mgm-10k_20181231.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

 

FORM 10-K

 

(Mark One)

[X]

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

 

For the fiscal year ended December 31, 2018

 

OR

 

[  ]

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

 

For the transition period from                      to                     

 

Commission File No. 001-10362

 

 

MGM Resorts International

(Exact name of Registrant as specified in its charter)

 

DELAWARE

 

88-0215232

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer
Identification Number)

 

 

3600 Las Vegas Boulevard South - Las Vegas, Nevada  89109

(Address of principal executive office)                                             (Zip Code)

 

(702) 693-7120

(Registrant’s telephone number, including area code)

 

 

Securities registered pursuant to Section 12(b) of the Act:

 

 

Title of each class

 

 

 

Name of each exchange
on which registered

 

 

Common Stock, $0.01 Par Value

 

 

 

New York Stock Exchange

 

 

Securities registered pursuant to Section 12(g) of the Act:

 

None

 

 

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes   X      No          

 

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.     Yes            No   X  

 

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

 

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).     Yes    X      No         

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) is not contained herein, and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K:         

 

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

 

    Large accelerated filer   X  

 

Accelerated filer        

 

Non-accelerated filer        

  

Smaller reporting company          Emerging Growth Company___

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.        ___

 

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

 

The aggregate market value of the Registrant’s Common Stock held by non-affiliates of the Registrant as of June 30, 2018 (based on the closing price on the New York Stock Exchange Composite Tape on June 30, 2018) was $15.6 billion.  As of February 22, 2019, 536,916,609 shares of Registrant’s Common Stock, $0.01 par value, were outstanding.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

Portions of the Registrant’s definitive Proxy Statement for its 2018 Annual Meeting of Stockholders are incorporated by reference into Part III of this Form 10-K.

 

 

 

 


 

 


TABLE OF CONTENTS

 

 

Page

PART I

Item 1.

Business

1

Item 1A.

Risk Factors

11

Item 1B.

Unresolved Staff Comments

24

Item 2.

Properties

25

Item 3.

Legal Proceedings

26

Item 4.

Mine Safety Disclosures

26

PART II

Item 5.

Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

27

Item 6.

Selected Financial Data

29

Item 7.

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

31

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

51

Item 8.

Financial Statements and Supplementary Data

52

 

Consolidated Financial Statements

55

 

Notes to Consolidated Financial Statements

60

 

Schedule II – Valuation and Qualifying Accounts

101

Item 9.

Changes In and Disagreements with Accountants on Accounting and Financial Disclosure

102

Item 9A.

Controls and Procedures

102

Item 9B.

Other Information

103

PART III

Item 10.

Directors, Executive Officers and Corporate Governance

103

Item 11.

Executive Compensation

103

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

103

Item 13.

Certain Relationships and Related Transactions, and Director Independence

103

Item 14.

Principal Accounting Fees and Services

103

PART IV

Item 15.

Exhibits, Financial Statements Schedules

104

Item 16.

Form 10-K Summary

110

 

Signatures

111

 


 

 


 

PART I

 

ITEM 1.

BUSINESS

 

MGM Resorts International is referred to as the “Company,” “MGM Resorts,” or the “Registrant,” and together with its subsidiaries may also be referred to as “we,” “us” or “our.” MGM China Holdings Limited together with its subsidiaries is referred to as “MGM China.” Except where the context indicates otherwise, “MGP” refers to MGM Growth Properties LLC together with its consolidated subsidiaries.

 

Overview

 

MGM Resorts International is a Delaware corporation incorporated in 1986 that acts largely as a holding company and, through subsidiaries, owns and operates integrated casino, hotel, and entertainment resorts across the United States and in Macau.

 

MGM Growth Properties LLC (“MGP”), a consolidated subsidiary of the Company which completed its initial public offering in April 2016, is organized as an umbrella partnership REIT (commonly referred to as an UPREIT) structure in which substantially all of its assets are owned by and substantially all of its businesses are conducted through MGM Growth Properties Operating Partnership LP (the “Operating Partnership”). Pursuant to a master lease agreement between a subsidiary of the Company (the “tenant”) and a subsidiary of the Operating Partnership (the “landlord”), the tenant leases the real estate assets of The Mirage, Mandalay Bay, Luxor, New York-New York, Park MGM (which was branded as Monte Carlo prior to May 2018), Excalibur, The Park, Gold Strike Tunica, MGM Grand Detroit, Beau Rivage, Borgata, and MGM National Harbor from the landlord. See Note 1 in the accompanying consolidated financial statements for information regarding MGP and the Operating Partnership, which we consolidate in our financial statements, and Note 17 in the accompanying consolidated financial statements for information regarding the master lease with MGP.

 

We believe we own or invest in several of the finest casino resorts in the world and we continually reinvest in our resorts to maintain our competitive advantage. We make significant investments in our resorts through newly remodeled hotel rooms, restaurants, entertainment and nightlife offerings, as well as other new features and amenities. We believe we operate the highest quality resorts in each of the markets in which we operate. Ensuring our resorts are the premier resorts in their respective markets requires capital investments to maintain the best possible experiences for our guests.

 

Business Developments

 

In August 2016, we completed the acquisition of Boyd Gaming Corporation’s (“Boyd Gaming”) ownership interest in Borgata, at which time Borgata became a consolidated subsidiary of ours. Subsequently, MGP acquired Borgata’s real property from us.  In December 2016, we opened MGM National Harbor and, in October 2017, MGP also acquired the long-term leasehold interest and real property associated with MGM National Harbor from us.

 

In February 2018, we opened MGM Cotai, an integrated casino, hotel and entertainment resort on the Cotai Strip in Macau, and in August 2018, we opened MGM Springfield in Springfield, Massachusetts.

 

In July 2018, MGP completed its previously announced acquisition of the membership interests of Northfield Park Associates, LLC (“Northfield”), an Ohio limited liability company that owns the real estate assets and operations of the Hard Rock Rocksino Northfield Park from Milstein Entertainment LLC for a purchase price of approximately $1.1 billion (“Northfield Acquisition”). Simultaneously with the close of the transaction, MGP entered into a new agreement with an affiliate of Hard Rock Café International (STP), Inc. to continue to serve as the manager of the property.

 

In September 2018, we entered into an agreement with MGP to acquire all of the operating assets of Northfield (“Northfield OpCo”) from MGP for approximately $275 million, subject to customary purchase price adjustments. Northfield will be added to the existing master lease between us and MGP. The transaction is expected to close in the first half of 2019, subject to customary closing conditions.

 

In December 2018, we entered into an agreement with MGP whereby MGP will pay us consideration of approximately $638 million for renovations undertaken by us regarding the Park MGM and NoMad Las Vegas property (the “Park MGM Lease Transaction”). Additionally, at closing, the parties will enter into an amendment to the existing master lease. The transaction is expected to close in the first quarter of 2019 and is subject to customary closing conditions.

 

In January 2019, we completed our previously announced acquisition of the real property and operations associated with Empire City Casino's race track and casino ("Empire City") for consideration of approximately $864 million, subject to customary working capital and other adjustments. Subsequently, MGP acquired Empire City’s real property from us for fair value of consideration of

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approximately $634 million. In connection with this transaction, we entered into an amendment to the existing master lease for our subsidiary to lease back the real estate assets of Empire City from the landlord. In addition, pursuant to the master lease amendment, we agreed to provide MGP a right of first offer with respect to certain undeveloped land adjacent to the property to the extent that we develop additional gaming facilities and choose to sell or transfer such property in the future.

 

Resort Operations

 

General

 

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 fund capital expenditures, provide excess cash flow for future development, acquisitions or investments, and repay debt financings.

 

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 conventions, the amount and timing of marketing and special events for our high-end gaming customers, and the level of play during major holidays, including New Year and Lunar New Year. While our results do not depend on key individual customers, a significant portion of our operating income is generated from high-end gaming customers, which can cause variability in our results. In addition, our success in marketing to customer groups such as convention customers and the financial health of customer segments such as business travelers or high-end gaming customers from a specific country or region can affect our results.

 

All of our casino resorts operate 24 hours a day, every day of the year, with the exception of our newly acquired Empire City Casino which operates 20 hours a day, every day of the year. At our domestic resorts, our primary casino and hotel operations are owned and managed by us. Other resort amenities may be owned and operated by us, owned by us but managed by third parties for a fee, or leased to third parties. We utilize third-party management for specific expertise in operations of restaurants and nightclubs. We lease space to retail and food and beverage operators, particularly for branding opportunities.

 

Las Vegas Strip Resorts and Regional Operations

Las Vegas Strip Resorts. At December 31, 2018, our Las Vegas Strip Resorts consisted of the following casino resorts: Bellagio, MGM Grand Las Vegas (including The Signature), Mandalay Bay (including Delano and Four Seasons), The Mirage, Luxor, New York-New York (including the Park), Excalibur, Park MGM (including NoMad Las Vegas) and Circus Circus Las Vegas.

Regional Operations. At December 31, 2018, our Regional Operations consisted of the following casino resorts: MGM Grand Detroit in Detroit, Michigan; Beau Rivage in Biloxi, Mississippi; Gold Strike Tunica in Tunica, Mississippi; Borgata in Atlantic City, New Jersey; MGM National Harbor in Prince George’s County, Maryland; and MGM Springfield in Springfield, Massachusetts.

 

Over half of the net revenue from our domestic resorts is derived from non-gaming operations, including hotel, food and beverage, entertainment and other non-gaming amenities. We market to different customers and utilize our significant convention and meeting facilities to allow us to maximize hotel occupancy and customer volumes 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.

 

Our casino operations feature a variety of slots, table games, and race and sports book wagering. In addition, we offer our premium players access to high-limit rooms and lounge experiences where players may enjoy an upscale atmosphere.

 

MGM China

 

We own approximately 56% of MGM China, which owns MGM Grand Paradise, S.A. (“MGM Grand Paradise”), the Macau company that owns and operates the MGM Macau and MGM Cotai casino resorts and the related gaming subconcession and land concessions. We believe our ownership interest in MGM China plays an important role in extending our reach internationally and will foster future growth and profitability. Macau is the world’s largest gaming destination in terms of revenue and we expect future growth in the Asian gaming market to drive additional visitation at MGM Macau and MGM Cotai.

 

Our current MGM China operations relate to MGM Macau and MGM Cotai, discussed further below. MGM China’s revenues are generated primarily from gaming operations which are conducted under a gaming subconcession held by MGM Grand Paradise. The Macau government has granted three gaming concessions and each of these concessionaires has granted a subconcession. The MGM Grand Paradise gaming subconcession was granted by Sociedade de Jogos de Macau, S.A., and expires in 2020. The Macau government currently prohibits additional concessions and subconcessions, but does not place a limit on the number of casinos or

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gaming areas operated by the concessionaires and subconcessionaires, though additional casinos require government approval prior to commencing operations.

 

Corporate and Other

 

We have additional business activities including our investments in unconsolidated affiliates, and certain other corporate and management operations, including MGP’s Northfield. CityCenter Holdings, LLC (“CityCenter”) is our most significant unconsolidated affiliate, which we also manage for a fee.

 

Our Operating Resorts

 

We have provided certain information below about our resorts as of December 31, 2018. Except as otherwise indicated, we own and operate the resorts shown below.

 

 

 

 

Number of

 

 

Approximate

 

 

 

 

 

 

 

 

 

 

 

Guestrooms

 

 

Casino Square

 

 

 

 

 

 

Gaming

 

Name and Location

 

and Suites

 

 

Footage (1)

 

 

Slots (2)

 

 

Tables (3)

 

Las Vegas Strip Resorts:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bellagio

 

 

3,933

 

 

 

155,000

 

 

 

1,707

 

 

 

147

 

MGM Grand Las Vegas (4)

 

 

6,131

 

 

 

160,000

 

 

 

1,570

 

 

 

127

 

Mandalay Bay (5)

 

 

4,750

 

 

 

152,000

 

 

 

1,213

 

 

 

71

 

The Mirage

 

 

3,044

 

 

 

94,000

 

 

 

1,189

 

 

 

82

 

Luxor

 

 

4,397

 

 

 

101,000

 

 

 

1,026

 

 

 

54

 

Excalibur

 

 

3,981

 

 

 

94,000

 

 

 

1,153

 

 

 

51

 

New York-New York

 

 

2,024

 

 

 

81,000

 

 

 

1,148

 

 

 

66

 

Park MGM (6)

 

 

2,898

 

 

 

66,000

 

 

 

842

 

 

 

56

 

Circus Circus Las Vegas

 

 

3,764

 

 

 

95,000

 

 

 

1,221

 

 

 

36

 

Subtotal

 

 

34,922

 

 

 

998,000

 

 

 

11,069

 

 

 

690

 

Regional Operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

MGM Grand Detroit (Detroit, Michigan) (7)

 

 

400

 

 

 

127,000

 

 

 

3,324

 

 

 

131

 

Beau Rivage (Biloxi, Mississippi)

 

 

1,740

 

 

 

81,000

 

 

 

1,784

 

 

 

81

 

Gold Strike (Tunica, Mississippi)

 

 

1,133

 

 

 

48,000

 

 

 

1,148

 

 

 

65

 

Borgata (Atlantic City, New Jersey)

 

 

2,767

 

 

 

160,000

 

 

 

2,825

 

 

 

183

 

MGM National Harbor (Prince George's County, Maryland) (8)

 

 

308

 

 

 

146,000

 

 

 

3,137

 

 

 

152

 

MGM Springfield (Springfield, Massachusetts) (9)

 

 

252

 

 

 

109,000

 

 

 

2,444

 

 

 

94

 

Subtotal

 

 

6,600

 

 

 

671,000

 

 

 

14,662

 

 

 

706

 

MGM China:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

MGM Macau 55.95% owned (Macau S.A.R.)

 

 

585

 

 

 

370,000

 

 

 

806

 

 

 

291

 

MGM Cotai – 55.95% owned (Macau S.A.R.)

 

 

1,362

 

 

 

298,000

 

 

 

1,218

 

 

 

236

 

Subtotal

 

 

1,947

 

 

 

668,000

 

 

 

2,024

 

 

 

527

 

Other Operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CityCenter 50% owned (Las Vegas, Nevada) (10)

 

 

5,499

 

 

 

139,000

 

 

 

1,533

 

 

 

126

 

Hard Rock Rocksino Northfield Park (Northfield, Ohio) (11)

 

 

 

 

 

65,000

 

 

 

2,299

 

 

 

 

Subtotal

 

 

5,499

 

 

 

204,000

 

 

 

3,832

 

 

 

126

 

Grand total

 

 

48,968

 

 

 

2,541,000

 

 

 

31,587

 

 

 

2,049

 

 

 

 

(1)

Casino square footage is approximate and includes the gaming floor, race and sports, high limit areas and casino specific walkways, and excludes casino cage and other non-gaming space within the casino area.

(2)

Includes slot machines, video poker machines and other electronic gaming devices.

(3)

Includes blackjack (“21”), baccarat, craps, roulette and other table games; does not include poker.

(4)

Includes 1,138 rooms at The Signature at MGM Grand Las Vegas.

(5)

Includes 1,117 rooms at the Delano and 424 rooms at the Four Seasons Hotel.

(6)

Includes 293 rooms at NoMad Las Vegas.

(7)

Our local investors have an ownership interest of approximately 3% of MGM Grand Detroit.

(8)

Our local investors have a non-voting economic interest in MGM National Harbor. Refer to Note 2 in the accompanying consolidated financial statements for further description of such interest.

(9)

Our local investor has a 1% ownership interest in MGM Springfield.

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(10)

Includes Aria with 4,004 rooms. Vdara includes 1,495 condo-hotel units, which are predominantly being utilized as company-owned hotel rooms. The other 50% of CityCenter is owned by Infinity World Development Corp.

(11)

Northfield is owned by MGP and managed by an affiliate of Hard Rock Café International (STP), Inc.

 

More detailed information about each of our operating resorts can be found in Exhibit 99.1 to this Annual Report on Form 10-K, which Exhibit is incorporated herein by reference.  

 

Customers and Competition

 

Our casino resorts operate in highly competitive environments. We compete against gaming companies, as well as other hospitality companies in the markets in which we operate, neighboring markets, and in other parts of the world, including non-gaming resort destinations such as Hawaii. Our gaming operations compete to a lesser extent with state-sponsored lotteries, off-track wagering, card parlors, online gambling and other forms of legalized gaming in the United States and internationally. For further discussion of the potential impact of competitive conditions on our business, see “Risk Factors — Risks Related to our Business.” We face significant competition with respect to destination travel locations generally and with respect to our peers in the industries in which we compete, and failure to compete effectively could materially adversely affect our business, financial condition, results of operations and cash flow.”

 

Our primary methods of successful competition include:

 

Locating our resorts in desirable leisure and business travel markets and operating at superior sites within those markets;

 

Constructing and maintaining high-quality resorts and facilities, including luxurious guestrooms, state-of-the-art convention facilities and premier dining, entertainment, retail and other amenities;

 

Recruiting, training and retaining well-qualified and motivated employees who provide superior customer service;

 

Providing unique, “must-see” entertainment attractions; and

 

Developing distinctive and memorable marketing, promotional and customer loyalty programs.

 

Las Vegas Strip Resorts and Regional Operations

 

Our customers include premium gaming customers; leisure and wholesale travel customers; business travelers, and group customers, including conventions, trade associations, and small meetings. We have a complete portfolio of resorts which appeal to the upper end of each market segment and also cater to leisure and value-oriented tour and travel customers. Many of our resorts have significant convention and meeting space which we utilize to drive business to our resorts during mid-week and off-peak periods.

 

Our Las Vegas casino resorts compete for customers with a large number of other hotel casinos in the Las Vegas area, including major hotel casinos on or near the Las Vegas Strip, major hotel casinos in the downtown area, which is about five miles from the center of the Las Vegas Strip, and several major hotel casinos elsewhere in the Las Vegas area. Our Las Vegas Strip Resorts also compete, in part, with each other. Major competitors, including new entrants, have either recently expanded their hotel room capacity or have plans to expand their capacity or construct new resorts in Las Vegas. Also, the growth of gaming in areas outside Las Vegas has increased the competition faced by our operations in Las Vegas.

 

Outside Nevada, our resorts primarily compete with other hotel casinos in their markets and for customers in surrounding regional gaming markets, where location is a critical factor to success. In addition, we compete with gaming operations in surrounding jurisdictions and other leisure destinations in each region.

 

MGM China

 

The three primary customer bases in the Macau gaming market are VIP casino gaming operations, main floor gaming operations and slot machine operations. VIP gaming play is sourced both internally and externally. Externally sourced VIP gaming play is obtained through external gaming promoters who offer VIP players various services, such as extension of credit as well as complimentary hotel, food and beverage services. Gaming promoters are compensated through payment of revenue-sharing arrangements and rolling chip turnover-based commissions. In-house VIP players also typically receive a commission based on the program in which they participate. Unlike gaming promoters and in-house VIP players, main floor players do not receive commissions. The profit contribution from the main floor segment exceeds the VIP segment due to commission costs paid to gaming promoters. Gaming revenues from the main gaming floors have grown significantly in recent years and we believe this customer base represents the most potential for sustainable growth in the future. To target premium main floor players in order to grow revenue and improve yield, we have introduced premium gaming lounges and stadium-style electronic table games terminals, which include both table games and slots, to the main floor gaming area. The amenities create a dedicated exclusive gaming space for the use of premium main floor players.  

VIP gaming at MGM China is conducted by the use of special purpose nonnegotiable gaming chips. Gaming promoters purchase these nonnegotiable chips and in turn they sell these chips to their players. The nonnegotiable chips allow us to track the

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amount of wagering conducted by each gaming promoters’ clients in order to determine VIP gaming play. Gaming promoter commissions are based on a percentage of the gross table games win or a percentage of the table games turnover they generate. They also receive a complimentary allowance based on a percentage of the table games turnover they generate, which can be applied to hotel rooms, food and beverage and other discretionary customers-related expenses. Gaming promoter commissions are recorded as a reduction of casino revenue. In-house VIP commissions are based on a percentage of rolling chip turnover and are recorded as a reduction of casino revenue.

 

Our key competitors in Macau include five other gaming concessionaires and subconcessionaires. If the Macau government were to grant additional concessions or subconcessions, we would face additional competition which could have a material adverse effect on our financial condition, results of operations or cash flows. Additionally, we face competition at our Macau and Cotai properties from concessionaires who have expanded their operations, primarily on the Cotai Strip.

 

We encounter competition from major gaming centers located in other areas of Asia and around the world, including Singapore, Korea, Australia, New Zealand, Malaysia, Vietnam, Cambodia, the Philippines, Russia, cruise ships in Asia that offer gaming and from unlicensed gaming operations in the region.

 

Marketing

 

Our marketing efforts are conducted through various means, including our loyalty programs. We advertise on radio, television, internet and billboards and in newspapers and magazines in selected cities throughout the United States and overseas, as well as by direct mail, email and through the use of social media. We also advertise through our regional marketing offices located in major U.S. and foreign cities. Our direct marketing efforts utilize advanced analytic techniques that identify customer preferences and help predict future customer behavior, allowing us to make more relevant offers to customers, influence incremental visits, and help build lasting customer relationships. 

 

M life Rewards, our customer loyalty program, is a tiered program and allows customers to qualify for benefits across our participating resorts and in both gaming and non-gaming areas, encouraging customers to keep their total spend within our casino resorts. We also offer the Golden Lion Club for gaming focused customers, in addition to M life Rewards, at MGM China. The structured rewards systems based on member value and tier level ensure that customers can progressively access the full range of services that the resorts provide. Our loyalty programs focus on building a rewarding relationship with our customers, encouraging members to increase both visitation and spend.

 

Strategy

 

We strive to be the recognized global leader in entertainment and hospitality, embracing innovation and diversity to inspire excellence. The quality of our resorts and amenities can be measured by our success in winning numerous awards, both domestic and globally, including several Four and Five Diamond designations from the American Automobile Association as well as multiple Four and Five Star designations from Forbes Travel Guide, as well as numerous certifications of our Corporate Social Responsibility efforts.

 

Our strategic objectives include:

 

Operational enhancements. Drive continuous improvements in operational performance to support enterprise-wide increases in revenue, market share, cash flow, and margins;

 

Financial strength. Accelerate financial performance through optimal capital structure and disciplined investment of cash flows;

 

Corporate social responsibility. Continue to solidify the Company’s reputation as a global leader in the principles of Corporate Social Responsibility;

 

Geographic expansion. Execute a targeted approach to domestic and international expansion to increase global brand presence; and

 

Business model innovation. Explore the evolution of the existing business model into new lines of business and key adjacencies.

 

Technology

 

Collectively we utilize various types of technology to maximize revenue, drive efficiency in our operations, and serve our customers more effectively. Information Technology continues to automate operations in an effort to control costs related to operations and implement leading edge solutions for all major lines of business. To aid this process, data and analytics are utilized to support making timely and accurate business decisions. A cloud first strategy is applied when possible to enable our technology solution delivery and speed to market. We are also focused on technology to enhance the guest experience. For example, our eCommerce platform provides our guests and business partners a premier digital experience where they have the ability to create an

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all-inclusive experience from accommodations to dining and entertainment with real time recommendations provided based on the preference.

 

Employees and Management

 

We believe that knowledgeable, friendly and dedicated employees are a primary success factor in the hospitality industry. Therefore, we invest heavily in recruiting, training, motivating and retaining exceptional employees, and we seek to hire and promote the strongest management team possible. We have numerous programs, both at the corporate and business unit level, designed to achieve these objectives. We believe our internal development programs, such as the MGM Resorts University and various leadership and management training programs, are best in class among our industry peers.

 

Corporate Social Responsibility

 

We believe that profitability and social responsibility can be linked for long-term sustainability and profitability in furtherance of value to all our stakeholders – our shareholders, our employees, our customers and our communities. Whether we refer to our philosophy as Corporate Social Responsibility (“CSR”) or associated Environmental and Social Governance (“ESG”) metrics, we strive to further two fundamental principles ‒ ethical, legal conduct in the way we conduct our business, and integration of social responsibility as a distinct, strategic discipline into the fabric of our culture and sustainable business operations.  

 

Through investment of many years of dedicated effort and resources, our evolving CSR approaches – grounded in prudent fiscal management and long-term focused strategies – have advanced us beyond leadership in the gaming and hospitality industry to national recognition for our accomplishments.

 

Our core values of integrity, inclusion, teamwork and excellence shape our character and culture, the way we do business, and our CSR practices.  Four strategic pillars guide our work.

 

Fostering diversity and inclusion. Our commitment to inclusion translates diversity as a fundamental paradigm of the 21st century global economy into long-term human capital leadership, customer market expansion and competitive business advantage.  Inclusion is an important, multi-dimensional business imperative that attracts top talent; drives our culture of respect for humanity; leverages the broad diversity of our employees’ talents to drive excellence in collaboration, innovation and financial performance; fuels expansion of our customer markets and supply chain; and forges stronger ties with our communities around the world.

 

Investing in community.  The communities in which we operate, and our employees live, work and care for their families, are cornerstones of our business and our CSR system.  We create economic opportunity for local residents, collaborate to promote educational and develop skills of local workforces, engage local businesses, and stimulate economic development in our communities.  We promote responsible gaming practices and tools, such as GameSense, that keep gaming safe and entertaining.  Beyond our tax support of public education, infrastructure and services, we make philanthropic and development-related investments in long-term institutions that benefit our employees and customers and elevate the quality of life and culture in our communities.

 

Caring for one another.  We believe caring for less fortunate community neighbors is a deep-rooted part of our culture, and our actions help uplift the communities in which we operate, while simultaneously instilling employee pride and engagement in our business. Through three primary channels – our employee-driven MGM Resorts Foundation, our Employee Volunteer Program and our Corporate Giving Program, we contribute leadership, funding and manpower to an extensive array of nonprofit organizations that provide services, goods and resources indispensable to our communities’ well-being, development and stability.  Significantly, in 2018, our U.S. employees invested more than 123,000 hours of voluntary service with community non-profits and achieved a 71% participation level in giving through our MGM Resorts Foundation.    

 

Environmental sustainability. We continue to gain recognition for our comprehensive environmental responsibility initiatives in energy and water conservation, recycling and waste management, sustainable supply chain and green construction. Certain of our casino resorts in Nevada and our casino resort in Michigan were the first in each state to earn certification from Green Key, one of the largest international programs evaluating environmental sustainability in hotel operations. We received certifications at all of our domestic resorts and Aria and Vdara at CityCenter. Aria, Vdara, Bellagio, Delano, Mandalay Bay, and MGM Grand Detroit have all received “Five Green Key,” the highest possible rating. Many major travel service providers recognize the Green Key designation and identify our resorts for their continued commitment to sustainable hotel operations. 

 

In addition, we believe that incorporating the tenets of environmental sustainability in our business decisions advances a platform for innovation and operational efficiency. CityCenter (Aria, Vdara and Veer) is one of the world’s largest private sustainable developments. With six LEED® Gold certifications from the U.S. Green Building Council (the “Council”), CityCenter serves as the

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standard for combining luxury and environmental responsibility within the large-scale hospitality industry. Also, MGM National Harbor, The Park, and T-Mobile Arena have all been awarded LEED® Gold certification by the Council.

