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, 2012

 

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
incorporation or organization)

 

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

 

3600 Las Vegas Boulevard South, Las Vegas, Nevada 89109

(Address of principal executive offices)

 

(702) 693-7120

(Registrant’s telephone number, including area code)

 

 

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

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:

 

Yes x    No 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 classesof common stock, as of the latest practicable date:

 

Class

 

Outstanding at May 1, 2012

Common Stock, $.01 par value

 

488,924,783 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, 2012 and December 31, 2011

1

 

 

 

 

Consolidated Statements of Operations for the Three Months Ended March 31, 2012 and March 31, 2011

2

 

 

 

 

Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended March 31, 2012 and March 31, 2011

3

 

 

 

 

Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2012 and March 31, 2011

4

 

 

 

 

Condensed Notes to Consolidated Financial Statements

5-21

 

 

 

Item 2.

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

22-33

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

33

 

 

 

Item 4.

Controls and Procedures

33

 

 

 

PART II.

OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

34

 

 

 

Item 1A.

Risk Factors

35

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

35

 

 

 

Item 5.

Other Information

35

 

 

 

Item 6.

Exhibits

37

 

 

 

SIGNATURES

38

 



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,

 

 

 

2012

 

2011

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

Current assets

 

 

 

 

 

Cash and cash equivalents

 

$

1,634,892

 

$

1,865,913

 

Accounts receivable, net

 

477,484

 

491,730

 

Inventories

 

110,674

 

112,735

 

Deferred income taxes, net

 

99,935

 

91,060

 

Prepaid expenses and other

 

270,692

 

251,282

 

Total current assets

 

2,593,677

 

2,812,720

 

 

 

 

 

 

 

Property and equipment, net

 

14,786,820

 

14,866,644

 

 

 

 

 

 

 

Other assets

 

 

 

 

 

Investments in and advances to unconsolidated affiliates

 

1,589,915

 

1,635,572

 

Goodwill

 

2,897,049

 

2,896,609

 

Other intangible assets, net

 

4,965,587

 

5,048,117

 

Other long-term assets, net

 

557,980

 

506,614

 

Total other assets

 

10,010,531

 

10,086,912

 

 

 

$

27,391,028

 

$

27,766,276

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

Accounts payable

 

$

163,626

 

$

170,994

 

Income taxes payable

 

62,179

 

7,611

 

Accrued interest on long-term debt

 

253,075

 

203,422

 

Other accrued liabilities

 

1,413,507

 

1,362,737

 

Total current liabilities

 

1,892,387

 

1,744,764

 

 

 

 

 

 

 

Deferred income taxes

 

2,471,425

 

2,502,096

 

Long-term debt

 

13,359,953

 

13,470,167

 

Other long-term obligations

 

176,028

 

167,027

 

 

 

 

 

 

 

Commitments and contingencies (Note 6)

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

Common stock, $.01 par value: authorized 1,000,000,000 shares; issued and outstanding 488,917,278 and 488,834,773 shares

 

4,889

 

4,888

 

Capital in excess of par value

 

4,102,545

 

4,094,323

 

Retained earnings

 

1,764,136

 

1,981,389

 

Accumulated other comprehensive income

 

6,837

 

5,978

 

Total MGM Resorts International stockholders’ equity

 

5,878,407

 

6,086,578

 

Noncontrolling interests

 

3,612,828

 

3,795,644

 

Total stockholders’ equity

 

9,491,235

 

9,882,222

 

 

 

$

27,391,028 

 

$

27,766,276

 

 

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,

 

 

 

2012

 

2011

 

Revenues

 

 

 

 

 

Casino

 

$

1,335,034

 

$

590,220

 

Rooms

 

393,620

 

368,337

 

Food and beverage

 

372,953

 

336,824

 

Entertainment

 

120,400

 

119,593

 

Retail

 

46,624

 

46,150

 

Other

 

113,123

 

114,223

 

Reimbursed costs

 

90,539

 

86,288

 

 

 

2,472,293

 

1,661,635

 

Less: Promotional allowances

 

(184,703

)

(148,784

)

 

 

2,287,590

 

1,512,851

 

Expenses

 

 

 

 

 

Casino

 

867,474

 

350,765

 

Rooms

 

126,155

 

116,986

 

Food and beverage

 

211,639

 

198,248

 

Entertainment

 

88,788

 

88,211

 

Retail

 

27,583

 

29,159

 

Other

 

86,222

 

78,297

 

Reimbursed costs

 

90,539

 

86,288

 

General and administrative

 

303,289

 

269,562

 

Corporate expense

 

42,260

 

36,485

 

Property transactions, net

 

917

 

91

 

Depreciation and amortization

 

236,809

 

152,397

 

 

 

2,081,675

 

1,406,489

 

 

 

 

 

 

 

Income (loss) from unconsolidated affiliates

 

(13,309

)

63,343

 

 

 

 

 

 

 

Operating income

 

192,606

 

169,705

 

 

 

 

 

 

 

Non-operating income (expense)

 

 

 

 

 

Interest expense

 

(284,342

)

(269,914

)

Non-operating items from unconsolidated affiliates

 

(26,866

)

(40,290

)

Other, net

 

(57,576

)

(3,955

)

 

 

(368,784

)

(314,159

)

 

 

 

 

 

 

Loss before income taxes

 

(176,178

)

(144,454

)

Benefit (provision) for income taxes

 

(27,129

)

54,583

 

 

 

 

 

 

 

Net loss

 

(203,307

)

(89,871

)

Less: Net income attributable to noncontrolling interests

 

(13,946

)

 

Net loss attributable to MGM Resorts International

 

$

(217,253

)

$

(89,871

)

 

 

 

 

 

 

Loss per share of common stock attributable to MGM Resorts International

 

 

 

 

 

Basic

 

$

(0.44

)

$

(0.18

)

Diluted

 

$

(0.44

)

$

(0.18

)

 

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,

 

 

 

2012

 

2011

 

Net loss

 

$

(203,307

)

$

(89,871

)

 

 

 

 

 

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

Foreign currency translation adjustment

 

1,688

 

2,599

 

Other

 

 

(37

)

Other comprehensive income

 

1,688

 

2,562

 

Comprehensive loss

 

(201,619

)

(87,309

)

Less: comprehensive income attributable to noncontrolling interests

 

(14,775

)

 

Comprehensive loss attributable to MGM Resorts International

 

$

(216,394

)

$

(87,309

)

 

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

 

3



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MGM RESORTS INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2012

 

2011

 

Cash flows from operating activities

 

 

 

 

 

Net loss

 

$

(203,307

)

$

(89,871

)

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

 

 

 

 

 

Depreciation and amortization

 

236,809

 

152,397

 

Amortization of debt discounts, premiums and issuance costs

 

22,854

 

23,558

 

Loss on retirement of long-term debt

 

58,740

 

 

Provision for doubtful accounts

 

19,542

 

8,406

 

Stock-based compensation

 

10,604

 

9,210

 

Property transactions, net

 

917

 

91

 

(Income) loss from unconsolidated affiliates

 

40,175

 

(23,053

)

Distributions from unconsolidated affiliates

 

5,199

 

38,029

 

Change in deferred income taxes

 

(41,862

)

(65,418

)

Change in operating assets and liabilities:

 

 

 

 

 

Accounts receivable

 

(5,243

)

(4,486

)

Inventories

 

2,061

 

1,294

 

Income taxes receivable and payable, net

 

54,657

 

2,606

 

Prepaid expenses and other

 

(34,416

)

(11,685

)

Accounts payable and accrued liabilities

 

130,230

 

(12,761

)

Other

 

(5,266

)

(4,339

)

Net cash provided by operating activities

 

291,694

 

23,978

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

Capital expenditures, net of construction payable

 

(113,757

)

(34,459

)

Investments in and advances to unconsolidated affiliates

 

(12,600

)

(76,648

)

Distributions from unconsolidated affiliates in excess of earnings

 

1,801

 

985

 

Investments in treasury securities - maturities longer than 90 days

 

(45,102

)

(60,035

)

Proceeds from treasury securities - maturities longer than 90 days

 

60,108

 

59,994

 

Other

 

(391

)

(374

)

Net cash used in investing activities

 

(109,941

)

(110,537

)

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

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

 

(192,100

)

215,672

 

Borrowings under bank credit facilities – maturities longer than 90 days

 

450,000

 

1,206,728

 

Repayments under bank credit facilities – maturities longer than 90 days

 

(2,284,128

)

(1,077,400

)

Issuance of senior notes

 

1,850,000

 

 

Retirement of senior notes

 

 

(325,470

)

Debt issuance costs

 

(37,938

)

 

Distributions to noncontrolling interest owners

 

(197,848

)

 

Other

 

(908

)

(660

)

Net cash provided by (used in) financing activities

 

(412,922

)

18,870

 

 

 

 

 

 

 

Effect of exchange rate on cash

 

148

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

 

 

 

Net decrease for the period

 

(231,021

)

(67,689

)

Balance, beginning of period

 

1,865,913

 

498,964

 

Balance, end of period

 

$

1,634,892

 

$

431,275

 

 

 

 

 

 

 

Supplemental cash flow disclosures

 

 

 

 

 

Interest paid, net of amounts capitalized

 

$

211,835

 

$

220,095

 

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

 

1,830

 

1,913

 

 

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

 

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Table of Contents

 

MGM RESORTS INTERNATIONAL AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

 

NOTE 1 — ORGANIZATION

 

Organization.  MGM Resorts International (the “Company”) is a Delaware corporation that acts largely as a holding company and, through wholly owned subsidiaries, owns and/or operates casino resorts. The Company owns and operates the following casino resorts in Las Vegas, Nevada:  Bellagio, MGM Grand Las Vegas, The Mirage, Mandalay Bay, Luxor, New York-New York, Monte Carlo, Excalibur, and Circus Circus Las Vegas.  Operations at MGM Grand Las Vegas include management of The Signature at MGM Grand Las Vegas, a condominium-hotel consisting of three towers.  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 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. As further discussed in Note 3, the Company began consolidating the results of MGM China on June 3, 2011 and ceased recording the results of MGM Macau as an equity method investment.

 

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 a 50% interest in Grand Victoria and a 50% interest in 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.  See Note 4 for additional information related to Silver Legacy.

 

MGM Hospitality seeks to leverage the Company’s management expertise and well-recognized brands through strategic partnerships and international expansion opportunities.  The Company has entered into management agreements for non-gaming resorts in the Middle East, North Africa, India and China, and a casino resort in Vietnam.

 

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 (“Boyd”) owns the other 50% of Borgata and also operates the resort.  The Company’s interest is held in trust and currently offered for sale pursuant to the Company’s amended settlement agreement with New Jersey Department of Gaming Enforcement (“DGE”) and approved by the New Jersey Casino Control Commission (“CCC”). The terms of the amended settlement agreement mandate the sale by March 2014. The Company has the right to direct the sale through March 2013, subject to approval of the CCC, and the trustee is responsible for selling the trust property during the following 12-month period.

 

The Company consolidates the trust as it is the sole economic beneficiary and accounts for its interest in Borgata under the cost method. Distributions received by the trust that do not exceed the Company’s share of earnings are recognized currently in earnings. However, distributions received by the trust that exceed the Company’s share of earnings for such periods are applied to reduce the carrying amount of its investment.  The trust did not receive distributions from Borgata during the three months ended March 31, 2012 and 2011.  As of March 31, 2012, the trust had $165 million of cash and investments, of which $135 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 first quarter of 2012, $23 million was withdrawn from the trust account for the payment of property taxes and interest on the Company’s senior credit facility, as authorized in accordance with the terms of the trust agreement.

 

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Table of Contents

 

NOTE 2— BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

 

Basis of presentation.  As permitted by the rules and regulations of the Securities and Exchange Commission, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted.  These consolidated financial statements should be read in conjunction with the Company’s 2011 annual consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

 

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.

