 

2,181,688

 

Corporate and other

 

115,403

 

105,902

 

 

 

$

2,352,148

 

$

2,287,590

 

 

 

 

 

 

 

Adjusted EBITDA:

 

 

 

 

 

Wholly owned domestic resorts

 

$

361,037

 

$

320,972

 

MGM China

 

180,455

 

164,521

 

Reportable segment Adjusted Property EBITDA

 

541,492

 

485,493

 

Corporate and other

 

(17,120

)

(55,161

)

 

 

524,372

 

430,332

 

Other operating income (expense):

 

 

 

 

 

Preopening and start-up expenses

 

(2,146

)

 

Property transactions, net

 

(8,491

)

(917

)

Depreciation and amortization

 

(211,918

)

(236,809

)

Operating income

 

301,817

 

192,606

 

Non-operating income (expense):

 

 

 

 

 

Interest expense, net of amounts capitalized

 

(225,447

)

(284,342

)

Non-operating items from unconsolidated affiliates

 

(22,079

)

(26,866

)

Other, net

 

(1,282

)

(57,576

)

 

 

(248,808

)

(368,784

)

 

 

 

 

 

 

Income (loss) before income taxes

 

53,009

 

(176,178

)

Provision for income taxes

 

(30,431

)

(27,129

)

 

 

 

 

 

 

Net income (loss)

 

22,578

 

(203,307

)

Less: Net income attributable to noncontrolling interests

 

(16,032

)

(13,946

)

 

 

 

 

 

 

Net income (loss) attributable to MGM Resorts International

 

$

6,546

 

$

(217,253

)

 

13



Table of Contents

 

NOTE 10 — RELATED PARTY TRANSACTIONS

 

MGM China.  In connection with the June 2011 MGM China transaction, MGM Branding and Development Holdings, Ltd., (together with its subsidiary MGM Development Services, Ltd, “MGM Branding and Development”), an entity included in the Company’s consolidated financial statements in which Ms. Pansy Ho indirectly holds a noncontrolling interest, entered into a brand license agreement with MGM China.  MGM China pays a license fee to MGM Branding and Development equal to 1.75% of MGM China’s consolidated net revenue, subject to an annual cap of $36 million in 2013 with a 20% increase per annum during the agreement term. During the three months ended March 31, 2013 and 2012, MGM China incurred total license fees of $13 million and $12 million, respectively. Such amounts have been eliminated in consolidation.

 

MGM China also entered into a development services agreement with MGM Branding and Development to provide certain development services to MGM China in connection with future expansion of existing projects and development of future resort gaming projects. Such services are subject to a development fee which is calculated separately for each resort casino property upon commencement of development. For each such property, the fee is 2.625% of project costs, to be paid in installments as certain benchmarks are achieved. Project costs are the total costs incurred for the design, development and construction of the casino, casino hotel, integrated resort and other related sites associated with each project, including costs of construction, fixtures and fittings, signage, gaming and other supplies and equipment and all costs associated with the opening of the business to be conducted at each project but excluding the cost of land and gaming concessions and financing costs. The development fee for MGM Cotai is subject to a cap of $22 million in 2013, which will increase by 10% per annum for each year during the term of the agreement. For the three months ended March 31, 2013, MGM China incurred $15 million of fees to MGM Branding and Development related to development services. Such amount is eliminated in consolidation.

 

An entity owned by Ms. Pansy Ho received distributions of $10 million and $2 million, respectively, during the three months ended March 31, 2013 and 2012 in connection with the ownership of a noncontrolling interest in MGM Branding and Development Holdings, Ltd.

 

14



Table of Contents

 

NOTE 11 — 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 March 31, 2013 and December 31, 2012 and for the three months ended March 31, 2013 and 2012 is as follows:

 

CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION

 

 

 

At March 31, 2013

 

 

 

Parent

 

Guarantor
Subsidiaries

 

Non-Guarantor
Subsidiaries

 

Elimination

 

Consolidated

 

 

 

(In thousands)

 

Current assets

 

$

743,687

 

$

871,335

 

$

824,460

 

$

(237

)

$

2,439,245

 

Property and equipment, net

 

 

12,785,633

 

1,344,117

 

(11,972

)

14,117,778

 

Investments in subsidiaries

 

19,697,094

 

3,838,942

 

 

(23,536,036

)

 

Investments in and advances to unconsolidated affiliates

 

 

1,427,705

 

7,431

 

 

1,435,136

 

Other non-current assets

 

156,881

 

554,928

 

7,353,906

 

 

8,065,715

 

 

 

$

20,597,662

 

$

19,478,543

 

$

9,529,914

 

$

(23,548,245

)

$

26,057,874

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

$

252,953

 

$

935,780

 

$

690,492

 

$

(8,237

)

$

1,870,988

 

Intercompany accounts

 

1,176,094

 

(1,186,801

)

10,707

 

 

 

Deferred income taxes

 

2,160,367

 

 

316,017

 

 

2,476,384

 

Long-term debt

 

12,535,105

 

155,165

 

1,000,429

 

 

13,690,699

 

Other long-term obligations

 

100,286

 

39,668

 

796

 

 

140,750

 

Total liabilities

 

16,224,805

 

(56,188

)

2,018,441

 

(8,237

)

18,178,821

 

MGM Resorts stockholders’ equity

 

4,372,857

 

19,534,731

 

4,005,277

 

(23,540,008

)

4,372,857

 

Noncontrolling interests

 

 

 

3,506,196

 

 

3,506,196

 

Total stockholders’ equity

 

4,372,857

 

19,534,731

 

7,511,473

 

(23,540,008

)

7,879,053

 

 

 

$

20,597,662

 

$

19,478,543

 

$

9,529,914

 

$

(23,548,245

)

$

26,057,874

 

 

 

 

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

 

 

15



Table of Contents

 

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME INFORMATION

 

 

 

Three Months Ended March 31, 2013

 

 

 

Parent

 

Guarantor
Subsidiaries

 

Non-Guarantor
Subsidiaries

 

Elimination

 

Consolidated

 

 

 

(In thousands)

 

Net revenues

 

$

 

$

1,463,965

 

$

888,662

 

$

(479

)

$

2,352,148

 

Equity in subsidiaries’ earnings

 

183,423

 

29,986

 

 

(213,409

)