 

At MGM China, we incorporate the same commitment to environmental preservation. Our efforts to improve energy efficiency, indoor air quality, and environmental stewardship have resulted in MGM China being included in the Hang Seng Corporate Sustainability Benchmark Index on the Hong Kong Stock Exchange. MGM Cotai has achieved the China Green Building (Macau) Design label from the China Green Building and Energy Saving (Macau) Association.

 

Development and Leveraging Our Brand and Management Assets

 

In allocating resources, our financial strategy is focused on managing a proper mix of investing in existing resorts, spending on strategic developments or initiatives and repaying long-term debt or returning capital to shareholders. We believe there are reasonable investments for us to make in new initiatives and at our current resorts that will provide profitable returns.

 

We regularly evaluate possible expansion and acquisition opportunities in domestic and international markets. Opportunities we evaluate may include the ownership, management and operation of gaming and other entertainment facilities in Nevada, or in states other than Nevada, or outside of the United States, accessing new markets for sports and interactive, as well as online gaming. We leverage our management expertise and well-recognized brands through strategic partnerships and international expansion opportunities. We feel that several of our brands are well-suited to new projects in both gaming and non-gaming developments. We may undertake these opportunities either alone or in cooperation with one or more third parties.

 

During 2018, we entered into an agreement with GVC Holdings PLC to form Roar Digital LLC, a world-class sports betting and online gaming platform in the United States. The 50/50 venture will be capitalized with initial commitments of $100 million per partner. Under the agreement, the venture will benefit from the economics of our existing race and sports books and online gaming operations and will have exclusive access to certain U.S. land-based and online sports betting, online real money and free-to-play casino gaming, major tournament and online poker, and other similar future interactive businesses. The commencement of operations is subject to gaming regulatory approvals.

 

Intellectual Property

 

Our principal intellectual property consists of trademarks for, among others, Bellagio, The Mirage, Borgata, Mandalay Bay, MGM, MGM Grand, MGM Resorts International, Luxor, Excalibur, New York-New York, Circus Circus, Beau Rivage and Empire City, all of which have been registered or allowed in various classes in the United States. In addition, we have also registered or applied to register numerous other trademarks in connection with our properties, facilities and development projects in the United States and in various other foreign jurisdictions. These trademarks are brand names under which we market our properties and services. We consider these brand names to be important to our business since they have the effect of developing brand identification. We believe that the name recognition, reputation and image that we have developed attract customers to our facilities. Once granted, our trademark registrations are of perpetual duration so long as they are used and periodically renewed. It is our intent to pursue and maintain our trademark registrations consistent with our goals for brand development and identification, and enforcement of our trademark rights.

 

Employees and Labor Relations

 

As of December 31, 2018, we had approximately 55,000 full-time and 17,000 part-time employees domestically, of which approximately 6,000 and 3,000, respectively, support the Company’s management agreements with CityCenter. In addition, we had approximately 11,000 employees at MGM China. We had collective bargaining agreements with unions covering approximately 39,000 of our employees as of December 31, 2018. Collective bargaining agreements with three unions covering a substantial number of our employees in Las Vegas are scheduled to expire in the first half of 2019. We anticipate negotiations for successor contracts with all three of those unions will begin in the first quarter of 2019. In addition, in our regional properties, new collective bargaining agreements will be negotiated in 2019 at MGM National Harbor and MGM Springfield. As of December 31, 2018, none of the employees of MGM China are part of a labor union and the resorts are not party to any collective bargaining agreements. In January 2019, we acquired operations in New York that employ approximately 1,000 employees, a portion of which are covered by collective bargaining agreements. We anticipate several of these agreements will be negotiated in 2019. Also, in July 2018, MGP acquired its property in Northfield, Ohio, which continues to be operated (on behalf of MGP) by an affiliate of Hard Rock International (STP), Inc. MGM expects to acquire these operations in the first half of 2019, subject to certain customary closing conditions. The Ohio operation has employees covered by collective bargaining agreements, several of which we anticipate will be negotiated in 2019.

 

Regulation and Licensing

 

The gaming industry is highly regulated, and we must maintain our licenses and pay gaming taxes to continue our operations. Each of our casinos is subject to extensive regulation under the laws, rules and regulations of the jurisdiction in which it is located.

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These laws, rules and regulations generally concern the responsibility, financial stability and character of the owners, managers, and persons with financial interest in the gaming operations. Violations of laws in one jurisdiction could result in disciplinary action in other jurisdictions.  

 

A more detailed description of the gaming regulations to which we are subject is contained in Exhibit 99.2 to this Annual Report on Form 10-K, which Exhibit is incorporated herein by reference.

 

Our businesses are subject to various federal, state, local and foreign laws and regulations affecting businesses in general. These laws and regulations include, but are not limited to, restrictions and conditions concerning alcoholic beverages, smoking, employees, currency transactions, taxation, zoning and building codes (including regulations under the Americans with Disabilities Act, which requires all public accommodations to meet certain federal requirements related to access and use by persons with disabilities), construction, land use and marketing and advertising. We also deal with significant amounts of cash in our operations and are subject to various reporting and anti-money laundering regulations. Such laws and regulations could change or could be interpreted differently in the future, or new laws and regulations could be enacted. Material changes, new laws or regulations, or material differences in interpretations by courts or governmental authorities could adversely affect our operating results.

 

In addition, we are subject to certain federal, state and local environmental laws, regulations and ordinances, including the Clean Air Act, the Clean Water Act, the Resource Conservation Recovery Act, the Comprehensive Environmental Response, Compensation and Liability Act and the Oil Pollution Act of 1990. Under various federal, state and local laws and regulations, an owner or operator of real property may be held liable for the costs of removal or remediation of certain hazardous or toxic substances or wastes located on its property, regardless of whether or not the present owner or operator knows of, or is responsible for, the presence of such substances or wastes. We have not identified any issues associated with our properties that could reasonably be expected to have an adverse effect on us or the results of our operations.

 

Cautionary Statement Concerning Forward-Looking Statements

 

This Form 10-K and our 2018 Annual Report to Stockholders contain “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as “anticipates,” “intends,” “plans,” “seeks,” “believes,” “estimates,” “expects,” “will,” “may” and similar references to future periods. Examples of forward-looking statements include, but are not limited to, statements we make regarding expected market growth in Macau, our ability to generate significant cash flow and execute on ongoing and future projects, such as MGM 2020, and the expected results of MGM 2020, amounts we will spend in capital expenditures and investments, the opening of strategic resort developments, the estimated costs and components associated with those developments, our expectations with respect to future cash dividends on our common stock, dividends and distributions we will receive from MGM China, the Operating Partnership or CityCenter and amounts projected to be realized as deferred tax assets. The foregoing is not a complete list of all forward-looking statements we make.

 

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, including the fixed component of our rent payments to MGP, could adversely affect our development options and financial results and impact our ability to satisfy our obligations;

 

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

 

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;

 

the fact that we are required to pay a significant portion of our cash flows as fixed and percentage rent under the master lease, which could adversely affect our ability to fund our operations and growth, service our indebtedness and limit our ability to react to competitive and economic changes;

 

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

 

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

 

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

 

the possibility that we may not realize all of the anticipated benefits of MGM 2020;

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our ability to pay ongoing regular dividends is subject to the discretion of our board of directors and certain other limitations;

 

a significant number of our domestic gaming facilities are leased and could experience risks associated with leased property, including risks relating to lease termination, lease extensions, charges and our relationship with the lessor, which could have a material adverse effect on our business, financial position or results of operations;

 

financial, operational, regulatory or other potential challenges that may arise with respect to MGP, as our sole lessor for a significant portion of our properties, may adversely impair our operations;

 

the fact that MGP has adopted a policy under which certain transactions with us, including transactions involving consideration in excess of $25 million, must be approved in accordance with certain specified procedures;

 

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

 

the ability of the Macau government to terminate MGM Grand Paradise’s subconcession under certain circumstances without compensating MGM Grand Paradise, exercise its redemption right with respect to the subconcession, or refuse to grant MGM Grand Paradise an extension of the subconcession in 2020;

 

the dependence of MGM Grand Paradise upon gaming promoters for a significant portion of gaming revenues in Macau;

 

changes to fiscal and tax policies;

 

our ability to recognize our foreign tax credit deferred tax asset and the variability of the valuation allowance we may apply against such deferred tax asset;

 

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

 

the concentration of a significant number 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 such gaming receivables;

 

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

 

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

 

the fact that co-investing in properties, including our investment in CityCenter, decreases our ability to manage risk;

 

the fact that future construction, development, or expansion projects will be subject to significant development and construction risks;

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

the potential reputational harm as a result of increased scrutiny related to our corporate social responsibility efforts;

 

the potential failure of future efforts to expand through investments in other businesses and properties or through alliances or acquisitions, such as the Empire City and Northfield acquisitions, or to divest some of our properties and other assets;

 

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

 

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

 

Any forward-looking statement made by us in this Form 10-K or our 2018 Annual Report to Stockholders speaks only as of the date on which it is made. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law. If we update one or more forward-looking statements, no inference should be made that we will make additional updates with respect to those or other forward-looking statements.

 

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.  

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Executive Officers of the Registrant

 

The following table sets forth, as of February 27, 2019, the name, age and position of each of our executive officers. Executive officers are elected by and serve at the pleasure of the Board of Directors.

Name

 

Age

 

Position

James J. Murren

 

57

 

Chairman and Chief Executive Officer

William J. Hornbuckle(1)

 

61

 

President and Chief Customer Development Officer

Corey I. Sanders(1)

 

55

 

Chief Operating Officer

Daniel J. D’Arrigo(1)

 

50

 

Executive Vice President, Chief Financial Officer and Treasurer

Phyllis A. James

 

66

 

Executive Vice President, Chief Diversity and Corporate Responsibility Officer

John M. McManus

 

51

 

Executive Vice President, General Counsel and Secretary

Robert C. Selwood

 

63

 

Executive Vice President and Chief Accounting Officer

 

 

(1)

On February 21, 2019, the Company announced that Mr. D’Arrigo had voluntarily resigned as Executive Vice President, Chief Financial Officer and Treasurer, effective March 1, 2019, and that Mr. Sanders has been appointed Chief Financial Officer and Treasurer and Mr. Hornbuckle has been appointed President and Chief Operating Officer, each effective March 1, 2019.

 

Mr. Murren has served as Chairman and Chief Executive Officer of the Company since December 2008 and as President from December 1999 to December 2012. He served as Chief Operating Officer from August 2007 through December 2008. He was Chief Financial Officer from January 1998 to August 2007 and Treasurer from November 2001 to August 2007.

 

Mr. Hornbuckle has served as President since December 2012 and as Chief Customer Development Officer since December 2018. He served as Chief Marketing Officer from August 2009 to August 2014 and President and Chief Operating Officer of Mandalay Bay Resort & Casino from April 2005 to August 2009.

 

Mr. Sanders has served as Chief Operating Officer since September 2010. He served as Chief Operating Officer for the Company’s Core Brand and Regional Properties from August 2009 to September 2010, as Executive Vice President—Operations from August 2007 to August 2009, as Executive Vice President and Chief Financial Officer for MGM Grand Resorts from April 2005 to August 2007.

 

Mr. D’Arrigo has served as Executive Vice President and Chief Financial Officer since August 2007 and as Treasurer since November 2018 and from September 2009 to June 2016. He served as Senior Vice President—Finance of the Company from February 2005 to August 2007 and as Vice President—Finance of the Company from December 2000 to February 2005.

 

Ms. James has served as Executive Vice President, Chief Diversity and Corporate Responsibility Officer since October 2016. Her role as Chief Diversity Officer began in 2009. She served as Executive Vice President and Special Counsel—Litigation from July 2010 to October 2016. She served as Senior Vice President, Senior Counsel and then Deputy General Counsel of the Company from March 2002 to July 2010.

 

Mr. McManus has served as Executive Vice President, General Counsel and Secretary since July 2010. He served as Senior Vice President, Acting General Counsel and Secretary of the Company from December 2009 to July 2010. He served as Senior Vice President, Deputy General Counsel and Assistant Secretary from September 2009 to December 2009. He served as Senior Vice President, Assistant General Counsel and Assistant Secretary of the Company from July 2008 to September 2009. He served as counsel to various operating subsidiaries from May 2001 to July 2008.

 

Mr. Selwood has served as Executive Vice President and Chief Accounting Officer since August 2007. He served as Senior Vice President—Accounting of the Company from February 2005 to August 2007 and as Vice President—Accounting of the Company from December 2000 to February 2005.

 

Available Information

 

We maintain a website at www.mgmresorts.com that includes financial and other information for investors. We provide access to our SEC filings, including our annual report on Form 10-K and quarterly reports on Form 10-Q (including related filings in XBRL format), filed and furnished current reports on Form 8-K, and amendments to those reports on our website, free of charge, through a link to the SEC’s EDGAR database. Through that link, our filings are available as soon as reasonably practicable after we file or furnish the documents with the SEC. These filings are also available on the SEC’s website at www.sec.gov.

 

Because of the time differences between Macau and the United States, we also use our corporate website as a means of posting important information about MGM China.

 

References in this document to our website address do not incorporate by reference the information contained on the websites into this Annual Report on Form 10-K.

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ITEM 1A.

RISK FACTORS

 

You should be aware that the occurrence of any of the events described in this section and elsewhere in this report or in any other of our filings with the SEC could have a material adverse effect on our business, financial position, results of operations and cash flows. In evaluating us, you should consider carefully, among other things, the risks described below.

 

Risks Relating to Our Substantial Indebtedness

 

 

Our substantial indebtedness and significant financial commitments, including the fixed component of our rent payments to MGP, could adversely affect our operations and financial results and impact our ability to satisfy our obligations. As of December 31, 2018, we had approximately $15.3 billion of principal amount of indebtedness outstanding, including $750 million of borrowings outstanding and $1.5 billion of available borrowing capacity under our senior secured credit facility, and $2.4 billion and $2.8 billion of debt outstanding under the MGM China and the Operating Partnership credit facilities, respectively. In addition, as of December 31, 2018, the Operating Partnership had $1.9 billion of senior notes outstanding. Any increase in the interest rates applicable to our existing or future borrowings would increase the cost of our indebtedness and reduce the cash flow available to fund our other liquidity needs. We do not guarantee MGM China’s or the Operating Partnership’s obligations under their respective debt agreements and, to the extent MGM China or the Operating Partnership were to cease to produce cash flow sufficient to service their indebtedness, our ability to make additional investments into such entities is limited by the covenants in our existing senior secured credit facility.

 

In addition, our substantial indebtedness and significant financial commitments could have important negative consequences on us, including:

 

 

increasing our exposure to general adverse economic and industry conditions;

 

limiting our flexibility to plan for, or react to, changes in our business and industry;

 

limiting our ability to borrow additional funds for working capital requirements, capital expenditures, debt service requirements, execution of our business strategy (including returning value to our shareholders) or other general operating requirements;

 

making it more difficult for us to make payments on our indebtedness; or

 

placing us at a competitive disadvantage compared to less-leveraged competitors.

 

Moreover, our businesses are capital intensive. For our owned, leased and managed resorts to remain attractive and competitive, we must periodically invest significant capital to keep the properties well-maintained, modernized and refurbished (and, under the master lease we are required to spend an aggregate amount of at least 1% of actual adjusted net revenues from the properties subject to the master lease on capital expenditures at those properties). Such investments require an ongoing supply of cash and, to the extent that we cannot fund expenditures from cash generated by operations, funds must be borrowed or otherwise obtained. Similarly, development projects, including any potential future development of an integrated resort in Japan, and acquisitions could require significant capital commitments, the incurrence of additional debt, guarantees of third-party debt, or the incurrence of contingent liabilities, any or all of which could have an adverse effect on our business, financial condition and results of operations.

 

 

Current and future economic, capital and credit market conditions could adversely affect our ability to service or refinance our indebtedness and to make planned expenditures. Our ability to make payments on, and to refinance, our indebtedness and to fund planned or committed capital expenditures and investments depends on our ability to generate cash flow in the future, receive distributions from our unconsolidated affiliates or subsidiaries, including CityCenter, MGM China and the Operating Partnership, borrow under our senior secured credit facility or incur new indebtedness. If regional and national economic conditions deteriorate we could experience decreased revenues from our operations attributable to decreases in consumer spending levels and could fail to generate sufficient cash to fund our liquidity needs or fail to satisfy the financial and other restrictive covenants in our debt instruments. We cannot assure you that our business will generate sufficient cash flow from operations or continue to receive distributions from our unconsolidated affiliates or subsidiaries, including CityCenter, MGM China and the Operating Partnership. We cannot assure you that future borrowings will be available to us under our senior secured credit facility in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs. We cannot assure you that we will be able to access the capital markets in the future to borrow additional indebtedness on terms that are favorable to us.

 

We have a significant amount of indebtedness maturing in 2020, and thereafter. Our ability to timely refinance and replace our indebtedness in the future will depend upon the economic and credit market conditions discussed above. If we are unable to refinance our indebtedness on a timely basis, we might be forced to seek alternate forms of financing, dispose of certain assets or minimize capital expenditures and other investments. There is no assurance that any of these alternatives would be available to us, if at all, on satisfactory terms, on terms that would not be disadvantageous to us, or on terms that would not require us to breach the terms and conditions of our existing or future debt agreements.

 

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The agreements governing our senior secured credit facility and other senior indebtedness contain restrictions and limitations that could significantly affect our ability to operate our business, as well as significantly affect our liquidity, and therefore could adversely affect our results of operations. Covenants governing our senior secured credit facility and certain of our debt securities restrict, among other things, our ability to:

 

 

pay dividends or distributions, repurchase equity, prepay certain debt or make certain investments;

 

incur additional debt;

 

incur liens on assets;

 

sell assets or consolidate with another company or sell all or substantially all of our assets;

 

enter into transactions with affiliates;

 

allow certain subsidiaries to transfer assets or enter into certain agreements; and

 

enter into sale and lease-back transactions.

 

Our ability to comply with these provisions may be affected by events beyond our control. The breach of any such covenants or obligations not otherwise waived or cured could result in a default under the applicable debt obligations and could trigger acceleration of those obligations, which in turn could trigger cross-defaults under other agreements governing our long-term indebtedness. In addition, our senior secured credit facility requires us to satisfy certain financial covenants, including a maximum total net leverage ratio, a maximum first lien net leverage ratio and a minimum interest coverage ratio. Any default under our senior secured credit facility or the indentures governing our other debt could adversely affect our growth, our financial condition, our results of operations and our ability to make payments on our debt.

 

In addition, MGM Grand Paradise and MGM China are co-borrowers under an amended and restated credit facility and the Operating Partnership is a borrower under its senior secured credit facility, all of which contain covenants that restrict the respective borrower’s ability to engage in certain transactions. In particular, these credit agreements require MGM China and the Operating Partnership to satisfy certain financial covenants and impose certain operating and financial restrictions on them and their respective subsidiaries (including, with respect to MGM China, MGM Grand Paradise). These restrictions include, among other things, limitations on their ability to pay dividends or distributions to us, incur additional debt, make investments or engage in other businesses, merge or consolidate with other companies, or transfer or sell assets.

 

 

We are required to pay a significant portion of our cash flows as fixed and percentage rent under the master lease, which could adversely affect our ability to fund our operations and growth, service our indebtedness and limit our ability to react to competitive and economic changes. For the third lease year which commenced on April 1, 2018, we were required to make annual rent payments of $770 million under the master lease. The master lease also provides for fixed annual escalators of 2% on the base rent in the second through sixth years and the possibility for additional 2% increases thereafter subject to the tenant meeting an adjusted net revenue to rent ratio, as well as potential increases in percentage rent in year six and every five years thereafter based on a percentage of average actual annual net revenue during the preceding five year period. As a result, our ability to fund our own operations, raise capital, make acquisitions, make investments, service our debt and otherwise respond to competitive and economic changes may be adversely affected. For example, our obligations under the master lease may:

 

 

make it more difficult for us to satisfy our obligations with respect to our indebtedness and to obtain additional indebtedness; 

 

increase our vulnerability to general adverse economic and industry conditions or a downturn in our business;

 

require us to dedicate a substantial portion of our cash flow from operations to making rent payments, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, development projects and other general corporate purposes;

 

limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; 

 

restrict our ability to make acquisitions, divestitures and engage in other significant transactions; and

 

cause us to lose our rights with respect to all of the properties leased under the master lease if we fail to pay rent or other amounts or otherwise default on the master lease, given that all of the properties we lease from MGP under the master lease are effectively cross-collateralized as a result of the master lease being a single unitary lease.

 

Any of the above factors could have a material adverse effect on our business, financial condition and results of operations.

 

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Risks Related to our Business

 

 

We face significant competition with respect to destination travel locations generally and with respect to our peers in the industries in which we compete, and failure to compete effectively could materially adversely affect our business, financial condition, results of operations and cash flow. The hotel, resort and casino industries are highly competitive. We do not believe that our competition is limited to a particular geographic area, and hotel, resort and gaming operations in other states or countries could attract our customers. To the extent that new casinos enter our markets or hotel room capacity is expanded by others in major destination locations, competition will increase. Major competitors, including potential new entrants, may also expand their hotel room capacity, expand their range of amenities, improve their level of service, or construct new resorts in Las Vegas, Macau or in the domestic regional markets in which we operate, all of which could attract our customers. Also, the growth of gaming in areas outside Las Vegas, including California, has increased the competition faced by our operations in Las Vegas and elsewhere. While we believe our principal competitors are major gaming and hospitality resorts with well-established and recognized brands, we also compete against smaller hotel offerings and peer-to-peer inventory sources, which allow travelers to book short-term rentals of homes and apartments from owners. We expect that we will continue to face increased competition from new channels of distribution, innovations in consumer-facing technology platforms and other transformations in the travel industry that could impact our ability to attract and retain business.

 

In addition, competition could increase if changes in gaming restrictions in the United States and elsewhere result in the addition of new gaming establishments located closer to our customers than our casinos. For example, while our Macau operations compete to some extent with casinos located elsewhere in or near Asia, certain countries in the region have legalized casino gaming (including Japan) and others (such as Taiwan and Thailand) may legalize casino gaming (or online gaming) in the future (including, for example, a recent proposal by China to allow gambling on Hainan Island). Furthermore, currently MGM Grand Paradise holds one of only six gaming concessions authorized by the Macau government to operate casinos in Macau. If the Macau government were to allow additional competitors to operate in Macau through the grant of additional concessions or if current concessionaires and subconcessionaires open additional facilities, we would face increased competition.  

 

Most jurisdictions where casino gaming is currently permitted place numerical and/or geographical limitations on the issuance of new gaming licenses. Although a number of jurisdictions in the United States and foreign countries are considering legalizing or expanding casino gaming, in some cases new gaming operations may be restricted to specific locations and we expect that there will be intense competition for any attractive new opportunities (which may include acquisitions of existing properties) that do arise. Furthermore, certain jurisdictions, including Nevada and New Jersey, have also legalized forms of online gaming and other jurisdictions, including Illinois, have legalized video gaming terminals. Additionally, in May 2018, the United States Supreme Court overturned a federal ban on sports betting that had prohibited single-game gambling in most states, raising the potential for increased competition in sports betting should additional states pass legislation to legalize it.  The expansion of online gaming, sports betting, and other types of gaming in these and other jurisdictions may further compete with our operations by reducing customer visitation and spend in our casino resorts.

 

In addition to competition with other hotels, resorts and casinos, we compete with destination travel locations outside of the markets in which we operate. Our failure to compete successfully in our various markets and to continue to attract customers could adversely affect our business, financial condition, results of operations and cash flow.

 

 

Our businesses are subject to extensive regulation and the cost of compliance or failure to comply with such regulations may adversely affect our business and results of operations. Our ownership and operation of gaming facilities is subject to extensive regulation by the countries, states and provinces in which we operate. These laws, regulations and ordinances vary from jurisdiction to jurisdiction, but generally concern the responsibility, financial stability and character of the owners and managers of gaming operations as well as persons financially interested or involved in gaming operations. As such, our gaming regulators can require us to disassociate ourselves from suppliers or business partners found unsuitable by the regulators or, alternatively, cease operations in that jurisdiction. In addition, unsuitable activity on our part or on the part of our domestic or foreign unconsolidated affiliates or subsidiaries in any jurisdiction could have a negative effect on our ability to continue operating in other jurisdictions. The regulatory environment in any particular jurisdiction may change in the future and any such change could have a material adverse effect on our results of operations. For example, recently the U.S. Department of Justice reversed a 2011 opinion that had concluded that the Wire Act of 1961 was limited to gaming relating to sports; the Department of Justice concluded instead that certain of the Wire Act’s provisions apply also to other forms of wagering activity. This may impact our ability to engage in online gaming in the future. In addition, we are subject to various gaming taxes, which are subject to possible increase at any time by various federal, state, local and foreign legislatures and officials. Increases in gaming taxation could also adversely affect our results. For a summary of gaming and other regulations that affect our business, see “Regulation and Licensing” and Exhibit 99.2 to this Annual Report on Form 10-K.

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Further, our directors, officers, key employees and investors in our properties must meet approval standards of certain state and foreign regulatory authorities. If state regulatory authorities were to find such a person or investor unsuitable, we would be required to sever our relationship with that person or the investor may be required to dispose of his, her or its interest in the property. State regulatory agencies may conduct investigations into the conduct or associations of our directors, officers, key employees or investors to ensure compliance with applicable standards. Certain public and private issuances of securities and other transactions also require the approval of certain regulatory authorities.

 

In Macau, current laws and regulations concerning gaming and gaming concessions are, for the most part, fairly recent and there is little precedent on the interpretation of these laws and regulations. These laws and regulations are complex, and a court or administrative or regulatory body may in the future render an interpretation of these laws and regulations, or issue new or modified regulations, that differ from MGM China’s interpretation, which could have a material adverse effect on its business, financial condition and results of operations. In addition, MGM China’s activities in Macau are subject to administrative review and approval by various government agencies. We cannot assure you that MGM China will be able to obtain all necessary approvals, and any such failure to do so may materially affect its long-term business strategy and operations. Macau laws permit redress to the courts with respect to administrative actions; however, to date such redress is largely untested in relation to gaming issues.

 

In addition to gaming regulations, we are also subject to various federal, state, local and foreign laws and regulations affecting businesses in general. These laws and regulations include, but are not limited to, restrictions and conditions concerning alcoholic beverages, environmental matters, smoking, employees, currency transactions, taxation, zoning and building codes, and marketing and advertising. For instance, we are subject to certain federal, state and local environmental laws, regulations and ordinances, including the Clean Air Act, the Clean Water Act, the Resource Conservation Recovery Act, the Comprehensive Environmental Response, Compensation and Liability Act and the Oil Pollution Act of 1990. Under various federal, state and local environmental laws and regulations, an owner or operator of real property may be held liable for the costs of removal or remediation of certain hazardous or toxic substances or wastes located on its property, regardless of whether or not the present owner or operator knows of, or is responsible for, the presence of such substances or wastes. Such laws and regulations could change or could be interpreted differently in the future, or new laws and regulations could be enacted. For example, Illinois has enacted a ban on smoking in nearly all public places, including bars, restaurants, work places, schools and casinos. In addition, effective January 1, 2019, smoking in casinos in Macau, including MGM Macau and MGM Cotai, will only be permitted inside specially ventilated smoking rooms, rather than outside smoking areas or VIP areas. The likelihood or outcome of similar legislation in other jurisdictions and referendums in the future cannot be predicted, though any smoking ban would be expected to negatively impact our financial performance.