 

Certain reclassifications, which have no effect on previously reported net income, have been made to the 2011 financial statements to conform to the 2012 presentation.  Pursuant to the guidance in the AICPA Audit and Accounting Guide, “Gaming,” the Company has reclassified certain amounts paid under slot participation agreements from a reduction in casino revenue to casino expense.  Such participation fees were $8 million in the three months ended March 31, 2011.

 

Fair value measurement.  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, 2012, the fair value of the Company’s treasury securities held by the Borgata trust was $135 million, measured using Level 1 inputs. See Note 1 for additional information related to the Borgata trust. The Company also uses Level 1 inputs for its long-term debt fair value disclosures.

 

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 and expectations that its recovery will be tempered by certain aspects of the current economic conditions such as weaknesses in employment conditions and the housing market, the Company no longer relies on future domestic operating income in assessing the realizability of its domestic deferred tax assets and now relies only on the future reversal of existing domestic taxable temporary differences.  As of March 31, 2012, 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.  Therefore, the Company began recording in the current year a valuation allowance for U.S. federal deferred tax assets in order to account for this excess, resulting in additional tax provision of $112 million for the three months ended March 31, 2012.

 

Distributions of profits from MGM Grand Paradise to MGM China are subject to Macau’s 12% complementary tax.  MGM Grand Paradise has submitted a request to the Macau government to settle the complementary tax that would be due on such distributions by paying a flat annual fee (“annual fee arrangement”) regardless of the amount of distributable dividends.  MGM China would not be subject to the complementary tax on such distributions if the annual fee arrangement was in place.  Since this arrangement was not in place, the Company accrued deferred taxes of $15 million on the U.S. GAAP earnings of MGM Grand Paradise from the date of the acquisition through December 31, 2011.  In March 2012, MGM Grand Paradise made a distribution to MGM China that is subject to complementary tax in the amount of $59 million if the annual fee arrangement is not put in place before the tax is due (no later than June 30, 2013).  This distribution resulted in a cumulative deficit for U.S. GAAP earnings in MGM Grand Paradise for the quarter ended March 31, 2012.  Since the annual fee arrangement was not in place before March 31, 2012, the Company accrued an additional $44 million of complementary tax to bring its accrued balance to $59 million. The earnings distributed by MGM Macau now exceed the U.S. GAAP earnings of MGM China by $299 million.  As such, MGM China will not accrue additional complementary tax until such U.S. GAAP earnings exceed the amounts that have been distributed by MGM Macau, or until MGM Macau distributes additional earnings. All complementary tax accrued on gaming profits would be reversed in the period the annual fee arrangement is put in place and the agreed annual fee would be accrued in its place. Without an annual fee arrangement in place, MGM China will resume accruing for Macau’s 12% complementary tax when MGM Grand Paradise returns to cumulative U.S. GAAP earnings.

 

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Recently Issued Accounting Standards.  Certain amendments to Accounting Standards Codification (“ASC”) 820, “Fair Value Measurements,” became effective for the Company for fiscal years beginning after December 15, 2011. Such amendments included a consistent definition of fair value, enhanced disclosure requirements for “Level 3” fair value adjustments and other changes to required disclosures.  The Company’s compliance with these amendments did not have a material effect on its financial statements.

 

In June 2011, ASC 220, “Comprehensive Income,” was amended and became effective for us for fiscal years beginning after December 15, 2011, including retrospective adjustment.  Such amendments allow us two options for the presentation of comprehensive income. Under either option, the Company is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income.  As a result of the amendment, the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity is eliminated.  The Company’s compliance with this amendment did not have a material effect on its financial statements.

 

In September 2011, ASC 350, “Intangibles-Goodwill and Others,” was amended to simplify the assessment of goodwill impairment and became effective for us for fiscal years beginning after December 15, 2011.  The amended guidance allows us to do an initial qualitative assessment of relative events and circumstances to determine if fair value of a reporting unit is more likely than not less than its carrying value, prior to performing the two-step quantitative goodwill impairment test.  The Company’s compliance with this amendment did not have a material effect on its financial statements.

 

NOTE 3 — MGM CHINA ACQUISITION

 

On June 3, 2011, the Company and Ms. Ho, Pansy Catilina Chiu King (“Ms. Pansy Ho”) completed a reorganization of the capital structure of MGM China and the initial public offering of 760 million shares of MGM China on The Stock Exchange of Hong Kong Limited (the “IPO”), representing 20% of the post issuance capital stock of MGM China, at an offer price of HKD 15.34 per share. Pursuant to this reorganization, the Company, through a wholly owned subsidiary, acquired an additional 1% of the overall capital stock of MGM China for HKD 15.34 per share, or approximately $75 million, and thereby became the indirect owner of 51% of MGM China. Following the IPO, Ms. Pansy Ho sold an additional 59 million shares of MGM China pursuant to the underwriters’ overallotment option.

 

Through the acquisition of its additional 1% interest of MGM China, the Company obtained a controlling interest and was required to consolidate MGM China as of June 3, 2011. Prior to the IPO, the Company held a 50% interest in MGM Grand Paradise, which was accounted for under the equity method as discussed in Note 4. The acquisition of the controlling financial interest was accounted for as a business combination and the Company recognized 100% of the assets, liabilities, and noncontrolling interests of MGM China at fair value at the date of acquisition. The fair value of the equity interests of MGM China was determined by the IPO transaction price and equaled approximately $7.5 billion. The carrying value of the Company’s equity method investment was significantly less than its share of the fair value of MGM China at the acquisition date, resulting in a $3.5 billion gain on the acquisition. Under the acquisition method, the fair value was allocated to the assets acquired, liabilities assumed and noncontrolling interests recorded in the transaction. The following table sets forth the allocation at June 3, 2011 (in thousands):

 

Current assets

 

$

558,037

 

Property and equipment and other long-term assets

 

704,823

 

Goodwill

 

2,821,589

 

Gaming subconcession

 

4,499,727

 

Land concession

 

84,466

 

Customer lists

 

128,564

 

Gaming promoter relationships

 

179,989

 

Current liabilities, excluding long-term debt

 

(459,518

)

Long-term debt

 

(642,818

)

Deferred taxes

 

(380,628

)

 

 

$

7,494,231

 

Noncontrolling interests

 

$

(3,672,173

)

 

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As discussed above, the Company recognized the identifiable intangible assets of MGM China at fair value. The gaming subconcession and land concession had historical cost bases which were being amortized by MGM Macau. The customer relationship intangible assets did not have historical cost bases at MGM Macau. The estimated fair values of the intangible assets acquired were primarily determined using Level 3 inputs.  The gaming subconcession was valued using an excess earnings model based on estimated future cash flows of MGM Macau.  All of the recognized intangible assets were determined to have finite lives and are being amortized over their estimated useful lives as discussed below.

 

Gaming subconcession.  Pursuant to the agreement dated June 19, 2004 between MGM Grand Paradise and Sociedade de Jogos de Macau, S.A. (“SJM”), a gaming subconcession was acquired by MGM Grand Paradise for the right to operate casino games of chance and other casino games for a period of 15 years commencing on April 20, 2005. The Company cannot provide any assurance that the gaming subconcession will be extended beyond the original terms of the agreement; however, management believes that the gaming subconcession will be extended, given that the land concession agreement with the government extends significantly beyond the gaming subconcession. In addition, management believes that the fair value of MGM China reflected in the IPO pricing suggests that market participants have assumed the gaming subconcession will be extended beyond its initial term. As such, the Company has determined that the gaming subconcession intangible asset should be amortized on a straight-line basis over the initial term of the land concession through April 6, 2031.

 

Land concession.  MGM Grand Paradise entered into a contract with the Macau government to use the land under MGM Macau commencing from April 6, 2006.  The land use right has an initial term through April 6, 2031, subject to renewal for additional periods. The land concession intangible asset will be amortized on a straight-line basis over the remaining initial contractual term.

 

Customer lists. The Company recognized an intangible asset related to customer lists, which will be amortized on an accelerated basis over its estimated useful life of five years.

 

Gaming promoter relationships.  The Company recognized an intangible asset related to its relationships with gaming promoters, which will be amortized on a straight-line basis over its estimated useful life of four years.

 

Deferred taxes. The Company recorded a net deferred tax liability of $381 million for the acquisition of the controlling financial interest in MGM China and a corresponding increase to goodwill. The net deferred tax liability represents the excess of the financial reporting amounts of the net assets of MGM China over their respective bases under Macau tax law measured at the enacted tax rates expected to apply to taxable income in the periods such differences are expected to be realized, net of a valuation allowance of $72 million. The tax-effected components of the net deferred tax liability at June 3, 2011 are as follows (in thousands):

 

Deferred tax assets- foreign

 

 

 

Accruals, reserves and other

 

$

121

 

Bad debt reserve

 

3,161

 

Long-term debt

 

2,816

 

Net operating loss carryforward

 

58,781

 

Preopening and start-up expenses

 

3,838

 

Property and equipment

 

7,822

 

 

 

76,539

 

Less: Valuation allowance

 

(71,670

)

 

 

4,869

 

 

 

 

 

Deferred tax liabilities- foreign

 

 

 

Intangible assets

 

(385,497

)

Net deferred tax liability

 

$

(380,628

)

 

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.  However, the exemption from the Macau 12% complementary tax on gaming profits does not apply to dividend distributions of such profits to MGM China, its sole shareholder.  See Note 2 for further discussion of the complementary tax.

 

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Table of Contents

 

Non-gaming operations remain subject to the complementary tax.  MGM Grand Paradise had at June 3, 2011 a complementary tax net operating loss carryforward of $490 million resulting from non-gaming operations that will expire if not utilized against non-gaming income in years 2011 through 2013. The Macanese net operating loss carryforwards are fully offset by valuation allowance.

 

At June 3, 2011, the Company had an excess amount for financial reporting over the U.S. tax basis of its investment in MGM China of $3.6 billion that management does not consider to be essentially permanent in duration.  The Company expects this basis difference to resolve through repatriations of future MGM China earnings.  The Company has not provided U.S. deferred taxes for such excess financial reporting basis because there would be sufficient foreign tax credits to offset all U.S. income tax that would result from the future repatriation of such earnings.

 

Consolidated results.  MGM China’s net revenue for the three months ended March 31, 2012 was $702 million, operating income was $68 million and net income, including the $44 million complementary tax provision discussed in Note 2, was $21 million.

 

Pro forma information. The operating results for MGM China and its subsidiaries are included in the accompanying consolidated statements of income from the date of acquisition.  The following unaudited pro forma consolidated financial information for the Company has been prepared assuming the Company’s acquisition of its controlling financial interest had occurred as of January 1, 2011:

 

 

 

Three Months
Ended

 

 

 

March 31,

 

 

 

2011

 

 

 

(In thousands, except per
share data)

 

Net revenues

 

$

2,108,575

 

Operating income

 

159,360

 

Net loss

 

(107,551

)

Net loss attributable to MGM Resorts International

 

(127,177

)

 

 

 

 

Loss per share of common stock attributable to MGM Resorts International:

 

 

 

Basic

 

$

(0.26

)

Diluted

 

$

(0.26

)

 

NOTE 4 — INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES

 

Investments in and advances to unconsolidated affiliates includes:               

 

 

 

March 31,

 

December 31,

 

 

 

2012

 

2011

 

 

 

(In thousands)

 

CityCenter Holdings, LLC — CityCenter (50%)

 

$

1,288,334

 

$

1,332,299

 

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

 

290,293

 

292,094

 

Other

 

11,288

 

11,179

 

 

 

$

1,589,915

 

$

1,635,572

 

 

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

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2012

 

2011

 

 

 

(In thousands)

 

Income (loss) from unconsolidated affiliates

 

$

(13,309

)

$

63,343

 

Non-operating items from unconsolidated affiliates

 

(26,866

)

(40,290

)

 

 

$

(40,175

)

$

23,053

 

 

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Silver Legacy

 

Silver Legacy had approximately $143 million of outstanding senior secured notes due in March 2012.  Silver Legacy did not repay its notes at maturity and is exploring various alternatives for refinancing or restructuring its obligations under the notes, including potentially filing for bankruptcy protection. These notes are non-recourse to the Company. The Company recorded an “other-than-temporary” impairment charge at December 31, 2011 which decreased the carrying value of its investment to zero. The Company also ceased applying the equity method for its investment in Silver Legacy and will not provide for additional losses until its share of future net income, if any, equals the share of net losses not recognized during the period the equity method was suspended.