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

Casino and hotel operations

 

1,510

 

886,083

 

606,481

 

(479

)

1,493,595

 

General and administrative

 

1,090

 

251,549

 

51,262

 

 

303,901

 

Corporate expense

 

14,808

 

27,739

 

4,077

 

 

46,624

 

Preopening and start-up expenses

 

 

(228

)

2,374

 

 

2,146

 

Property transactions, net

 

 

8,295

 

196

 

 

8,491

 

Depreciation and amortization

 

 

127,831

 

84,087

 

 

211,918

 

 

 

17,408

 

1,301,269

 

748,477

 

(479

)

2,066,675

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from unconsolidated affiliates

 

 

16,338

 

6

 

 

16,344

 

Operating income (loss)

 

166,015

 

209,020

 

140,191

 

(213,409

)

301,817

 

Interest expense, net of amounts capitalized

 

(208,683

)

(2,985

)

(13,779

)

 

(225,447

)

Other, net

 

15,166

 

(22,818

)

(15,709

)

 

(23,361

)

Income (loss) before income taxes

 

(27,502

)

183,217

 

110,703

 

(213,409

)

53,009

 

Benefit (provision) for income taxes

 

34,048

 

1,457

 

(65,936

)

 

(30,431

)

Net income (loss)

 

6,546

 

184,674

 

44,767

 

(213,409

)

22,578

 

Less: Net income attributable to noncontrolling interests

 

 

 

(16,032

)

 

(16,032

)

Net income (loss) attributable to MGM Resorts International

 

$

6,546

 

$

184,674

 

$

28,735

 

$

(213,409

)

$

6,546

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

6,546

 

$

184,674

 

$

44,767

 

$

(213,409

)

$

22,578

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

(6,436

)

(6,436

)

(12,641

)

12,872

 

(12,641

)

Other

 

115

 

115

 

 

(115

)

115

 

Other comprehensive income (loss)

 

(6,321

)

(6,321

)

(12,641

)

12,757

 

(12,526

)

Comprehensive income (loss)

 

225

 

178,353

 

32,126

 

(200,652

)

10,052

 

Less: Comprehensive income attributable to noncontrolling interests

 

 

 

(9,827

)

 

(9,827

)

Comprehensive income (loss) attributable to MGM Resorts International

 

$

225

 

$

178,353

 

$

22,299

 

$

(200,652

)

$

225

 

 

16



Table of Contents

 

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION

 

 

 

Three Months Ended March 31, 2013

 

 

 

Parent

 

Guarantor
Subsidiaries

 

Non-Guarantor
Subsidiaries

 

Elimination

 

Consolidated

 

 

 

(In thousands)

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by (used in) operating activities

 

$

(203,987

)

$

198,580

 

$

200,063

 

$

 

$

194,656

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures, net of construction payable

 

 

(51,766

)

(45,649

)

 

(97,415

)

Dispositions of property and equipment

 

 

108

 

127

 

 

235

 

Investments in and advances to unconsolidated affiliates

 

(6,400

)

 

 

 

(6,400

)

Distributions from unconsolidated affiliates in excess of earnings

 

 

103

 

 

 

103

 

Investments in treasury securities - maturities longer than 90 days

 

 

(60,138

)

 

 

(60,138

)

Proceeds from treasury securities - maturities longer than 90 days

 

 

60,112

 

 

 

60,112

 

Other

 

 

(113

)

 

 

(113

)

Net cash used in investing activities

 

(6,400

)

(51,694

)

(45,522

)

 

(103,616

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

 

 

 

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

 

(2,240,000

)

 

(450,000

)

 

(2,690,000

)

Borrowings under bank credit facilities - maturities longer than 90 days

 

2,343,000

 

 

450,000

 

 

2,793,000

 

Intercompany accounts

 

474,764

 

(200,367

)

(274,397

)

 

 

Distributions to noncontrolling interest owners

 

 

 

(254,659

)

 

(254,659

)

Other

 

(583

)

 

(280

)

 

(863

)

Net cash provided by (used in) financing activities

 

577,181

 

(200,367

)

(529,336

)

 

(152,522

)

 

 

 

 

 

 

 

 

 

 

 

 

Effect of exchange rate on cash

 

 

 

(1,390

)

 

(1,390

)

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

 

 

 

 

 

 

 

 

 

Net increase (decrease) for the period

 

366,794

 

(53,481

)

(376,185

)

 

(62,872

)

Balance, beginning of period

 

254,385

 

226,242

 

1,062,882

 

 

1,543,509

 

Balance, end of period

 

$

621,179

 

$

172,761

 

$

686,697

 

$

 

$

1,480,637

 

 

17



Table of Contents

 

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME INFORMATION

 

 

 

Three Months Ended March 31, 2012

 

 

 

Parent

 

Guarantor 
Subsidiaries

 

Non-
Guarantor 
Subsidiaries

 

Elimination

 

Consolidated

 

 

 

(In thousands)

 

Net revenues

 

$

 

$

1,434,535

 

$

853,055

 

$

 

$

2,287,590

 

Equity in subsidiaries’ earnings

 

100,958

 

24,692

 

 

(125,650

)

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

Casino and hotel operations

 

2,331

 

912,350

 

583,719

 

 

1,498,400

 

General and administrative

 

1,957

 

250,678

 

50,654

 

 

303,289

 

Corporate expense

 

17,651

 

24,842

 

(233

)

 

42,260

 

Property transactions, net

 

 

917

 

 

 

917

 

Depreciation and amortization

 

 

130,480

 

106,329

 

 

236,809

 

 

 

21,939

 

1,319,267

 

740,469

 

 

2,081,675

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from unconsolidated affiliates

 

 

(13,274

)

(35

)

 

(13,309

)

Operating income (loss)

 

79,019

 

126,686

 

112,551

 

(125,650

)

192,606

 

Interest expense, net of amounts capitalized

 

(268,308

)

(2,761

)

(13,273

)

 

(284,342

)

Other, net

 

(44,657

)

(26,214

)

(13,571

)

 

(84,442

)

Income (loss) before income taxes

 

(233,946

)

97,711

 

85,707

 

(125,650

)

(176,178

)

Benefit (provision) for income taxes

 

16,693

 

(296

)

(43,526

)

 

(27,129

)

Net income (loss)

 