 

We also deal with significant amounts of cash in our operations and are subject to recordkeeping and reporting obligations as required by various anti-money laundering laws and regulations. For instance, we are subject to regulation under the Currency and Foreign Transactions Reporting Act of 1970, commonly known as the “Bank Secrecy Act,” which, among other things, requires us to report to the Internal Revenue Service (“IRS”) any currency transactions in excess of $10,000 that occur within a 24-hour gaming day, including identification of the individual(s) involved in the currency transaction. We are also required to report certain suspicious activity where we know, suspect or have reason to suspect transactions, among other things, involve funds from illegal activity or are intended to evade federal regulations or avoid reporting requirements or have no business or lawful purpose. In addition, under the Bank Secrecy Act we are subject to various other rules and regulations involving reporting, recordkeeping and retention. Our compliance with the Bank Secrecy Act is subject to periodic examinations by the IRS. Any such laws and regulations could change or could be interpreted differently in the future, or new laws and regulations could be enacted. Any violations of the anti-money laundering laws, including the Bank Secrecy Act, or regulations by any of our properties could have an adverse effect on our financial condition, results of operations or cash flows.

 

 

Our business is affected by economic and market conditions in the jurisdictions in which we operate and in the locations in which our customers reside. Our business is particularly sensitive to reductions in discretionary consumer spending and corporate spending on conventions, trade shows and business development. Economic contraction, economic uncertainty or the perception by our customers of weak or weakening economic conditions may cause a decline in demand for hotels, casino resorts, trade shows and conventions, and for the type of luxury amenities we offer. In addition, changes in discretionary consumer spending or consumer preferences could be driven by factors such as the increased cost of travel, an unstable job market, perceived or actual disposable consumer income and wealth, outbreaks of contagious diseases or fears of war and acts of terrorism or other acts of violence. Consumer preferences also evolve over time due to a variety of factors, including demographic changes, which, for instance, have resulted in recent growth in consumer demand for non-gaming offerings. Our success depends in part on our ability to anticipate the preferences of consumers and timely react to

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these trends, and any failure to do so may negatively impact our results of operations. Aria, Bellagio and MGM Grand Las Vegas in particular may be affected by economic conditions in the Far East, and all of our Nevada resorts are affected by economic conditions in the United States, and California in particular. A recession, economic slowdown or any other significant economic condition affecting consumers or corporations generally is likely to cause a reduction in visitation to our resorts, which would adversely affect our operating results. For example, the prior recession and downturn in consumer and corporate spending had a negative impact on our results of operations.

 

In addition, since we expect a significant number of customers to come to MGM Macau and MGM Cotai from mainland China, general economic and market conditions in China could impact our financial prospects. Any slowdown in economic growth or changes to China’s current restrictions on travel and currency conversion or movements, including market impacts resulting from China’s recent anti-corruption campaign and related tightening of liquidity provided by non-bank lending entities and cross-border currency monitoring (including increased restrictions on Union Pay withdrawals and other ATM limits on the withdrawal of patacas imposed by the government), could disrupt the number of visitors from mainland China and/or the amounts they are willing to spend in the casino. Most recently, in July 2017, the Chinese government, along with Macau authorities, implemented new facial recognition technology on ATM machines in Macau to strictly enforce the “know your customer” regulations for mainland Chinese bank cardholders and in November 2017 new rules were adopted to control the cross-border transportation of cash and bearer negotiable instruments. It is unclear whether these and other measures will continue to be in effect, become more restrictive, or be readopted in the future. These developments have had, and any future policy developments that may be implemented may have, the effect of reducing the number of visitors to Macau from mainland China, which could adversely impact tourism and the gaming industry in Macau.

Furthermore, our operations in Macau may be impacted by competition for limited labor resources. Our success in Macau will be impacted by our ability to retain and hire employees. We compete with a large number of casino resorts for a limited number of employees and we anticipate that such competition will grow in light of new developments in Macau. While we seek employees from other countries to adequately staff our resorts, certain Macau government policies limit our ability to import labor in certain job classifications (for instance, the Macau government requires that we only hire Macau residents as dealers in our casinos) and any future government policies that freeze or cancel our ability to import labor could cause labor costs to increase. Finally, because additional casino projects have commenced operations and other projects are under construction, existing transportation infrastructure may need to be expanded to accommodate increased visitation to Macau. If transportation facilities to and from Macau are inadequate to meet the demands of an increased volume of gaming customers visiting Macau, the desirability of Macau as a gaming destination, as well as the results of operations at our development in Cotai, Macau, could be negatively impacted.

 

 

We may not realize all of the anticipated benefits of our MGM 2020 Plan. We have undertaken an initiative to reduce costs, improve efficiencies and further position us for growth. While we believe these initiatives will result in approximately $200 million of annual Adjusted EBITDA benefit by the end of 2020 and an additional $100 million by the end of 2021, our efforts may fail to achieve expected results. Our MGM 2020 Plan is subject to numerous risks and uncertainties that may change at any time, and, therefore, our actual Adjusted EBITDA benefit may differ materially from what we anticipate.

 

 

Our ability to pay ongoing regular dividends to our stockholders is subject to the discretion of our board of directors and may be limited by our holding company structure, existing and future debt agreements entered into by us or our subsidiaries and state law requirements. We intend to pay ongoing regular quarterly cash dividends on our common stock. However, our board of directors may, in its sole discretion, change the amount or frequency of dividends or discontinue the payment of dividends entirely. In addition, our ability to pay dividends is restricted by certain covenants in our credit agreement, and because we are a holding company with no material direct operations, we are dependent on receiving cash from our operating subsidiaries to generate the funds from operations necessary to pay dividends on our common stock. We expect our subsidiaries will continue to generate significant cash flow necessary to maintain quarterly dividend payments on our common stock; however, their ability to generate funds will be subject to their operating results, cash requirements and financial condition, any applicable provisions of state law that may limit the amount of funds available to us, and compliance with covenants and financial ratios related to existing or future agreements governing any indebtedness at such subsidiaries and any limitations in other agreements such subsidiaries may have with third parties. In addition, each of the companies in our corporate chain must manage its assets, liabilities and working capital in order to meet all of their respective cash obligations. As a consequence of these various limitations and restrictions, future dividend payments may be reduced or eliminated. Any change in the level of our dividends or the suspension of the payment thereof could adversely affect the market price of our common stock.

 

 

A significant number of our domestic gaming facilities are leased and could experience risks associated with leased property, including risks relating to lease termination, lease extensions, charges and our relationship with the lessor, which could have a material adverse effect on our business, financial position or results of operations. We lease eleven of our destination resorts and The Park from a subsidiary of MGP pursuant to the master lease. The master lease has a term of ten

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years with up to four additional five-year extensions, subject to satisfaction of certain conditions. The master lease is commonly known as a triple-net lease. Accordingly, in addition to rent, we are required to pay the following, among other things: (1) all facility maintenance, (2) all insurance required in connection with the leased properties and the business conducted on the leased properties, (3) taxes levied on or with respect to the leased properties (other than taxes on the income of the lessor), (4) all capital expenditures, and (5) all utilities and other services necessary or appropriate for the leased properties and the business conducted on the leased properties. We are responsible for paying these expenses notwithstanding the fact that many of the benefits received in exchange for such costs shall accrue in part to MGP as owner of the associated facilities. In addition, if some of our leased facilities should prove to be unprofitable or experience other issues that would warrant ceasing operations, or if we should otherwise decide to exit a particular property, we would remain obligated for lease payments and other obligations under the master lease even if we decided to cease operations at those locations unless we are able to transfer the rights with respect to a particular property in accordance with the requirements of the master lease. Our ability to transfer our obligations under the master lease to a third-party with respect to individual properties, should we decide to withdraw from a particular location, is limited to non-Las Vegas properties and no more than two Las Vegas gaming properties, and is subject to identifying a willing third-party who meets the requirements for a transferee set forth in the master lease. We may be unable to find an appropriate transferee willing to assume the obligations under the master lease with respect to any such property. In addition, we could incur special charges relating to the closing of such facilities including sublease termination costs, impairment charges and other special charges that would reduce our net income and could have a material adverse effect on our business, financial condition and results of operations. Furthermore, our obligation to pay rent as well as the other costs described above is absolute in virtually all circumstances, regardless of the performance of the properties and other circumstances that might abate rent in leases that now place these risks on the tenant, such as certain events of casualty and condemnation.

 

 

Any financial, operational, regulatory or other potential challenges that may arise with respect to MGP, as our sole lessor for a significant portion of our properties, may adversely impair our operations. We lease a substantial number of the properties that we operate and manage, which represents a significant portion of our operations, from MGP under the master lease. If MGP has financial, operational, regulatory or other challenges, there can be no assurance that MGP will be able to comply with its obligations under the master lease or its other agreements with us. Failure on the part of MGP to fulfill its commitments could have a material adverse effect on our business, financial condition and results of operations.

 

 

James J. Murren, our Chairman, Daniel J. Taylor, one of our directors, and William J. Hornbuckle, and John M. McManus, members of our senior management, may have actual or potential conflicts of interest because of their positions at MGP. James J. Murren serves as our Chairman and as the Chairman of MGP. In addition, Daniel J. Taylor, one of our directors, is also a director of MGP and William J. Hornbuckle, and John M. McManus, members of our senior management, are also directors of MGP. While we have procedures in place to address such situations and the organizational documents with respect to MGP contain provisions that reduce or eliminate duties (including fiduciary duties) to any MGP shareholder to the fullest extent permitted by law, these overlapping positions could nonetheless create, or appear to create, potential conflicts of interest when our or MGP's management and directors pursue the same corporate opportunities, such as potential acquisition targets, or face decisions that could have different implications for us and MGP. Further, potential conflicts of interest could arise in connection with the resolution of any dispute between us and MGP (or its subsidiaries) regarding the terms of the agreements governing the separation and the relationship, between us and MGP, such as under the master lease. Potential conflicts of interest could also arise if we and MGP enter into any commercial or other adverse arrangements with each other in the future.

 

 

Despite our ability to exercise control over the affairs of MGP as a result of our ownership of the single outstanding Class B share of MGP, MGP has adopted a policy under which certain transactions with us, including transactions involving consideration in excess of $25 million, must be approved in accordance with certain specified procedures, which could affect our ability to execute our operational and strategic objectives. We own the single outstanding Class B share of MGP. The Class B Share is a non-economic interest in MGP which does not provide its holder any rights to profits or losses or any rights to receive distributions from operations of MGP or upon liquidation or winding up of MGP, and which represents a majority of the voting power of MGP’s shares so long as the holder of the Class B share and its controlled affiliates’ (excluding MGP) aggregate beneficial ownership of the combined economic interests in MGP and the Operating Partnership does not fall below 30%. We, therefore, have the ability to exercise significant control over MGP’s affairs, including control over the outcome of all matters submitted to MGP’s shareholders for approval.

 

MGP’s operating agreement, however, provides that whenever a potential conflict of interest exists or arises between us or any of our affiliates (other than MGP and its subsidiaries), on the one hand, and MGP or any of its subsidiaries, on the other hand, any resolution or course of action by MGP’s board of directors in respect of such conflict of interest shall be conclusively deemed to be fair and reasonable to MGP if it is (i) approved by a majority of a conflicts committee which consists solely of “independent” directors (which MGP refers to as “Special Approval”) (such independence determined in accordance with the NYSE’s listing standards, the standards established by the Exchange Act to serve on an audit committee of a board of directors and certain additional independence requirements in our operating agreement), (ii) determined by MGP’s board of directors to be fair and reasonable to MGP or (iii) approved by the affirmative vote of the holders of at least a majority of the voting power of MGP’s outstanding voting shares (excluding voting shares owned by us and our affiliates). Furthermore, MGP’s operating agreement provides that any transaction with a value, individually or in

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the aggregate, over $25 million between us or any of our affiliates (other than MGP and its subsidiaries), on the one hand, and MGP or any of its subsidiaries, on the other hand (any such transaction (other than the exercise of rights by us or any of our affiliates (other than MGP and its subsidiaries) under any of the material agreements entered into on the closing day of MGP’s formation transactions), a “Threshold Transaction”), shall be permitted only if (i) Special Approval is obtained or (ii) such transaction is approved by the affirmative vote of the holders of at least a majority of the voting power of MGP’s outstanding voting shares (excluding voting shares owned by us and our affiliates).

 

As a result, certain transactions, including any Threshold Transactions that we may want to pursue with MGP and that could have significant benefit to us may require Special Approval. There can be no assurance that the required approval will be obtained with respect to these transactions either from a conflicts committee comprised of independent MGP directors or the affirmative vote of a majority of the shares not held by us and our affiliates. The failure to obtain such requisite consent could materially affect our ability and the cost to execute our operational and strategic objectives.

 

 

We have agreed not to have any interest or involvement in gaming businesses in China, Macau, Hong Kong and Taiwan, other than through MGM China. In connection with the initial public offering of MGM China, the holding company that indirectly owns and operates MGM Macau, we entered into a Deed of Non-Compete Undertakings with MGM China and Ms. Ho, Pansy Catilina Chiu King (“Ms. Ho”) pursuant to which we are restricted from having any interest or involvement in gaming businesses in the People’s Republic of China, Macau, Hong Kong and Taiwan, other than through MGM China. While gaming is currently prohibited in China, Hong Kong and Taiwan, if it is legalized in the future our ability to compete in these locations could be limited until the earliest of (i) March 31, 2020, (ii) the date MGM China’s ordinary shares cease to be listed on The Stock Exchange of Hong Kong Limited or (iii) the date when our ownership of MGM China shares is less than 20% of the then-issued share capital of MGM China.

 

 

The Macau government can terminate MGM Grand Paradise’s subconcession under certain circumstances without compensating MGM Grand Paradise, exercise its redemption right with respect to the subconcession, or refuse to grant MGM Grand Paradise an extension of the subconcession in 2020, any of which would have a material adverse effect on our business, financial condition, results of operations and cash flows. The Macau government has the right to unilaterally terminate the subconcession in the event of fundamental non-compliance by MGM Grand Paradise with applicable Macau laws or MGM Grand Paradise’s basic obligations under the subconcession contract. MGM Grand Paradise has the opportunity to remedy any such non-compliance with its fundamental obligations under the subconcession contract within a period to be stipulated by the Macau government. Upon such termination, all of MGM Grand Paradise’s casino area premises and gaming-related equipment would be transferred automatically to the Macau government without compensation to MGM Grand Paradise, and we would cease to generate any revenues from these operations. We cannot assure you that MGM Grand Paradise will perform all of its obligations under the subconcession contract in a way that satisfies the requirements of the Macau government.

 

Furthermore, under the subconcession contract, MGM Grand Paradise is obligated to comply with any laws and regulations that the Macau government might promulgate in the future. We cannot assure you that MGM Grand Paradise will be able to comply with these laws and regulations or that these laws and regulations would not adversely affect our ability to construct or operate our Macau businesses. If any disagreement arises between MGM Grand Paradise and the Macau government regarding the interpretation of, or MGM Grand Paradise’s compliance with, a provision of the subconcession contract, MGM Grand Paradise will be relying on a consultation and negotiation process with the Macau government. During any consultation or negotiation, MGM Grand Paradise will be obligated to comply with the terms of the subconcession contract as interpreted by the Macau government. Currently, there is no precedent concerning how the Macau government will treat the termination of a concession or subconcession upon the occurrence of any of the circumstances mentioned above. The loss of the subconcession would require us to cease conducting gaming operations in Macau, which would have a material adverse effect on our business, financial condition, results of operations and cash flows.

 

In addition, the subconcession contract expires on March 31, 2020. Unless the subconcession is extended, or legislation with regard to reversion of casino premises is amended, all of MGM Grand Paradise’s casino premises and gaming-related equipment will automatically be transferred to the Macau government on that date without compensation to us, and we will cease to generate any revenues from such gaming operations. Beginning on April 20, 2017, the Macau government may redeem the subconcession contract by providing us at least one year’s prior notice. In the event the Macau government exercises this redemption right, MGM Grand Paradise is entitled to fair compensation or indemnity. The amount of such compensation or indemnity will be determined based on the amount of gaming and non-gaming revenue generated by MGM Grand Paradise, excluding the convention and exhibition facilities, during the taxable year prior to the redemption, before deducting interest, depreciation and amortization, multiplied by the number of remaining years before expiration of the subconcession. We cannot assure you that MGM Grand Paradise will be able to renew or extend the subconcession contract on terms favorable to MGM Grand Paradise or at all. We also cannot assure you that if the subconcession is redeemed, the compensation paid to MGM Grand Paradise will be adequate to compensate for the loss of future revenues.

 

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MGM Grand Paradise is dependent upon gaming promoters for a significant portion of gaming revenues in Macau. Gaming promoters, who promote gaming and draw high-end customers to casinos, are responsible for a significant portion of MGM Grand Paradise’s gaming revenues in Macau. With the rise in gaming in Macau and the recent reduction in the number of licensed gaming promoters in Macau and in the number of VIP rooms operated by licensed gaming promoters, the competition for relationships with gaming promoters has increased. While MGM Grand Paradise is undertaking initiatives to strengthen relationships with gaming promoters, there can be no assurance that it will be able to maintain, or grow, relationships with gaming promoters. In addition, continued reductions in, and new regulations governing, the gaming promoter segment may result in the closure of additional VIP rooms in Macau, including VIP rooms at MGM Macau and MGM Cotai. If MGM Grand Paradise is unable to maintain or grow relationships with gaming promoters, or if gaming promoters are unable to develop or maintain relationships with our high-end customers (or if, as a result of recent market conditions in Macau, gaming promoters encounter difficulties attracting patrons to come to Macau or experience decreased liquidity limiting their ability to grant credit to patrons), MGM Grand Paradise’s ability to grow gaming revenues will be hampered. Furthermore, if existing VIP rooms at MGM Macau and MGM Cotai are closed there can be no assurance that MGM Grand Paradise will be able to locate acceptable gaming promoters to run such VIP rooms in the future in a timely manner, or at all.

 

In addition, the quality of gaming promoters is important to MGM Grand Paradise’s and our reputation and ability to continue to operate in compliance with gaming licenses. While MGM Grand Paradise strives for excellence in associations with gaming promoters, we cannot assure you that the gaming promoters with whom MGM Grand Paradise is or becomes associated will meet the high standards insisted upon. If a gaming promoter falls below MGM Grand Paradise’s standards, MGM Grand Paradise or we may suffer reputational harm or possibly sanctions from gaming regulators with authority over our operations.

 

We also grant credit lines to certain gaming promoters and any adverse change in the financial performance of those gaming promoters may impact the recoverability of these loans.

 

 

We are subject to taxation by various governments and agencies and the rate of taxation in the jurisdictions in which we operate could change in the future. We are subject to tax by various governments and agencies, both in the U.S. and in Macau. Changes in the rates of taxation, the amount of taxes we owe and the time when income is subject to taxation, the Macau income tax exemption or the imposition of foreign withholding taxes could increase our overall rate of taxation. Any of these changes could materially impact our business, financial condition, results of operations and cash flows.

 

 

The future recognition of our foreign tax credit deferred tax asset is uncertain, and the amount of valuation allowance we may apply against such deferred tax asset may change materially in future periods. We currently have significant deferred tax assets resulting from foreign tax credit carryforwards that are available to reduce potential taxable foreign-sourced income in future periods, including the recapture of overall domestic losses to the extent of U.S. taxable income. We evaluate our foreign tax credit deferred tax asset for recoverability and record a valuation allowance to the extent that we determine it is not more likely than not such asset will be recovered. This evaluation is based on all available evidence, including assumptions concerning future U.S. operating profits and our interpretations of the U.S. Tax Cuts and Jobs Act (the “Tax Act”) based upon guidance issued to date. As a result, significant judgment is required in assessing the possible need for a valuation allowance and changes to our assumptions could result in a material change in the valuation allowance with a corresponding impact on the provision for income taxes in the period including such change.

 

 

Extreme weather conditions or climate change may cause property damage or interrupt business, which could harm our business and results of operations. Certain of our casino properties are located in areas that may be subject to extreme weather conditions, including, but not limited to, hurricanes in the United States and severe typhoons in Macau. Such extreme weather conditions may interrupt our operations, damage our properties, and reduce the number of customers who visit our facilities in such areas. In addition, our operations could be adversely impacted by a drought or other cause of water shortage. A severe drought of extensive duration experienced in Las Vegas or in the other regions in which we operate could adversely affect our business and results of operations. Although we maintain both property and business interruption insurance coverage for certain extreme weather conditions, such coverage is subject to deductibles and limits on maximum benefits, including limitation on the coverage period for business interruption, and we cannot assure you that we will be able to fully insure such losses or fully collect, if at all, on claims resulting from such extreme weather conditions. Furthermore, such extreme weather conditions may interrupt or impede access to our affected properties and may cause visits to our affected properties to decrease for an indefinite period, which would have a material adverse effect on our business, financial condition, results of operations and cash flows.

 

 

Because a significant number of our major gaming resorts are concentrated on the Las Vegas Strip, we are subject to greater risks than a gaming company that is more geographically diversified. Given that a significant number of our major resorts are concentrated on the Las Vegas Strip, our business may be significantly affected by risks common to the Las Vegas tourism industry. For example, the cost and availability of air services and the impact of any events that disrupt air

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travel to and from Las Vegas can adversely affect our business. We cannot control the number or frequency of flights to or from Las Vegas, but we rely on air traffic for a significant portion of our visitors. Reductions in flights by major airlines as a result of higher fuel prices or lower demand can impact the number of visitors to our resorts. Additionally, there is one principal interstate highway between Las Vegas and Southern California, where a large number of our customers reside. Capacity constraints of that highway or any other traffic disruptions may also affect the number of customers who visit our facilities.

 

 

We extend credit to a large portion of our customers and we may not be able to collect gaming receivables. We conduct a portion of our gaming activities on a credit basis through the issuance of markers which are unsecured instruments. Table games players typically are issued more markers than slot players, and high-end players typically are issued more markers than patrons who tend to wager lower amounts. High-end gaming is more volatile than other forms of gaming, and variances in win-loss results attributable to high-end gaming may have a significant positive or negative impact on cash flow and earnings in a particular quarter. Furthermore, the loss or a reduction in the play of the most significant of these high-end customers could have an adverse effect on our business, financial condition, results of operations and cash flows. We issue markers to those customers whose level of play and financial resources warrant, in the opinion of management, an extension of credit. In addition, MGM Grand Paradise extends credit to certain gaming promoters and those promoters can extend credit to their customers. Uncollectible receivables from high-end customers and gaming promoters could have a significant impact on our results of operations.

 

While gaming debts evidenced by markers and judgments on gaming debts are enforceable under the current laws of Nevada, and Nevada judgments on gaming debts are enforceable in all states under the Full Faith and Credit Clause of the U.S. Constitution, other jurisdictions may determine that enforcement of gaming debts is against public policy. Although courts of some foreign nations will enforce gaming debts directly and the assets in the U.S. of foreign debtors may be reached to satisfy a judgment, judgments on gaming debts from United States courts are not binding on the courts of many foreign nations.

 

Furthermore, we expect that MGM China will be able to enforce its gaming debts only in a limited number of jurisdictions, including Macau. To the extent MGM China gaming customers and gaming promoters are from other jurisdictions, MGM China may not have access to a forum in which it will be able to collect all of its gaming receivables because, among other reasons, courts of many jurisdictions do not enforce gaming debts and MGM China may encounter forums that will refuse to enforce such debts. Moreover, under applicable law, MGM China remains obligated to pay taxes on uncollectible winnings from customers.

 

Even where gaming debts are enforceable, they may not be collectible. Our inability to collect gaming debts could have a significant negative impact on our operating results.

 

 

We may incur impairments to goodwill, indefinite-lived intangible assets, or long-lived assets which could negatively affect our future profits. We review our goodwill, intangible assets and long-lived assets on an annual basis and during interim reporting periods in accordance with the authoritative guidance. Significant negative trends, reduced estimates of future cash flows, disruptions to our business, slower growth rates or lack of growth have resulted in write-downs and impairment charges in the past and, if one or more of such events occurs in the future, additional impairment charges or write-downs may be required in future periods. If we are required to record additional impairment charges or write-downs, this could have a material adverse impact on our consolidated results of operations.

 

 

Leisure and business travel, especially travel by air, are particularly susceptible to global geopolitical events, such as terrorist attacks, other acts of violence or acts of war or hostility. We are dependent on the willingness of our customers to travel by air. Since most of our customers travel by air to our Las Vegas and Macau properties, any terrorist act or other acts of violence, outbreak of hostilities, escalation of war, or any actual or perceived threat to the security of travel by air could adversely affect our financial condition, results of operations and cash flows. Furthermore, although we have been able to purchase some insurance coverage for certain types of terrorist acts, insurance coverage against loss or business interruption resulting from war and some forms of terrorism continues to be unavailable.

 

 

Co-investing in our properties, including our investment in CityCenter, decreases our ability to manage risk. In addition to acquiring or developing hotels and resorts or acquiring companies that complement our business directly, we have from time to time invested, and expect to continue to invest, as a co-investor. Co-investors often have shared control over the operation of the property. Therefore, the operation of such properties is subject to inherent risk due to the shared nature of the enterprise and the need to reach agreements on material matters. In addition, investments with other investors may involve risks such as the possibility that the co-investor might become bankrupt or not have the financial resources to meet its obligations, or have economic or business interests or goals that are inconsistent with our business interests or goals, or be in a position to take action contrary to our instructions or requests or contrary to our policies or objectives. Consequently, actions by a co-investor might subject hotels and resorts owned by such entities to additional risk. Further, we may be unable to take action without the approval of our co-investors. Alternatively, our co-investors could take actions

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binding on the property without our consent. Additionally, should a co-investor become bankrupt, we could become liable for its share of liabilities.

 

For instance, CityCenter, which is 50% owned and managed by us, has a significant amount of indebtedness, which could adversely affect its business and its ability to meet its obligations. If CityCenter is unable to meet its financial commitments and we and our co-investor are unable to support future funding requirements, as necessary, such event could have adverse financial consequences to us. In addition, the agreements governing CityCenter’s indebtedness subject CityCenter and its subsidiaries to significant financial and other restrictive covenants, including restrictions on its ability to incur additional indebtedness, place liens upon assets, make distributions to us, make certain investments, consummate certain asset sales, enter into transactions with affiliates (including us) and merge or consolidate with any other person or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its assets. The CityCenter credit facility also includes certain financial covenants that require CityCenter to maintain a maximum total net leverage ratio (as defined in CityCenter’s credit facility) for each quarter. We cannot be sure that CityCenter will be able to meet this test in the future or that the lenders will waive any failure to meet the test.

 

 

Any of our future construction, development or expansion projects will be subject to significant development and construction risks, which could have a material adverse impact on related project timetables, costs and our ability to complete the projects.