 

MGM Macau

 

As discussed in Note 3, the Company obtained a controlling financial interest in MGM China as of June 3, 2011 and therefore was required to consolidate MGM China beginning on that date. Prior thereto, the Company’s investment in MGM Grand Paradise was accounted for under the equity method.

 

CityCenter

 

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

 

 

 

March 31,

 

December 31,

 

 

 

2012

 

2011

 

 

 

(In thousands)

 

Current assets

 

$

255,964

 

$

393,140

 

Property and other long-term assets, net

 

8,978,553

 

9,068,790

 

Current liabilities

 

321,898

 

375,870

 

Long-term debt and other liabilities

 

2,439,410

 

2,491,166

 

Equity

 

6,473,209

 

6,594,894

 

 

Summary results of operations for CityCenter are provided below:

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2012

 

2011

 

 

 

(In thousands)

 

Net revenues

 

$

238,917

 

$

271,621

 

Operating expenses

 

(300,374

)

(308,513

)

Operating loss

 

(61,457

)

(36,892

)

Other non-operating expense

 

(75,378

)

(88,135

)

Net loss

 

$

(136,835

)

$

(125,027

)

 

February 2012 senior secured notes.  In February 2012, CityCenter issued $240 million in aggregate principal amount of its 7.625% senior secured first lien notes due 2016 in a private placement.

 

March 2012 amended and restated credit agreement.  In March 2012, CityCenter entered into a second amendment and restatement of its senior credit facility.  The loans outstanding under the prior credit agreement were repaid in full and no loans were outstanding under the amended credit agreement at March 31, 2012. The amended CityCenter credit facility consists of a $75 million revolving facility which matures January 21, 2015, and loans will bear interest at a base rate (as defined) plus 4%, or in the case of Eurodollar loans, at the Eurodollar rate (as defined) plus 5%. The amended credit agreement contains covenants that, among other things, restrict CityCenter from incurring additional indebtedness, making distributions to equity interests, selling assets and entering into certain transfers. In addition, CityCenter may not permit its EBITDA (as defined) to be less than specified minimums.

 

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NOTE 5 — LONG-TERM DEBT

 

Long-term debt consists of the following:

 

 

 

March 31,

 

December 31,

 

 

 

2012

 

2011

 

 

 

(In thousands)

 

Senior credit facility:

 

 

 

 

 

$819.9 million ($1,834 million at December 31, 2011) term loans, net

 

$

777,186

 

$

1,728,510

 

Revolving loans

 

450,000

 

1,462,000

 

MGM Grand Paradise credit facility

 

552,398

 

552,312

 

$534.7 million 6.75% senior notes, due 2012

 

534,650

 

534,650

 

$462.2 million 6.75% senior notes, due 2013

 

462,226

 

462,226

 

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

 

151,253

 

151,483

 

$750 million 13% senior secured notes, due 2013, net

 

729,142

 

726,333

 

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

 

508,308

 

508,231

 

$650 million 10.375% senior secured notes, due 2014, net

 

640,980

 

640,051

 

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

 

877,067

 

877,208

 

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

 

1,464,173

 

1,465,287

 

$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

 

495,507

 

495,317

 

$743 million 7.625% senior notes, due 2017

 

743,000

 

743,000

 

$850 million 11.125% senior secured notes, due 2017, net

 

832,784

 

832,245

 

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

 

465,212

 

464,928

 

$850 million 8.625% senior notes, due 2019

 

850,000

 

 

$845 million 9% senior secured notes, due 2020

 

845,000

 

845,000

 

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

 

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

 

581

 

900

 

 

 

$

13,359,953

 

$

13,470,167

 

 

As of March 31, 2012 and December 31, 2011, debt due within one year of the balance sheet date is classified as long-term because the Company has both the intent and ability to repay such amounts with available borrowings under the senior credit facility.  Amounts outstanding under the MGM Grand Paradise credit facility were classified as long-term as MGM Grand Paradise has both the intent and ability to repay scheduled amortization payments under the term loan due within one year of the balance sheet date with available borrowings under its revolving loan commitments.

 

Senior credit facility. The Company’s senior credit facility was amended and restated in February 2012, and loans and revolving commitments aggregating approximately $1.8 billion (the “extending loans”) were extended to February 2015.  In accordance with the amendment, the Company repaid $409 million of outstanding loans to extending lenders. In March 2012, an additional $24 million in term loans were extended and the Company repaid the remaining non-extending term loans. At March 31, 2012, the senior credit facility consisted of approximately $820 million in term loans and a $1.3 billion revolver ($360 million of which has not been extended and matures in February 2014) and had approximately $855 million of available borrowing capacity.  In connection with the amendment and subsequent repayment of the non-extending loans, the Company recorded a loss on early retirement of debt of $59 million related to previously recorded discounts and certain debt issuance costs.

 

As of December 31, 2011, interest on the senior credit facility was based on a LIBOR margin of 5.00%, with a LIBOR floor of 2.00%, and a base rate margin of 4.00%, with a base rate floor of 4.00%. The non-extended revolving loans continue to be subject to this pricing. Interest on the extending loans is subject to a LIBOR floor of 1% and a pricing grid based upon collateral coverage levels. The interest rate on extending loans was 6% at March 31, 2012 and has subsequently reduced to 5%. Interest on non-extending revolving loans remains at 7%. The weighted average interest rate on outstanding borrowings under the senior credit facility at March 31, 2012 and December 31, 2011 was 6.1% and 7.0%, respectively.

 

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Table of Contents

 

The senior credit facility allows the Company to refinance indebtedness maturing prior to February 23, 2015 but limits its ability to prepay later maturing indebtedness until the extended facilities are paid in full. The Company may issue unsecured debt, equity-linked and equity securities to refinance its outstanding indebtedness; however, the Company is required to use net proceeds from certain indebtedness issued in amounts in excess of $250 million (excluding amounts used to refinance indebtedness) to ratably prepay the credit facilities in an amount equal to 50% of the net cash proceeds of such excess. The Company is no longer required to use net proceeds from equity offerings to prepay the senior credit facility in connection with the restatement of the senior credit facility. In addition, the Company agreed to deliver a mortgage, limited in amount to comply with indenture restrictions, encumbering the Beau Rivage.  The Company delivered such mortgage in March 2012.

 

At March 31, 2012, the Company and its restricted subsidiaries are required to maintain a minimum trailing annual EBITDA (as defined in the agreement governing its senior credit facility) of $1.2 billion for each of the quarters of 2012, increasing to $1.25 billion at March 31, 2013, to $1.3 billion at June 30, 2013, and to $1.4 billion at March 31, 2014. EBITDA for the trailing twelve months ended March 31, 2012 calculated in accordance with the terms of the senior credit facility was $1.28 billion.  Additionally, the Company and its restricted subsidiaries are limited to $500 million of annual capital expenditures (as defined) during 2012; the Company was in compliance with the maximum capital expenditures covenants at March 31, 2012.

 

Substantially all of the assets of MGM Grand Detroit serve as collateral to secure its $450 million obligation outstanding as a co-borrower under the Company’s senior credit facility. In addition, substantially all of the assets of Gold Strike Tunica, substantially all of the assets of Beau Rivage and certain land across from the Luxor serve as collateral to secure up to $578 million of obligations outstanding under the Company’s senior credit facility.

 

MGM Grand Paradise credit facility. MGM Grand Paradise’s credit facility is comprised of approximately $552 million in term loans and a $400 million revolving loan.  The outstanding balance of MGM Grand Paradise’s credit facility at March 31, 2012 is comprised solely of term loans.  Scheduled amortization on the term loan begins in July 2012 with a lump sum payment of approximately $276 million upon final maturity in July 2015.  The revolving loan may be redrawn, but is required to be repaid in full on the last date of the respective term loan, no later than July 2015.  Interest on the term loan facility is based on HIBOR plus a margin ranging between 3% and 4.5%, based on MGM Grand Paradise’s adjusted leverage ratio, as defined in its credit facility agreement.  Interest on the revolving facility can be denominated in either Hong Kong dollars or U.S. dollars and is based on the same margin range, plus HIBOR or LIBOR, as appropriate.  As of March 31, 2012, the credit facility is denominated entirely in Hong Kong dollars and interest is based on a margin of 3%, plus HIBOR. Substantially all of the assets of MGM Grand Paradise serve as collateral for the MGM Grand Paradise credit facility, which is guaranteed by MGM China and certain of its direct and indirect subsidiaries.

 

At March 31, 2012, MGM Grand Paradise was required to maintain a specified adjusted leverage ratio, as defined, at the end of each quarter while the loans are outstanding. The adjusted leverage ratio is required to be no greater than 3.50 to 1.00. In addition, MGM Grand Paradise is required to maintain a debt service coverage ratio, as defined of no less than 1.50 to 1.00 at each quarter end. At March 31, 2012, MGM Grand Paradise was in compliance with its adjusted leverage ratio and debt service coverage ratios.

 

Senior and senior secured notes.  In January 2012 the Company issued $850 million of 8.625% senior notes due 2019 for net proceeds to the Company of approximately $836 million. In March 2012, the Company issued $1.0 billion of 7.75% senior notes due 2022 for net proceeds to the Company of approximately $986 million.  The notes are unsecured and otherwise rank equally in right of payment with the Company’s existing and future senior indebtedness.

 

Substantially all of the assets of New York-New York serve as collateral for the Company’s 13% senior secured notes due 2013, substantially all of the assets of Bellagio and The Mirage serve as collateral for the Company’s 10.375% senior secured notes due 2014 and the 11.125% senior secured notes due 2017, and substantially all of the assets of MGM Grand serve as collateral for the Company’s 9.00% senior secured notes due 2020. Upon the issuance of the 10.375%, 11.125% and 9.00% notes, the holders of the Company’s 13% senior secured notes due 2013 obtained an equal and ratable lien in all collateral securing these notes.  In addition, the holders of the Company’s 13% senior secured notes obtained an equal and ratable lien in the Beau Rivage collateral upon the issuance of such collateral.

 

Fair value of long-term debt. The estimated fair value of the Company’s long-term debt at March 31, 2012 was approximately $14.3 billion.  At December 31, 2011, the estimated fair value of the Company’s long-term debt was approximately $13.7 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.

 

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Table of Contents

 

NOTE 6 — COMMITMENTS AND CONTINGENCIES

 

CityCenter completion guarantee.  In January 2011, the Company entered into an amended completion and cost overrun guarantee.  Consistent with the terms of the previous completion guarantee, the terms of the amended completion guarantee provide for the ability to utilize the then remaining $124 million of net residential proceeds to fund construction costs, or to reimburse the Company for construction costs previously expended, though the timing of receipt of such proceeds is uncertain.  The completion guarantee is collateralized by substantially all of the assets of Circus Circus Las Vegas, as well as certain undeveloped land adjacent to that property.

 

As of March 31, 2012, the Company has funded $658 million under the completion guarantee. The Company has recorded a receivable from CityCenter of $107 million related to these amounts, which represents amounts reimbursable to the Company from CityCenter from future residential proceeds. The Company has a remaining estimated net obligation under the completion guarantee of $16 million which includes estimated litigation costs related to the resolution of disputes with contractors as to the final construction costs and estimated amounts to be paid to contractors through the legal process related to the Perini litigation. The Company’s accrual also 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 $185 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 is unlikely to be completed using the building as it now stands.

 

The Clark County Building Division (the “Building Division”) retained a structural engineering consultant to provide with respect to the Harmon building “an engineering analysis to determine the structural stability of the as-built condition…”  The report from the Building Division’s structural engineering consultant, however, stated: “It is our understanding that the full nature and extent of the current as-built condition has not been documented or provided to us at the current time.  The Company based this study only on information that was obtained from the available design documents, non-compliance reports and limited visual observations.”  Thus, the Building Division’s structural engineering consultant apparently did not perform other testing or a relevant analysis of the building in its current, as-built condition.