(217,253

)

97,415

 

42,181

 

(125,650

)

(203,307

)

Less: Net income attributable to noncontrolling interests

 

 

 

(13,946

)

 

(13,946

)

Net income (loss) attributable to MGM Resorts International

 

$

(217,253

)

$

97,415

 

$

28,235

 

$

(125,650

)

$

(217,253

)

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of tax:

 

$

(217,253

)

$

97,415

 

$

42,181

 

$

(125,650

)

$

(203,307

)

Foreign currency translation adjustment

 

859

 

859

 

1,688

 

(1,718

)

1,688

 

Other comprehensive income (loss)

 

859

 

859

 

1,688

 

(1,718

)

1,688

 

Comprehensive income (loss)

 

(216,394

)

98,274

 

43,869

 

(127,368

)

(201,619

)

Less: Comprehensive income attributable to noncontrolling interests

 

 

 

(14,775

)

 

(14,775

)

Comprehensive income (loss) attributable to MGM Resorts International

 

$

(216,394

)

$

98,274

 

$

29,094

 

$

(127,368

)

$

(216,394

)

 

18



Table of Contents

 

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION

 

 

 

Three Months Ended March 31, 2012

 

 

 

Parent

 

Guarantor 
Subsidiaries

 

Non-
Guarantor 
Subsidiaries

 

Elimination

 

Consolidated

 

 

 

(In thousands)

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by (used in) operating activities

 

$

(189,390

)

$

191,282

 

$

289,802

 

$

 

$

291,694

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures, net of construction payable

 

 

(104,918

)

(8,839

)

 

(113,757

)

Dispositions of property and equipment

 

 

20

 

 

 

20

 

Investments in and advances to unconsolidated affiliates

 

(12,600

)

 

 

 

(12,600

)

Distributions from unconsolidated affiliates in excess of earnings

 

 

1,801

 

 

 

1,801

 

Investments in treasury securities- maturities longer than 90 days

 

 

(45,102

)

 

 

(45,102

)

Proceeds from treasury securities- maturities longer than 90 days

 

 

60,108

 

 

 

60,108

 

Other

 

 

(411

)

 

 

(411

)

Net cash used in investing activities

 

(12,600

)

(88,502

)

(8,839

)

 

(109,941

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

 

 

 

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

 

(192,100

)

 

 

 

(192,100

)

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

)

 

(450,000

)

 

(2,284,128

)

Issuance of senior notes

 

1,850,000

 

 

 

 

1,850,000

 

Debt issuance costs

 

(37,938

)

 

 

 

(37,938

)

Intercompany accounts

 

135,946

 

(107,660

)

(28,286

)

 

 

Distributions to noncontrolling interest owners

 

 

 

(197,848

)

 

(197,848

)

Other

 

(574

)

(315

)

(19

)

 

(908

)

Net cash used in financing activities

 

(78,794

)

(107,975

)

(226,153

)

 

(412,922

)

 

 

 

 

 

 

 

 

 

 

 

 

Effect of exchange rate on cash

 

 

 

148

 

 

148

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

 

 

 

 

 

 

 

 

 

Net increase (decrease) for the period

 

(280,784

)

(5,195

)

54,958

 

 

(231,021

)

Balance, beginning of period

 

795,326

 

230,888

 

839,699

 

 

1,865,913

 

Balance, end of period

 

$

514,542

 

$

225,693

 

$

894,657

 

$

 

$

1,634,892

 

 

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Table of Contents

 

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

 

This management’s discussion and analysis of financial condition and results of operations (“MD&A”) contains forward-looking statements that involve risks and uncertainties. Please see “Cautionary Statement Concerning Forward-Looking Statements” for a discussion of the uncertainties, risks and assumptions that may cause our actual results to differ materially from those discussed in the forward-looking statements. This discussion should be read in conjunction with our historical financial statements and related notes thereto and the other disclosures contained elsewhere in this Quarterly Report on Form 10-Q, and the audited consolidated financial statements and notes for the fiscal year ended December 31, 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 the addition of new hotel rooms, restaurants, entertainment, nightlife offerings as well as other new features and amenities.

 

Results of operations from our wholly owned domestic resorts in the first quarter of 2013 improved compared to the first quarter of 2012 primarily as a result of increased casino revenues. Visitation to Las Vegas was up 2% in 2012 and the Las Vegas market casino revenues increased 2% in 2012. We expect our resorts to benefit from the continuation of these trends in 2013.

 

In Macau, results of operations also improved in the first quarter of 2013 compared to the prior year period led by strong gaming volumes. Despite continued concerns about economic instability in China and the implementation of new smoking restrictions in Macau, we expect the Macau market to continue to grow. Recently, the pace of growth has slowed, but gross casino revenues for the Macau market still increased 15% in the first 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.  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, Massachusetts and Toronto.

 

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 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.

 

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Table of Contents

 

MGM China

 

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

 

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 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.  If the CCC denies our licensure request, then the divestiture 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.

 

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Table of Contents

 

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 March 31, 2013, the trust had $132 million of cash and investments, of which $120 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 months ended March 31, 2013 and 2012, $3 million and $23 million, respectively, was 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.

 

Results of Operations

 

The following discussion is based on our consolidated financial statements for the three months ended March 31, 2013 and 2012.

 

Summary Financial Results

 

The following table summarizes our financial results:

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2013

 

2012

 

 

 

(In thousands)

 

Net revenues

 

$

2,352,148

 

$

2,287,590

 

Operating income

 

301,817

 

192,606

 

Net income (loss)

 

22,578

 

(203,307

)

Net income (loss) attributable to MGM Resorts International

 

6,546

 

(217,253

)

 

Consolidated net revenue for the three months ended March 31, 2013 increased 3% over the prior year quarter driven by a 5% increase in casino revenue.  See below for additional information related to segment revenues.

 

Consolidated operating income of $302 million for the three months ended March 31, 2013 benefited from increased revenues at our wholly owned domestic resorts and MGM China, an increase in our share of operating income from CityCenter, and a decrease in depreciation and amortization expense. Depreciation and amortization decreased $25 million in the first quarter of 2013 compared to the first quarter 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 10% to $47 million for the first quarter of 2013 due primarily to costs associated with development efforts in Maryland, Massachusetts and Toronto.