 

Any of our future construction, development or expansion projects will be subject to a number of risks, including:

 

 

lack of sufficient, or delays in the availability of, financing;

 

changes to plans and specifications;

 

engineering problems, including defective plans and specifications;

 

shortages of, and price increases in, energy, materials and skilled and unskilled labor, and inflation in key supply markets;

 

delays in obtaining or inability to obtain necessary permits, licenses and approvals;

 

changes in laws and regulations, or in the interpretation and enforcement of laws and regulations, applicable to gaming, leisure, residential, real estate development or construction projects;

 

labor disputes or work stoppages;

 

availability of qualified contractors and subcontractors;

 

disputes with and defaults by contractors and subcontractors;

 

personal injuries to workers and other persons;

 

environmental, health and safety issues, including site accidents and the spread of viruses;

 

weather interferences or delays;

 

fires, typhoons and other natural disasters;

 

geological, construction, excavation, regulatory and equipment problems; and

 

other unanticipated circumstances or cost increases.

 

The occurrence of any of these development and construction risks could increase the total costs, delay or prevent the construction, development, expansion or opening or otherwise affect the design and features of any future projects which we might undertake. In addition, the regulatory approvals associated with our development projects may require us to open future casino resorts by a certain specified time and to the extent we are unable to meet those deadlines, and any such deadlines are not extended, we may lose our regulatory approval to open a casino resort in a proposed jurisdiction, or incur payment penalties in connection with any delays which could have an adverse effect on our results of operations and financial condition.

 

We also make significant capital expenditures to maintain and upgrade our resorts, which may disrupt operations and displace revenue at the properties, including revenue lost while rooms, restaurants and meeting spaces are under renovation and out of service.

 

 

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. Although we have “all risk” property insurance coverage for our operating properties, which covers damage caused by a casualty loss (such as fire, natural disasters, acts of war, or terrorism or other acts of violence), each policy has certain exclusions. In addition, our property insurance coverage is in an amount that may be significantly less than the expected replacement cost of rebuilding the facilities if there was a total loss. Our level of insurance coverage also may not be adequate to cover all losses in the event of a major casualty. In addition, certain casualty events, such as labor strikes, nuclear events, acts of war, loss of income due to cancellation of room reservations or conventions due to fear of terrorism or other acts of violence, loss of electrical power due to catastrophic events, rolling blackouts or otherwise, deterioration or corrosion, insect or animal

20


 

 

damage, and pollution, may not be covered at all under our policies. Therefore, certain acts could expose us to substantial uninsured losses.

 

In addition to the damage caused to our properties by a casualty loss, we may suffer business disruption as a result of these events or be subject to claims by third parties that may be injured or harmed. While we carry business interruption insurance and general liability insurance, this insurance may not be adequate to cover all losses in any such event.

 

We renew our insurance policies (other than our builder’s risk insurance) on an annual basis. The cost of coverage may become so high that we may need to further reduce our policy limits, further increase our deductibles, or agree to certain exclusions from our coverage.

 

 

Any failure to protect our trademarks could have a negative impact on the value of our brand names and adversely affect our business. The development of intellectual property is part of our overall business strategy, and we regard our intellectual property to be an important element of our success. While our business as a whole is not substantially dependent on any one trademark or combination of several of our trademarks or other intellectual property, we seek to establish and maintain our proprietary rights in our business operations through the use of trademarks. We file applications for, and obtain trademarks in, the United States and in foreign countries where we believe filing for such protection is appropriate. Despite our efforts to protect our proprietary rights, parties may infringe our trademarks and our rights may be invalidated or unenforceable. The laws of some foreign countries do not protect proprietary rights to as great an extent as the laws of the United States. Monitoring the unauthorized use of our intellectual property is difficult. Litigation may be necessary to enforce our intellectual property rights or to determine the validity and scope of the proprietary rights of others. Litigation of this type could result in substantial costs and diversion of resource. We cannot assure you that all of the steps we have taken to protect our trademarks in the United States and foreign countries will be adequate to prevent imitation of our trademarks by others. The unauthorized use or reproduction of our trademarks could diminish the value of our brand and its market acceptance, competitive advantages or goodwill, which could adversely affect our business.

 

 

We are subject to risks associated with doing business outside of the United States. Our operations outside of the United States are subject to risks that are inherent in conducting business under non-United States laws, regulations and customs. In particular, the risks associated with the operation of MGM China or any future operations in which we may engage in any other foreign territories, include:

 

 

changes in laws and policies that govern operations of companies in Macau or other foreign jurisdictions;

 

changes in non-United States government programs;

 

possible failure by our employees or agents to comply with anti-bribery laws such as the United States Foreign Corrupt Practices Act and similar anti-bribery laws in other jurisdictions;

 

general economic conditions and policies in China, including restrictions on travel and currency movements;

 

difficulty in establishing, staffing and managing non-United States operations;

 

different labor regulations;

 

changes in environmental, health and safety laws;

 

outbreaks of diseases or epidemics;

 

potentially negative consequences from changes in or interpretations of tax laws;

 

political instability and actual or anticipated military and political conflicts;

 

economic instability and inflation, recession or interest rate fluctuations; and

 

uncertainties regarding judicial systems and procedures.

 

These risks, individually or in the aggregate, could have an adverse effect on our results of operations and financial condition.

 

We are also exposed to a variety of market risks, including the effects of changes in foreign currency exchange rates. If the United States dollar strengthens in relation to the currencies of other countries, our United States dollar reported income from sources where revenue is denominated in the currencies of other such countries will decrease.

 

 

Any violation of the Foreign Corrupt Practices Act or any other similar anti-corruption laws could have a negative impact on us. A significant portion of our revenue is derived from operations outside the United States, which exposes us to complex foreign and U.S. regulations inherent in doing cross-border business and in each of the countries in which we transact business. We are subject to compliance with the United States Foreign Corrupt Practices Act (“FCPA”) and other similar anti-corruption laws, which generally prohibit companies and their intermediaries from making improper payments to foreign government officials for the purpose of obtaining or retaining business. While our employees and agents are required to comply with these laws, we cannot be sure that our internal policies and procedures will always protect us from violations of these laws, despite our commitment to legal compliance and corporate ethics. Violations of these laws by us or our non-controlled ventures may result in severe criminal and civil sanctions as well as other penalties against us, and the SEC and U.S. Department of Justice continue to vigorously pursue enforcement of the FCPA. The occurrence or allegation

21


 

 

of these types of risks may adversely affect our business, performance, prospects, value, financial condition, and results of operations.

 

 

We face risks related to pending claims that have been, or future claims that may be, brought against us. Claims have been brought against us and our subsidiaries in various legal proceedings, and additional legal and tax claims arise from time to time. We may not be successful in the defense or prosecution of our current or future legal proceedings, which could result in settlements or damages that could significantly impact our business, financial condition, results of operations and reputation. Please see the further discussion in “Legal Proceedings” and Note 11 in the accompanying consolidated financial statements.

 

 

A significant portion of our labor force is covered by collective bargaining agreements. Work stoppages and other labor problems could negatively affect our business and results of operations. As of December 31, 2018, approximately 39,000 of our employees are covered by collective bargaining agreements. In January 2019, we acquired operations in New York that employ approximately 1,000 employees, a portion of which are covered by collective bargaining agreements. We anticipate several of these agreements will be negotiated in 2019. Also, in July 2018, MGP acquired its property in Northfield, Ohio, which continues to be operated (on behalf of MGP) by an affiliate of Hard Rock International (STP), Inc. MGM expects to acquire these operations in the first half of 2019, subject to certain customary closing conditions.  The Ohio operation has employees covered by collective bargaining agreements, several of which we anticipate will be negotiated in 2019. A prolonged dispute with the covered employees or any labor unrest, strikes or other business interruptions in connection with labor negotiations or others could have an adverse impact on our operations. Further, adverse publicity in the marketplace related to union messaging could further harm our reputation and reduce customer demand for our services. Also, wage and/or benefit increases resulting from new labor agreements may be significant and could also have an adverse impact on our results of operations. To the extent that our non-union employees join unions, we would have greater exposure to risks associated with labor problems. Furthermore, we may have, or acquire in the future, multi-employer plans that are classified as “endangered,” “seriously endangered,” or “critical” status. For instance, Borgata’s most significant plan is the Legacy Plan of the National Retirement Fund (which spun-off into a newly established fund as of January 1, 2018), which has been listed in “critical status” and is subject to a rehabilitation plan. Plans in these classifications must adopt measures to improve their funded status through a funding improvement or rehabilitation plan, which may require additional contributions from employers (which may take the form of a surcharge on benefit contributions) and/or modifications to retiree benefits. In addition, while Borgata has no current intention to withdraw from these plans, a withdrawal in the future could result in the incurrence of a contingent liability that would be payable in an amount and at such time (or over a period of time) that would vary based on a number of factors at the time of (and after) withdrawal. Any such additional costs may be significant.

 

 

Our business is particularly sensitive to energy prices and a rise in energy prices could harm our operating results. We are a large consumer of electricity and other energy and, therefore, higher energy prices may have an adverse effect on our results of operations. Accordingly, increases in energy costs may have a negative impact on our operating results. Additionally, higher electricity and gasoline prices that affect our customers may result in reduced visitation to our resorts and a reduction in our revenues.

 

 

The failure to maintain the integrity of our computer systems and customer information could result in damage to our reputation and/or subject us to fines, payment of damages, lawsuits and restrictions on our use of data. We collect and process information relating to our employees, guests, and others for various business purposes, including marketing and promotional purposes. The collection and use of personal data are governed by privacy laws and regulations enacted by the various states, the United States and other jurisdictions around the world. Privacy laws and regulations continue to evolve and on occasion may be inconsistent between jurisdictions. Various federal, state and foreign legislative or regulatory bodies may enact or adopt new or additional laws and regulations concerning privacy, data retention, data transfer, and data protection. For example, the European Union has adopted a data protection regulation known as the General Data Protection Regulation, which became fully enforceable in May 2018, that includes operational and compliance requirements with significant penalties for non-compliance. In addition, California has enacted a new privacy law, known as the California Consumer Privacy Act of 2018, which takes effect in 2020 and provides some of the strongest privacy requirements in the United States.

 

Compliance with applicable privacy laws and regulations may increase our operating costs and/or adversely impact our ability to market our products, properties and services to our guests. In addition, non-compliance with applicable privacy laws and regulations by us (or in some circumstances non-compliance by third parties engaged by us), including accidental loss, inadvertent disclosure, unapproved dissemination or a breach of security on systems storing our data may result in damage to our reputation and/or subject us to fines, payment of damages, lawsuits or restrictions on our use or transfer of data. We rely on proprietary and commercially available systems, software, and tools to provide security for processing of customer and employee information, such as payment card and other confidential or proprietary information. Our data security measures are reviewed and evaluated regularly; however, they might not protect us against increasingly sophisticated and aggressive threats including, but not limited to, computer malware, viruses, hacking and phishing attacks by third parties. In addition, while we maintain cyber risk insurance to assist in the cost of recovery from a significant cyber event, such coverage may not be sufficient.

 

22


 

We also rely extensively on computer systems to process transactions, maintain information and manage our businesses. Disruptions in the availability of our computer systems, through cyber-attacks or otherwise, could impact our ability to service our customers and adversely affect our sales and the results of operations. For instance, there has been an increase in criminal cyber security attacks against companies where customer and company information has been compromised and company data has been destroyed. Our information systems and data, including those we maintain with our third-party service providers, may be subject to cyber security breaches in the future. In addition, our third-party information system service providers face risks relating to cyber security similar to ours, and we do not directly control any of such parties’ information security operations. A significant theft, loss or fraudulent use of customer or company data maintained by us or by a third-party service provider could have an adverse effect on our reputation, cause a material disruption to our operations, and result in remediation expenses, regulatory penalties and litigation by customers and other parties whose information was subject to such attacks, all of which could have a material adverse effect on our business, results of operations and cash flows.

 

 

We are subject to risks related to corporate social responsibility and reputation. Many factors influence our reputation and the value of our brands including the perception held by our customers, business partners, other key stakeholders and the communities in which we do business. Our business faces increasing scrutiny related to environmental, social and governance activities and risk of damage to our reputation and the value of our brands if we fail to act responsibly in a number of areas, such as diversity and inclusion, environmental stewardship, supply chain management, climate change, workplace conduct, human rights, philanthropy and support for local communities. Any harm to our reputation could impact employee engagement and retention and the willingness of customers and our partners to do business with us, which could have a material adverse effect on our business, results of operations and cash flows.

 

 

We may seek to expand through investments in other businesses and properties or through alliances or acquisitions, and we may also seek to divest some of our properties and other assets, any of which may be unsuccessful. We intend to consider strategic and complementary acquisitions and investments in other businesses, properties or other assets. Furthermore, we may pursue any of these opportunities in alliance with third parties, including MGP. Acquisitions and investments in businesses, properties or assets, as well as these alliances, are subject to risks that could affect our business, including risks related to:

 

 

spending cash and incurring debt;

 

assuming contingent liabilities;

 

unanticipated issues in integrating information, communications and other systems;

 

unanticipated incompatibility of purchasing, logistics, marketing and administration methods;

 

retaining key employees; and

 

consolidating corporate and administrative infrastructures.

 

We cannot assure you that we will be able to identify opportunities or complete transactions on commercially reasonable terms or at all, or that we will actually realize any anticipated benefits from such acquisitions, investments or alliances. In addition, even if we are able to successfully integrate new assets and businesses, the integration of such assets and businesses may result in unanticipated costs, competitive responses, loss or customer or other business relationships and the diversion of management attention.

 

In addition, we periodically review our business to identify properties or other assets that we believe either are non-core, no longer complement our business, are in markets which may not benefit us as much as other markets or could be sold at significant premiums. From time to time, we may attempt to sell these identified properties and assets. There can be no assurance, however, that we will be able to complete dispositions on commercially reasonable terms or at all.

 

 

If the jurisdictions in which we operate increase gaming taxes and fees, our results could be adversely affected. State and local authorities raise a significant amount of revenue through taxes and fees on gaming activities. From time to time, legislators and government officials have proposed changes in tax laws, or in the administration of such laws, affecting the gaming industry. Periods of economic downturn or uncertainty and budget deficits may intensify such efforts to raise revenues through increases in gaming taxes. If the jurisdictions in which we operate were to increase gaming taxes or fees, depending on the magnitude of the increase and any offsetting factors, our financial condition and results of operations could be materially adversely affected. For instance, income generated from gaming operations of MGM Grand Paradise currently has the benefit of a corporate tax exemption in Macau, which exempts us from paying the 12% complementary tax on profits generated by the operation of casino games. This exemption is effective through March 31, 2020, which also runs concurrent with the end of the term of the current gaming subconcession. Due to the uncertainty concerning taxation after the subconcession renewal process, we cannot assure you that any extensions of the tax exemption will be granted beyond March 31, 2020.

 

23


 

 

Conflicts of interest may arise because certain of our directors and officers are also directors of MGM China, the holding company for MGM Grand Paradise which owns and operates MGM Macau and MGM Cotai. As a result of the initial public offering of shares of MGM China common stock in 2011, MGM China has stockholders who are not affiliated with us, and we and certain of our officers and directors who also serve as officers and/or directors of MGM China may have conflicting fiduciary obligations to our stockholders and to the minority stockholders of MGM China. Decisions that could have different implications for us and MGM China, including contractual arrangements that we have entered into or may in the future enter into with MGM China, may give rise to the appearance of a potential conflict of interest or an actual conflict of interest.

 

ITEM 1B.  

UNRESOLVED STAFF COMMENTS

 

None.

24


 

ITEM 2.

PROPERTIES

 

The location and general characteristics of our properties are provided in Part I, Item 1. Business. Our significant land holdings are described below; unless otherwise indicated, all properties are indirectly owned by us. We also own or lease various other improved and unimproved properties in Las Vegas and other locations in the United States and certain foreign countries.

 

Domestic land holdings

The following table lists certain of our domestic land holdings on a consolidated basis as of December 31, 2018, including land and ground leases held by a subsidiary of the Operating Partnership, which we lease pursuant to the terms of the master lease. 

 

 

 

Approximate

 

 

Name and Location

 

Acres

 

Notes

Las Vegas Strip Resorts

 

 

 

 

Bellagio

 

77

 

Approximately two acres of the site are subject to two ground leases.

MGM Grand Las Vegas

 

102

 

 

Mandalay Bay

 

124

 

 

The Mirage

 

77

 

 

Luxor

 

73

 

Includes 15 acres of land located across the Las Vegas Strip from Luxor.

Excalibur

 

51

 

 

New York-New York

 

23

 

Includes three acres of land related to The Park entertainment district development located between Park MGM and New York-New York.

Park MGM

 

21

 

 

Circus Circus Las Vegas

 

102

 

Includes approximately 34 acres of land located north of Circus Circus Las Vegas.

Regional Operations

 

 

 

 

MGM Grand Detroit (Detroit, Michigan)

 

27

 

 

Beau Rivage (Biloxi, Mississippi)

 

42

 

10 acres are subject to a tidelands lease.

Gold Strike (Tunica, Mississippi)

 

24

 

 

MGM National Harbor (Prince George's County, Maryland)

 

23

 

All 23 acres are subject to a ground lease.

Borgata (Atlantic City, New Jersey)

 

46

 

11 acres are subject to ground leases.

MGM Springfield (Springfield, Massachusetts)

 

14

 

 

Other

 

 

 

 

Hard Rock Rocksino Northfield Park (Northfield, Ohio)

 

113

 

 

 

The land and substantially all of the assets of MGM Grand Las Vegas and Bellagio secure the obligations under our senior credit facility. In addition, the senior credit facility is secured by a pledge of the equity or limited liability company interests of the subsidiaries that own MGM Grand Las Vegas and Bellagio.

 

MGM China

 

MGM Macau occupies an approximately 10-acre site and MGM Cotai occupies an approximately 18-acre site, both of which are possessed under separate land concession agreements with the Macau government. The MGM China credit facility is secured by MGM Grand Paradise’s interest in the MGM Cotai and MGM Macau land concessions, and MGM China, MGM Grand Paradise and their guarantor subsidiaries have granted a security interest in substantially all of their assets to secure the facility. The credit facility borrowings are non-recourse to us. See Note 9 to the accompanying consolidated financial statements for additional discussion on long-term debt.

 

25


 

Operating Partnership

 

Pursuant to a master lease agreement between a subsidiary of the Company and a subsidiary of the Operating Partnership (the “landlord”), the real estate assets of The Mirage, Mandalay Bay, Luxor, New York-New York, Park MGM, Excalibur, The Park, Gold Strike Tunica, MGM Grand Detroit, Beau Rivage, Borgata, and MGM National Harbor are leased from a subsidiary of the Operating Partnership. The land and substantially all of the assets of MGP’s properties including the Hard Rock Rocksino Northfield Park, other than MGM National Harbor and Empire City, secure the obligations under the Operating Partnership’s credit agreement. These borrowings are non-recourse to us. See Note 9 to the accompanying consolidated financial statements for additional discussion on long-term debt.

 

Other than as described above, none of our properties are subject to any major encumbrance.

 

 

ITEM 3.

LEGAL PROCEEDINGS

 

October 1 litigation. We and/or certain of our subsidiaries have been named as defendants in a number of lawsuits related to the October 1, 2017 shooting in Las Vegas. The matters involve in large degree the same legal and factual issues, each case being filed on behalf of individuals who are seeking damages for emotional distress, physical injury, medical expenses, economic damages and/or wrongful death based on assertions that we and/or certain of our subsidiaries were negligent. We also received letters from attorneys purporting to represent other persons with claims related to the October 1, 2017 shooting. Lawsuits were first filed in October 2017 and include actions filed by multiple individuals in the District Court of Clark County, Nevada and in the Superior Court of Los Angeles County, California. Some of the original actions have been voluntarily dismissed, and plaintiffs’ counsel indicate they anticipate re-filing the lawsuits in similar form. In June 2018, we removed to federal court all actions that remained pending in California and Nevada state courts following the voluntary dismissals. Motions to remand have been filed in several cases, and we anticipate that there may be additional motions to remand filed in the future. We also initiated declaratory relief actions in federal courts in various districts against individuals who had sued or stated an intent to sue. Additional lawsuits related to this incident may be filed in the future. In February of 2019, we and plaintiffs’ counsel commenced mediation of these matters.  The above-described litigation currently is stayed pending mediation.

 

We are currently unable to reliably predict the future developments in, outcome of, and economic costs and other consequences of pending or future litigation related to this matter. We will continue to investigate the factual and legal defenses, and evaluate these matters based on subsequent events, new information and future circumstances. We intend to defend against these lawsuits and ultimately believe we should prevail, but litigation of this type is inherently unpredictable. Although there are significant procedural, factual and legal issues to be resolved that could significantly affect our belief as to the possibility of liability, we currently believe that it is reasonably possible that we could incur liability in connection with certain of these lawsuits. The foregoing determination was made in accordance with generally accepted accounting principles, as codified in ASC 450-20, and is not an admission of any liability on the part of us or any of our affiliates. Given that these cases are in the early stages and in light of the uncertainties surrounding them, we do not currently possess sufficient information to determine a range of reasonably possible liability. In the event we incur any liability, we believe it is unlikely we would incur losses in connection with these claims in excess of our insurance coverage. The insurance carriers have not expressed a reservation of rights or coverage defense that affects our evaluation of potential losses in connection with these claims. In addition, our general liability insurance coverage provides, as part of the contractual “duty to defend”, payment of legal fees and associated costs incurred to defend covered lawsuits that are filed arising from the October 1, 2017 shooting in Las Vegas. Payment of such fees and costs is in addition to (and not limited by) the limits of the insurance policies and does not erode the total liability coverage available.

 

Other. We are a party to various legal proceedings, most of which relate to routine matters incidental to our business. Management does not believe that the outcome of such proceedings will have a material adverse effect on our financial position, results of operations or cash flows.

 

ITEM 4.

MINE SAFETY DISCLOSURES

 

Not applicable.

 

26


 

PART II

 

ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Common Stock Information

 

Our common stock is traded on the New York Stock Exchange (“NYSE”) under the symbol “MGM.”

 

There were approximately 3,657 record holders of our common stock as of February 22, 2019.

 

Dividend Policy

 

The Company implemented a dividend program in February 2017 pursuant to which it has paid regular quarterly dividends. The amount, declaration and payment of any future dividends will be subject to the discretion of our Board of Directors who will evaluate our dividend policy from time to time based on factors it deems relevant, and the contractual limitations described below. In addition, as a holding company with no independent operations, our ability to pay dividends will depend upon the receipt of cash from our operating subsidiaries to generate the funds from operations necessary to pay dividends on our common stock. Furthermore, our senior credit facility contains financial covenants and restrictive covenants that could restrict our ability to pay dividends, subject to certain exceptions. In addition, the Operating Partnership and MGM China credit facilities each contain limitations on the ability of the applicable subsidiary under each credit agreement to pay dividends to us. There can be no assurance that we will continue to pay dividends in the future.

 

Purchases of Equity Securities by the Issuer

 

The following table provides information about share repurchases made by the Company of its common stock during the quarter ended December 31, 2018:

 

 

 

 

 

 

 

 

 

 

Total Number

 

 

Dollar Value of

 

 

Total

 

 

 

 

 

 

of Shares

 

 

Shares that May

 

 

Number of

 

 

Average

 

 

Purchased as

 

 

Yet be Purchased

 

 

Shares

 

 

Price Paid

 

 

Part of a Publicly

 

 

Under the Program

 

Period

Purchased

 

 

per Share

 

 

Announced Program

 

 

(In thousands)

 

October 1, 2018 — October 31, 2018

 

5,968,406

 

 

$

25.13

 

 

 

5,968,406

 

 

$

1,389,031

 

November 1, 2018 — November 30, 2018

 

 

 

$

 

 

 

 

 

$

1,389,031

 

December 1, 2018 — December 31, 2018

 

 

 

$

 

 

 

 

 

$

1,389,031

 

 

On May 10, 2018, the Company announced that its Board of Directors had adopted a $2.0 billion stock repurchase program, and that the previously announced $1.0 billion stock repurchase program had been completed. All repurchases under the stock repurchase program are made from time to time at the Company’s discretion in the open market or in privately negotiated agreements. Repurchases of common stock may also be made under a Rule 10b5-1 plan, which would permit common stock to be repurchased when the Company might otherwise be precluded from doing so under insider trading laws. Repurchases under the program may be suspended or discontinued at any time. All shares repurchased by the Company during the quarter ended December 31, 2018 were purchased pursuant to the Company’s publicly announced stock repurchase programs and have been retired.


27


 

 

PERFORMANCE GRAPH

 

The graph below matches our cumulative Five-Year total shareholder return on common stock with the cumulative total returns of the Dow Jones US Total Return index, the S&P 500 index and the Dow Jones US Gambling index. The graph tracks the performance of a $100 investment in our common stock and in each index (with the reinvestment of all dividends as required by the SEC) from December 31, 2013 to December 31, 2018. The return shown on the graph is not necessarily indicative of future performance.

 

The following performance graph shall not be deemed to be "filed" for purposes of Section 18 of the Exchange Act, nor shall this information be incorporated by reference into any future filing under the Securities Act or the Exchange Act, except to the extent that we specifically incorporate it by reference into a filing.

 


28


 

ITEM 6.

SELECTED FINANCIAL DATA

 

The following reflects selected historical financial data that should be read in conjunction with “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K. The historical results are not necessarily indicative of the results of operations to be expected in the future.

 

 

 

2018

 

 

2017

 

 

2016

 

 

2015

 

 

2014

 

 

 

(In thousands, except per share data)

 

Net revenues

 

$

11,763,096

 

 

$

10,797,479

 

 

$

9,478,269

 

 

$

9,179,590

 

 

$

10,081,984

 

Operating income (loss)

 

 

1,469,486

 

 

 

1,712,527

 

 

 

2,078,199

 

 

 

(152,838

)

 

 

1,323,538

 

Net income (loss)

 

 

583,894

 

 

 

2,088,184

 

 

 

1,235,846

 

 

 

(1,037,444

)

 

 

127,178

 

Net income (loss) attributable to MGM Resorts

   International

 

 

466,772

 

 

 

1,952,052

 

 

 

1,100,408

 

 

 

(445,515

)

 

 

(149,873

)

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share

 

$

0.82

 

 

$

3.38

 

 

$

1.94

 

 

$

(0.82

)

 

$

(0.31

)

Weighted average common shares

 

 

544,253

 

 

 

572,253

 

 

 

568,134

 

 

 

542,873

 

 

 

490,875

 

Diluted:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share

 

$

0.81

 

 

$

3.34

 

 

$

1.92

 

 

$

(0.82

)

 

$

(0.31

)

Weighted average common shares

 

 

549,536

 

 

 

578,795

 

 

 

573,317

 

 

 

542,873

 

 

 

490,875

 

Dividends declared per common share

 

$

0.48

 

 

$

0.44

 

 

$

 

 

$

 

 

$

 

At-year end:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

30,210,706

 

 

$

29,160,042

 

 

$

28,174,400

 

 

$

25,215,178

 

 

$

26,593,914

 

Total debt, including capital leases

 

 

15,153,203

 

 

 

12,922,712

 

 

 

13,000,792

 

 

 

12,713,416

 

 

 

14,063,563

 

Stockholders' equity

 

 

10,469,791

 

 

 

11,611,124

 

 

 

9,941,957

 

 

 

7,764,427

 

 

 

7,628,274

 

MGM Resorts International stockholders' equity

 

 

6,512,283

 

 

 

7,577,061

 

 

 

6,192,825

 

 

 

5,119,927

 

 

 

4,090,917

 

MGM Resorts International stockholders' equity per share

 

$

12.35

 

 

$

13.38

 

 

$

10.79

 

 

$

9.06

 

 

$

8.33

 

Number of shares outstanding

 

 

527,480

 

 

 

566,276

 

 

 

574,124

 

 

 

564,839

 

 

 

491,292

 

 

The following events/transactions affect the year-to-year comparability of the selected financial data presented above:

 

Acquisitions, Dispositions, and Significant Transactions

 

 

In 2015, we recorded a gain of $23 million related to the sale of Circus Circus Reno and our 50% interest in Silver Legacy and associated real property.