 

Among its general findings the report of the Building Division’s structural engineering consultant stated: “Our analytical findings suggest that the as-designed Harmon Tower structure is structurally stable under design loads from a maximum considered earthquake (MCE) event;” and further, “Our analysis indicates that the as-designed strength of Harmon Tower’s shear wall system is generally sufficient to resist the design loads from a maximum considered earthquake (MCE).”  The report from the Building Division’s structural engineering consultant recommended further study of the Harmon building’s vulnerabilities.  Accordingly, since the County’s consultant did not appear to have performed an as-built analysis, the report that was issued has minimal value if any in resolution of the issues presented to CityCenter’s pending litigation with Perini.

 

The Building Division requested that CityCenter 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 a consulting engineer engaged by CityCenter for this review submitted the results of his analysis of the Harmon tower and podium in its current as-built condition.  The engineer opined, among other things, that “[i]n a code-level earthquake, using either the permitted or current code specified loads, it is likely that critical structural members in the tower will fail and become incapable of supporting gravity loads, leading to a partial or complete collapse of the tower.  There is missing or misplaced reinforcing steel in columns, beams, shear walls, and transfer walls throughout the structure of the tower below the twenty-first floor.”  In response to this opinion, on July 12, 2011 the Building Division required CityCenter, no later than August 15, 2011, “to provide a plan of action that will abate the potential for structural collapse and protect impacted uses and occupancies.”  Under the relevant building code provision, “abate” means repair, rehabilitation, demolition or removal of the subject building.

 

On August 15, 2011, after expert consultation, CityCenter submitted its reply to the Building Division.  CityCenter informed the Building Division it has 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.  CityCenter also advised that prior to undertaking the demolition plan of action, it will 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.

 

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Table of Contents

 

The Building Division advised CityCenter that the Building Division’s staff would review CityCenter’s August 15, 2011 submission and then issue its conclusions to CityCenter, but the Building Division did not specify a date for such guidance.  By letter dated August 18, 2011, the Building Division requested a meeting with CityCenter’s retained engineering firm concerning its conclusions regarding the Harmon’s as-built condition.  Pursuant to this request by the Building Division, representatives from CityCenter’s retained engineering firm met with the Building Division and directly responded to the Building Division’s inquiries.

 

On November 22, 2011, the Building Division informed CityCenter by letter that “[b]ased on the information provided to Clark County Development Services including but not limited to the Weidlinger & Associates Letter of August 11, 2011 and subsequent conversations, it is required that MGM Resorts submit a plan abating the code deficiencies discovered in the Harmon Tower.”  CityCenter has made a motion to the court presiding over the Perini litigation for permission to proceed with the demolition of the Harmon in advance of the conclusion of the litigation.  The hearing on that motion, which Perini and its Harmon-related subcontractors oppose, commenced on March 12, 2012.  After several days of testimony, the hearing was continued and scheduled to reconvene in July 2012, after the completion of further related proceedings, due to the scope of legal issues presented at the hearing.  CityCenter also resubmitted the plan of abatement action prepared by LVI which was submitted on August 15, 2011, and applied to the Building Division for appropriate demolition permits and approvals.  Those applications are pending.

 

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, that are subject to change.  CityCenter’s restated senior credit facility provides that certain demolition expenses may be funded only by equity contributions from the members of the CityCenter venture or certain specified extraordinary receipts (which include any proceeds from the Perini litigation).  Based on current estimates, which are subject to change, the Company believes the demolition of the Harmon would cost approximately $31 million.

 

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 asserts that CityCenter was substantially completed, but the defendants failed to pay Perini approximately $490 million allegedly due and owing under the construction agreement for labor, equipment and materials expended on CityCenter. The complaint further charges 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 advances 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”), adds a count for foreclosure of Perini’s recorded master mechanic’s lien against the CityCenter property in the amount of approximately $491 million, and asserts 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 December 2010, Perini recorded an amended notice of lien reducing its lien to approximately $313 million.  Because of settlements with subcontractors, CityCenter believes it is entitled to a further lien reduction of approximately $133 million (for a revised lien amount of $186 million, including certain liens not related to Perini’s lien) once the Company has provided the court and Perini with the required information.

 

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The court has set a new trial date of March 12, 2013 for the consolidated action involving Perini, the remaining Perini subcontractors and any related third parties, and CityCenter’s counterclaim against Perini and other parties for defective construction of the Harmon, and also amended other significant pre-trial dates.  Discovery is in process.  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 refer to the disclosure above 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.

 

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 gaming companies should pay sales tax on customer complimentary meals and employee meals on a prospective basis commencing February 15, 2012.  This position stems from a recent 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.  While the Company disagrees with the positions asserted by the Nevada Department of Taxation, the Company has not yet completed its assessment of the likelihood of an unfavorable outcome or the amounts that may be due related to the various elements of the Department’s assertions, but believes that any such liability would not be material to the Company’s financial statements for the period ended March 31, 2012.

 

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 $250 million, and the amount of available borrowings under the senior credit facility is reduced by any outstanding letters of credit.  At March 31, 2012, the Company had provided $37 million of total letters of credit.  In addition, MGM China guarantees approximately $39 million of debt under the MGM Grand Paradise credit facility.

 

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

 

NOTE 7 — LOSS PER SHARE OF COMMON STOCK

 

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

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2012

 

2011

 

 

 

(In thousands)

 

Numerator:

 

 

 

 

 

Net loss attributable to MGM Resorts International

 

$

(217,253

)

$

(89,871

)

 

 

 

 

 

 

Denominator:

 

 

 

 

 

Weighted-average common shares outstanding - basic

 

488,861

 

488,539

 

Potential dilution from share-based awards

 

 

 

Potential dilution from assumed conversion of convertible debt

 

 

 

Weighted-average common and common equivalent shares - diluted

 

488,861

 

488,539

 

 

 

 

 

 

 

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

 

30,589

 

28,954

 

 

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NOTE 8 — STOCKHOLDERS’ EQUITY AND NONCONTROLLING INTERESTS

 

Noncontrolling interests.  As discussed in Note 3, the Company became the controlling shareholder of MGM China and began consolidating the financial position of MGM China in its financial statements as of June 3, 2011. 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.

 

MGM China Dividend.  MGM China paid an approximately $400 million dividend in March 2012, of which approximately $204 million remained within the consolidated entity and approximately $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, 2012:

 

 

 

MGM Resorts

 

 

 

 

 

 

 

International

 

 

 

Total

 

 

 

Stockholders’

 

Noncontrolling

 

Stockholders’

 

 

 

Equity

 

Interests

 

Equity

 

 

 

(In thousands)

 

Balances, January 1, 2012

 

$

6,086,578

 

$

3,795,644

 

$

9,882,222

 

Net income (loss)

 

(217,253

)

13,946

 

(203,307

)

Currency translation adjustment

 

859

 

829

 

1,688

 

Stock-based compensation

 

11,041

 

623

 

11,664

 

Change in excess tax benefit from stock-based compensation

 

(2,268

)

 

(2,268

)

Issuance of common stock pursuant to stock-based compensation awards

 

(550

)

 

(550

)

Cash distributions to noncontrolling interest owners

 

 

(198,214

)

(198,214

)

Balances, March 31, 2012

 

$

5,878,407

 

$

3,612,828

 

$

9,491,235

 

 

NOTE 9 — STOCK-BASED COMPENSATION

 

2005 Omnibus Incentive Plan. As of March 31, 2012, the Company had an aggregate of approximately 9 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, 2012 is presented below:

 

Stock options and stock appreciation rights (“SARs”)

 

 

 

 

 

Weighted

 

 

 

 

 

Average

 

 

 

Shares

 

Exercise

 

 

 

(000’s)

 

Price

 

 

 

 

 

 

 

Outstanding at January 1, 2012

 

30,320

 

$

20.18

 

Granted

 

158

 

12.21

 

Exercised

 

(784

)

12.47

 

Forfeited or expired

 

(247

)

28.48

 

Outstanding at March 31, 2012

 

29,447

 

20.27

 

Exercisable at March 31, 2012

 

19,726

 

24.72

 

 

Restricted Stock Units (“RSUs”)

 

 

 

 

 

Weighted

 

 

 

 

 

Average

 

 

 

Shares

 

Grant-Date

 

 

 

(000’s)

 

Fair Value

 

 

 

 

 

 

 

Nonvested at January 1, 2012

 

1,181

 

$

11.15

 

Granted

 

1

 

11.32

 

Vested

 

(36

)

18.78

 

Forfeited

 

(4

)

14.11

 

Nonvested at March 31, 2012

 

1,142

 

10.89

 

 

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Table of Contents

 

MGM China Share Option Plan. As of March 31, 2012, MGM China had an aggregate of approximately 1.1 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, 2012 is presented below:

 

Stock options

 

 

 

 

 

Weighted

 

 

 

 

 

Average

 

 

 

Shares

 

Exercise

 

 

 

(000’s)

 

Price

 

 

 

 

 

 

 

Outstanding at January 1, 2012

 

19,260

 

$

1.99

 

Granted

 

955

 

1.78

 

Forfeited or expired

 

(830

)

2.01

 

Outstanding at March 31, 2012

 

19,385

 

1.98

 

Exercisable at March 31, 2012

 

 

 

 

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

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2012

 

2011

 

 

 

(In thousands)

 

Compensation cost

 

 

 

 

 

Stock options and SARs

 

$

6,350

 

$

5,867

 

RSUs

 

4,043

 

4,606

 

MGM China Plan

 

1,271

 

 

Total compensation cost

 

11,664

 

10,473

 

Less: CityCenter reimbursed costs

 

(1,060

)

(1,263

)

Compensation cost recognized as expense

 

10,604

 

9,210

 

Less: Related tax benefit

 

(454

)

(3,205

)

Compensation expense, net of tax benefit

 

$

10,150

 

$

6,005

 

 

NOTE 10 — SEGMENT INFORMATION

 

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

 

The Company’s management utilizes Adjusted Property EBITDA as the primary profit measure for its reportable segments. Adjusted Property EBITDA is a non-GAAP measure defined as Adjusted EBITDA before corporate expense and stock compensation expense related to the MGM Resorts stock option plan, which are not allocated to the reportable segments. MGM China recognizes stock compensation expense related to its stock compensation plan which is included in the calculation of Adjusted Property 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.

 

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Table of Contents

 

The following table presents the Company’s segment information:

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2012

 

2011

 

 

 

(In thousands)

 

Net Revenues:

 

 

 

 

 

Wholly owned domestic resorts

 

$

1,479,598

 

$

1,406,430

 

MGM China

 

702,090

 

 

Reportable segment net revenues

 

2,181,688

 

1,406,430

 

Corporate and other

 

105,902

 

106,421

 

 

 

$

2,287,590

 

$

1,512,851

 

 

 

 

 

 

 

Adjusted EBITDA:

 

 

 

 

 

Wholly owned domestic resorts

 

$

320,972

 

$

299,962

 

MGM China

 

164,521

 

 

Reportable segment

 

 

 

 

 

Adjusted Property EBITDA

 

485,493

 

299,962

 

Corporate and other

 

(55,161

)

22,231

 

 

 

430,332

 

322,193

 

Other operating income (expense):

 

 

 

 

 

Property transactions, net

 

(917

)

(91

)

Depreciation and amortization

 

(236,809

)

(152,397

)

Operating income

 

192,606

 

169,705

 

Non-operating income (expense)

 

 

 

 

 

Interest expense

 

(284,342

)

(269,914

)

Non-operating items from unconsolidated affiliates

 

(26,866

)

(40,290

)

Other, net

 

(57,576

)

(3,955

)

 

 

(368,784

)

(314,159

)

 

 

 

 

 

 

Loss before income taxes

 

(176,178

)

(144,454

)

Benefit (provision) for income taxes

 

(27,129

)

54,583

 

 

 

 

 

 

 

Net loss

 

(203,307

)

(89,871

)

Less: Net income attributable to noncontrolling interests

 

(13,946

)

 

Net loss attributable to MGM Resorts International

 

$

(217,253

)

$

(89,871

)

 

NOTE 11 — RELATED PARTY TRANSACTIONS

 

MGM China.  In connection with the MGM China IPO, MGM Branding and Development Holdings, Ltd., 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 Holdings, Ltd equal to 1.75% of MGM China’s consolidated net revenue, subject to an annual cap of $30 million in 2012, increasing by 20% per annum for each subsequent calendar year during the term of the agreement. In the three months ended March 31, 2012 total license fees of $12 million were incurred by MGM China. Such amounts have been eliminated in consolidation.  An entity owned by Ms. Pansy Ho received a distribution of $2 million during the three months ended March 31, 2012 in connection with the ownership of a noncontrolling interest in MGM Branding and Development Holdings, Ltd.