 

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

 

 

 

March 31,

 

 

 

2013

 

2012

 

 

 

(In thousands)

 

Net revenues:

 

 

 

 

 

Wholly owned domestic resorts

 

$

1,489,188

 

$

1,479,598

 

MGM China

 

747,557

 

702,090

 

Reportable segment net revenues

 

2,236,745

 

2,181,688

 

Corporate and other

 

115,403

 

105,902

 

 

 

$

2,352,148

 

$

2,287,590

 

 

 

 

 

 

 

Adjusted EBITDA:

 

 

 

 

 

Wholly owned domestic resorts

 

$

361,037

 

$

320,972

 

MGM China

 

180,455

 

164,521

 

Reportable segment Adjusted Property EBITDA

 

541,492

 

485,493

 

Corporate and other

 

(17,120

)

(55,161

)

 

 

$

524,372

 

$

430,332

 

 

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

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

 

 

Percentage

 

 

 

 

 

2013

 

Change

 

2012

 

 

 

(In thousands)

 

Casino revenue:

 

 

 

 

 

 

 

Table games

 

$

239,593

 

16%

 

$

206,462

 

Slots

 

408,034

 

(2)%

 

417,354

 

Other

 

16,407

 

(17)%

 

19,712

 

Casino revenue

 

664,034

 

3%

 

643,528

 

Non-casino revenue:

 

 

 

 

 

 

 

Rooms

 

387,843

 

2%

 

379,474

 

Food and beverage

 

339,034

 

(4)%

 

353,126

 

Entertainment, retail and other

 

256,425

 

(3)%

 

264,195

 

Non-casino revenue

 

983,302

 

(1)%

 

996,795

 

 

 

1,647,336

 

0%

 

1,640,323

 

Less: Promotional allowances

 

(158,148

)

(2)%

 

(160,725

)

 

 

$

1,489,188

 

1%

 

$

1,479,598

 

 

Net revenue related to wholly owned domestic resorts for the first quarter of 2013 increased 1% compared to the prior year first quarter primarily due to a 16% increase in table games revenue.  Table games hold percentage was 21.9% in the current year quarter compared to 18.7% in the prior year quarter.  Baccarat volume increased 5% compared to the prior year quarter and baccarat hold percentage increased approximately 575 basis points over the prior year quarter. Slots revenue decreased 2% primarily as a result of a decrease in slots revenues at our regional resorts, while our Las Vegas Strip resorts slots revenues increased 4%.

 

Rooms revenue in the first quarter of 2013 increased 2%, with a 1% increase in Las Vegas Strip REVPAR.  Occupancy at our Las Vegas Strip resorts decreased slightly compared to the prior year quarter, affected by a 2% increase in total available rooms as a result of the completion of the MGM Grand room remodel in late 2012. The following table shows key hotel statistics for our Las Vegas Strip resorts.

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2013

 

2012

 

 

 

 

 

 

 

Occupancy

 

89

%

90

%

Average Daily Rate (ADR)

 

$

133

 

$

131

 

Revenue per Available Room (REVPAR)

 

118

 

117

 

 

Food and beverage revenue decreased 4% compared to the prior year due to the closure of several restaurants for remodeling.  Entertainment, retail and other revenue decreased 3% due primarily to lower revenue at our Cirque du Soleil production shows.

 

Adjusted Property EBITDA at our wholly owned domestic resorts increased 12% compared to the first quarter of 2012 primarily as a result of an increase in casino margin driven by higher table games revenues discussed above.

 

MGM China. For the quarter ended March 31, 2013, net revenue for MGM China increased 6% driven by increases in main floor table games and slots win of 26% and 19%, respectively. VIP table games turnover increased 15% from the prior year quarter, while VIP table games hold percentage decreased to 2.8% in the current quarter from 3.2% in the prior year quarter.

 

MGM China’s Adjusted EBITDA for the quarter ended March 31, 2013 was $180 million. Excluding branding fees of $13 million in the current year quarter and $12 million in the prior year quarter, Adjusted EBITDA increased 9%.

 

Corporate and other. Corporate and other revenue includes revenues from MGM Hospitality and management operations and reimbursed revenue primarily related to our CityCenter management agreement. Corporate and other Adjusted EBITDA loss for the first quarter of 2013 decreased $38 million from the comparable prior year period due primarily to an increase in our share of operating income from CityCenter, partially offset by an increase in corporate expense as discussed above.

 

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Table of Contents

 

Operating Results — Income (loss) from Unconsolidated Affiliates

 

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

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2013

 

2012

 

 

 

(In thousands)

 

CityCenter

 

$

11,695

 

$

(18,573

)

Other

 

4,649

 

5,264

 

 

 

$

16,344

 

$

(13,309

)

 

Our share of CityCenter’s operating income, including certain basis difference adjustments, for the three months ended March 31, 2013 was $12 million, compared to an operating loss of $19 million in the prior year quarter.  CityCenter’s results were driven by an increase in net revenues of 32%, related primarily to an increase in casino revenue.  Aria’s casino revenue benefited from a table games hold percentage of 28.3% in the current quarter compared to 16.0% in the prior year quarter. Additionally, REVPAR at Aria increased 5% in the first quarter of 2013.

 

Non-operating Results

 

Interest expense.  Interest expense decreased $59 million to $225 million in the first quarter of 2013, mainly as a result of our December 2012 refinancing transactions.  We had minimal capitalized interest in the first quarter of 2013 and 2012.

 

Non-operating items from unconsolidated affiliates. Non-operating charges from unconsolidated affiliates decreased to $22 million for the three months ended March 31, 2013.  The prior year included $4 million related to our share of CityCenter’s loss on refinancing of long-term debt.

 

Other, net.  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 for the three months ended March 31, 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, for the three months ended March 31, 2013.  Finally, we recorded a valuation allowance for U.S. federal deferred tax assets, resulting in an increase in provision for income taxes of $9 million for the three months ended March 31, 2013.  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 assets related to specific assets within our resorts, but also includes gains or losses on sales of an entire operating resort or a group of resorts and impairment charges on entire asset groups or investments in unconsolidated affiliates, which may not be comparable period over period. In addition, capital allocation, tax planning, financing and stock compensation awards are all managed at the corporate level. Therefore, we use Adjusted Property EBITDA as the primary measure of wholly owned domestic resorts operating performance.