 

In 2016, we recorded a $401 million gain for our share of CityCenter’s gain on the sale of the Shops at Crystals (“Crystals”).

 

In 2016, we received net proceeds of $1.1 billion in connection with MGP’s IPO.

 

In 2016, we recorded a gain of $430 million on our acquisition of Boyd Gaming’s ownership interest in Borgata on August 1, 2016, and began to consolidate Borgata beginning on that date.

 

In 2016, we opened MGM National Harbor.

 

In 2018, we opened MGM Cotai and MGM Springfield; MGP acquired Northfield.

 

In 2018, we recorded a gain of $45 million related to the sale of our 50% ownership interest in Grand Victoria.

 

Other

 

 

In 2014, we recorded an impairment charge of $29 million related to our investment in Grand Victoria.

 

In 2015, we recorded a goodwill impairment charge of $1.5 billion at MGM China and a $17 million impairment charge related to our investment in Grand Victoria.

 

In 2015, we recorded an $80 million gain for our share of CityCenter’s gain resulting from the final resolution of its construction litigation and related settlements.

 

In 2016, we recorded a $67 million loss on early retirement of debt.

 

In 2016, we recorded a $152 million expense related to our strategic decision to exit the fully bundled sales system of NV Energy. In 2017, we then recorded a gain of $45 million related to the NV Energy exit fee modification.

 

In 2017, we recorded a $44 million loss on early retirement of debt.

 

In 2017, we recorded a gain of $36 million related to the Borgata property tax settlement.

29


 

 

In 2017, we recorded a $1.4 billion tax benefit related to the enactment of the U.S. Tax Cuts and Jobs Act (“Tax Act”). In 2018, we then recorded a $20 million tax expense related to the Tax Act.

 

In 2018, we received $24 million in business interruption insurance proceeds related to the October 1, 2017 shooting in Las Vegas.

 

Additionally, on January 1, 2018, we adopted ASC 606, “Revenue from Contracts with Customers (Topic 606)” on a full retrospective basis. Accordingly, financial data as of and for the years ended December 31, 2018, 2017, and 2016, and the income statement data for the years ended December 31, 2018, 2017, 2016 and 2015, reflect such adoption.  

 

 

 

30


 

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Executive Overview

 

Our primary business is the ownership and operation of casino resorts, which offer gaming, hotel, convention, dining, entertainment, retail and other resort amenities. We own or invest in several of the finest casino resorts in the world and we continually reinvest 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 fund capital expenditures, provide excess cash flow for future development and repay debt financings. We make significant investments in our resorts through newly remodeled hotel rooms, restaurants, entertainment and nightlife offerings, as well as other new features and amenities.

 

Our results of operations are affected by decisions we make related to our capital allocation, our access to capital and our cost of capital. While we continue to be focused on improving our financial position and returning capital to shareholders, we are also dedicated to capitalizing on strategic development or initiatives.

 

During the year ended December 31, 2018, Las Vegas visitor volume decreased 0.2%, Las Vegas Strip REVPAR increased 1% and Las Vegas Strip gaming revenue increased by 2% compared to the prior year period according to information published by the Las Vegas Convention and Visitors Authority. Results of operations for our Las Vegas Strip Resorts during 2018 were negatively impacted by disruption related to the repositioning and rebranding of Park MGM, discussed below.

 

Our Regional Operations results are driven and affected by the increasingly competitive jurisdictions that they operate in, including the expansion of other jurisdictions that permit gaming. Results of operations at our Regional Operations were negatively affected by the opening of two casino resorts in Atlantic City, New Jersey in June 2018, which impacted Borgata’s operating results, and benefitted from the opening of MGM Springfield in August 2018, discussed below.

 

Gross gaming revenue in the Macau market increased 14% in 2018 compared to 2017, primarily as a result of growth on the Cotai Strip. Additionally, according to statistics published by the Statistics and Census Service of the Macau Government, visitor arrivals increased 10% and overnight visitors increased 7% in 2018 compared to 2017. As a significant number of MGM Macau’s customers are from mainland China, we believe operating results at MGM Macau are affected by economic conditions in mainland China as well as certain policy initiatives enacted in mainland China and Macau. Despite concerns over the sustainability of economic growth in China, we expect the Macau market to grow on a long-term basis due to further development and penetration of the mainland China market and infrastructure improvements expected to facilitate more convenient travel to and within Macau. We believe recent trends reflect stabilization and growth within the Macau market as gross gaming revenue has increased consistently over the last several years. Additionally, we have seen growth due to the opening of MGM Cotai in February 2018.

 

Pursuant to a master lease agreement between the tenant and the landlord, the tenant leases the real estate assets of The Mirage, Mandalay Bay, Luxor, New York-New York, Park MGM, Excalibur, The Park, Gold Strike Tunica, MGM Grand Detroit, Beau Rivage, Borgata, and MGM National Harbor from the landlord. See Note 1 in the accompanying consolidated financial statements for information regarding MGP and the Operating Partnership, which we consolidate in our financial statements, and Note 17 in the accompanying consolidated financial statements for information regarding the master lease with MGP. All intercompany transactions, including transactions under the master lease, have been eliminated in consolidation.

 

In July 2018, MGP completed its acquisition of the membership interests of Northfield, an Ohio limited liability company that owns the real estate assets and operations of the Hard Rock Rocksino Northfield Park. Simultaneously with the close of the transaction, MGP entered into a new agreement with an affiliate of Hard Rock Café International (STP), Inc. to continue to serve as the manager of the property. See Note 4 and Note 17 in the accompanying financial statements for information regarding this acquisition, the Empire City Acquisition, the Northfield OpCo sale, and the Park MGM Lease Transaction.

 

In January 2019, we announced the implementation of the MGM 2020 plan to further reduce costs, improve efficiencies and position us for growth. We expect to deliver annualized Adjusted EBITDA benefit of $300 million in aggregate, consisting of $200 million by the end of 2020 and an additional $100 million by the end of 2021. The MGM 2020 plan will be a company-wide, business-optimization initiative aimed to leverage a more centralized organization to maximize profitability and, through key investments in technology, lay the groundwork for our digital transformation to drive revenue growth.

31


 

Key Performance Indicators

Key performance indicators related to gaming and hotel revenue 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 22% to 26% of table games drop and 18% to 21% of table games drop at our Las Vegas Strip Resorts and Regional Operations, respectively, and our normal slots hold percentage is in the range of 8.5% to 9% of slots handle and 9% to 9.5% of slots handle at our Las Vegas Strip Resorts and Regional Operations, respectively; and

 

 

Hotel revenue indicators: hotel occupancy (a volume indicator); average daily rate (“ADR,” a price indicator); and revenue per available room (“REVPAR,” a summary measure of hotel results, combining ADR and occupancy rate). Our calculation of ADR, which is the average price of occupied rooms per day, includes the impact of complimentary rooms. Complimentary room rates are determined based on standalone selling price. Because the mix of rooms provided on a complimentary basis, particularly to casino customers, includes a disproportionate suite component, the composite ADR including complimentary rooms is slightly higher than the ADR for cash rooms, reflecting the higher retail value of suites.

 

Additional key performance indicators at MGM China are:

 

 

Gaming revenue indicators: MGM China utilizes “turnover,” which is the sum of nonnegotiable chip wagers won by MGM China calculated as nonnegotiable chips purchased plus nonnegotiable chips exchanged less nonnegotiable chips returned. Turnover provides a basis for measuring VIP casino win percentage. Win for VIP gaming operations at MGM China is typically in the range of 2.7% to 3.3% of turnover. Win for main floor gaming operations at MGM China is typically in the range of 16% to 22% of table games drop.

 

Results of Operations

 

The following discussion is based on our consolidated financial statements for the years ended December 31, 2018, 2017 and 2016.

 

Summary Financial Results

 

The following table summarizes our operating results:

 

 

 

Year Ended December 31,

 

 

 

2018

 

 

2017

 

 

2016

 

 

 

(In thousands)

 

Net revenues

 

$

11,763,096

 

 

$

10,797,479

 

 

$

9,478,269

 

Operating income

 

 

1,469,486

 

 

 

1,712,527

 

 

 

2,078,199

 

Net income

 

 

583,894

 

 

 

2,088,184

 

 

 

1,235,846

 

Net income attributable to MGM Resorts International

 

 

466,772

 

 

 

1,952,052

 

 

 

1,100,408

 

 

Summary Operating Results

 

Consolidated net revenues for 2018 increased 9% compared to 2017 due primarily to the opening of MGM Cotai on February 13, 2018 and the opening of MGM Springfield on August 24, 2018. Consolidated net revenues for 2017 increased 14% compared to 2016 due primarily to the full year of operations at Borgata and MGM National Harbor, an increase in casino revenue and rooms revenue at our Las Vegas Strip Resorts and an increase in casino revenue at MGM China, as discussed further below.

 

32


 

Consolidated operating income in 2018 decreased 14% compared to 2017. Consolidated operating income in 2018 benefited from a $45 million gain related to the sale of Grand Victoria and also included $24 million of business interruption insurance proceeds primarily at Mandalay Bay. The prior year period included a benefit of $36 million related to Borgata’s share of a property tax settlement from Atlantic City and a benefit of $45 million related to the modification of the NV Energy exit fee, which included the benefit recognized at our Las Vegas Strip Resorts as well as our 50% share of the benefit recognized at CityCenter. Consolidated operating income was negatively affected by the ramp up of operations at our recently opened MGM Springfield and MGM Cotai resorts inclusive of depreciation expense associated with the new resorts, disruption related to the rebranding at Park MGM, and an increase in corporate expense discussed below. In addition, preopening and start-up expenses increased as discussed below in “Operating Results – Details of Certain Charges.” Corporate expense, including share-based compensation for corporate employees, increased to $419 million in 2018 from $357 million in 2017, and included $19 million in transaction costs, MGM China corporate expense of $19 million, and costs incurred related to the corporate brand campaign and the MGM 2020 and finance modernization initiatives. Depreciation and amortization expense related to certain assets at MGM China of $166 million was included in corporate in our non-GAAP reconciliations included herein for 2018. Income from unconsolidated affiliates was $148 million in 2018 compared to $146 million in 2017.

 

Consolidated operating income was $1.7 billion in 2017 and included the impact of the items discussed above as well as a full year of operations at Borgata and MGM National Harbor. Operating income of $2.1 billion in 2016 included a $430 million gain recognized on the Borgata acquisition and a $401 million gain related to the sale of Crystals at CityCenter, which was partially offset by charges of $152 million of NV Energy exit expense associated with our strategic decision to exit the fully bundled sales system of NV Energy. Operating income in 2017 also benefitted from a decrease in preopening expense as discussed below in “Operating Results – Details of Certain Charges.” Corporate expense increased to $357 million in 2017 from $313 million in 2016, primarily from a $16 million charge for the Operating Partnership’s share of real estate transfer taxes recorded in connection with the MGM National Harbor transaction, with the remainder of the increase primarily related to corporate brand campaign expenses, legal expenses, and charitable contributions. Income from unconsolidated affiliates was $146 million in 2017 compared to $528 million in 2016, which included the gain related to the sale of Crystals.

 

33


 

Net Revenues by Segment

 

The following table presents a detail by segment of net revenues:

 

 

 

Year Ended December 31,

 

 

 

2018

 

 

2017

 

 

2016

 

 

 

(In thousands)

 

Las Vegas Strip Resorts

 

 

 

 

 

 

 

 

 

 

 

 

Table games win

 

$

949,055

 

 

$

931,508

 

 

$

909,101

 

Slots win

 

 

1,140,269

 

 

 

1,106,192

 

 

 

1,100,761

 

Other

 

 

62,249

 

 

 

67,150

 

 

 

60,620

 

Less: Incentives

 

 

(743,840

)

 

 

(668,020

)

 

 

(675,662

)

   Casino revenue

 

 

1,407,733

 

 

 

1,436,830

 

 

 

1,394,820

 

Rooms

 

 

1,776,029

 

 

 

1,778,869

 

 

 

1,762,850

 

Food and beverage

 

 

1,402,378

 

 

 

1,410,496

 

 

 

1,432,717

 

Entertainment, retail and other

 

 

1,130,532

 

 

 

1,119,928

 

 

 

1,074,307

 

   Non-casino revenue

 

 

4,308,939

 

 

 

4,309,293

 

 

 

4,269,874

 

 

 

 

5,716,672

 

 

 

5,746,123

 

 

 

5,664,694

 

Regional Operations

 

 

 

 

 

 

 

 

 

 

 

 

Table games win

 

 

793,754

 

 

 

722,966

 

 

 

341,090

 

Slots win

 

 

1,947,325

 

 

 

1,784,452

 

 

 

1,137,719

 

Other

 

 

108,690

 

 

 

92,377

 

 

 

32,268

 

Less: Incentives

 

 

(822,844

)

 

 

(764,992

)

 

 

(493,220

)

   Casino revenue

 

 

2,026,925

 

 

 

1,834,803

 

 

 

1,017,857

 

Rooms

 

 

318,017

 

 

 

319,049

 

 

 

182,809

 

Food and beverage

 

 

428,934

 

 

 

410,143

 

 

 

235,383

 

Entertainment, retail and other

 

 

160,645

 

 

 

145,725

 

 

 

84,108

 

   Non-casino revenue

 

 

907,596

 

 

 

874,917

 

 

 

502,300

 

 

 

 

2,934,521

 

 

 

2,709,720

 

 

 

1,520,157

 

MGM China

 

 

 

 

 

 

 

 

 

 

 

 

VIP table games win

 

 

1,235,387

 

 

 

1,099,303

 

 

 

1,111,904

 

Main floor table games win

 

 

1,391,454

 

 

 

1,044,415

 

 

 

990,520

 

Slots win

 

 

284,919

 

 

 

180,500

 

 

 

161,972

 

Less: Commissions and incentives

 

 

(716,616

)

 

 

(582,583

)

 

 

(569,373

)

   Casino revenue

 

 

2,195,144

 

 

 

1,741,635

 

 

 

1,695,023

 

Rooms

 

 

118,527

 

 

 

54,824

 

 

 

57,367

 

Food and beverage

 

 

114,862

 

 

 

51,330

 

 

 

51,237

 

Entertainment, retail and other

 

 

21,424

 

 

 

10,371

 

 

 

8,331

 

   Non-casino revenue

 

 

254,813

 

 

 

116,525

 

 

 

116,935

 

 

 

 

2,449,957

 

 

 

1,858,160

 

 

 

1,811,958

 

Reportable segment net revenues

 

 

11,101,150

 

 

 

10,314,003

 

 

 

8,996,809

 

Corporate and other

 

 

661,946

 

 

 

483,476

 

 

 

481,460

 

 

 

$

11,763,096

 

 

$

10,797,479

 

 

$

9,478,269

 

 

Las Vegas Strip Resorts

 

Las Vegas Strip Resorts casino revenue decreased 2% in 2018 compared to 2017, primarily due to an increase in customer incentives. Las Vegas Strip Resorts casino revenue increased 3% in 2017 compared to 2016, primarily due to a 2% increase in table games win.

 

34


 

The following table shows key gaming statistics for our Las Vegas Strip Resorts:

 

 

 

Year Ended December 31,

 

 

 

2018

 

 

2017

 

 

2016

 

 

 

(Dollars in millions)

 

Table Games Drop

 

$

3,857

 

 

$

3,777

 

 

$

3,723

 

Table Games Win %

 

 

24.6

%

 

 

24.7

%

 

 

24.4

%

Slots Handle

 

$

12,569

 

 

$

12,396

 

 

$

12,437

 

Slots Hold %

 

 

9.1

%

 

 

8.9

%

 

 

8.9

%

 

Las Vegas Strip Resorts rooms revenue was $1.8 billion in both 2018 and 2017. Las Vegas Strip Resorts rooms revenue increased 1% in 2017 compared to 2016 as a result of a 2% increase in REVPAR.

 

The following table shows key hotel statistics for our Las Vegas Strip Resorts:

 

 

 

Year Ended December 31,

 

 

 

2018

 

 

2017

 

 

2016

 

Occupancy

 

 

91

%

 

 

91

%

 

 

93

%

Average Daily Rate (ADR)

 

$

161

 

 

$

160

 

 

$

154

 

Revenue per Available Room (REVPAR)

 

 

147

 

 

 

146

 

 

 

143

 

 

Las Vegas Strip Resorts food and beverage revenue decreased 1% in 2018 compared to 2017 primarily driven by disruption related to the rebranding of Park MGM and NoMad Las Vegas and the closure of certain restaurants, partially offset by an increase in catering and banquets revenue. Las Vegas Strip Resorts food and beverage revenue decreased 2% in 2017 compared to 2016 primarily due to a decrease related to the rebranding of Park MGM and NoMad Las Vegas.

 

Las Vegas Strip Resorts entertainment, retail and other revenues increased 1% in 2018 compared to 2017 due primarily to an increase in parking fees and in-room mini bar revenue. Las Vegas Strip Resorts entertainment, retail and other revenues increased 4% in 2017 compared to 2016 due primarily to the opening of the Park Theater in December 2016, parking fees and ATM commissions.

 

Regional Operations

 

Regional Operations casino revenue increased 10% in 2018 compared to 2017 primarily due to the opening of MGM Springfield and an 18% increase in both table games win and slots win at MGM National Harbor. Regional Operations casino revenue increased 80% in 2017 compared to 2016 due primarily to a full year of contributions from Borgata and MGM National Harbor, compared to a partial year of contributions in 2016.

 

The following table shows key gaming statistics for our Regional Operations:

 

 

 

Year Ended December 31,

 

 

 

2018

 

 

2017

 

 

2016

 

 

 

(Dollars in millions)

 

Table Games Drop

 

$

4,038

 

 

$

3,872

 

 

$

1,877

 

Table Games Win %

 

 

19.7

%

 

 

18.7

%

 

 

18.2

%

Slots Handle

 

$

21,468

 

 

$

19,634

 

 

$

12,590

 

Slots Hold %

 

 

9.1

%

 

 

9.1

%

 

 

9.0

%

 

Regional Operations rooms revenue decreased less than 1% in 2018 compared to 2017 due primarily to a 2% decrease in REVPAR primarily related to inclement weather and increased competition in the Atlantic City, New Jersey market, which was partially offset by contributions from MGM Springfield. Regional Operations rooms revenue increased 75% in 2017 compared to 2016 due primarily to a full year of contributions from Borgata and MGM National Harbor, compared to a partial year of contributions in 2016.

 

Regional Operations food and beverage revenue increased 5% in 2018 compared to 2017 due primarily to contributions from MGM Springfield. Regional Operations food and beverage revenue increased 74% in 2017 compared to 2016 due primarily to a full year of contributions from Borgata and MGM National Harbor, compared to a partial year of contributions in 2016.  

 

35


 

Regional Operations entertainment, retail and other revenue increased 10% in 2018 compared to 2017 due primarily to contributions from MGM Springfield and an increase in revenue from headliner shows at Borgata. Regional Operations entertainment, retail and other revenue increased 73% in 2017 compared to 2016 due primarily to a full year of contributions from Borgata and MGM National Harbor, compared to a partial year of contributions in 2016.

 

MGM China

 

The following table shows key gaming statistics for MGM China:

 

 

 

Year Ended December 31,

 

 

 

2018

 

 

2017

 

 

2016

 

 

 

(Dollars in millions)

 

VIP Table Games Turnover

 

$

40,599

 

 

$

34,533

 

 

$

34,613

 

VIP Table Games Win %

 

 

3.0

%

 

 

3.2

%

 

 

3.2

%

Main Floor Table Games Drop

 

$

7,566

 

 

$

5,159

 

 

$

5,256

 

Main Floor Table Games Win %

 

 

18.4

%

 

 

20.2

%

 

 

18.8

%

 

MGM China net revenue increased 32% in 2018 compared to 2017 and benefited from the opening of MGM Cotai, which contributed $729 million of net revenues. Main floor table games win increased 33% compared to the prior year period due to the opening of MGM Cotai. VIP table games win increased 12% compared to the prior year period due to the opening of VIP junket rooms in September 2018 at MGM Cotai. MGM China net revenue increased 3% in 2017 compared to 2016 primarily as a result of an increase in main floor table games win of 5%, which was partially offset by a 1% decrease in VIP table games win.

 

Corporate and other

 

Corporate and other revenue includes revenues from other corporate operations, management services and reimbursed costs revenue primarily related to our CityCenter management agreement and $133 million in net revenues from MGP’s Northfield casino, subsequent to its acquisition in July 2018. Reimbursed costs revenue represents reimbursement of costs, primarily payroll-related, incurred by us in connection with the provision of management services and was $425 million, $402 million and $397 million for 2018, 2017 and 2016, respectively. See below for additional discussion of our share of operating results from unconsolidated affiliates.

 

Adjusted EBITDA

 

The following table presents a detail of Adjusted EBITDA. Management uses Adjusted Property EBITDA as the primary profit measure for its reportable segments. See “Non-GAAP Measures” for additional information.  

 

 

 

Year Ended December 31,

 

 

 

2018

 

 

2017

 

 

2016

 

 

 

(In thousands)

 

Adjusted EBITDA

 

 

 

 

 

 

 

 

 

 

 

 

Las Vegas Strip Resorts

 

$

1,705,479

 

 

$

1,780,600

 

 

$

1,661,921

 

Regional Operations

 

 

759,096

 

 

 

731,916

 

 

 

399,701

 

MGM China

 

 

568,294

 

 

 

535,524

 

 

 

529,281

 

Reportable segment Adjusted Property EBITDA

 

 

3,032,869

 

 

 

3,048,040

 

 

 

2,590,903

 

Corporate and other

 

 

(224,800

)

 

 

(213,908

)

 

 

203,193

 

 

 

$

2,808,069

 

 

$

2,834,132

 

 

$

2,794,096

 

 

Las Vegas Strip Resorts

 

Adjusted Property EBITDA at our Las Vegas Strip Resorts decreased 4% in 2018 compared to 2017 due primarily to a decrease in casino revenue, as discussed above, and was also impacted by disruption related to the rebranding of Park MGM, which was partially offset by business interruption insurance proceeds, as discussed above. Adjusted Property EBITDA margin decreased in 2018 by 115 basis points compared to 2017 to 29.8%.

 

Adjusted Property EBITDA at our Las Vegas Strip Resorts increased 7% in 2017 compared to 2016 due primarily to an increase in casino and non-casino revenue, as discussed above. Adjusted Property EBITDA margin increased 165 basis points from 2016 to 31.0% due to an increase in casino and non-casino revenue as discussed above as well as a decrease in general and administrative expense related to payroll costs and utilities.

36


 

 

Regional Operations

 

Adjusted Property EBITDA at our Regional Operations increased 4% in 2018 compared to 2017 and benefitted from the opening of MGM Springfield and an increase in casino and non-casino revenue, as discussed above. Adjusted Property EBITDA margin decreased in 2018 by 114 basis points compared to 2017 to 25.9%, primarily as a result of the ramp up of operations at MGM Springfield, as well as a decrease in Adjusted Property EBITDA margin at Borgata due to a decrease in casino, rooms and food and beverage revenue as a result of inclement weather and increased competition in Atlantic City, New Jersey.

 

Adjusted Property EBITDA at our Regional Operations increased 83% in 2017 compared to 2016 and benefitted from a full year of operations at Borgata and National Harbor. Adjusted Property EBITDA margin was 27.0% in 2017 compared to 26.3% in 2016.

 

MGM China

 

MGM China’s Adjusted Property EBITDA increased 6% in 2018 compared to 2017 due primarily to the opening of MGM Cotai. Excluding intercompany license fees of $43 million and $34 million for the years ended December 31, 2018 and 2017, respectively, Adjusted Property EBITDA increased 7% compared to 2017. Adjusted Property EBITDA margin was 23.2% in 2018 compared to 28.8% in 2017, decreasing primarily as a result of the ramp up of operations at MGM Cotai and a decrease in win percentages for both main floor and VIP table games at MGM Macau.

 

MGM China’s Adjusted Property EBITDA increased 1% in 2017 compared to 2016. Excluding intercompany license fees of $34 million for both the years ended December 31, 2017 and 2016, Adjusted Property EBITDA increased 1% compared to 2016. Adjusted Property EBITDA margin was 28.8% in 2017 compared to 29.2% in 2016 and decreased in part as a result of a 7% increase in general and administrative expense.

 

Corporate and other

 

Adjusted EBITDA related to corporate and other in 2018 decreased compared to the prior year due primarily to an increase in stock-based compensation, and an increase in corporate expense as described in “Summary Operating Results,” which was partially offset by the inclusion of $45 million of Adjusted Property EBITDA related to MGP’s Northfield casino.

 

Adjusted EBITDA related to corporate and other in 2017 decreased compared to the prior year due to our share of the gain recognized in 2016 from the sale of Crystals at CityCenter, the gain on the acquisition of Borgata in 2016 and an increase in stock-based compensation, partially offset by the cessation of equity method accounting for Borgata subsequent to the acquisition and an increase in corporate expense as described in “Summary Operating Results.” See “Operating Results – Income from Unconsolidated Affiliates” for further discussion regarding CityCenter.

 

Operating Results – Details of Certain Charges

 

Preopening and start-up expenses consisted of the following:

 

 

 

Year Ended December 31,

 

 

 

2018

 

 

2017

 

 

2016

 

 

 

(In thousands)

 

MGM China

 

$

64,341

 

 

$

86,970

 

 

$

27,848

 

MGM Springfield

 

 

60,787

 

 

 

22,881

 

 

 

26,210

 

Park MGM rebranding

 

 

22,569

 

 

 

6,498

 

 

 

589

 

MGM National Harbor

 

 

163

 

 

 

366

 

 

 

77,242

 

Other

 

 

3,532

 

 

 

1,760

 

 

 

8,186

 

 

 

$

151,392

 

 

$

118,475

 

 

$

140,075

 

 

Preopening and start-up expenses increased in 2018 due primarily to an increase in preopening and start-up expenses at MGM Springfield (which opened in August 2018) and at Park MGM as part of the property’s rebranding, which was partially offset by a decrease in preopening at MGM China due to the opening of MGM Cotai in February 2018.

 

37


 

Preopening and start-up expenses decreased in 2017 compared to 2016 due primarily to a decrease in preopening and start-up expenses at MGM National Harbor (as it opened in December 2016), partially offset by an increase in preopening and start-up expenses at MGM China related to MGM Cotai and at Park MGM as part of the property’s rebranding.