 

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Table of Contents

 

NOTE 12 — CONSOLIDATING CONDENSED FINANCIAL INFORMATION

 

The Company’s domestic subsidiaries, excluding certain minor subsidiaries, MGM Grand Detroit, LLC and its subsidiaries and our domestic insurance subsidiaries, have fully and unconditionally guaranteed, on a joint and several basis, payment of the senior credit facility, the senior notes, senior secured notes and the senior subordinated notes.  Our international subsidiaries, including MGM China, are not guarantors of such indebtedness. Separate condensed financial statement information for the subsidiary guarantors and non-guarantors as of March 31, 2012 and December 31, 2011 and for the three month periods ended March 31, 2012 and 2011 is as follows:

 

CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION

 

 

 

At March 31, 2012

 

 

 

Parent

 

Guarantor
Subsidiaries

 

Non-Guarantor
Subsidiaries

 

Elimination

 

Consolidated

 

 

 

(In thousands)

 

Current assets

 

$

619,397

 

$

991,409

 

$

982,871

 

$

 

$

2,593,677

 

Property and equipment, net

 

 

13,501,750

 

1,297,042

 

(11,972

)

14,786,820

 

Investments in subsidiaries

 

23,908,794

 

7,722,760

 

 

(31,631,554

)

 

Investments in and advances to unconsolidated affiliates

 

 

1,589,915

 

 

 

1,589,915

 

Other non-current assets

 

272,678

 

573,676

 

7,574,262

 

 

8,420,616

 

 

 

$

24,800,869

 

$

24,379,510

 

$

9,854,175

 

$

(31,643,526

)

$

27,391,028

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

$

311,233

 

$

932,099

 

$

649,055

 

$

 

$

1,892,387

 

Intercompany accounts

 

441,268

 

(507,835

)

66,567

 

 

 

Deferred income taxes

 

2,222,389

 

 

249,036

 

 

2,471,425

 

Long-term debt

 

12,200,884

 

156,671

 

1,002,398

 

 

13,359,953

 

Other long-term obligations

 

133,860

 

41,526

 

642

 

 

176,028

 

Total liabilities

 

15,309,634

 

622,461

 

1,967,698

 

 

17,899,793

 

MGM Resorts stockholders’ equity

 

9,491,235

 

23,757,049

 

4,273,649

 

(31,643,526

)

5,878,407

 

Noncontrolling interests

 

 

 

3,612,828

 

 

3,612,828

 

Total stockholders’ equity

 

9,491,235

 

23,757,049

 

7,886,477

 

(31,643,526

)

9,491,235

 

 

 

$

24,800,869

 

$

24,379,510

 

$

9,854,175

 

$

(31,643,526

)

$

27,391,028

 

 

 

 

At December 31, 2011

 

 

 

Parent

 

Guarantor
Subsidiaries

 

Non-Guarantor
Subsidiaries

 

Elimination

 

Consolidated

 

 

 

(In thousands)

 

Current assets

 

$

889,749

 

$

968,928

 

$

954,043

 

$

 

$

2,812,720

 

Property and equipment, net

 

 

13,567,922

 

1,310,694

 

(11,972

)

14,866,644

 

Investments in subsidiaries

 

24,022,470

 

7,930,882

 

 

(31,953,352

)

 

Investments in and advances to unconsolidated affiliates

 

 

1,635,572

 

 

 

1,635,572

 

Other non-current assets

 

256,171

 

541,081

 

7,654,088

 

 

8,451,340

 

 

 

$

25,168,390

 

$

24,644,385

 

$

9,918,825

 

$

(31,965,324

)

$

27,766,276

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

$

280,233

 

$

947,341

 

$

517,190

 

$

 

$

1,744,764

 

Intercompany accounts

 

334,454

 

(377,756

)

43,302

 

 

 

Deferred income taxes

 

2,237,628

 

 

264,468

 

 

2,502,096

 

Long-term debt

 

12,310,634

 

157,221

 

1,002,312

 

 

13,470,167

 

Other long-term obligations

 

123,219

 

43,300

 

508

 

 

167,027

 

Total liabilities

 

15,286,168

 

770,106

 

1,827,780

 

 

17,884,054

 

MGM Resorts stockholders’ equity

 

9,882,222

 

23,874,279

 

4,295,401

 

(31,965,324

)

6,086,578

 

Noncontrolling interests

 

 

 

3,795,644

 

 

3,795,644

 

Total stockholders’ equity

 

9,882,222

 

23,874,279

 

8,091,045

 

(31,965,324

)

9,882,222

 

 

 

$

25,168,390

 

$

24,644,385

 

$

9,918,825

 

$

(31,965,324

)

$

27,766,276

 

 

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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

 

98,934

 

30,317

 

 

(129,251

)

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

Casino and hotel operations

 

2,727

 

911,954

 

583,719

 

 

1,498,400

 

General and administrative

 

2,835

 

249,800

 

50,654

 

 

303,289

 

Corporate expense

 

17,651

 

24,460

 

149

 

 

42,260

 

Property transactions, net

 

 

917

 

 

 

917

 

Depreciation and amortization

 

 

130,480

 

106,329

 

 

236,809

 

 

 

23,213

 

1,317,611

 

740,851

 

 

2,081,675

 

Loss from unconsolidated affiliates

 

 

(13,274

)

(35

)

 

(13,309

)

Operating income (loss)

 

75,721

 

133,967

 

112,169

 

(129,251

)

192,606

 

Interest expense

 

(268,308

)

(2,761

)

(13,273

)

 

(284,342

)

Other, net

 

(41,359

)

(32,231

)

(10,852

)

 

(84,442

)

Income (loss) before income taxes

 

(233,946

)

98,975

 

88,044

 

(129,251

)

(176,178

)

Benefit (provision) for income taxes

 

16,693

 

(296

)

(43,526

)

 

(27,129

)

Net income (loss)

 

(217,253

)

98,679

 

44,518

 

(129,251

)

(203,307

)

Less: net income attributable to noncontrolling interests

 

 

 

(13,946

)

 

(13,946

)

Net income (loss) attributable to MGM Resorts International

 

$

(217,253

)

$

98,679

 

$

30,572

 

$

(129,251

)

$

(217,253

)

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(217,253

)

$

98,679

 

$

44,518

 

$

(129,251

)

$

(203,307

)

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

 

1,688

 

 

1,688

 

Other comprehensive income

 

 

 

1,688

 

 

1,688

 

Comprehensive income (loss)

 

(217,253

)

98,679

 

46,206

 

(129,251

)

(201,619

)

Less: comprehensive income attributable to noncontrolling interests

 

 

 

(14,775

)

 

(14,775

)

Comprehensive income (loss) attributable to MGM Resorts International

 

$

(217,253

)

$

98,679

 

$

31,431

 

$

(129,251

)

$

(216,394

)

 

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

)

$

191,184

 

$

289,900

 

$

 

$

291,694

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures, net of construction payable

 

 

(104,918

)

(8,839

)

 

(113,757

)

Investments in and advances to unconsolidated affiliates

 

(12,600

)

 

 

 

(12,600

)

Distributions from unconsolidated affiliates

 

 

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

 

 

(391

)

 

 

(391

)

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, net

 

1,850,000

 

 

 

 

1,850,000

 

Debt issuance costs

 

(37,938

)

 

 

 

(37,938

)

Intercompany accounts

 

135,946

 

(108,401

)

(27,545

)

 

 

Distributions to noncontrolling interest owners

 

 

 

(197,848

)

 

(197,848

)

Other

 

(574

)

(315

)

(19

)

 

(908

)

Net cash used in financing activities

 

(78,794

)

(108,716

)

(225,412

)

 

(412,922

)

 

 

 

 

 

 

 

 

 

 

 

 

Effect of exchange rate on cash

 

 

 

148

 

 

148

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

 

 

 

 

 

 

 

 

 

Net increase (decrease) for the period

 

(280,784

)

(6,034

)

55,797

 

 

(231,021

)

Balance, beginning of period

 

795,326

 

965,131

 

105,456

 

 

1,865,913

 

Balance, end of period

 

$

514,542

 

$

959,097

 

$

161,253

 

$

 

$

1,634,892

 

 

20



Table of Contents

 

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME INFORMATION

 

 

 

Three Months Ended March 31, 2011

 

 

 

Parent

 

Guarantor
Subsidiaries

 

Non-
Guarantor
Subsidiaries

 

Elimination

 

Consolidated

 

 

 

(In thousands)

 

Net revenues

 

$

 

$

1,369,165

 

$

143,686

 

$

 

$

1,512,851

 

Equity in subsidiaries’ earnings

 

113,599

 

65,370

 

 

(178,969

)

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

Casino and hotel operations

 

2,806

 

870,171

 

74,977

 

 

947,954

 

General and administrative

 

2,430

 

241,732

 

25,400

 

 

269,562

 

Corporate expense

 

15,710

 

21,009

 

(234

)

 

36,485

 

Property transactions, net

 

 

(11

)

102

 

 

91

 

Depreciation and amortization

 

 

142,632

 

9,765

 

 

152,397

 

 

 

20,946

 

1,275,533

 

110,010

 

 

1,406,489

 

Income from unconsolidated affiliates

 

 

1,752

 

61,591

 

 

63,343

 

Operating income (loss)

 

92,653

 

160,754

 

95,267

 

(178,969

)

169,705

 

Interest expense

 

(257,224

)

(4,813

)

(7,877

)

 

(269,914

)

Other, net

 

10,982

 

(42,618

)

(12,609

)

 

(44,245

)

Income (loss) before income taxes

 

(153,589

)

113,323

 

74,781

 

(178,969

)

(144,454

)

Benefit (provision) for income taxes

 

63,718

 

(100

)

(9,035

)

 

54,583

 

Net income (loss) attributable to MGM Resorts International

 

$

(89,871

)

$

113,223

 

$

65,746

 

$

(178,969

)

$

(89,871

)

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(89,871

)

$

113,223

 

$

65,746

 

$

(178,969

)

$

(89,871

)

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

 

2,599

 

 

2,599

 

Other

 

 

(37

)

 

 

(37

)

Other comprehensive income

 

 

(37

)

2,599

 

 

2,562

 

Comprehensive income (loss) attributable to MGM Resorts International

 

$

(89,871

)

$

113,186

 

$

68,345

 

$

(178,969

)

$

(87,309

)

 

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION

 

 

 

Three Months Ended March 31, 2011

 

 

 

Parent

 

Guarantor
Subsidiaries

 

Non-
Guarantor
Subsidiaries

 

Elimination

 

Consolidated

 

 

 

(In thousands)

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by (used in) operating activities

 

$

(171,230

)

$

142,245

 

$

52,963

 

$

 

$

23,978

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures, net of construction payable

 

 

(33,654

)

(805

)

 

(34,459

)

Investments in and advances to unconsolidated affiliates

 

(40,000

)

(36,648

)

 

 

(76,648

)

Distributions from cost method investments, net

 

 

985

 

 

 

985

 

Investments in treasury securities- maturities longer than 90 days

 

 

(60,035

)

 

 

(60,035

)

Proceeds from treasury securities- maturities longer than 90 days

 

 

59,994

 

 

 

59,994

 

Other

 

 

(374

)

 

 

(374

)

Net cash used in investing activities

 

(40,000

)

(69,732

)

(805

)

 

(110,537

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

 

 

 

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

 

529,910

 

 

(314,238

)

 

215,672

 

Borrowings under bank credit facilities maturities longer than 90 days

 

824,609

 

 

382,119

 

 

1,206,728

 

Repayments under bank credit facilities maturities longer than 90 days

 

(1,009,519

)

 

(67,881

)

 

(1,077,400

)

Retirement of senior notes

 

(325,470

)

 

 

 

(325,470

)

Intercompany accounts

 

201,619

 

(164,006

)

(37,613

)

 

 

Other

 

(438

)

(204

)

(18

)

 

(660

)

Net cash provided by (used in) financing activities

 

220,711

 

(164,210

)

(37,631

)

 

18,870

 

Cash and cash equivalents

 

 

 

 

 

 

 

 

 

 

 

Net increase (decrease) for the period

 

9,481

 

(91,697

)

14,527

 

 

(67,689

)

Balance, beginning of period

 

72,457

 

278,801

 

147,706

 

 

498,964

 

Balance, end of period

 

$

81,938

 

$

187,104

 

$

162,233

 

$

 

$

431,275

 

 

21



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 “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, 2011, which were included in our Form 10-K, filed with the SEC on February 29, 2012. 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 financing, fund maintenance capital expenditures and provide cash for future development. Our results of operations are affected by decisions we make related to our capital allocation, our access to capital, and our cost of capital. Our access to lower cost capital has improved, and over the next few years we remain committed to further deleveraging our balance sheet and improving our credit profile.