 

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Table of Contents

 

Adjusted EBITDA or Adjusted Property EBITDA should not be construed as an alternative to operating income or net income, as an indicator of our performance; or as an alternative to cash flows from operating activities, as a measure of liquidity; or as any other measure determined in accordance with generally accepted accounting principles.  We have significant uses of cash flows, including capital expenditures, interest payments, taxes and debt principal repayments, which are not reflected in Adjusted EBITDA.  Also, other companies in the gaming and hospitality industries that report Adjusted EBITDA information may calculate Adjusted EBITDA in a different manner.

 

The following table presents a reconciliation of Adjusted EBITDA to net income (loss):

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2013

 

2012

 

 

 

(In thousands)

 

Adjusted EBITDA

 

$

524,372

 

$

430,332

 

Preopening and start-up expenses

 

(2,146

)

 

Property transactions, net

 

(8,491

)

(917

)

Depreciation and amortization

 

(211,918

)

(236,809

)

Operating income

 

301,817

 

192,606

 

 

 

 

 

 

 

Non-operating income (expense)

 

 

 

 

 

Interest expense, net of amounts capitalized

 

(225,447

)

(284,342

)

Other, net

 

(23,361

)

(84,442

)

 

 

(248,808

)

(368,784

)

 

 

 

 

 

 

Income (loss) before income taxes

 

53,009

 

(176,178

)

Provision for income taxes

 

(30,431

)

(27,129

)

Net income (loss)

 

22,578

 

(203,307

)

Less: Net income attributable to noncontrolling interests

 

(16,032

)

(13,946

)

Net income (loss) attributable to MGM Resorts International

 

$

6,546

 

$

(217,253

)

 

The following tables present reconciliations of operating income (loss) to Adjusted Property EBITDA and Adjusted EBITDA:

 

 

 

Three Months Ended March 31, 2013

 

 

 

 

 

Preopening

 

Property

 

Depreciation

 

 

 

 

 

Operating

 

and Start-up

 

Transactions,

 

and

 

Adjusted

 

 

 

Income (Loss)

 

Expenses

 

Net

 

Amortization

 

EBITDA

 

 

 

(In thousands)

 

Bellagio

 

$

66,392

 

$

 

$

4

 

$

23,183

 

$

89,579

 

MGM Grand Las Vegas

 

40,972

 

 

666

 

20,367

 

62,005

 

Mandalay Bay

 

20,822

 

(604

)

582

 

18,614

 

39,414

 

The Mirage

 

13,550

 

 

4,154

 

12,457

 

30,161

 

Luxor

 

3,775

 

 

3,179

 

8,620

 

15,574

 

New York-New York

 

17,737

 

 

31

 

5,632

 

23,400

 

Excalibur

 

11,162

 

 

 

3,947

 

15,109

 

Monte Carlo

 

12,858

 

 

(12

)

4,640

 

17,486

 

Circus Circus Las Vegas

 

(389

)

 

 

4,946

 

4,557

 

MGM Grand Detroit

 

34,371

 

 

 

5,282

 

39,653

 

Beau Rivage

 

6,427

 

 

(298

)

7,744

 

13,873

 

Gold Strike Tunica

 

6,820

 

 

(13

)

3,180

 

9,987

 

Other resort operations

 

(328

)

 

(1

)

568

 

239

 

Wholly owned domestic resorts

 

234,169

 

(604

)

8,292

 

119,180

 

361,037

 

MGM China

 

99,117

 

2,374

 

195

 

78,769

 

180,455

 

CityCenter (50%)

 

11,319

 

376

 

 

 

11,695

 

Other unconsolidated resorts

 

4,649

 

 

 

 

4,649

 

Management and other operations

 

12,783

 

 

4

 

2,974

 

15,761

 

 

 

362,037

 

2,146

 

8,491

 

200,923

 

573,597

 

Stock compensation

 

(6,943

)

 

 

 

(6,943

)

Corporate

 

(53,277

)

 

 

10,995

 

(42,282

)

 

 

$

301,817

 

$

2,146

 

$

8,491

 

$

211,918

 

$

524,372

 

 

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Table of Contents

 

 

 

Three Months Ended March 31, 2012

 

 

 

 

 

Preopening

 

Property

 

Depreciation

 

 

 

 

 

Operating

 

and Start-up

 

Transactions,

 

and

 

Adjusted

 

 

 

Income (Loss)

 

Expenses

 

Net

 

Amortization

 

EBITDA

 

 

 

(In thousands)

 

Bellagio

 

$

47,098

 

$

 

$

 

$

23,346

 

$

70,444

 

MGM Grand Las Vegas

 

18,349

 

 

327

 

18,649

 

37,325

 

Mandalay Bay

 

18,603

 

 

 

20,211

 

38,814

 

The Mirage

 

14,502

 

 

13

 

12,904

 

27,419

 

Luxor

 

9,209

 

 

 

9,155

 

18,364

 

New York-New York

 

18,697

 

 

 

5,616

 

24,313

 

Excalibur

 

9,622

 

 

 

4,557

 

14,179

 

Monte Carlo

 

9,973

 

 

5

 

5,018

 

14,996

 

Circus Circus Las Vegas

 

502

 

 

 

4,639

 

5,141

 

MGM Grand Detroit

 

32,338

 

 

 

9,901

 

42,239

 

Beau Rivage

 

9,396

 

 

 

7,654

 

17,050

 

Gold Strike Tunica

 

8,220

 

 

 

3,360

 

11,580

 

Other resort operations

 

(1,402

)

 

(20

)

530

 

(892

)

Wholly owned domestic resorts

 

195,107

 

 

325

 

125,540

 

320,972

 

MGM China

 

68,127

 

 

 

96,394

 

164,521

 

CityCenter (50%)

 

(18,573

)

 

 

 

(18,573

)

Other unconsolidated resorts

 

5,264

 

 

 

 

5,264

 

Management and other operations

 

411

 

 

 

4,288

 

4,699

 

 

 

250,336

 

 

325

 

226,222

 

476,883

 

Stock compensation

 

(9,332

)

 

 

 

(9,332

)

Corporate

 

(48,398

)

 

592

 

10,587

 

(37,219

)

 

 

$

192,606

 

$

 

$

917

 

$

236,809

 

$

430,332

 

 

Liquidity and Capital Resources

 

Cash Flows

 

At March 31, 2013, we held cash and cash equivalents of $1.5 billion, of which $565 million related to MGM China.