 

Property transactions, net consisted of the following:   

 

 

 

Year Ended December 31,

 

 

 

2018

 

 

2017

 

 

2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

Gain on sale of Grand Victoria

 

$

(44,703

)

 

$

 

 

$

 

Other property transactions, net

 

 

53,850

 

 

 

50,279

 

 

 

17,078

 

 

 

$

9,147

 

 

$

50,279

 

 

$

17,078

 

 

See Note 15 to the accompanying consolidated financial statements for a discussion of property transactions, net for the years ended December 31, 2018, 2017 and 2016.

 

Operating Results – Income from Unconsolidated Affiliates

 

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

 

 

 

Year Ended December 31,

 

 

 

2018

 

 

2017

 

 

2016

 

 

 

(In thousands)

 

CityCenter

 

$

138,383

 

 

$

133,400

 

 

$

445,852

 

Borgata (through July 31, 2016)

 

 

 

 

 

 

 

 

61,169

 

Other

 

 

9,307

 

 

 

12,822

 

 

 

21,266

 

 

 

$

147,690

 

 

$

146,222

 

 

$

528,287

 

 

We completed our acquisition of Borgata on August 1, 2016 and therefore began to consolidate Borgata beginning on that date. Prior thereto our 50% ownership interest in Borgata was accounted for under the equity method.

 

In 2018, our share of CityCenter’s operating results, including certain basis difference adjustments, was $138 million compared to $133 million in 2017, primarily due to a $12 million gain on the sale of Mandarin Oriental that we recognized in 2018 related to the reversal of basis differences in excess of our share of the loss recorded by CityCenter. At Aria, casino revenues decreased 2% in 2018 compared to 2017 due to an increase in incentives and a decrease in table games hold. CityCenter’s non-casino revenues increased 7% in 2018 compared to 2017 primarily related to an increase in food and beverage revenue due in part to an increase in restaurant revenues and an increase in catering and banquets during the year.

 

In 2017, our share of CityCenter’s operating results, including certain basis difference adjustments, was $133 million compared to $446 million in 2016, primarily due to our $401 million share of a gain recognized by CityCenter on the sale of Crystals and the corresponding reversal of certain basis differences in 2016. At Aria, casino revenues increased 11% in 2017 compared to 2016 due to an increase in table games win and slots win. Rooms revenue increased 4% in 2017 compared to 2016 related to an increase in REVPAR and food and beverage revenue increased 6% in 2017 due in part to an increase in catering and banquets during the year.

 

Non-operating Results

 

Interest expense. The following table summarizes information related to interest on our long-term debt:

 

 

 

Year Ended December 31,

 

 

 

2018

 

 

2017

 

 

2016

 

 

 

(In thousands)

 

Total interest incurred

 

$

821,229

 

 

$

779,855

 

 

$

814,731

 

Interest capitalized

 

 

(51,716

)

 

 

(111,110

)

 

 

(119,958

)

 

 

$

769,513

 

 

$

668,745

 

 

$

694,773

 

 

38


 

Gross interest expense in 2018 increased $41 million compared to 2017 due to an increase in the average debt outstanding relating to our senior notes and our credit facilities and an increase in the weighted average interest rate of our credit facilities, partially offset by a decrease in amortization of debt issuance costs. Gross interest expense decreased in 2017 compared to 2016 primarily as a result of a decrease in the average debt outstanding related to our senior notes and a decrease in the weighted average interest rate of our senior notes. This was partially offset by an increase in the average debt outstanding under our credit facilities and an increase in amortization of debt issuance costs. See Note 9 to the accompanying consolidated financial statements for additional discussion on long-term debt and see “Liquidity and Capital Resources” for additional discussion on issuances and repayments of long-term debt and other sources and uses of cash.

 

Capitalized interest in 2018 decreased from 2017 due primarily to the substantial completion of MGM Cotai in February 2018, partially offset by an increase related to the MGM Springfield project, which was substantially completed in August 2018. Capitalized interest in 2017 decreased from 2016 due primarily to the opening of MGM National Harbor in December 2016, partially offset by the MGM Cotai and MGM Springfield projects.

 

Non-operating items from unconsolidated affiliates. Non-operating expense from unconsolidated affiliates decreased $18 million in 2017 compared to 2016, due primarily to the acquisition of Borgata on August 1, 2016, at which time, we began to consolidate Borgata. Prior thereto, our 50% ownership interest in Borgata was accounted for under the equity method.

 

Other, net. Other expense in 2018 decreased $30 million compared to 2017 due primarily to the loss incurred on early retirement of debt in 2017 of $44 million related to our early retirement of the 11.375% senior notes due 2018 and the MGM National Harbor credit facility. Other expense in 2017 decreased $24 million compared to 2016 primarily due to the loss on the early retirement of debt in 2016 of $65 million related to our 7.625% senior notes due 2017, our 7.5% senior notes due 2016, our 10% senior notes due 2016, and our prior senior credit facility, offset by the loss on early retirement of debt incurred in 2017 as described above.

 

Income taxes. The following table summarizes information related to our income taxes:

 

 

 

 

Year Ended December 31,

 

 

 

2018

 

 

2017

 

 

2016

 

 

 

(In thousands)

 

Income before income taxes

 

$

634,006

 

 

$

960,790

 

 

$

1,257,589

 

Benefit (provision) for income taxes

 

 

(50,112

)

 

 

1,127,394

 

 

 

(21,743

)

Effective income tax rate

 

 

7.9

%

 

 

(117.3

)%

 

 

1.7

%

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

 

$

(10,100

)

 

$

181,651

 

 

$

68,236

 

 

Our effective tax rate for 2018 was favorably impacted by the reduction in the U.S. federal income tax rate from 35% to 21%, the reversal of Macau shareholder dividend tax that was accrued in 2017 upon receipt of the extension of the annual fee arrangement, partially offset by SAB 118 measurement period tax expense related to the U.S. Tax Cuts and Jobs Act (the “Tax Act”).  Our effective tax rate in 2017 was favorably impacted by a non-recurring, non-cash income tax benefit of $1.4 billion resulting from the remeasurement of deferred tax assets and liabilities required due to the enactment of the Tax Act, partially offset by the accrual of the Macau shareholder dividend tax. Our effective tax rate in 2016 was favorably impacted by income tax benefits attributable to a decrease in valuation allowance on foreign tax credit (“FTC”) carryovers and permanent exclusion of a portion of the gain on the Borgata transaction, partially offset by income tax expense attributable to the remeasurement of Macau deferred tax liabilities resulting from a change in assumption concerning renewal of the exemption from the Macau complementary tax on gaming profits.

 

Cash taxes paid decreased in 2018 primarily due to the impact of the Tax Act changes, most notably the increase in the recapture of overall domestic losses from 50 percent of U.S. taxable income to 100 percent of U.S. taxable income, resulting in increased FTC carryover usage.  Cash taxes paid increased in 2017 compared to 2016 primarily due to an increase in federal income taxes paid resulting from increased U.S. taxable income and state income taxes attributable to Borgata, which has been consolidated since the August 2016 acquisition of Boyd Gaming’s interest in the company.

 

Non-GAAP Measures

 

“Adjusted EBITDA” is earnings before interest and other non-operating income (expense), taxes, depreciation and amortization, preopening and start-up expenses, NV Energy exit expense, gain on Borgata transaction, and property transactions, net. “Adjusted Property EBITDA” is Adjusted EBITDA before corporate expense and stock compensation expense, which are not allocated to each property. “Adjusted Property EBITDA margin” is Adjusted Property EBITDA divided by net revenues. 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.

39


 

 

We believe that while items excluded from Adjusted EBITDA, Adjusted Property EBITDA, and Adjusted Property EBITDA margin may be recurring in nature and should not be disregarded in evaluation of our earnings performance, it is useful to exclude such items when analyzing current results and trends compared to other periods because these items can vary significantly depending on specific underlying transactions or events that may not be comparable between the periods being presented. Also, we believe excluded items may not relate specifically to current operating trends or be indicative of future results. For example, preopening and start-up expenses will be significantly different in periods when we are developing and constructing a major expansion project and will depend on where the current period lies within the development cycle, as well as the size and scope of the project(s). Property transactions, net includes normal recurring disposals, gains and losses on sales of assets related to specific assets within our resorts, but also includes gains or losses on sales of an entire operating resort or a group of resorts and impairment charges on entire asset groups or investments in unconsolidated affiliates, which may not be comparable period over period. In addition, capital allocation, tax planning, financing and stock compensation awards are all managed at the corporate level. Therefore, we use Adjusted Property EBITDA as the primary measure of domestic resorts operating performance.

 

Adjusted EBITDA, Adjusted Property EBITDA or Adjusted Property EBITDA margin should not be construed as alternatives to operating income or net income, as indicators of our performance; or as alternatives to cash flows from operating activities, as measures 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, Adjusted Property EBITDA or Adjusted Property EBITDA margin. Also, other companies in the gaming and hospitality industries that report Adjusted EBITDA, Adjusted Property EBITDA or Adjusted Property EBITDA margin information may calculate Adjusted EBITDA, Adjusted Property EBITDA or Adjusted Property EBITDA margin in a different manner.

 

The following table presents a reconciliation of net income attributable to MGM Resorts International to Adjusted EBITDA:

 

 

 

Year Ended December 31,

 

 

 

2018

 

 

2017

 

 

2016

 

 

 

(In thousands)

 

Net income attributable to MGM Resorts International

 

$

466,772

 

 

$

1,952,052

 

 

$

1,100,408

 

Plus: Net income attributable to noncontrolling interests

 

 

117,122

 

 

 

136,132

 

 

 

135,438

 

Net income

 

 

583,894

 

 

 

2,088,184

 

 

 

1,235,846

 

Provision (benefit) for income taxes

 

 

50,112

 

 

 

(1,127,394

)

 

 

21,743

 

Income before income taxes

 

 

634,006

 

 

 

960,790

 

 

 

1,257,589

 

Non-operating expense

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net of amounts capitalized

 

 

769,513

 

 

 

668,745

 

 

 

694,773

 

Non-operating items from unconsolidated affiliates

 

 

47,827

 

 

 

34,751

 

 

 

53,139

 

Other, net

 

 

18,140

 

 

 

48,241

 

 

 

72,698

 

 

 

 

835,480

 

 

 

751,737

 

 

 

820,610

 

Operating income

 

 

1,469,486

 

 

 

1,712,527

 

 

 

2,078,199

 

NV Energy exit expense

 

 

 

 

 

(40,629

)

 

 

139,335

 

Preopening and start-up expenses

 

 

151,392

 

 

 

118,475

 

 

 

140,075

 

Property transactions, net

 

 

9,147

 

 

 

50,279

 

 

 

17,078

 

Gain on Borgata transaction

 

 

 

 

 

 

 

 

(430,118

)

Depreciation and amortization

 

 

1,178,044

 

 

 

993,480

 

 

 

849,527

 

Adjusted EBITDA

 

$

2,808,069

 

 

$

2,834,132

 

 

$

2,794,096

 

 

 

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

 

40


 

 

 

 

Year Ended December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

Preopening

 

 

Property

 

 

Depreciation

 

 

 

 

 

 

 

Operating

 

 

NV Energy

 

 

and Start-up

 

 

Transactions,

 

 

and

 

 

Adjusted

 

 

 

Income (Loss)

 

 

Exit Expense

 

 

Expenses

 

 

Net

 

 

Amortization

 

 

EBITDA

 

 

 

(In thousands)

 

Bellagio

 

$

405,221

 

 

$

 

 

$

 

 

$

1,661

 

 

$

82,984

 

 

$

489,866

 

MGM Grand Las Vegas

 

 

304,590

 

 

 

 

 

 

 

 

 

750

 

 

 

66,226

 

 

 

371,566

 

Mandalay Bay

 

 

174,268

 

 

 

 

 

 

 

 

 

787

 

 

 

90,686

 

 

 

265,741

 

The Mirage

 

 

94,226

 

 

 

 

 

 

 

 

 

1,677

 

 

 

35,961

 

 

 

131,864

 

Luxor

 

 

81,197

 

 

 

 

 

 

114

 

 

 

562

 

 

 

38,876

 

 

 

120,749

 

New York-New York

 

 

112,570

 

 

 

 

 

 

 

 

 

250

 

 

 

24,802

 

 

 

137,622

 

Excalibur

 

 

91,394

 

 

 

 

 

 

 

 

 

68

 

 

 

19,793

 

 

 

111,255

 

Park MGM

 

 

(75,060

)

 

 

 

 

 

22,569

 

 

 

19,901

 

 

 

46,880

 

 

 

14,290

 

Circus Circus Las Vegas

 

 

43,592

 

 

 

 

 

 

 

 

 

402

 

 

 

18,532

 

 

 

62,526

 

Las Vegas Strip Resorts

 

 

1,231,998

 

 

 

 

 

 

22,683

 

 

 

26,058

 

 

 

424,740

 

 

 

1,705,479

 

MGM Grand Detroit

 

 

173,515

 

 

 

 

 

 

 

 

 

(95

)

 

 

22,397

 

 

 

195,817

 

Beau Rivage

 

 

76,855

 

 

 

 

 

 

51

 

 

 

510

 

 

 

26,490

 

 

 

103,906

 

Gold Strike Tunica

 

 

43,066

 

 

 

 

 

 

45

 

 

 

71

 

 

 

8,899

 

 

 

52,081

 

Borgata

 

 

139,935

 

 

 

 

 

 

 

 

 

936

 

 

 

57,523

 

 

 

198,394

 

MGM National Harbor

 

 

119,383

 

 

 

 

 

 

163

 

 

 

271

 

 

 

75,292

 

 

 

195,109

 

MGM Springfield

 

 

(34,757

)

 

 

 

 

 

32,435

 

 

 

 

 

 

16,111

 

 

 

13,789

 

Regional Operations

 

 

517,997

 

 

 

 

 

 

32,694

 

 

 

1,693

 

 

 

206,712

 

 

 

759,096

 

MGM Macau

 

 

406,763

 

 

 

 

 

 

 

 

 

630

 

 

 

70,728

 

 

 

478,121

 

MGM Cotai

 

 

(190,959

)

 

 

 

 

 

64,341

 

 

 

24,224

 

 

 

192,567

 

 

 

90,173

 

MGM China

 

 

215,804

 

 

 

 

 

 

64,341

 

 

 

24,854

 

 

 

263,295

 

 

 

568,294

 

Unconsolidated resorts

 

 

144,369

 

 

 

 

 

 

3,321

 

 

 

 

 

 

 

 

 

147,690

 

Management and other operations

 

 

55,465

 

 

 

 

 

 

 

 

 

178

 

 

 

19,147

 

 

 

74,790

 

 

 

 

2,165,633

 

 

 

 

 

 

123,039

 

 

 

52,783

 

 

 

913,894

 

 

 

3,255,349

 

Stock compensation

 

 

(68,211

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(68,211

)

Corporate

 

 

(627,936

)

 

 

 

 

 

28,353

 

 

 

(43,636

)

 

 

264,150

 

 

 

(379,069

)

 

 

$

1,469,486

 

 

$

 

 

$

151,392

 

 

$

9,147

 

 

$

1,178,044

 

 

$

2,808,069

 

 

41


 

 

 

 

Year Ended December 31, 2017

 

 

 

 

 

 

 

 

 

 

 

Preopening

 

 

 

 

 

 

Depreciation

 

 

 

 

 

 

 

Operating

 

 

NV Energy

 

 

and Start-up

 

 

Property

 

 

and

 

 

Adjusted

 

 

 

Income (Loss)

 

 

Exit Expense

 

 

Expenses

 

 

Transactions, Net

 

 

Amortization

 

 

EBITDA

 

 

 

(In thousands)

 

Bellagio

 

$

419,462

 

 

$

(6,970

)

 

$

 

 

$

924

 

 

$

92,320

 

 

$

505,736

 

MGM Grand Las Vegas

 

 

279,841

 

 

 

(7,424

)

 

 

6

 

 

 

1,752

 

 

 

70,510

 

 

 

344,685

 

Mandalay Bay

 

 

169,828

 

 

 

(8,524

)

 

 

 

 

 

590

 

 

 

96,577

 

 

 

258,471

 

The Mirage

 

 

140,881

 

 

 

(4,043

)

 

 

 

 

 

304

 

 

 

39,854

 

 

 

176,996

 

Luxor

 

 

89,127

 

 

 

(3,394

)

 

 

 

 

 

2,428

 

 

 

38,489

 

 

 

126,650

 

New York-New York

 

 

107,953

 

 

 

(2,025

)

 

 

(162

)

 

 

720

 

 

 

28,550

 

 

 

135,036

 

Excalibur

 

 

97,382

 

 

 

(2,658

)

 

 

 

 

 

485

 

 

 

18,352

 

 

 

113,561

 

Park MGM

 

 

(30,659

)

 

 

(2,461

)

 

 

6,532

 

 

 

33,510

 

 

 

42,269

 

 

 

49,191

 

Circus Circus Las Vegas

 

 

55,256

 

 

 

(3,130

)

 

 

452

 

 

 

940

 

 

 

16,756

 

 

 

70,274

 

Las Vegas Strip Resorts

 

 

1,329,071

 

 

 

(40,629

)

 

 

6,828

 

 

 

41,653

 

 

 

443,677

 

 

 

1,780,600

 

MGM Grand Detroit

 

 

153,533

 

 

 

 

 

 

 

 

 

 

 

 

22,747

 

 

 

176,280

 

Beau Rivage

 

 

62,543

 

 

 

 

 

 

 

 

 

370

 

 

 

24,865

 

 

 

87,778

 

Gold Strike Tunica

 

 

43,722

 

 

 

 

 

 

 

 

 

91

 

 

 

9,069

 

 

 

52,882

 

Borgata

 

 

206,445

 

 

 

 

 

 

1,430

 

 

 

1,417

 

 

 

71,878

 

 

 

281,170

 

MGM National Harbor

 

 

50,696

 

 

 

 

 

 

366

 

 

 

 

 

 

82,744

 

 

 

133,806

 

Regional Operations

 

 

516,939

 

 

 

 

 

 

1,796

 

 

 

1,878

 

 

 

211,303

 

 

 

731,916

 

MGM China

 

 

204,190

 

 

 

 

 

 

86,970

 

 

 

6,286

 

 

 

238,078

 

 

 

535,524

 

Unconsolidated resorts

 

 

146,222

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

146,222

 

Management and other operations

 

 

18,913

 

 

 

 

 

 

 

 

 

 

 

 

7,925

 

 

 

26,838

 

 

 

 

2,215,335

 

 

 

(40,629

)

 

 

95,594

 

 

 

49,817

 

 

 

900,983

 

 

 

3,221,100

 

Stock compensation

 

 

(60,936

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(60,936

)

Corporate

 

 

(441,872

)

 

 

 

 

 

22,881

 

 

 

462

 

 

 

92,497

 

 

 

(326,032

)

 

 

$

1,712,527

 

 

$

(40,629

)

 

$

118,475

 

 

$

50,279

 

 

$

993,480

 

 

$

2,834,132

 

 

42


 

 

 

 

Year Ended December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Transactions, Net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preopening

 

 

and Gain on

 

 

Depreciation

 

 

 

 

 

 

 

Operating

 

 

NV Energy

 

 

and Start-up

 

 

Borgata

 

 

and

 

 

Adjusted

 

 

 

Income (Loss)

 

 

Exit Expense

 

 

Expenses

 

 

Transaction

 

 

Amortization

 

 

EBITDA

 

 

 

(In thousands)

 

Bellagio

 

$

368,106

 

 

$

23,815

 

 

$

 

 

$

118

 

 

$

88,783

 

 

$

480,822

 

MGM Grand Las Vegas

 

 

232,492

 

 

 

25,365

 

 

 

82

 

 

 

1,719

 

 

 

72,188

 

 

 

331,846

 

Mandalay Bay

 

 

114,717

 

 

 

29,123

 

 

 

252

 

 

 

2,377

 

 

 

89,655

 

 

 

236,124

 

The Mirage

 

 

86,035

 

 

 

13,813

 

 

 

 

 

 

44

 

 

 

40,270

 

 

 

140,162

 

Luxor

 

 

57,848

 

 

 

11,594

 

 

 

1,625

 

 

 

708

 

 

 

36,612

 

 

 

108,387

 

New York-New York

 

 

93,316

 

 

 

7,439

 

 

 

479

 

 

 

210

 

 

 

20,432

 

 

 

121,876

 

Excalibur

 

 

72,023

 

 

 

9,083

 

 

 

 

 

 

4,405

 

 

 

16,152

 

 

 

101,663

 

Park MGM

 

 

33,547

 

 

 

8,409

 

 

 

1,929

 

 

 

1,131

 

 

 

34,102

 

 

 

79,118

 

Circus Circus Las Vegas

 

 

33,450

 

 

 

10,694

 

 

 

 

 

 

816

 

 

 

16,963

 

 

 

61,923

 

Las Vegas Strip Resorts

 

 

1,091,534

 

 

 

139,335

 

 

 

4,367

 

 

 

11,528

 

 

 

415,157

 

 

 

1,661,921

 

MGM Grand Detroit

 

 

146,722

 

 

 

 

 

 

 

 

 

(59

)

 

 

23,608

 

 

 

170,271

 

Beau Rivage

 

 

68,210

 

 

 

 

 

 

 

 

 

(172

)

 

 

25,880

 

 

 

93,918

 

Gold Strike Tunica

 

 

39,409

 

 

 

 

 

 

 

 

 

67

 

 

 

9,792

 

 

 

49,268

 

Borgata

 

 

34,271

 

 

 

 

 

 

90

 

 

 

8,652

 

 

 

33,923

 

 

 

76,936

 

MGM National Harbor

 

 

(13,914

)

 

 

 

 

 

17,986

 

 

 

 

 

 

5,236

 

 

 

9,308

 

Regional Operations

 

 

274,698

 

 

 

 

 

 

18,076

 

 

 

8,488

 

 

 

98,439

 

 

 

399,701

 

MGM China

 

 

263,809

 

 

 

 

 

 

27,848

 

 

 

(216

)

 

 

237,840

 

 

 

529,281

 

Unconsolidated resorts

 

 

525,119

 

 

 

 

 

 

3,168

 

 

 

 

 

 

 

 

 

528,287

 

Management and other operations

 

 

3,382

 

 

 

 

 

 

1,150

 

 

 

29

 

 

 

7,505

 

 

 

12,066

 

 

 

 

2,158,542

 

 

 

139,335

 

 

 

54,609

 

 

 

19,829

 

 

 

758,941

 

 

 

3,131,256

 

Stock compensation

 

 

(53,503

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(53,503

)

Corporate

 

 

(26,840

)

 

 

 

 

 

85,466

 

 

 

(432,869

)

 

 

90,586

 

 

 

(283,657

)

 

 

$

2,078,199

 

 

$

139,335

 

 

$

140,075

 

 

$

(413,040

)

 

$

849,527

 

 

$

2,794,096

 

 

 

Liquidity and Capital Resources

 

Cash Flows – Summary

 

Our cash flows consisted of the following:  

 

 

 

Year Ended December 31,

 

 

 

2018

 

 

2017

 

 

2016

 

 

 

(In thousands)

 

Net cash provided by operating activities

 

$

1,722,539

 

 

$

2,206,411

 

 

$

1,533,972

 

Net cash used in investing activities

 

 

(2,083,021

)

 

 

(1,580,592

)

 

 

(2,276,204

)

Net cash provided by (used in) financing activities

 

 

389,234

 

 

 

(568,778

)

 

 

519,422

 

 

Cash Flows

 

Operating activities. Trends in our operating cash flows tend to follow trends in operating income, excluding non-cash charges, but can be affected by changes in working capital, the timing of significant interest payments, tax payments or refunds, and distributions from unconsolidated affiliates. Cash provided by operating activities was $1.7 billion in 2018 compared to $2.2 billion in 2017. Operating cash flows decreased in the current period primarily due to the change in working capital related to timing of significant purchases of chips by gaming promoters at MGM China, as well as a decrease in consolidated operating income, and an increase in cash paid for interest. In 2018 we received net cash tax refunds of $10 million compared to cash paid for taxes of $182 million in 2017 primarily as a result of the Tax Act.

 

Cash provided by operating activities in 2017 in comparison to 2016 was positively affected by increase in operating income at our Las Vegas Strip Resorts and Regional Operations and changes in working capital primarily related to the timing of significant purchases of chips by gaming promoters at MGM China, partially offset by an increase in cash paid for taxes to $182 million in 2017 compared to $68 million in 2016.

 

43


 

Investing activities. Our investing cash flows can fluctuate significantly from year to year depending on our decisions with respect to strategic capital investments in new or existing resorts, business acquisitions or dispositions, and the timing of maintenance capital expenditures to maintain the quality of our resorts. Capital expenditures related to regular investments in our existing resorts can also vary depending on timing of larger remodel projects related to our public spaces and hotel rooms.

 

Cash used in investing activities in 2018 increased in comparison to 2017 as a result of the $1.0 billion outflow by the Operating Partnership for the Northfield acquisition, partially offset by a decrease of $377 million in capital expenditures as well as an inflow of $164 million for proceeds received related to the sale of our investment in Grand Victoria. The decrease in capital expenditures from 2018 to 2017 of $377 million primarily reflects less expenditures for the developments of MGM Cotai and MGM National Harbor, partially offset by increased expenditures for MGM Springfield and the rebranding at Park MGM, as discussed in further detail below.  

Cash used in investing activities in 2017 decreased in comparison to 2016 as a result of the $559 million outflow for the Borgata acquisition in 2016 as well as a $398 million decrease in capital expenditures, partially offset by a decrease of $240 million in the distributions received from CityCenter.  The decrease in capital expenditures from 2016 to 2017 of $398 million primarily reflects less expenditures for the developments of MGM Cotai and MGM National Harbor, partially offset by increased expenditures for MGM Springfield and the rebranding of Park MGM, as discussed in further detail below.

 

Capital Expenditures

 

In 2018, we had capital expenditures of $1.5 billion, of which $376 million related to MGM China, excluding development fees and capitalized interest on development fees eliminated in consolidation. Capital expenditures at MGM China included $340 million related to the construction of MGM Cotai and $36 million related to projects at MGM Macau. Capital expenditures at our Las Vegas Strip Resorts, Regional Operations and corporate entities of $1.1 billion included $368 million related to the construction of MGM Springfield, $228 million related to the Park MGM rebranding project, as well as expenditures relating to the expansion of the convention center at MGM Grand Las Vegas and various room, restaurant, and entertainment venue remodels.

 

In 2017, we had capital expenditures of $1.9 billion, which included $908 million at MGM China, excluding development fees and capitalized interest on development fees eliminated in consolidation. Capital expenditures at MGM China included $856 million related to the construction of MGM Cotai and $53 million related to improvements at MGM Macau. Capital expenditures at our Las Vegas Strip Resorts, Regional Operations and corporate entities of $956 million included $269 million related to the construction of MGM Springfield, $221 million related to the rebranding at Park MGM, and $195 million primarily related to the finalization of construction of MGM National Harbor, as well as various resorts’ room remodels, construction of additional convention space at MGM Grand Las Vegas, the parking garage at Excalibur, a waterpark at Circus Circus, and various restaurant and entertainment venue remodels.