 

Our results of operations do not tend to be seasonal in nature, though a variety of factors may affect the results of any interim period, including the timing of major Las Vegas conventions, the amount and timing of marketing and special events for our high-end customers, and the level of play during major holidays, including New Year and Chinese New Year. Our results do not depend on key individual customers, although our success in marketing to customer groups, such as convention customers, or the financial health of customer segments, such as business travelers or high-end gaming customers from a particular country or region, can affect our results. Certain of our resorts earn significant revenues from the high-end gaming business, which leads to variability in our results.

 

We have two reportable segments that are based on the regions in which we operate: wholly owned domestic resorts and MGM China. We currently operate 15 wholly owned resorts in the United States. MGM China’s operations consist of the MGM Macau resort and casino. We have additional business activities including investments in unconsolidated affiliates, our MGM Hospitality operations, and certain other corporate and management operations. CityCenter is our most significant unconsolidated affiliate, which we also manage for a fee.  Our operations which have not been segregated into separate reportable segments are reported as “corporate and other” operations in our reconciliations of segment results to consolidated results.

 

Wholly Owned Domestic Resorts

 

Over half of the net revenue from our wholly owned domestic resorts is derived from non-gaming activities, including hotel, food and beverage, entertainment and other non-gaming amenities. Our significant convention and meeting facilities allow us 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 segments to manage our hotel occupancy, such as targeting large conventions to increase mid-week occupancy.

 

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 California.

 

While adverse conditions in the economic environment affected our operating results in recent years, we believe positive trends, such as increased visitation and consumer spending will continue. However, we believe that certain aspects of the current economy, such as continued weaknesses in employment and the housing market, will limit economic growth in the U.S. and temper our recovery. Because of these economic conditions, we have increasingly focused on managing costs and staffing levels across all our resorts and will continue to strive to achieve additional operating efficiencies. However, as a result of our leveraged business model, our operating results are significantly affected by our ability to generate operating revenues.

 

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Table of Contents

 

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 23% of table games drop and our normal slots hold percentage is in the range of 7.5% to 8.5% of slots handle;

 

·                  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).

 

MGM China

 

On June 3, 2011, we and Ms. Ho, Pansy Catilina Chiu King (“Ms. Pansy Ho”) completed a reorganization of the capital structure and the initial public offering of 760 million shares of MGM China Limited (“MGM China”) on The Stock Exchange of Hong Kong Limited (the “IPO”), representing 20% of the post issuance base capital stock of MGM China, at an offer price of HKD 15.34 per share. Pursuant to this reorganization, we acquired, through a wholly owned subsidiary, an additional 1% of the overall capital stock of MGM China for HKD 15.34 per share, or approximately $75 million, and thereby became the owner of 51% of 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.

 

Through the acquisition of the additional 1% interest of MGM China, we obtained a controlling interest and were required to consolidate MGM China as of June 3, 2011. Prior to the IPO, we held a 50% interest in MGM Grand Paradise, which was accounted for under the equity method. The acquisition of the controlling financial interest was accounted for as a business combination and we recognized 100% of the assets, liabilities, and noncontrolling interests of MGM China at fair value at the date of acquisition. The fair value of the equity of MGM China was determined by the IPO transaction price and equaled approximately $7.5 billion. The carrying value of our equity method investment was significantly less than our share of the fair value of MGM China, resulting in a $3.5 billion gain on the acquisition.

 

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 MGM China operations relate to MGM Macau resort and casino. Revenues at MGM Macau are generated primarily from gaming operations made up of two distinct market segments: main floor and high-end (“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 high-end 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 historical table games hold percentage is in the range of 20% to 26% of table games drop. Normal slots hold percentage at MGM Macau is in the range of 5.5% to 7.5% of slots handle.

 

23



Table of Contents

 

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 features residential units in the Residences at Mandarin Oriental. 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, adjacent to Circus Circus Reno, and the other 50% is owned by Eldorado LLC.

 

MGM Hospitality.  MGM Hospitality seeks to leverage our management expertise and well-recognized brands through strategic partnerships and international expansion opportunities. We have 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, 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 (“Boyd”) owns the other 50% of Borgata and also operates the resort.  Our interest is held in trust and currently offered for sale pursuant to our amended settlement agreement with New Jersey Department of Gaming Enforcement (“DGE”) and approved by the New Jersey Casino Control Commission (“CCC”). The terms of the amended settlement agreement mandate the sale by March 2014. We have the right to direct the sale through March 2013, subject to approval of the CCC, and the trustee is responsible for selling the trust property during the following 12-month period.

 

We consolidate the trust as the sole economic beneficiary and account for our interest in Borgata under the cost method. Distributions received by the trust that do not exceed our share of earnings are recognized currently in earnings. However, distributions received by the trust that exceed our share of earnings for such periods are applied to reduce the carrying amount of our investment.  The trust did not receive distributions from Borgata during the three months ended March 31, 2012 and 2011.  As of March 31, 2012, the trust had $165 million of cash and investments, of which $135 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 first quarter of 2012, $23 million 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, 2012 and 2011.

 

Summary Financial Results

 

The following table summarizes our financial results:

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2012

 

2011

 

 

 

(In thousands)

 

Net revenues

 

$

2,287,590

 

$

1,512,851

 

Operating income

 

192,606

 

169,705

 

Net loss

 

(203,307

)

(89,871

)

Net loss attributable to MGM Resorts International

 

(217,253

)

(89,871

)

 

Our results of operations for the three months ending March 31, 2012 include the results of MGM China which we began consolidating on June 3, 2011. Prior thereto, results of operations of MGM China were reflected under the equity method of accounting — see “Operating Results — Income (Loss) from Unconsolidated Affiliates.” MGM China’s net revenue for the three months ended March 31, 2012 was $702 million, operating income was $68 million and net income, including the $44 million complementary tax provision discussed further in “Non-operating Results,” was $21 million.

 

24



Table of Contents

 

Consolidated operating income benefited from improved performance at MGM China and our wholly owned domestic resorts, partially offset by an increase in our share of operating losses at CityCenter.

 

Corporate expense increased 16% to $42 million for the first quarter of 2012 as a result of expenses related to the outsourcing of information systems and additional legal, professional services and development costs associated with future development initiatives.  Depreciation and amortization in the first quarter of 2012 increased from 2011 primarily as a result of the consolidation of MGM China, which had $96 million of depreciation and amortization expense including amortization of intangible assets recognized in the acquisition.

 

Operating Results — Detailed Segment Information

 

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

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2012

 

2011

 

 

 

(In thousands)

 

Net revenues:

 

 

 

 

 

Wholly owned domestic resorts

 

$

1,479,598

 

$

1,406,430

 

MGM China

 

702,090

 

 

Reportable segment net revenues

 

2,181,688

 

1,406,430

 

Corporate and other

 

105,902

 

106,421

 

 

 

$

2,287,590

 

$

1,512,851

 

 

 

 

 

 

 

Adjusted EBITDA:

 

 

 

 

 

Wholly owned domestic resorts

 

$

320,972

 

$

299,962

 

MGM China

 

164,521

 

 

Reportable segment Adjusted Property EBITDA

 

485,493

 

299,962

 

Corporate and other

 

(55,161

)

22,231

 

 

 

$

430,332

 

$

322,193

 

 

See below for detailed discussion of segment results related to our wholly owned domestic operations and MGM China.  Corporate and other revenue includes revenues from MGM Hospitality and management operations and reimbursed revenue primarily related to our CityCenter management agreement. Adjusted EBITDA losses related to corporate and other increased as a result of additional losses at CityCenter and the increase in corporate expense discussed above.  In addition, the first quarter of 2011 included the results of MGM Macau as an equity method investment.

 

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

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

 

 

Percentage

 

 

 

 

 

2012

 

Change

 

2011

 

 

 

(In thousands)

 

Casino revenue, net:

 

 

 

 

 

 

 

Table games

 

$

206,462

 

12

%

$

184,808

 

Slots

 

417,354

 

7

%

388,546

 

Other

 

19,712

 

17

%

16,866

 

Casino revenue, net

 

643,528

 

9

%

590,220

 

Non-casino revenue:

 

 

 

 

 

 

 

Rooms

 

379,474

 

3

%

368,337

 

Food and beverage

 

353,126

 

6

%

334,271

 

Entertainment, retail and other

 

264,195

 

1

%

262,336

 

Non-casino revenue

 

996,795

 

3

%

964,944

 

 

 

1,640,323

 

5

%

1,555,164

 

Less: Promotional allowances

 

(160,725

)

8

%

(148,734

)

 

 

$

1,479,598

 

5

%

$

1,406,430

 

 

25



Table of Contents

 

Net revenue related to wholly owned domestic resorts increased 5% in the first quarter of 2012 driven by a 9% increase in casino revenue.  Table games revenue increased 12% for the first quarter of 2012.  Table games hold percentage was 18.7% in the current year quarter and 17.7% in the prior year quarter.  Total table games revenue also improved as a result of table games volume increasing 5% compared to the prior year quarter.  Slots revenue increased 7% in the first quarter with an 8% increase at our Las Vegas Strip resorts. Rooms revenue in the first quarter of 2012 increased 3%, with a 4% increase in Las Vegas Strip REVPAR.  The following table shows key hotel statistics for our Las Vegas Strip resorts:

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2012

 

2011

 

Occupancy

 

90

%

87

%

Average Daily Rate (ADR)

 

$

131

 

$

130

 

Revenue per Available Room (REVPAR)

 

117

 

112

 

 

Adjusted Property EBITDA for wholly owned domestic resorts increased 7% compared to the first quarter of 2011, led by a 31% increase in Adjusted Property EBITDA at Bellagio.

 

MGM China.  Net revenue for MGM China was $702 million for the three months ending March 31, 2012.  Operating income was $68 million and Adjusted Property EBITDA was $165 million for the same period. As previously discussed, prior to June 3, 2011, MGM Macau was recorded as an equity method investment.  In the three months ended March 31, 2011, MGM Macau earned operating income of $126 million which included $20 million of depreciation and amortization expense. MGM Macau had year-over-year increases in volume measures for VIP table games, main floor table games, and slots of 6%, 13% and 27%, respectively. VIP table games hold percentage was 3.2% in the current year quarter and 2.9% in the prior year quarter.