 

Operating activities. Trends in our operating cash flows tend to follow trends in operating income, excluding non-cash charges, but can be affected by changes in working capital, the timing of significant tax payments or refunds, and by distributions from unconsolidated affiliates. Cash provided by operating activities was $195 million for the three months ended March 31, 2013, compared to cash provided by operating activities of $292 million in the prior year period.  Operating cash flows related to MGM China were $173 million in the current year period compared to $263 million in the prior year period, affected by changes in working capital primarily related to accounts receivable and short-term gaming liabilities.

 

Investing activities. We had capital expenditures of $97 million for the three months ended March 31, 2013, of which $44 million related to MGM China, excluding development fees eliminated in consolidation.  Capital expenditures at MGM China included $28 million of expenditures related to the construction of MGM Cotai.  Capital expenditures also included various room remodels, restaurant remodels, and entertainment venue remodels.  Most of the costs capitalized related to furniture and fixtures, materials and external labor costs.

 

We had capital expenditures of $114 million in the three months ended March 31, 2012, including $9 million at MGM China. Our capital expenditures related mainly to $36 million of aircraft deposits as well as capital expenditures at various resorts including room remodels, restaurant remodels, entertainment venue remodels and theater renovations.

 

In the three months ended March 31, 2013, we made investments and advances of $6 million to CityCenter pursuant to the completion guarantee. In the three months ended March 31, 2012, we made investments and advances of $13 million to CityCenter pursuant to the completion guarantee.

 

During the three months ended March 31, 2013, our New Jersey trust received proceeds of $60 million from treasury securities with maturities greater than 90 days and reinvested $60 million in treasury securities with maturities greater than 90 days.  In the three months ended March 31, 2012, our New Jersey trust received proceeds of $60 million from treasury securities with maturities greater than 90 days and reinvested $45 million in treasury securities with maturities greater than 90 days.

 

Financing activities.  We borrowed net debt of $103 million, which included the $110 million draw on our senior credit facility revolver on March 28, 2013, which was used to repay a portion of our $462 million 6.75% senior notes at maturity on April 1, 2013.  During the first quarter of 2012, we issued $850 million of 8.625% senior notes due 2019 for net proceeds of $836 million, issued $1.0 billion of 7.75% senior notes due 2022 for net proceeds of $986 million and repaid $2.0 billion under our senior credit facility.

 

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

 

Other Factors Affecting Liquidity

 

Anticipated uses of cash.  We have significant outstanding debt and contractual obligations in addition to planned capital expenditures. We expect to meet our debt obligations and planned capital expenditure requirements with future anticipated operating cash flows, cash and cash equivalents, and available borrowings under our senior credit facility. Excluding MGM China, at March 31, 2013 we had $1.1 billion of principal amount of long-term debt maturing, and an estimated $826 million of cash interest payments based on current outstanding debt and applicable interest rates, within the next twelve months.  At March 31, 2013, we had $13.7 billion of indebtedness, including $2.9 billion of borrowings outstanding under our $4.0 billion senior credit facility and $553 million outstanding under the $2.0 billion MGM China credit facility. On April 1, 2013, we used a portion of the cash balance to repay our $462 million 6.75% senior notes at maturity.

 

We expect to spend $350 million in 2013 related to capital expenditures at our wholly owned domestic resorts, which includes expenditures for a remodel of the front façades of New York-New York and Monte Carlo, room remodels, theater renovations, information technology and slot machine purchases. Our capital expenditures fluctuate depending on our decisions with respect to strategic capital investments in new or existing resorts and the timing of capital investments to maintain the quality of our resorts, the amounts of which can vary depending on timing of larger remodel projects related to our public spaces and hotel rooms.  Such costs could increase significantly in future periods depending on the progress of our development efforts and the structure of our ownership interests in such developments. In accordance with our senior credit facility covenants, we and our restricted subsidiaries are limited to annual capital expenditures (as defined in the agreement governing our senior credit facility) of $500 million in 2013.

 

In Macau, MGM China expects to spend $250 million for all of 2013 on capital improvements at MGM Macau and our Cotai project, excluding land and capitalized interest.

 

Cotai land concession. On October 18, 2012, MGM Grand Paradise formally accepted the terms and conditions of a land concession contract from the government for its planned development on Cotai.  The land concession contract became effective on January 9, 2013 when the Macau government published it in the Official Gazette of Macau, 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. In October 2012, MGM China paid $56 million as the initial down payment of the contract premium. Including interest on the eight semi-annual payments, MGM China has $118 million remaining payable for the land concession contract.  In addition, MGM Grand Paradise is required to pay the Macau government $269,000 per year in rent during the course of development of the land and $681,000 per year in rent once the development is completed. The annual rent is subject to review by the Macau government every five years.  MGM China has made significant progress in getting its construction team in place as well as finalizing its designs.  Under the terms of the land concession contract, MGM Grand Paradise is required to complete the development of the land within 60 months from the date of publication.

 

MGM China dividend policy.  In February 2013, MGM China adopted a distribution policy pursuant to which it may make semi-annual distributions in an aggregate amount per year not to exceed 35% of its anticipated consolidated annual profits. In accordance with the policy, MGM China may also declare special distributions from time to time. The determination to make distributions will be made at the discretion of the MGM China board of directors and will be based upon MGM China’s operations and earnings, development pipeline, cash flows, financial condition, capital and other reserve requirements and surplus, general financial conditions, contractual restrictions and any other conditions or factors which the board of directors deems relevant.  As a result, there can be no assurance that any distributions will be declared in the future or the amount or timing of such distributions, if any.

 

CityCenter completion guarantee.  In January 2011, we 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 us for construction costs previously expended. As of March 31, 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 us. In accordance with CityCenter’s credit agreement and bond indentures such amounts can only be used to fund construction lien obligations or be reimbursed to us once the Perini litigation is settled.