 

In 2016, we had capital expenditures of $2.3 billion, which included $971 million at MGM China, excluding development fees and capitalized interest on development fees eliminated in consolidation. Capital expenditures at MGM China included $948 million related to the construction of MGM Cotai and $23 million related to improvements at MGM Macau. Capital expenditures at our Las Vegas Strip Resorts, Regional Operations and corporate entities of $1.3 billion included $741 million related to the construction of MGM National Harbor, $121 million related to the construction of MGM Springfield, $39 million related to the construction of The Park, as well as various room remodels including the tower rooms at Mandalay Bay, construction of additional exhibit space at the Mandalay Bay Convention Center, construction of the Park Theater and rebranding at Park MGM, construction of the parking garage at Excalibur and restaurant and entertainment venue remodels.

 

Financing activities. Cash provided by financing activities increased in 2018 from the cash used in financing activities in 2017 primarily as a result of net borrowings of debt in 2018 of $2.2 billion in comparison to net repayments of debt in 2017 of $138 million, partially offset by MGP’s issuance of class A shares in 2017, and an increase in shares repurchased in 2018 compared to 2017.

 

Cash used in financing activities decreased in 2017 from the cash provided by financing activities in 2016 primarily as a result of the net proceeds of $1.1 billion from MGP’s issuance of class A shares in 2016 compared to the net proceeds of  $388 million from MGP’s issuance of class A shares in 2017, dividends that we began paying in 2017, as well as an increase of $67 million in distributions to noncontrolling interest owners, partially offset by net payments of debt in 2017 of $138 million compared to net repayments of debt of $301 million in 2016 as well as the $100 million paid in 2016 as part of consideration for the purchase of additional shares of MGM China.

 

44


 

Borrowings (repayments) of debt  

 

In 2018, we borrowed net debt of $2.2 billion which primarily consisted of the issuance of $1.0 billion 5.750% senior notes due 2025, $368 million of net borrowings on our senior credit facility, $137 million of net borrowings on the MGM China credit facility, and $728 million of net borrowings on the Operating Partnership senior credit facility. Additionally, we paid $77 million of debt issuance costs related to the amendments of the Operating Partnership’s senior credit facility in March and June 2018, the amendment of MGM China’s credit facility in June 2018, the amendment of our senior credit facility in December 2018, and the issuance of the $1.0 billion 5.750% senior notes.

 

In  2017, we repaid net debt of $138 million which primarily consisted of a $135 million draw on our senior credit facility, a $462 million draw on the MGM China credit facility, and a $28 million draw on the MGM National Harbor credit facility, as well as the Operating Partnership’s issuance of $350 million 4.50% senior notes due 2028 in connection with the MGM National Harbor transaction, partially offset by the redemption of our $475 million 11.375% senior notes at a premium, the repayment of $478 million MGM National Harbor credit facility, as well as amortization payments of $132 million on our term loan facilities.

 

In 2016, we repaid net debt of $301 million. In April 2016, in connection with the MGP IPO and related financing transactions we permanently repaid $2.7 billion under our prior senior secured credit facility and entered into an amended and restated senior secured credit facility under which we borrowed $250 million. The Operating Partnership borrowed net debt of $2.1 billion during 2016 under its senior credit facility. In addition, MGM National Harbor borrowed $450 million under its credit facility, MGM China borrowed $374 million under its revolving credit facility, and we permanently repaid $584 million under Borgata’s credit facility. The following senior notes were issued during 2016:

 

$500 million 4.625% senior notes, due 2026 issued by us;

 

$500 million 4.5% senior notes, due 2026 issued by the Operating Partnership; and

 

$1.05 billion 5.625% senior notes, due 2024 issued by the Operating Partnership.

We redeemed the following senior notes during 2016:

 

$743 million 7.625% senior notes, due 2017 at a premium;

 

$732.7 million 7.5% senior notes, due 2016 at a premium;

 

$500 million 10% senior notes, due 2016 at a premium; and

 

$242.9 million 6.875% senior notes in April 2016 at maturity.

 

Additionally, we paid $140 million of debt issuance costs related to the senior notes issued in August 2016, the MGP financing transactions, the MGM National Harbor credit facility and the February 2016 amendment to the MGM China credit facility.

 

MGM Resorts International stock repurchase program. In May 2018, our Board of Directors authorized a $2.0 billion stock repurchase program and completed the previously announced $1.0 billion stock repurchase program. We repurchased approximately $1.3 billion and $328 million of our common stock in connection with the program in 2018 and 2017, respectively.

 

MGM Resorts International dividends. During 2018, we paid dividends each quarter of $0.12 per share, totaling $261 million for the year. On February 13, 2019 the Board of Directors approved a quarterly dividend to holders of record on March 8, 2019 of $0.13 per share, totaling approximately $70 million, which will be paid on March 15, 2019. During 2017, we paid dividends each quarter of $0.11 per share, totaling $252 million for the year.

 

Operating Partnership distributions and MGP dividends. The Operating Partnership paid the following distributions to its partnership unit holders:

 

 

$119 million distribution paid in January 2019, of which we received $87 million and MGP received $32 million, which MGP concurrently paid as a dividend to its Class A shareholders;

 

$454 million of distributions paid in 2018, of which we received $333 million and MGP received $121 million, which MGP concurrently paid as a dividend to its Class A shareholders;

 

$385 million of distributions paid in 2017, of which we received $290 million and MGP received $95 million, which MGP concurrently paid as a dividend to its Class A shareholders; and

 

$151 million of distributions paid in 2016, of which we received $113 million and MGP received $38 million, which MGP concurrently paid as a dividend to its Class A shareholders.

 

MGM China dividends. MGM China paid the following dividends to its shareholders:

 

 

$78 million of dividends paid in 2018, of which we received $44 million and noncontrolling interests received $34 million;

45


 

 

$134 million of dividends paid in 2017, of which we received $75 million and noncontrolling interests received $59 million; and

 

$104 million of dividends paid in 2016, of which we received $53 million and noncontrolling interests received $51 million.

 

Other Factors Affecting Liquidity

 

Anticipated uses of cash. We require a certain amount of cash on hand to operate our resorts. In addition to required cash on hand for operations, we utilize corporate cash management procedures to minimize the amount of cash held on hand or in banks. Funds are swept from the accounts at most of our domestic resorts daily into central bank accounts, and excess funds are invested overnight or are used to repay borrowings under our senior secured credit facility. In addition, from time to time we may use excess funds to repurchase our outstanding debt and equity securities subject to limitations in our senior secured credit facility and Delaware law, as applicable. We have significant outstanding debt, interest payments, and contractual obligations in addition to planned capital expenditures and acquisitions.

 

We held cash and cash equivalents of $1.5 billion at December 31, 2018, of which MGM China held $510 million and the Operating Partnership held $60 million. At December 31, 2018, we had $15.3 billion in principal amount of indebtedness, including $750 million of borrowings outstanding under our $2.3 billion senior secured credit facility, $2.8 billion outstanding under the $3.6 billion Operating Partnership credit facility, and $2.4 billion outstanding under the $2.8 billion MGM China credit facility. We expect to make domestic capital investments at our resorts and corporate entities of $600 million to $650 million, which excludes $45 million to $50 million of construction closeout costs at MGM Springfield. Additionally, we expect to make capital investments at MGM China of $350 million to $375 million, which includes $250 million of construction closeout costs at MGM Cotai and $100 million to $125 million of maintenance capital expenditures.

 

We also closed the acquisition of Empire City in January 2019 for a purchase price of approximately $864 million. We funded the acquisition of Empire City with the issuance of approximately $266 million of our common stock, the assumption of approximately $246 million of debt, which was immediately assumed and repaid by the Operating Partnership, and the remaining balance in cash. Additionally, in January 2019, the Operating Partnership issued $750 million in aggregate principal amount of 5.75% senior notes due 2027 and, in February 2019, we repaid our $850 million 8.625% notes due 2019. We expect to meet our remaining debt maturities and planned capital expenditure requirements with future anticipated operating cash flows, cash and cash equivalents, and available borrowings under our credit facilities.

 

Principal Debt Arrangements

 

See Note 9 to the accompanying consolidated financial statements for information regarding our debt agreements as of December 31, 2018.

 

Off Balance Sheet Arrangements

 

Our off-balance sheet arrangements consist primarily of investments in unconsolidated affiliates, which consists primarily of our investment in CityCenter. We have not entered into any transactions with special purpose entities, nor have we engaged in any derivative transactions, other than the Operating Partnership’s cash flow hedges. See Note 9 to the accompanying consolidated financial statements for additional information. Our unconsolidated affiliate investments allow us to realize the proportionate benefits of owning a full-scale resort or other entertainment facilities in a manner that minimizes our initial investment. In addition, there are no other provisions in the agreements with our investees which we believe are unusual or subject us to risks to which we would not be subjected if we had full ownership of the resort.

 

46


 

Commitments and Contractual Obligations

 

The following table summarizes our scheduled contractual obligations as of December 31, 2018:

 

 

 

2019

 

 

2020

 

 

2021

 

 

2022

 

 

2023

 

 

Thereafter

 

 

Total

 

 

 

(In millions)

 

Long-term debt (1)

 

$

1,273

 

 

$

1,966

 

 

$

1,716

 

 

$

2,306

 

 

$

2,885

 

 

$

5,107

 

 

$

15,253

 

Estimated interest payments on long-term debt (2)

 

 

809

 

 

 

737

 

 

 

636

 

 

 

465

 

 

 

351

 

 

 

420

 

 

 

3,418

 

Construction commitments

 

 

61

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

61

 

Operating leases (3)

 

 

107

 

 

 

83

 

 

 

62

 

 

 

47

 

 

 

45

 

 

 

1,358

 

 

 

1,702

 

Other long-term liabilities (4)

 

 

 

 

 

2

 

 

 

8

 

 

 

7

 

 

 

 

 

 

61

 

 

 

78

 

Other purchase obligations (5)

 

 

34

 

 

 

6

 

 

 

5

 

 

 

3

 

 

 

2

 

 

 

4

 

 

 

54

 

 

 

$

2,284

 

 

$

2,794

 

 

$

2,427

 

 

$

2,828

 

 

$

3,283

 

 

$

6,950

 

 

$

20,566

 

 

(1)

Reflects scheduled amortization payments and debt maturities. Refer to Note 9 for further information on long-term debt.

(2)

Estimated interest payments, including the impact of interest rate swap agreements, are based on principal amounts and expected maturities of debt outstanding at December 31, 2018 and management’s forecasted LIBOR rates for our senior credit facility, the Operating Partnership senior credit facility and HIBOR rates for the MGM China credit facility.

(3)

Refer to Note 11 for further information on operating leases.

(4)

Reflects future expected cash outlays of our other long-term liabilities recorded on our balance sheet as of December 31, 2018, and, accordingly, we have not included such liabilities above that do not have future cash payments, such as deferred rent. We have also excluded deferred income tax liabilities and unrecognized tax benefits from the amounts presented in the table as the amounts that will be settled in cash are not known and the timing of any payments is uncertain.

(5)

Our purchase obligations represent minimum obligations we have under agreements with certain of our vendors, primarily advertising and entertainment contracts. Also, although open purchase orders are considered enforceable and legally binding, the terms generally allow us the option to cancel, reschedule, and adjust our requirements based on our business needs prior to the delivery of goods or performance of services, and hence, have not been included in the table above.

 

Critical Accounting Policies and Estimates

 

Management’s discussion and analysis of our results of operations and liquidity and capital resources are based on our consolidated financial statements. To prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, we must make estimates and assumptions that affect the amounts reported in the consolidated financial statements. We regularly evaluate these estimates and assumptions, particularly in areas we consider to be critical accounting estimates, where changes in the estimates and assumptions could have a material effect on our results of operations, financial position or cash flows. Senior management and the Audit Committee of the Board of Directors have reviewed the disclosures included herein about our critical accounting estimates, and have reviewed the processes to determine those estimates. However, by their nature, judgments are subject to an inherent degree of uncertainty and therefore actual results can differ from our estimates.

 

Allowance for Doubtful Casino Accounts Receivable

 

Marker play represents a significant portion of the table games volume at certain of our Las Vegas resorts. Our other casinos do not emphasize marker play to the same extent, although we offer markers to customers at those casinos as well. MGM China extends credit to certain in-house VIP gaming customers and gaming promoters. We maintain strict controls over the issuance of markers and aggressively pursue collection from our customers who fail to pay their marker balances timely. These collection efforts are similar to those used by most large corporations when dealing with overdue customer accounts, including the mailing of statements and delinquency notices, personal contacts, the use of outside collection agencies and civil litigation. Markers are generally legally enforceable instruments in the United States and Macau. Markers are not legally enforceable instruments in some foreign countries, but the United States assets of foreign customers may be reached to satisfy judgments entered in the United States. We consider the likelihood and difficulty of enforceability, among other factors, when we issue credit to customers at our domestic resorts who are not residents of the United States. MGM China performs background checks and investigates the credit worthiness of gaming promoters and casino customers prior to issuing credit. Refer to Note 2 for further discussion of the Company’s casino receivables and those due from customers residing in foreign countries.

 

We maintain an allowance, or reserve, for doubtful casino accounts at all of our operating casino resorts. The provision for doubtful accounts, an operating expense, increases the allowance for doubtful accounts. We regularly evaluate the allowance for doubtful casino accounts. At domestic resorts where marker play is not significant, the allowance is generally established by applying standard reserve percentages to aged account balances. At domestic resorts where marker play is significant, we apply standard reserve percentages to aged account balances under a specified dollar amount and specifically analyze the collectability of each account with a balance over the specified dollar amount, based on the age of the account, the customer’s financial condition, collection history and any other known information. MGM China specifically analyzes the collectability of casino receivables on an individual basis taking into account the age of the account, the financial condition and the collection history of the gaming promoter or casino customer.

47


 

 

In addition to enforceability issues, the collectability of unpaid markers given by foreign customers at our domestic resorts is affected by a number of factors, including changes in currency exchange rates and economic conditions in the customers’ home countries. Because individual customer account balances can be significant, the allowance and the provision can change significantly between periods, as information about a certain customer becomes known or as changes in a region’s economy occur.

 

The following table shows key statistics related to our casino receivables, net of discounts:

 

 

 

 

December 31,

 

 

 

 

2018

 

 

2017

 

 

 

 

(In thousands)

 

 

Casino receivables

 

$

419,127

 

 

$

343,869

 

 

Allowance for doubtful casino accounts receivable

 

 

85,544

 

 

 

86,126

 

 

Allowance as a percentage of casino accounts receivable

 

 

20%

 

 

 

25%

 

 

Approximately $48 million and $31 million of casino receivables and $12 million and $7 million of the allowance for doubtful casino accounts receivable relate to MGM China at December 31, 2018 and 2017, respectively. The allowance for doubtful accounts as a percentage of casino accounts receivable decreased in the current year due to a decrease in specific reserve at our Las Vegas Strip Resorts as a result of favorable collections. At December 31, 2018, a 100 basis-point change in the allowance for doubtful accounts as a percentage of casino accounts receivable would change income before income taxes by $4 million.

 

Fixed Asset Capitalization and Depreciation Policies

 

Property and equipment are stated at cost. A significant amount of our property and equipment was acquired through business combinations and was therefore recognized at fair value at the acquisition date. Maintenance and repairs that neither materially add to the value of the property nor appreciably prolong its life are charged to expense as incurred. Depreciation and amortization are provided on a straight-line basis over the estimated useful lives of the assets. When we construct assets, we capitalize direct costs of the project, including fees paid to architects and contractors, property taxes, and certain costs of our design and construction subsidiaries. In addition, interest cost associated with major development and construction projects is capitalized as part of the cost of the project. Interest is typically capitalized on amounts expended on the project using the weighted-average cost of our outstanding borrowings. Capitalization of interest starts when construction activities begin and ceases when construction is substantially complete or development activity is suspended for more than a brief period.

 

We must make estimates and assumptions when accounting for capital expenditures. Whether an expenditure is considered a maintenance expense or a capital asset is a matter of judgment. When constructing or purchasing assets, we must determine whether existing assets are being replaced or otherwise impaired, which also may be a matter of judgment. In addition, our depreciation expense is highly dependent on the assumptions we make about our assets’ estimated useful lives. We determine the estimated useful lives based on our experience with similar assets, engineering studies, and our estimate of the usage of the asset. Whenever events or circumstances occur which change the estimated useful life of an asset, we account for the change prospectively.

 

Impairment of Long-lived Assets, Goodwill and Indefinite-lived Intangible Assets

 

We evaluate our property and equipment and other long-lived assets for impairment based on our classification as held for sale or to be held and used. Several criteria must be met before an asset is classified as held for sale, including that management with the appropriate authority commits to a plan to sell the asset at a reasonable price in relation to its fair value and is actively seeking a buyer. For assets classified as held for sale, we recognize the asset at the lower of carrying value or fair market value less costs of disposal, as estimated based on comparable asset sales, offers received, or a discounted cash flow model. For assets to be held and used, we review for impairment whenever indicators of impairment exist. We then compare the estimated future cash flows of the asset, on an undiscounted basis, to the carrying value of the asset. If the undiscounted cash flows exceed the carrying value, no impairment is indicated. If the undiscounted cash flows do not exceed the carrying value, then an impairment is recorded based on the fair value of the asset. For operating assets, fair value is typically measured using a discounted cash flow model whereby future cash flows are discounted using a weighted-average cost of capital, developed using a standard capital asset pricing model, based on guideline companies in our industry. If an asset is still under development, future cash flows include remaining construction costs. All recognized impairment losses, whether for assets to be held for sale or assets to be held and used, are recorded as operating expenses.

 

48


 

There are several estimates, assumptions and decisions in measuring impairments of long-lived assets. First, management must determine the usage of the asset. To the extent management decides that an asset will be sold, it is more likely that an impairment may be recognized. Assets must be tested at the lowest level for which identifiable cash flows exist. This means that some assets must be grouped, and management has some discretion in the grouping of assets. Future cash flow estimates are, by their nature, subjective and actual results may differ materially from our estimates.

 

On a quarterly basis, we review our major long-lived assets to determine if events have occurred or circumstances exist that indicate a potential impairment. Potential factors which could trigger an impairment include underperformance compared to historical or projected operating results, negative industry or economic factors, significant changes to our operating environment, or changes in intended use of the asset group. We estimate future cash flows using our internal budgets and probability weight cash flows in certain circumstances to consider alternative outcomes associated with recoverability of the asset group, including potential sale. Historically, undiscounted cash flows of our significant operating asset groups have exceeded their carrying values by a substantial margin.

 

We review indefinite-lived intangible assets at least annually and between annual test dates in certain circumstances. We perform our annual impairment test for indefinite-lived intangible assets in the fourth quarter of each fiscal year. Indefinite-lived intangible assets consist primarily of license rights and trademarks. For our 2018 and 2017 annual impairment tests, we utilized the option to perform a qualitative (“step zero”) analysis for certain of our indefinite-lived intangibles and concluded it was more likely than not that the fair values of such intangibles exceeded their carrying values by a substantial margin. We elected to perform a quantitative analysis for the Borgata trade name using the relief-from -royalty method, for which the fair value exceeded its carrying value by approximately 14% in 2018 and 4% in 2017. For our 2016 annual impairment tests we utilized a quantitative analysis for all of our intangible assets, using a discounted cash flow approach for license rights and using the relief-from-royalty method for trademarks. The estimated fair values of the intangibles were substantially in excess of their carrying values, with the fair value of the Borgata trade name exceeding its carrying value by approximately 2%, reflecting the recentness of the Borgata acquisition which occurred in August 2016. As discussed below, management makes significant judgments and estimates as part of these analyses. If certain future operating results do not meet current expectations it could cause carrying values of the intangibles to exceed their fair values in future periods, potentially resulting in an impairment charge.

 

We review goodwill at least annually and between annual test dates in certain circumstances. None of our reporting units incurred any goodwill impairment charges in 2018, 2017 or 2016. For our 2018, 2017, and 2016 annual impairment tests, we utilized the option to perform a step zero analysis for certain of our reporting units and concluded it was more likely than not that the fair values of such reporting units exceeded their carrying values by a substantial margin. For reporting units for which we elected to perform a quantitative analysis, the fair value of such reporting units exceeded their carrying value by a substantial margin. As discussed below, management makes significant judgments and estimates as part of these analyses. If future operating results of our reporting units do not meet current expectations it could cause carrying values of our reporting units to exceed their fair values in future periods, potentially resulting in a goodwill impairment charge.

 

There are several estimates inherent in evaluating these assets for impairment. In particular, future cash flow estimates are, by their nature, subjective and actual results may differ materially from our estimates. In addition, the determination of multiples, capitalization rates and the discount rates used in the impairment tests are highly judgmental and dependent in large part on expectations of future market conditions.

 

See Note 2 and Note 7 to the accompanying consolidated financial statements for further discussion of goodwill and other intangible assets.

 

Impairment of Investments in Unconsolidated Affiliates

 

See Note 2 to the accompanying consolidated financial statements for discussion of our evaluation of other-than-temporary impairment of investments in unconsolidated affiliates.  None of our investments in unconsolidated affiliates had other-than-temporary impairment in 2018, 2017, or 2016.

 

Income Taxes

 

We recognize deferred tax assets, net of applicable reserves, related to net operating loss and tax credit 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.

 

49


 

We file income tax returns in the U.S. federal jurisdiction, various state and local jurisdictions, and foreign jurisdictions, although the income taxes paid in foreign jurisdictions are not material. Our income tax returns are subject to examination by the Internal Revenue Service (“IRS”) and other tax authorities. Positions taken in tax returns are sometimes subject to uncertainty in the tax laws and may not ultimately be accepted by the IRS or other tax authorities. See Note 10 in the accompanying consolidated financial statements for a discussion of the status and impact of examinations by tax authorities.

 

We assess our tax positions using a two-step process. A tax position is recognized if it meets a “more likely than not” threshold, and is measured at the largest amount of benefit that is greater than fifty percent likely of being realized. Uncertain tax positions must be reviewed at each balance sheet date. Liabilities we record as a result of this analysis are recorded separately from any current or deferred income tax accounts, and are classified as current in “Other accrued liabilities” or long-term in “Other long-term liabilities” based on the time until expected payment. Additionally, we recognize accrued interest and penalties, if any, related to unrecognized tax benefits in income tax expense.

 

Refer to Note 10 in the accompanying consolidated financial statements for further discussion relating to income taxes.


50


 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

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 and by utilizing interest rate swap agreements that provide for a fixed interest payment on the Operating Partnership’s term loan B facility. A change in interest rates generally does not have an impact upon our future earnings and cash flow for fixed-rate debt instruments. As fixed-rate debt matures, however, and if additional debt is acquired to fund the debt repayment, future earnings and cash flow may be affected by changes in interest rates. This effect would be realized in the periods subsequent to the periods when the debt matures. We do not hold or issue financial instruments for trading purposes and do not enter into derivative transactions that would be considered speculative positions.

As of December 31, 2018, variable rate borrowings represented approximately 31% of our total borrowings after giving effect to the $500 million and $700 million notional amount Operating Partnership interest rate swaps with weighted average fixed rates that we pay 1.764% and 1.901%, respectively. In December 2018, the Operating Partnership entered into additional interest rate swap agreements, for which the Operating Partnership will pay a weighted average 2.735% on a total notional amount of $400 million. These swaps will be effective December 31, 2019, at which point the Operating Partnership will be paying a combined weighted average 2.066%. The following table provides additional information about our gross long-term debt subject to changes in interest rates excluding the effect of the Operating Partnership interest rate swaps discussed above:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value

 

 

 

Debt maturing in,

 

 

December 31,

 

 

 

2019

 

 

2020

 

 

2021

 

 

2022

 

 

2023

 

 

Thereafter

 

 

Total

 

 

2018

 

 

 

(In millions)

 

Fixed-rate

 

$

850

 

 

$

1,500

 

 

$

1,250

 

 

$

1,000

 

 

$

1,250

 

 

$

3,401

 

 

$

9,251

 

 

$

9,179

 

Average interest rate

 

 

8.6

%

 

 

6.3

%

 

 

6.6

%

 

 

7.8

%

 

 

6.0

%

 

 

5.2

%

 

 

6.3

%

 

 

 

 

Variable rate

 

$

423

 

 

$

466

 

 

$

466

 

 

$

1,306

 

 

$

1,635

 

 

$

1,706

 

 

$

6,002

 

 

$

5,893

 

Average interest rate

 

 

4.7

%

 

 

4.7

%

 

 

4.7

%

 

 

4.7

%

 

 

4.6

%

 

 

4.5

%

 

 

4.6

%

 

 

 

 

 

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 and MGM Cotai. While recent fluctuations in exchange rates have not been significant, potential changes in policy by governments or fluctuations in the economies of the United States, China, Macau or Hong Kong could cause variability in these exchange rates. We cannot assure you that the Hong Kong dollar will continue to be pegged to the U.S. dollar or the current peg rate for the Hong Kong dollar will remain at the same level. The possible changes to the peg of the Hong Kong dollar may result in severe fluctuations in the exchange rate thereof. As of December 31, 2018, a 1% increase in the Hong Kong dollar (the functional currency of MGM China) to the U.S. dollar exchange rate would impact the carrying value of our cash balance by $5 million and a 1% decrease in the exchange rate would impact the carrying value of our debt balance by $25 million.


51


 

ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

Financial Statements:

 

 

Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting

 

53

Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements

 

54

Consolidated Balance Sheets — December 31, 2018 and 2017

 

55

Years Ended December 31, 2018, 2017 and 2016

 

 

Consolidated Statements of Operations

 

56

Consolidated Statements of Comprehensive Income (Loss)

 

57

Consolidated Statements of Cash Flows

 

58

Consolidated Statements of Stockholders’ Equity

 

59

Notes to Consolidated Financial Statements

 

60

 

Financial Statement Schedule:

Schedule II — Valuation and Qualifying Accounts

 

101

 

 

 

The financial information included in the financial statement schedule should be read in conjunction with the consolidated financial statements. All other financial statement schedules have been omitted because they are not applicable, or the required information is included in the consolidated financial statements or the notes thereto.

 

Audited consolidated financial statements for CityCenter Holdings, LLC as of December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016 are presented in Exhibit 99.3 and are incorporated herein by reference.

 

52


 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Stockholders and the Board of Directors of MGM Resorts International

 

Opinion on Internal Control over Financial Reporting

 

We have audited the internal control over financial reporting of MGM Resorts International and subsidiaries (the “Company”) as of December 31, 2018, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

 

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements and financial statement schedule as of and for the year ended December 31, 2018, of the Company and our report dated February 27, 2019, expressed an unqualified opinion on those financial statements.

 

Basis for Opinion  

 

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

 

Definition and Limitations of Internal Control over Financial Reporting

 

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

/s/ DELOITTE & TOUCHE LLP

 

Las Vegas, Nevada  

 

February 27, 2019

 

 

53


 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Stockholders and the Board of Directors of MGM Resorts International

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of MGM Resorts International and subsidiaries (the "Company") as of December 31, 2018 and 2017, the related consolidated statements of operations, comprehensive income, cash flows and stockholders' equity for each of the three years in the period ended December 31, 2018, and the related notes and the financial statement schedule of Valuation and Qualifying Accounts included in Item 15(a)(2), (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.