 

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,

 

 

 

2012

 

2011

 

 

 

(In thousands)

 

CityCenter

 

$

(18,573

)

$

(5,823

)

MGM Macau

 

 

61,680

 

Other

 

5,264

 

7,486

 

 

 

$

(13,309

)

$

63,343

 

 

We ceased recording MGM Macau operating results as income from unconsolidated affiliates under the equity method of accounting in June 2011; our share of operating income for MGM Macau for the 2011 three month period accounted for under the equity method was $62 million.

 

Our share of losses from CityCenter increased in the first quarter of 2012 driven by higher operating losses at Aria.  Aria’s operating results were negatively affected by a table games hold percentage which was significantly below the low end of its normal range in the first quarter of 2012 and above the high end of its normal range in the prior year quarter.  Table games hold percentage was 16.0% in the current year quarter compared to 27.4% in the prior year quarter.

 

Non-operating Results

 

Interest expense.  Interest expense increased to $284 million in the first quarter of 2012 compared to $270 million in the prior year quarter.  Interest expense increased as a result of $6 million of interest expense for MGM China as well as a higher average debt outstanding during the current year quarter.  We had minimal capitalized interest in the first quarter of 2012 and no capitalized interest in the first quarter of 2011.

 

Non-operating items from unconsolidated affiliates. Non-operating loss from unconsolidated affiliates decreased for the three months ended March 31, 2012 primarily due to a decrease in our share of non-operating items related to CityCenter which included $4 million and $12 million for certain costs incurred to restructure its debt and the write-off of debt issuance costs in 2012 and 2011, respectively. In addition, MGM Macau ceased to be recorded as an equity method investment beginning in June 2011.

 

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Other, net.  In connection with the amendment of our senior credit facility as further discussed in “Principal Debt Arrangements” and subsequent repayment of the non-extending loans, we recorded a loss on early retirement of debt of $59 million related to previously recorded discounts and certain debt issuance costs.

 

Income taxes.  We began recording a valuation allowance for U.S. deferred tax assets generated in the current year resulting in additional tax provision of $112 million for the three months ended March 31, 2012.  In addition, we recorded a tax provision of $44 million related to complementary tax that will be due on the first quarter 2012 MGM China dividend if an anticipated annual fee arrangement with the Macanese government is not in place prior to June 30, 2013.

 

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 Property 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 industry, and 2) a principal basis for valuation of gaming 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 dependent 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 and 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 our operating resorts’ performance.

 

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 loss:

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2012

 

2011

 

 

 

(In thousands)

 

Adjusted EBITDA

 

$

430,332

 

$

322,193

 

Property transactions, net

 

(917

)

(91

)

Depreciation and amortization

 

(236,809

)

(152,397

)

Operating income

 

192,606

 

169,705

 

 

 

 

 

 

 

Non-operating income (expense)

 

 

 

 

 

Interest expense

 

(284,342

)

(269,914

)

Other, net

 

(84,442

)

(44,245

)

 

 

 

 

 

 

Loss before income taxes

 

(176,178

)

(144,454

)

Benefit (provision) for income taxes

 

(27,129

)

54,583

 

Net loss

 

(203,307

)

(89,871

)

Less: Net income attributable to noncontrolling interests

 

(13,946

)

 

Net loss attributable to MGM Resorts International

 

$

(217,253

)

$

(89,871

)

 

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

 

 

 

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

 

 

 

 

Three Months Ended March 31, 2011

 

 

 

 

 

Preopening

 

Property

 

Depreciation

 

 

 

 

 

Operating

 

and Start-up

 

Transactions,

 

and

 

Adjusted

 

 

 

Income (Loss)

 

Expenses

 

Net

 

Amortization

 

EBITDA

 

 

 

(In thousands)

 

Bellagio

 

$

28,814

 

$

 

$

 

$

25,087

 

$

53,901

 

MGM Grand Las Vegas

 

17,568

 

 

 

19,300

 

36,868

 

Mandalay Bay

 

14,242

 

 

 

22,202

 

36,444

 

The Mirage

 

18,020

 

 

28

 

14,351

 

32,399

 

Luxor

 

10,475

 

 

 

9,639

 

20,114

 

New York-New York

 

15,283

 

 

(85

)

5,930

 

21,128

 

Excalibur

 

10,948

 

 

 

5,194

 

16,142

 

Monte Carlo

 

7,965

 

 

 

5,795

 

13,760

 

Circus Circus Las Vegas

 

(144

)

 

 

4,717

 

4,573

 

MGM Grand Detroit

 

33,690

 

 

103

 

9,740

 

43,533

 

Beau Rivage

 

1,933

 

 

39

 

11,164

 

13,136

 

Gold Strike Tunica

 

6,008

 

 

 

3,440

 

9,448

 

Other resort operations

 

(2,732

)

 

(7

)

1,255

 

(1,484

)

Wholly owned domestic resorts

 

162,070

 

 

78

 

137,814

 

299,962

 

MGM Macau (50%)

 

61,680

 

 

 

 

61,680

 

CityCenter (50%)

 

(5,823

)

 

 

 

(5,823

)

Other unconsolidated resorts

 

7,486

 

 

 

 

7,486

 

Management and other operations

 

(2,993

)

 

 

3,602

 

609

 

 

 

222,420

 

 

78

 

141,416

 

363,914

 

Stock compensation

 

(9,210

)

 

 

 

(9,210

)

Corporate

 

(43,505

)

 

13

 

10,981

 

(32,511

)

 

 

$

169,705

 

$

 

$

91

 

$

152,397

 

$

322,193

 

 

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Table of Contents

 

Liquidity and Capital Resources

 

Cash Flows

 

Our consolidated cash flows include the results of MGM China beginning on June 3, 2011. At March 31, 2012, we held cash and cash equivalents of $1.6 billion, of which $575 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 the timing of significant tax payments or refunds and distributions from unconsolidated affiliates. Cash provided by operating activities was $292 million for the three months ended March 31, 2012, compared to cash provided by operating activities of $24 million in the prior year.  MGM China operating cash flows for the first quarter of 2012 were $263 million.

 

Investing activities. We had capital expenditures of $114 million in the 2012 first quarter, 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.  Most of the costs capitalized related to furniture and fixtures, materials, and external labor costs.  We had capital expenditures of $34 million in the 2011 first quarter related mainly to capital expenditures at various resorts, including room and restaurant remodels, theater renovations, and a remodel of the high limit slots area at Bellagio.

 

Our capital expenditures fluctuate from year to year depending on our decisions with respect to strategic capital investments in new or existing resorts and the timing of more regular 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.  In accordance with our senior credit facility covenants, we and our restricted subsidiaries are limited to $500 million of annual capital expenditures (as defined in the agreement governing our senior credit facility) in 2012 and currently expect to spend approximately $360 million on capital expenditures in 2012 which includes expenditures for room remodels, theater renovations, an aircraft, information technology and slot machine purchases.

 

In the first quarter of 2012, we made investments and advances of $13 million to CityCenter pursuant to the completion guarantee. In the first quarter of 2011, we made investments and advances of $77 million to CityCenter, of which $37 million related to a required equity contribution in connection with CityCenter’s first quarter 2011 financing transactions and $40 million related to payments made pursuant to our completion guarantee.

 

During the first quarter of 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.  In the first quarter of 2011, 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.

 

Financing activities.  We repaid $2.0 billion under our senior credit facility for the three months ended March 31, 2012.  During the first quarter of 2012, we issued $850 million of 8.625% senior notes due 2019 for net proceeds of $836 million which were used to repay a portion of the indebtedness under our revolving credit facility until such time as we identify the specific items of indebtedness that will be repaid and issued $1.0 billion of 7.75% senior notes due 2022 for net proceeds of $986 million, which were used to repay outstanding term loan indebtedness under our senior credit facility.  MGM China paid a $400 million dividend in March 2012, of which approximately $204 million remained within the consolidated entity and approximately $196 million was distributed to noncontrolling interests.  In the first quarter of 2011, we repaid the $325 million outstanding principal amount of our 8.375% senior subordinated notes at maturity.

 

Other Factors Affecting Liquidity

 

CityCenter completion guarantee.  In January 2011, we entered into an amended completion and cost overrun guarantee in connection with CityCenter’s restated senior credit facility agreement and issuance of $1.5 billion of senior secured first lien notes and senior secured second lien PIK toggle notes.  Consistent with the previous completion guarantee, the terms of the amended completion guarantee provide for the application of the then remaining $124 million of net residential proceeds from sales of condominium properties at CityCenter to fund construction costs, or to reimburse us for construction costs previously expended; however, the timing of receipt of such proceeds is uncertain.

 

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As of March 31, 2012, we had funded $658 million under the completion guarantee. We have recorded a receivable from CityCenter of $107 million related to these amounts, which represents amounts reimbursable to us from CityCenter from future residential proceeds. We had a remaining estimated net obligation under the completion guarantee of $16 million which includes estimated litigation costs for the resolution of disputes with contractors as to the final construction costs and estimated amounts to be paid to contractors related to the Perini litigation.  Our accrual also reflects certain estimated offsets to the amounts claimed by the contractors.  CityCenter has reached, or expects to reach, settlement agreements with most of the construction subcontractors.  However, significant disputes remain with the general contractor and certain subcontractors.  Amounts claimed by such parties exceed amounts included in our completion guarantee accrual by approximately $185 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 (the “Harmon”), which is unlikely to be completed using the building as it now stands.  See Note 6 in the accompanying financial statements for discussion of the status of the Harmon.

 

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, that are subject to change.  CityCenter’s restated senior credit facility provides that certain demolition expenses may be funded only by equity contributions from the members of the CityCenter venture or certain specified extraordinary receipts (which include any proceeds from the Perini litigation).  Based on current estimates, which are subject to change, we believe the demolition of the Harmon would cost approximately $31 million.

 

Principal Debt Arrangements

 

Our senior credit facility was amended and restated in February 2012, and loans and revolving commitments aggregating approximately $1.8 billion (the “extending loans”) were extended to February 2015. In accordance with the amendment, we repaid $409 million of outstanding loans to extending lenders. In March 2012, an additional $24 million in term loans were extended and we repaid the remaining non-extending term loans with the proceeds from our $1.0 billion notes senior offering. At March 31, 2012, the senior credit facility consisted of approximately $820 million in term loans and a $1.3 billion revolver ($360 million of which has not been extended and matures in February 2014).

 

As of December 31, 2011, interest on the senior credit facility was based on a LIBOR margin of 5.00%, with a LIBOR floor of 2.00%, and a base rate margin of 4.00%, with a base rate floor of 4.00%. The non-extended revolving loans continue to be subject to this pricing. Interest on the extending loans is subject to a LIBOR floor of 1% and a pricing grid based upon collateral coverage levels. The interest rate on extending loans was 6% at March 31, 2012 and has subsequently reduced to 5%. Interest on non-extending revolving loans remains at 7%. The weighted average interest rate on outstanding borrowings under the senior credit facility at March 31, 2012 and December 31, 2011 was 6.1% and 7.0%, respectively.

 

The senior credit facility allows us to refinance indebtedness maturing prior to February 23, 2015 but limits our ability to prepay later maturing indebtedness until the extended facilities are paid in full. We may issue unsecured debt, equity-linked and equity securities to refinance our outstanding indebtedness; however, we are required to use net proceeds from certain indebtedness issued in amounts in excess of $250 million (excluding amounts used to refinance indebtedness) to ratably prepay the credit facilities in an amount equal to 50% of the net cash proceeds of such excess. We are no longer required to use net proceeds from equity offerings to prepay the senior credit facility in connection with the restatement of the senior credit facility. In addition, we agreed to deliver a mortgage, limited in amount to comply with the indenture restrictions, encumbering the Beau Rivage.  We delivered the mortgage in March 2012. Upon the issuance of the mortgage, the holders of our 13% senior secured notes due 2013 obtained an equal and ratable lien in the collateral. Substantially all of the assets of MGM Grand Detroit serve as collateral to secure the $450 million obligation outstanding as a co-borrower under our senior credit facility. In addition, substantially all of the assets of Gold Strike Tunica, substantially all of the assets of Beau Rivage and certain land across from the Luxor serve as collateral to secure up to $578 million of obligations outstanding under the senior credit facility.