 

As of March 31, 2013, we had funded $698 million under the completion guarantee and had accrued a liability of $21 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. Our estimated obligation has been offset by the portion of the condominium proceeds received by CityCenter estimated to be used to settle construction lien claims upon the resolution of the Perini litigation but has not been offset by the remaining amount that we currently estimate we will be reimbursed from condominium proceeds that have been received by CityCenter.  Also, our accrual reflects certain estimated offsets to the amounts claimed by the contractors.  CityCenter has reached settlement agreements with all but seven of Perini’s first-tier subcontractors.  However, significant disputes remain with the general contractor and the remaining subcontractors.  Amounts claimed by such parties exceed amounts included in our completion guarantee accrual by approximately $154 million, as such amounts exceed our best estimate of our liability. Moreover, we have not accrued for any contingent payments to CityCenter related to the Harmon Hotel & Spa component, which will not be completed using the building as it now stands.  See Note 5 in the accompanying financial statements for discussion of the status of the Harmon.

 

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We do not believe we would be responsible for funding under the completion guarantee any additional remediation efforts that might be required with respect to the Harmon; however, our 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 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, we believe the demolition of the Harmon would cost approximately $32 million.

 

Critical Accounting Policies and Estimates

 

A complete discussion of our critical accounting policies and estimates is included in our Form 10-K for the fiscal year ended December 31, 2012. There have been no significant changes in our critical accounting policies and estimates since year end.

 

Impairment of long-lived assets. At March 31, 2013, we did not identify circumstances that existed that would indicate the carrying value of our long-lived assets may not be recoverable; therefore, we did not review any of our long-lived asset groups — generally our operating resorts — for impairment as of March 31, 2013. Historically, the undiscounted cash flows of our significant operating asset groups have exceeded their carrying values by a substantial margin.

 

Market Risk

 

In addition to the inherent risks associated with our normal operations, we are also exposed to additional market risks.  Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates and foreign currency exchange rates.  Our primary exposure to market risk is interest rate risk associated with our variable rate long-term debt.  We attempt to limit our exposure to interest rate risk by managing the mix of our long-term fixed rate borrowings and short-term borrowings under our bank credit facilities. A change in interest rates generally does not have an impact upon our future earnings and cash flow for fixed-rate debt instruments. As fixed-rate debt matures, however, and if additional debt is acquired to fund the debt repayment, future earnings and cash flow may be affected by changes in interest rates. This effect would be realized in the periods subsequent to the periods when the debt matures. We do not hold or issue financial instruments for trading purposes and do not enter into derivative transactions that would be considered speculative positions.

 

As of March 31, 2013, variable rate borrowings represented 25% of our total borrowings.  Assuming a 100 basis-point increase in LIBOR (in the case of the term B facility, over the 1% floor specified in our senior credit facility), our annual interest cost would change by $29 million based on gross amounts outstanding at March 31, 2013. Assuming a 100 basis-point increase in HIBOR for the MGM Grand Paradise credit facility, our annual interest cost would change by $6 million based on amounts outstanding at March 31, 2013. The following table provides additional information about our gross long-term debt subject to changes in interest rates:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value

 

 

 

Debt maturing in

 

March 31,

 

 

 

2013

 

2014

 

2015

 

2016

 

2017

 

Thereafter

 

Total

 

2013

 

 

 

(In millions)

 

Fixed rate

 

$

612

 

$

509

 

$

2,325

 

$

1,476

 

$

743

 

$

4,579

 

$

10,244

 

$

11,243

 

Average interest rate

 

7.0%

 

5.9%

 

5.1%

 

8.2%

 

7.6%

 

7.8%

 

7.1%

 

 

 

Variable rate

 

$

21

 

$

28

 

$

28

 

$

166

 

$

1,550

 

$

1,663

 

$

3,456

 

$

3,485

 

Average interest rate

 

3.9%

 

3.9%

 

3.9%

 

3.0%

 

3.2%

 

4.3%

 

3.7%

 

 

 

 

In addition to the risk associated with our variable interest rate debt, we are also exposed to risks related to changes in foreign currency exchange rates, mainly related to MGM China and to our operations at MGM Macau.  While recent fluctuations in exchange rates have been minimal, potential changes in policy by governments or fluctuations in the economies of the U.S., Macau or Hong Kong could cause variability in these exchange rates.

 

Cautionary Statement Concerning Forward-Looking Statements

 

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995.  Forward-looking statements can be identified by words such as “anticipates,” “intends,” “plans,” “seeks,” “believes,” “estimates,” “expects,” “will,” “may” and similar references to future periods.  Examples of forward-looking statements include, but are not limited to, statements we make regarding our ability to generate significant cash flow, amounts we will invest in capital expenditures, amounts we will pay under the CityCenter completion guarantee and the opening of strategic resort developments.  The foregoing is not a complete list of all forward-looking statements we make.

 

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Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions.  Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict.  Our actual results may differ materially from those contemplated by the forward-looking statements.  They are neither statements of historical fact nor guarantees or assurances of future performance.  Therefore, we caution you against relying on any of these forward-looking statements.  Important factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, regional, national or global political, economic, business, competitive, market and regulatory conditions and the following:

 

·                  our substantial indebtedness and significant financial commitments could adversely affect our development options and financial results and impact our ability to satisfy our obligations;

·                  current and future economic and credit market conditions could adversely affect our ability to service or refinance our indebtedness and to make planned expenditures and investments;

·                  restrictions and limitations in the agreements governing our senior credit facility and other senior indebtedness could significantly affect our ability to operate our business, as well as significantly affect our liquidity;

·                  significant competition we face with respect to destination travel locations generally and with respect to our peers in the industries in which we compete;

·                  the fact that our businesses are subject to extensive regulation and the cost of compliance or failure to comply with such regulations could adversely affect our business;

·                  the impact on our business of economic and market conditions in the markets in which we operate and in the locations in which our customers reside;

·                  restrictions on our ability to have any interest or involvement in gaming business in China, Macau, Hong Kong and Taiwan, other than through MGM China;

·                  the ability of the Macau government to terminate MGM Grand Paradise’s gaming subconcession under certain circumstances without compensating MGM Grand Paradise or refuse to grant MGM Grand Paradise an extension of the subconcession, which is scheduled to expire on March 31, 2020;

·                  our ability to build and open our development in Cotai by January 2018;

·                  the dependence of MGM Macau upon gaming junket operators for a significant portion of gaming revenues in Macau;

·                  extreme weather conditions or climate change may cause property damage or interrupt business;

·                  the concentration of our major gaming resorts on the Las Vegas Strip;