 

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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, 2011. There have been no significant changes in our critical accounting policies and estimates since year end.

 

Impairment of long-lived assets. At March 31, 2012, 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, 2012. Historically, the undiscounted cash flows of our significant long-lived assets 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.

 

As of March 31, 2012, variable rate borrowings represented approximately 14% of our total borrowings.  Assuming a 100 basis-point increase in our interest rate on loans outstanding under our senior credit facility (primarily based on LIBOR plus applicable margins subject to certain LIBOR floors) our annual interest cost would increase by approximately $13 million based on gross amounts outstanding at March 31, 2012. Assuming a 100 basis-point increase in the interest rate on loans outstanding under the MGM Grand Paradise credit facility (primarily based on HIBOR plus applicable margins), our annual interest cost would change by approximately $6 million based on amounts outstanding at March 31, 2012.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value

 

 

 

Debt maturing in,

 

March 31,

 

 

 

2012

 

2013

 

2014

 

2015

 

2016

 

Thereafter

 

Total

 

2012

 

 

 

(In millions)

 

Fixed rate

 

$

535

 

$

1,362

 

$

1,159

 

$

2,325

 

$

1,476

 

$

4,768

 

$

11,625

 

$

12,477

 

Average interest rate

 

6.7

%

10.3

%

8.4

%

5.1

%

8.2

%

9.1

%

8.1

%

 

 

Variable rate

 

$

28

 

$

83

 

$

1,051

 

$

661

 

$

 

$

 

$

1,823

 

$

1,785

 

Average interest rate

 

3.2

%

3.2

%

5.8

%

4.6

%

N/A

 

N/A

 

5.2

%

 

 

 

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 Section 21E of the Exchange Act.  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, potential economic recoveries, amounts we will invest in capital expenditures, the opening of strategic resort developments and amounts we will pay under the CityCenter completion guarantee.  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;

·                  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 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;

·                  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;

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

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

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

·                  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 our insurance coverage may not be adequate to cover all possible losses that our properties could suffer. In addition, 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;

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

·                  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 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;

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

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

·                  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;

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

 

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·                  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.

 

Any forward-looking statement made by us in this Form 10-Q speaks only as of the date on which it is made.  Other 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 or identify all such factors.  Consequently, you should not consider the following to be a complete discussion of all potential risks or uncertainties. 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.  You are advised, however, to consult any further disclosures we make on related subjects in our Forms 10-K, 10-Q and 8-K reports and our other filings with the Securities and Exchange Commission.  This discussion is provided as permitted by the Private Securities Litigation Reform Act of 1995.

 

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, 2012 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.

 

Except as noted below, during the quarter ended March 31, 2012, 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.

 

In making our assessment of changes in internal control over financial reporting as of March 31, 2012, we have excluded the MGM China operations because these operations were acquired in a business combination on June 3, 2011. These operations represent approximately 32% of our total assets at March 31, 2012 and approximately 31% of our total net revenues for the quarter ended March 31, 2012. We intend to disclose any material changes in internal control over financial reporting with respect to the MGM China operations in the 2012 annual assessment of internal control over financial reporting.

 

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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, 2011.  There have been no significant developments in any of the cases disclosed in our Form 10-K in the three months ended March 31, 2012, except as follows:

 

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 asserts that CityCenter was substantially completed, but the defendants failed to pay Perini approximately $490 million allegedly due and owing under the construction agreement for labor, equipment and materials expended on CityCenter. The complaint further charges 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 advances 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”), adds a count for foreclosure of Perini’s recorded master mechanic’s lien against the CityCenter property in the amount of approximately $491 million, and asserts 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 December 2010, Perini recorded an amended notice of lien reducing its lien to approximately $313 million.  Because of settlements with subcontractors, CityCenter believes it is entitled to a further lien reduction of approximately $133 million (for a revised lien amount of $186 million, including certain liens not related to Perini’s lien) once the Company has provided the court and Perini with the required information.

 

The court has set a new trial date of March 12, 2013 for the consolidated action involving Perini, the remaining Perini subcontractors and any related third parties, and CityCenter’s counterclaim against Perini and other parties for defective construction of the Harmon, and also amended other significant pre-trial dates.  Discovery is in process.  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 refer to Note 6 in the accompanying consolidated financial statements 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.

 

Securities and derivative litigation.  In re MGM MIRAGE Securities Litigation, Case No. 2:09-cv-01558-GMN-LRL.  In November 2009, the U.S. District Court for Nevada consolidated the Robert Lowinger v. MGM MIRAGE, et al. (Case No. 2:09-cv-01558-RCL-LRL, filed August 19, 2009) and Khachatur Hovhannisyan v. MGM MIRAGE, et al. (Case No. 2:09-cv-02011-LRH-RJJ, filed October 19, 2009) putative class actions under the caption “In re MGM MIRAGE Securities Litigation.”  On March 27, 2012, the court

 

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issued an order which granted the defendant’s motion to dismiss plaintiffs’ consolidated complaint without prejudice, and allowed plaintiffs an opportunity to file an amended complaint.  On April 17, 2012 plaintiffs filed an amended complaint which substantially repeats but reorganizes their substantive allegations and asserts the same claims as raised in the original complaint.  Defendants will continue to vigorously defend against plaintiffs’ claims and intend to file a motion to dismiss the amended complaint.

 

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, 2011.  There have been no material changes to those factors for the three months ended March 31, 2012.

 

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, 2012. The maximum number of shares available for repurchase under our May 2008 repurchase program was 20 million as of March 31, 2012.

 

Item 5.            Other Information

 

We adopted the June 2011 Financial Accounting Standards Board guidance on the presentation of comprehensive income in financial statements as of January 1, 2012. As a result, beginning with the period ended March 31, 2012 we present net income and other comprehensive income in two separate statements in our consolidated financial statements. The table below reflects the retrospective application of this guidance for each of the three years ended December 31, 2011, 2010 and 2009. The retrospective application did not have a material impact on our financial condition or results of operations.

 

MGM RESORTS INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

(Unaudited)

 

 

 

Year Ended December 31,

 

 

 

2011

 

2010

 

2009

 

Net income (loss)

 

$

3,234,944

 

$

(1,437,397

)

$

(1,291,682

)

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

11,692

 

1,706

 

532

 

Reclass M Resort convertible note valuation adjustment to current earnings

 

 

 

54,267

 

Other

 

(37

)

(70

)

165

 

Other comprehensive income

 

11,655

 

1,636

 

54,964

 

Comprehensive income (loss) attributable to

 

3,246,599

 

(1,435,761

)

(1,236,718

)

Less: comprehensive income attributable to noncontrolling interests

 

(125,683

)

 

 

Comprehensive income (loss) attributable to MGM Resorts International

 

$

3,120,916

 

$

(1,435,761

)

$

(1,236,718

)

 

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Table of Contents

 

MGM RESORTS INTERNATIONAL AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME INFORMATION

(In thousands)

(Unaudited)

 

 

 

Year Ended December 31,

 

 

 

 

 

 

 

Non-

 

 

 

 

 

 

 

 

 

Guarantor

 

Guarantor

 

 

 

 

 

 

 

Parent

 

Subsidiaries

 

Subsidiaries

 

Elimination

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

2011 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

3,114,637

 

$

3,908,657

 

$

3,904,732

 

$

(7,693,082

)

$

3,234,944

 

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

 

11,692

 

 

11,692

 

Other

 

 

(37

)

 

 

(37

)

Other comprehensive income

 

 

(37

)

11,692

 

 

11,655

 

Comprehensive income (loss)

 

3,114,637

 

3,908,620

 

3,916,424

 

(7,693,082

)

3,246,599

 

Less: comprehensive income attributable to noncontrolling interests

 

 

 

(125,683

)

 

(125,683

)

Comprehensive income (loss) attributable to MGM Resorts International

 

$

3,114,637

 

$

3,908,620

 

$

3,790,741

 

$

(7,693,082

)

$

3,120,916

 

 

 

 

 

 

 

 

 

 

 

 

 

2010 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(1,437,397

)

$

(1,283,524

)

$

166,512

 

$

1,117,012

 

$

(1,437,397

)

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

 

1,706

 

 

1,706

 

Other

 

 

(70

)

 

 

(70

)

Other comprehensive income

 

 

(70

)

1,706

 

 

1,636

 

Comprehensive income (loss)

 

(1,437,397

)

(1,283,594

)

168,218

 

1,117,012

 

(1,435,761

)

Less: comprehensive income attributable to noncontrolling interests

 

 

 

 

 

 

Comprehensive income (loss) attributable to MGM Resorts International

 

$

(1,437,397

)

$

(1,283,594

)

$

168,218

 

$

1,117,012

 

$

(1,435,761

)

 

 

 

 

 

 

 

 

 

 

 

 

2009 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(1,291,682

)

$

(838,442

)

$

69,449

 

$

768,993

 

$

(1,291,682

)

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

 

532

 

 

532

 

Other

 

54,267

 

165

 

 

 

54,432

 

Other comprehensive income

 

54,267

 

165

 

532

 

 

54,964

 

Comprehensive income (loss)

 

(1,237,415

)

(838,277

)

69,981

 

768,993

 

(1,236,718

)

Less: comprehensive income attributable to noncontrolling intersts

 

 

 

 

 

 

Comprehensive income (loss) attributable to MGM Resorts International

 

$

(1,237,415

)

$

(838,277

)

$

69,981

 

$

768,993

 

$

(1,236,718

)

 

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Item 6.            Exhibits

 

4.1

 

Indenture, dated as of January 17, 2012, among MGM Resorts International, the guarantors named therein and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on January 17, 2012).

 

 

 

4.2

 

Registration Rights Agreement, dated as of January 17, 2012, among MGM Resorts International, the guarantors named therein, Barclays Capital Inc. and the initial purchasers named therein (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on January 17, 2012).

 

 

 

4.3

 

Indenture, dated March 22, 2012, between MGM Resorts International and U.S. Bank National Association, as trustee. (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on March 22, 2012).

 

 

 

4.4

 

First Supplemental Indenture, dated March 22, 2012, among MGM Resorts International, the guarantors named therein and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on March 22, 2012).

 

 

 

10.1

 

Employment Agreement, executed as of January 30, 2012, by and between Daniel D’Arrigo and MGM Resorts International (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February 2, 2012).

 

 

 

10.2

 

Amendment No. 1 and Restatement Agreement, dated February 24, 2012, to the Sixth Amended and Restated Loan Agreement dated as of March 16, 2010, by and among MGM Resorts International, as borrower, MGM Grand Detroit, LLC, as initial co-borrower, the Lenders named therein, and Bank of America, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February 27, 2012).

 

 

 

10.3

 

Seventh Amended and Restated Loan Agreement, dated as of February 24, 2012, among MGM Resorts International, as borrower, MGM Grand Detroit, LLC, as initial co-borrower, the Lenders named therein and Bank of America, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on February 27, 2012).

 

 

 

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, 2012 formatted in eXtensible Business Reporting Language: (i) Consolidated Balance Sheets at March 31, 2012 (unaudited) and December 31, 2011 (audited); (ii) Unaudited Statements of Operations for the three months ended December 31, 2012 and 2011; (iii) Unaudited Statements of Comprehensive Income (Loss) (iv) Unaudited Statements of Cash Flows for the three months ended March 31, 2012 and 2011; and (v) Notes to the Unaudited Consolidated Financial Statements.

 


* This exhibit is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

 

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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 7, 2012

By:

/s/ JAMES J. MURREN

 

 

James J. Murren

 

 

Chairman of the Board, Chief Executive Officer and President

 

 

(Principal Executive Officer)

 

 

 

 

 

 

Date: May 7, 2012

 

/s/ DANIEL J. D’ARRIGO

 

 

Daniel J. D’Arrigo

 

 

Executive Vice President, Chief Financial Officer and Treasurer

 

 

(Principal Financial Officer)

 

38