·                  the fact that we extend credit to a large portion of our customers and we may not be able to collect gaming receivables;

·                  the potential occurrence of impairments to goodwill, indefinite-lived intangible assets or long-lived assets which could negatively affect future profits;

·                  the susceptibility of leisure and business travel, especially travel by air, to global geopolitical events, such as terrorist attacks or acts of war or hostility;

·                  the fact that investing through partnerships or joint ventures including CityCenter decreases our ability to manage risk;

·                  the fact that future construction or development projects will be susceptible to substantial development and construction risks;

·                  the fact that our insurance coverage may not be adequate to cover all possible losses that our properties could suffer, our insurance costs may increase and we may not be able to obtain similar insurance coverage in the future;

·                  the fact that CityCenter has decided to abate the potential for structural collapse of the Harmon in the event of a code-level earthquake by demolishing the building, which exposes us to risks prior to or in connection with the demolition process;

·                  the fact that a failure to protect our trademarks could have a negative impact on the value of our brand names and adversely affect our business;

·                  the fact that Tracinda Corporation owns a significant amount of our common stock and may have interests that differ from the interests of other holders of our stock;

·                  the risks associated with doing business outside of the United States and the impact of any potential violations of the Foreign Corrupt Practices Act or other similar anti-corruption laws;

·                  risks related to pending claims that have been, or future claims that may be brought against us;

·                  the fact that a significant portion of our labor force is covered by collective bargaining agreements;

·                  the sensitivity of our business to energy prices and a rise in energy prices could harm our operating results;

·                  the potential that failure to maintain the integrity of internal customer information could result in damage of reputation and/or subject us to fines, payment of damages, lawsuits or other restrictions on our use or transfer of data;

·                  increases in gaming taxes and fees in the jurisdictions in which we operate;

·                  the potential for conflicts of interest to arise because certain of our directors and officers are also directors of MGM China, which is now a publicly traded company listed on the Hong Kong Stock Exchange; and

·                  the risks associated with doing business outside of the United States.

 

Any forward-looking statement made by us in this Form 10-Q speaks only as of the date on which it is made.  Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.  If we update one or more forward-looking statements, no inference should be made that we will make additional updates with respect to those or other forward-looking statements.

 

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You should also be aware that while we from time to time communicate with securities analysts, we do not disclose to them any material non-public information, internal forecasts or other confidential business information.  Therefore, you should not assume that we agree with any statement or report issued by any analyst, irrespective of the content of the statement or report.  To the extent that reports issued by securities analysts contain projections, forecasts or opinions, those reports are not our responsibility and are not endorsed by us.

 

Item 3.   Quantitative and Qualitative Disclosures about Market Risk

 

We incorporate by reference the information appearing under “Market Risk” in Part I, Item 2 of this Form 10-Q.

 

Item 4.       Controls and Procedures

 

Our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer) have concluded that our disclosure controls and procedures were effective as of March 31, 2013 to provide reasonable assurance that information required to be disclosed in the Company’s reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and regulations and to provide that such information is accumulated and communicated to management to allow timely decisions regarding required disclosures. This conclusion is based on an evaluation as required by Rule 13a-15(e) under the Exchange Act conducted under the supervision and participation of the principal executive officer and principal financial officer along with company management.

 

During the quarter ended March 31, 2013, there were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Part II.      OTHER INFORMATION

 

Item 1.       Legal Proceedings

 

For a complete description of the facts and circumstances surrounding material litigation we are a party to, see our Annual Report on Form 10-K for the year ended December 31, 2012.  There have been no significant developments in any of the cases disclosed in our Form 10-K in the three months ended March 31, 2013. Please see Note 5 for further discussion of our CityCenter construction litigation.

 

Item 1A.        Risk Factors

 

A description of certain factors that may affect our future results and risk factors is set forth in our Annual Report on Form 10-K for the year ended December 31, 2012.  There have been no material changes to those factors for the three months ended March 31, 2013.

 

Item 2.           Unregistered Sales of Equity Securities and Use of Proceeds

 

Our share repurchases are only conducted under repurchase programs approved by our Board of Directors and publicly announced.  We did not repurchase shares of our common stock during the quarter ended March 31, 2013. The maximum number of shares available for repurchase under our May 2008 repurchase program was 20 million as of March 31, 2013.

 

Item 6.           Exhibits

 

3.1                       Amended and Restated Bylaws of the Company, effective February 8, 2013 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on February 12, 2013).

 

10.1                    First Amendment to Credit Agreement, dated as of February 14, 2013, by and among the Company, MGM Grand Detroit, LLC and Bank of America, N.A., as administrative agent.

 

10.2                    Second Amendment, effective February 13, 2013, to the Company’s Stipulation of Settlement dated March 11, 2010, among the Company, the New Jersey Division of Gaming Enforcement, Marina District Development Company LLC and Boyd Gaming Corporation.

 

31.1                     Certification of Chief Executive Officer of Periodic Report Pursuant to Rule 13a-14(a) and Rule 15d-14(a).

 

31.2                     Certification of Chief Financial Officer of Periodic Report Pursuant to Rule 13a-14(a) and Rule 15d-14(a).

 

32.1                     Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350.

 

32.2                     Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350.

 

101                        The following information from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013 formatted in eXtensible Business Reporting Language: (i) Consolidated Balance Sheets at March 31, 2013  (unaudited) and December 31, 2012 (audited); (ii) Unaudited Consolidated Statements of Operations for the three months ended March 31, 2013 and 2012; (iii) Unaudited Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2013 and 2012;  (iv) Unaudited Consolidated Statements of Cash Flows for the three months ended March 31, 2013 and 2012; and (v) Condensed Notes to the Unaudited Consolidated Financial Statements.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

MGM Resorts International

 

 

 

 

 

 

Date: May 8, 2013

 

By:

/s/ JAMES J. MURREN

 

 

 

James J. Murren

 

 

 

Chairman of the Board and Chief Executive Officer

 

 

 

(Principal Executive Officer)

 

 

 

 

 

 

 

 

Date: May 8, 2013

 

 

/s/ DANIEL J. D’ARRIGO

 

 

 

Daniel J. D’Arrigo

 

 

 

Executive Vice President, Chief Financial Officer and Treasurer

 

 

 

 

 

 

(Principal Financial Officer)

 

31