 

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 27, 2019, expressed an unqualified opinion on the Company's internal control over financial reporting.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

/s/ DELOITTE & TOUCHE LLP

 

Las Vegas, Nevada  

 

February 27, 2019

 

We have served as the Company's auditor since 2002.

 

54


 

MGM RESORTS INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

 

 

 

December 31,

 

 

 

2018

 

 

2017

 

ASSETS

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,526,762

 

 

$

1,499,995

 

Accounts receivable, net

 

 

657,206

 

 

 

542,273

 

Inventories

 

 

110,831

 

 

 

102,292

 

Income tax receivable

 

 

28,431

 

 

 

42,551

 

Prepaid expenses and other

 

 

203,548

 

 

 

189,244

 

Total current assets

 

 

2,526,778

 

 

 

2,376,355

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

20,729,888

 

 

 

19,635,459

 

 

 

 

 

 

 

 

 

 

Other assets

 

 

 

 

 

 

 

 

Investments in and advances to unconsolidated affiliates

 

 

732,867

 

 

 

1,033,297

 

Goodwill

 

 

1,821,392

 

 

 

1,806,531

 

Other intangible assets, net

 

 

3,944,463

 

 

 

3,877,960

 

Other long-term assets, net

 

 

455,318

 

 

 

430,440

 

Total other assets

 

 

6,954,040

 

 

 

7,148,228

 

 

 

$

30,210,706

 

 

$

29,160,042

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

302,578

 

 

$

255,028

 

Construction payable

 

 

311,793

 

 

 

474,807

 

Current portion of long-term debt

 

 

43,411

 

 

 

158,042

 

Accrued interest on long-term debt

 

 

140,046

 

 

 

135,785

 

Other accrued liabilities

 

 

2,151,054

 

 

 

2,114,635

 

Total current liabilities

 

 

2,948,882

 

 

 

3,138,297

 

 

 

 

 

 

 

 

 

 

Deferred income taxes, net

 

 

1,342,538

 

 

 

1,295,375

 

Long-term debt, net

 

 

15,088,005

 

 

 

12,751,052

 

Other long-term obligations

 

 

259,240

 

 

 

284,416

 

Commitments and contingencies (Note 11)

 

 

 

 

 

 

 

 

Redeemable noncontrolling interests

 

 

102,250

 

 

 

79,778

 

Stockholders' equity

 

 

 

 

 

 

 

 

Common stock, $.01 par value: authorized 1,000,000,000 shares, issued and

   outstanding 527,479,528 and 566,275,789 shares

 

 

5,275

 

 

 

5,663

 

Capital in excess of par value

 

 

4,092,085

 

 

 

5,357,709

 

Retained earnings

 

 

2,423,479

 

 

 

2,217,299

 

Accumulated other comprehensive loss

 

 

(8,556

)

 

 

(3,610

)

Total MGM Resorts International stockholders' equity

 

 

6,512,283

 

 

 

7,577,061

 

Noncontrolling interests

 

 

3,957,508

 

 

 

4,034,063

 

Total stockholders' equity

 

 

10,469,791

 

 

 

11,611,124

 

 

 

$

30,210,706

 

 

$

29,160,042

 

 

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

 

 

55


 

MGM RESORTS INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

 

 

 

Year Ended December 31,

 

 

 

2018

 

 

2017

 

 

2016

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

Casino

 

$

5,753,150

 

 

$

5,016,426

 

 

$

4,108,126

 

Rooms

 

 

2,212,573

 

 

 

2,152,741

 

 

 

2,003,027

 

Food and beverage

 

 

1,959,021

 

 

 

1,871,969

 

 

 

1,727,805

 

Entertainment, retail and other

 

 

1,412,860

 

 

 

1,354,301

 

 

 

1,242,159

 

Reimbursed costs

 

 

425,492

 

 

 

402,042

 

 

 

397,152

 

 

 

 

11,763,096

 

 

 

10,797,479

 

 

 

9,478,269

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

Casino

 

 

3,199,775

 

 

 

2,673,397

 

 

 

2,213,922

 

Rooms

 

 

791,761

 

 

 

748,947

 

 

 

697,977

 

Food and beverage

 

 

1,501,868

 

 

 

1,414,611

 

 

 

1,310,969

 

Entertainment, retail and other

 

 

999,979

 

 

 

954,125

 

 

 

901,201

 

Reimbursed costs

 

 

425,492

 

 

 

402,042

 

 

 

397,152

 

General and administrative

 

 

1,764,638

 

 

 

1,559,575

 

 

 

1,378,534

 

Corporate expense

 

 

419,204

 

 

 

356,872

 

 

 

312,705

 

NV Energy exit expense

 

 

 

 

 

(40,629

)

 

 

139,335

 

Preopening and start-up expenses

 

 

151,392

 

 

 

118,475

 

 

 

140,075

 

Property transactions, net

 

 

9,147

 

 

 

50,279

 

 

 

17,078

 

Gain on Borgata transaction

 

 

 

 

 

 

 

 

(430,118

)

Depreciation and amortization

 

 

1,178,044

 

 

 

993,480

 

 

 

849,527

 

 

 

 

10,441,300

 

 

 

9,231,174

 

 

 

7,928,357

 

Income from unconsolidated affiliates

 

 

147,690

 

 

 

146,222

 

 

 

528,287

 

Operating income

 

 

1,469,486

 

 

 

1,712,527

 

 

 

2,078,199

 

Non-operating income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net of amounts capitalized

 

 

(769,513

)

 

 

(668,745

)

 

 

(694,773

)

Non-operating items from unconsolidated affiliates

 

 

(47,827

)

 

 

(34,751

)

 

 

(53,139

)

Other, net

 

 

(18,140

)

 

 

(48,241

)

 

 

(72,698

)

 

 

 

(835,480

)

 

 

(751,737

)

 

 

(820,610

)

Income before income taxes

 

 

634,006

 

 

 

960,790

 

 

 

1,257,589

 

Benefit (provision) for income taxes

 

 

(50,112

)

 

 

1,127,394

 

 

 

(21,743

)

Net income

 

 

583,894

 

 

 

2,088,184

 

 

 

1,235,846

 

Less: Net income attributable to noncontrolling interests

 

 

(117,122

)

 

 

(136,132

)

 

 

(135,438

)

Net income attributable to MGM Resorts International

 

$

466,772

 

 

$

1,952,052

 

 

$

1,100,408

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.82

 

 

$

3.38

 

 

$

1.94

 

Diluted

 

$

0.81

 

 

$

3.34

 

 

$

1.92

 

Weighted average common shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

544,253

 

 

 

572,253

 

 

 

568,134

 

Diluted

 

 

549,536

 

 

 

578,795

 

 

 

573,317

 

 

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

 

56


 

MGM RESORTS INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

 

 

 

Year Ended December 31,

 

 

 

2018

 

 

2017

 

 

2016

 

Net income

 

$

583,894

 

 

$

2,088,184

 

 

$

1,235,846

 

Other comprehensive loss, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

(13,022

)

 

 

(43,188

)

 

 

(2,680

)

Unrealized gain on cash flow hedges

 

 

3,576

 

 

 

7,995

 

 

 

1,879

 

Other comprehensive loss

 

 

(9,446

)

 

 

(35,193

)

 

 

(801

)

Comprehensive income

 

 

574,448

 

 

 

2,052,991

 

 

 

1,235,045

 

Less: Comprehensive income attributable to noncontrolling interests

 

 

(112,622

)

 

 

(119,700

)

 

 

(134,680

)

Comprehensive income attributable to MGM Resorts International

 

$

461,826

 

 

$

1,933,291

 

 

$

1,100,365

 

 

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

 

57


 

MGM RESORTS INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 

 

 

Year Ended December 31,

 

 

 

2018

 

 

2017

 

 

2016

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

583,894

 

 

$

2,088,184

 

 

$

1,235,846

 

Adjustments to reconcile net income to net cash provided by

   operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

1,178,044

 

 

 

993,480

 

 

 

849,527

 

Amortization of debt discounts, premiums and issuance costs

 

 

41,102

 

 

 

32,996

 

 

 

40,493

 

Loss on retirement of long-term debt

 

 

3,619

 

 

 

45,696

 

 

 

66,933

 

Provision for doubtful accounts

 

 

39,762

 

 

 

20,603

 

 

 

10,863

 

Stock-based compensation

 

 

70,177

 

 

 

62,494

 

 

 

55,487

 

Property transactions, net

 

 

9,147

 

 

 

50,279

 

 

 

17,078

 

Gain on Borgata transaction

 

 

 

 

 

 

 

 

(430,118

)

Income from unconsolidated affiliates

 

 

(96,542

)

 

 

(111,471

)

 

 

(471,980

)

Distributions from unconsolidated affiliates

 

 

11,563

 

 

 

13,050

 

 

 

16,905

 

Deferred income taxes

 

 

46,720

 

 

 

(1,259,406

)

 

 

(81,183

)

Change in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(149,554

)

 

 

(17,972

)

 

 

(31,866

)

Inventories

 

 

(7,860

)

 

 

(4,656

)

 

 

10,806

 

Income taxes receivable and payable, net

 

 

14,120

 

 

 

(53,204

)

 

 

13,385

 

Prepaid expenses and other

 

 

(15,535

)

 

 

(46,974

)

 

 

20,192

 

Prepaid Cotai land concession premium

 

 

6,879

 

 

 

(7,765

)

 

 

(22,376

)

Accounts payable and accrued liabilities

 

 

21,508

 

 

 

422,258

 

 

 

273,744

 

Other

 

 

(34,505

)

 

 

(21,181

)

 

 

(39,764

)

Net cash provided by operating activities

 

 

1,722,539

 

 

 

2,206,411

 

 

 

1,533,972

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures, net of construction payable

 

 

(1,486,843

)

 

 

(1,864,082

)

 

 

(2,262,473

)

Dispositions of property and equipment

 

 

25,612

 

 

 

718

 

 

 

3,944

 

Proceeds from partial disposition of investment in unconsolidated affiliate

 

 

 

 

 

 

 

 

15,000

 

Proceeds from sale of business units and investment in unconsolidated affiliate

 

 

163,616

 

 

 

 

 

 

 

Acquisition of Borgata, net of cash acquired

 

 

 

 

 

 

 

 

(559,443

)

Acquisition of Northfield, net of cash acquired

 

 

(1,034,534

)

 

 

 

 

 

 

Investments in and advances to unconsolidated affiliates

 

 

(56,295

)

 

 

(16,727

)

 

 

(3,633

)

Distributions from unconsolidated affiliates in excess of cumulative earnings

 

 

322,631

 

 

 

301,211

 

 

 

542,097

 

Other

 

 

(17,208

)

 

 

(1,712

)

 

 

(11,696

)

Net cash used in investing activities

 

 

(2,083,021

)

 

 

(1,580,592

)

 

 

(2,276,204

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

 

 

 

 

Net borrowings under bank credit facilities – maturities of

   90 days or less

 

 

1,242,259

 

 

 

15,001

 

 

 

491,032

 

Borrowings under bank credit facilities – maturities longer than 90 days

 

 

 

 

 

 

 

 

1,845,375

 

Repayments under bank credit facilities – maturities longer than 90 days

 

 

 

 

 

 

 

 

(1,845,375

)

Issuance of long-term debt

 

 

1,000,000

 

 

 

350,000

 

 

 

2,050,000

 

Retirement of senior debentures

 

 

(2,265

)

 

 

(502,669

)

 

 

(2,258,053

)

Repayment of Borgata credit facility

 

 

 

 

 

 

 

 

(583,598

)

Debt issuance costs

 

 

(76,519

)

 

 

(9,977

)

 

 

(139,584

)

Issuance of MGM Growth Properties Class A shares in public offering

 

 

 

 

 

404,685

 

 

 

1,207,500

 

MGM Growth Properties Class A share issuance costs

 

 

 

 

 

(17,137

)

 

 

(75,032

)

Acquisition of MGM China shares

 

 

 

 

 

 

 

 

(100,000

)

Dividends paid to common shareholders

 

 

(260,592

)

 

 

(252,014

)

 

 

 

Distributions to noncontrolling interest owners

 

 

(184,932

)

 

 

(170,402

)

 

 

(103,367

)

Proceeds from issuance of redeemable noncontrolling interests

 

 

 

 

 

 

 

 

47,325

 

Purchases of common stock

 

 

(1,283,333

)

 

 

(327,500

)

 

 

 

Other

 

 

(45,384

)

 

 

(58,765

)

 

 

(16,801

)

Net cash provided by (used in) financing activities

 

 

389,234

 

 

 

(568,778

)

 

 

519,422

 

Effect of exchange rate on cash

 

 

(1,985

)

 

 

(3,627

)

 

 

(921

)

Cash and cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

Net increase (decrease) for the period

 

 

26,767

 

 

 

53,414

 

 

 

(223,731

)

Balance, beginning of period

 

 

1,499,995

 

 

 

1,446,581

 

 

 

1,670,312

 

Balance, end of period

 

$

1,526,762

 

 

$

1,499,995

 

 

$

1,446,581

 

Supplemental cash flow disclosures

 

 

 

 

 

 

 

 

 

 

 

 

Interest paid, net of amounts capitalized

 

$

723,609

 

 

$

658,637

 

 

$

661,166

 

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

 

 

(10,100

)

 

 

181,651

 

 

 

68,236

 

Non-cash investing and financing activities

 

 

 

 

 

 

 

 

 

 

 

 

Common stock issued for acquisition of MGM China shares

 

$

 

 

$

 

 

$

174,041

 

Deferred cash payment for acquisition of MGM China shares

 

 

 

 

 

 

 

 

43,265

 

Increase in construction accounts payable

 

 

 

 

 

204,466

 

 

 

20,241

 

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

58


 

 

MGM RESORTS INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

For the Years ended December 31, 2018, 2017 and 2016

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retained

 

 

Accumulated

 

 

MGM Resorts

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Capital in

 

 

Earnings

 

 

Other

 

 

International

 

 

Non-

 

 

Total

 

 

 

 

 

 

 

Par

 

 

Excess of

 

 

(Accumulated

 

 

Comprehensive

 

 

Stockholders'

 

 

Controlling

 

 

Stockholders'

 

 

 

Shares

 

 

Value

 

 

Par Value

 

 

Deficit)

 

 

Income (Loss)

 

 

Equity

 

 

Interests

 

 

Equity

 

Balances, January 1, 2016

 

 

564,839

 

 

$

5,648

 

 

$

5,655,886

 

 

$

(581,952

)

 

$

14,022

 

 

$

5,093,604

 

 

$

2,644,500

 

 

$

7,738,104

 

Net income

 

 

 

 

 

 

 

 

 

 

 

1,100,408

 

 

 

 

 

 

1,100,408

 

 

 

134,902

 

 

 

1,235,310

 

Currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,477

)

 

 

(1,477

)

 

 

(1,203

)

 

 

(2,680

)

Other comprehensive income - cash

   flow hedges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,434

 

 

 

1,434

 

 

 

445

 

 

 

1,879

 

Stock-based compensation

 

 

 

 

 

 

 

 

51,460

 

 

 

 

 

 

 

 

 

51,460

 

 

 

4,147

 

 

 

55,607

 

Issuance of common stock pursuant to

   stock-based compensation awards

 

 

2,225

 

 

 

22

 

 

 

(30,065

)

 

 

 

 

 

 

 

 

(30,043

)

 

 

 

 

 

(30,043

)

Cash distributions to noncontrolling

   interest owners

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(103,457

)

 

 

(103,457

)

MGM Growth Properties IPO

 

 

 

 

 

 

 

 

(150,414

)

 

 

 

 

 

 

 

 

(150,414

)

 

 

1,334,252

 

 

 

1,183,838

 

MGP dividend payable to Class A

   shareholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(22,281

)

 

 

(22,281

)

Issuance of performance share units

 

 

 

 

 

 

 

 

5,817

 

 

 

 

 

 

 

 

 

5,817

 

 

 

 

 

 

5,817

 

MGM China common stock

   acquisition

 

 

7,060

 

 

 

71

 

 

 

127,146

 

 

 

 

 

 

1,074

 

 

 

128,291

 

 

 

(270,903

)

 

 

(142,612

)

Borgata transaction

 

 

 

 

 

 

 

 

(18,385

)

 

 

 

 

 

 

 

 

(18,385

)

 

 

28,752

 

 

 

10,367

 

Other

 

 

 

 

 

 

 

 

12,130

 

 

 

 

 

 

 

 

 

12,130

 

 

 

(22

)

 

 

12,108

 

Balances, December 31, 2016

 

 

574,124

 

 

 

5,741

 

 

 

5,653,575

 

 

 

518,456

 

 

 

15,053

 

 

 

6,192,825

 

 

 

3,749,132

 

 

 

9,941,957

 

Net income

 

 

 

 

 

 

 

 

 

 

 

1,952,052

 

 

 

 

 

 

1,952,052

 

 

 

128,320

 

 

 

2,080,372

 

Currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(23,995

)

 

 

(23,995

)

 

 

(19,193

)

 

 

(43,188

)

Other comprehensive income - cash

   flow hedges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,234

 

 

 

5,234

 

 

 

2,761

 

 

 

7,995

 

Stock-based compensation

 

 

 

 

 

 

 

 

57,531

 

 

 

 

 

 

 

 

 

57,531

 

 

 

4,991

 

 

 

62,522

 

Issuance of common stock pursuant to

   stock-based compensation awards

 

 

2,152

 

 

 

22

 

 

 

(33,802

)

 

 

 

 

 

 

 

 

(33,780

)

 

 

 

 

 

(33,780

)

Cash distributions to noncontrolling

   interest owners

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(147,685

)

 

 

(147,685

)

Dividends declared to common shareholders

   ($0.44 per share)

 

 

 

 

 

 

 

 

 

 

 

(252,014

)

 

 

 

 

 

(252,014

)

 

 

 

 

 

(252,014

)

MGP dividend payable to Class A

   shareholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(29,777

)

 

 

(29,777

)

Issuance of performance share units

 

 

 

 

 

 

 

 

9,648

 

 

 

 

 

 

 

 

 

9,648

 

 

 

95

 

 

 

9,743

 

Repurchase of common stock

 

 

(10,000

)

 

 

(100

)

 

 

(327,400

)

 

 

 

 

 

 

 

 

(327,500

)

 

 

 

 

 

(327,500

)

MGP Class A share issuance

 

 

 

 

 

 

 

 

35,029

 

 

 

 

 

 

109

 

 

 

35,138

 

 

 

326,484

 

 

 

361,622

 

Adjustment of redeemable non-

   controlling interest to redemption

   value

 

 

 

 

 

 

 

 

(18,280

)

 

 

 

 

 

 

 

 

(18,280

)

 

 

 

 

 

(18,280

)

MGM National Harbor transaction

 

 

 

 

 

 

 

 

(12,486

)

 

 

 

 

 

(11

)

 

 

(12,497

)

 

 

19,383

 

 

 

6,886

 

Other

 

 

 

 

 

 

 

 

(6,106

)

 

 

(1,195

)

 

 

 

 

 

(7,301

)

 

 

(448

)

 

 

(7,749

)

Balances, December 31, 2017

 

 

566,276

 

 

 

5,663

 

 

 

5,357,709

 

 

 

2,217,299

 

 

 

(3,610

)

 

 

7,577,061

 

 

 

4,034,063

 

 

 

11,611,124

 

Net income

 

 

 

 

 

 

 

 

 

 

 

466,772

 

 

 

 

 

 

466,772

 

 

 

108,114

 

 

 

574,886

 

Currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,422

)

 

 

(7,422

)

 

 

(5,600

)

 

 

(13,022

)

Other comprehensive income - cash

   flow hedges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,476

 

 

 

2,476

 

 

 

1,100

 

 

 

3,576

 

Stock-based compensation

 

 

 

 

 

 

 

 

65,072

 

 

 

 

 

 

 

 

 

65,072

 

 

 

5,124

 

 

 

70,196

 

Issuance of common stock pursuant to

   stock-based compensation awards

 

 

2,280

 

 

 

23

 

 

 

(32,225

)

 

 

 

 

 

 

 

 

(32,202

)

 

 

 

 

 

(32,202

)

Cash distributions to noncontrolling

   interest owners

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(147,321

)

 

 

(147,321

)

Dividends declared to common shareholders

   ($0.48 per share)

 

 

 

 

 

 

 

 

 

 

 

(260,592

)

 

 

 

 

 

(260,592

)

 

 

 

 

 

(260,592

)

MGP dividend payable to Class A

   shareholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(31,732

)

 

 

(31,732

)

Issuance of performance share units

 

 

 

 

 

 

 

 

3,609

 

 

 

 

 

 

 

 

 

3,609

 

 

 

107

 

 

 

3,716

 

Repurchase of common stock

 

 

(41,076

)

 

 

(411

)

 

 

(1,282,922

)

 

 

 

 

 

 

 

 

(1,283,333

)

 

 

 

 

 

(1,283,333

)

Adjustment of redeemable non-

   controlling interest to redemption

   value

 

 

 

 

 

 

 

 

(21,326

)

 

 

 

 

 

 

 

 

(21,326

)

 

 

 

 

 

(21,326

)

Other

 

 

 

 

 

 

 

 

2,168

 

 

 

 

 

 

 

 

 

2,168

 

 

 

(6,347

)

 

 

(4,179

)

Balances, December 31, 2018

 

 

527,480

 

 

$

5,275

 

 

$

4,092,085

 

 

$

2,423,479

 

 

$

(8,556

)

 

$

6,512,283

 

 

$

3,957,508

 

 

$

10,469,791

 

 

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

59


 

MGM RESORTS INTERNATIONAL AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 — ORGANIZATION

 

Organization. MGM Resorts International (together with its consolidated subsidiaries, unless otherwise indicated or unless the context requires otherwise, the “Company”) is a Delaware corporation that acts largely as a holding company and, through subsidiaries, owns and operates casino resorts.

 

The Company owns and operates the following integrated casino, hotel and entertainment resorts in Las Vegas, Nevada: Bellagio, MGM Grand Las Vegas, The Mirage, Mandalay Bay, Luxor, New York-New York, Park MGM (which was branded as Monte Carlo prior to May 2018), Excalibur and Circus Circus Las Vegas. Operations at MGM Grand Las Vegas include management of The Signature at MGM Grand Las Vegas, a condominium-hotel consisting of three towers. The Company operates and, along with local investors, owns MGM Grand Detroit in Detroit, Michigan, MGM National Harbor in Prince George’s County, Maryland and MGM Springfield in Springfield, Massachusetts, which opened on August 24, 2018. The Company also owns and operates Borgata located on Renaissance Pointe in the Marina area of Atlantic City, New Jersey and the following resorts in Mississippi: Beau Rivage in Biloxi and Gold Strike in Tunica. Additionally, the Company owns the Park, a dining and entertainment district located between New York-New York and Park MGM, Shadow Creek, an exclusive world-class golf course located approximately ten miles north of its Las Vegas Strip Resorts, Primm Valley Golf Club at the California/Nevada state line and Fallen Oak golf course in Saucier, Mississippi.

 

MGM Growth Properties LLC (“MGP”), a consolidated subsidiary of the Company, is organized as an umbrella partnership REIT (commonly referred to as an UPREIT) structure in which substantially all of its assets are owned by and substantially all of its businesses are conducted through MGM Growth Properties Operating Partnership LP (the “Operating Partnership”). MGP has two classes of authorized and outstanding voting common shares (collectively, the “shares”): Class A shares and a single Class B share. The Company owns MGP’s Class B share, which does not provide its holder any rights to profits or losses or any rights to receive distributions from operations of MGP or upon liquidation or winding up of MGP. MGP’s Class A shareholders are entitled to one vote per share, while the Company, as the owner of the Class B share, is entitled to an amount of votes representing a majority of the total voting power of MGP’s shares so long as the Company and its controlled affiliates’ (excluding MGP) aggregate beneficial ownership of the combined economic interests in MGP and the Operating Partnership does not fall below 30%. The Company and MGP each hold Operating Partnership units representing limited partner interests in the Operating Partnership. The general partner of the Operating Partnership is a wholly-owned subsidiary of MGP. The Operating Partnership units held by the Company are exchangeable into Class A shares of MGP on a one-to-one basis, or cash at the fair value of a Class A share. The determination of settlement method is at the option of MGP’s independent conflicts committee. The Company and MGP’s ownership interest percentage in the Operating Partnership have varied based upon the transactions that MGP has completed, as discussed in Note 12. As of December 31, 2018, the Company owned 73.3% of the Operating Partnership units, and MGP held the remaining 26.7% ownership interest in the Operating Partnership.  

 

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

 

In July 2018, MGP acquired the membership interests of Northfield Park Associates, LLC (“Northfield”), an Ohio limited liability company that owns the real estate assets and operations of the Hard Rock Rocksino Northfield Park from Milstein Entertainment LLC. Simultaneously with the close of the transaction, MGP entered into a new agreement with an affiliate of Hard Rock Café International (STP), Inc. to continue to serve as the manager of the property. Refer to Note 4 for additional information.

 

In September 2018, the Company entered into an agreement with MGP to acquire all of the operating assets of Northfield from MGP. Northfield will be added to the existing master lease between the Company and MGP. The transaction is expected to close in the first half of 2019, subject to customary closing conditions. Refer to Note 4 for additional information.

 

In January 2019, the Company acquired the real property and operations associated with the Empire City Casino's race track and casino ("Empire City"). MGP then acquired the developed real property associated with Empire City from the Company and the real estate assets of Empire City will be leased to the Company pursuant to an amendment to the master lease. Refer to Note 4 for additional information.  

 

60


 

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

 

The Company owns 50% of and manages CityCenter Holdings, LLC (“CityCenter”), located between Bellagio and Park MGM. The other 50% of CityCenter is owned by Infinity World Development Corp, a wholly owned subsidiary of Dubai World, a Dubai, United Arab Emirates government decree entity. CityCenter consists of Aria, an integrated casino, hotel and entertainment resort; and Vdara, a luxury condominium-hotel. On August 30, 2018, CityCenter completed the sale of the Mandarin Oriental Las Vegas (“Mandarin Oriental”) and adjacent retail parcels. See Note 6 and Note 17 for additional information related to CityCenter.

 

The Company and a subsidiary of Anschutz Entertainment Group, Inc. (“AEG”) each own 42.5% of the Las Vegas Arena Company, LLC (“Las Vegas Arena Company”), the entity which owns the T-Mobile Arena, and Athena Arena, LLC owns the remaining 15%. The Company also manages the T-Mobile Arena. Additionally, the Company leases the MGM Grand Garden Arena, located adjacent to the MGM Grand Las Vegas, to the Las Vegas Arena Company. See Note 6 for additional information regarding the Company’s investment in the Las Vegas Arena Company.

 

In August 2018, the Company, along with its joint venture partner, completed the sale of its 50% interest in Grand Victoria, a riverboat casino in Elgin, Illinois. See Note 6 for additional information regarding the Company’s investment in Grand Victoria.

 

During the fourth quarter of 2018, the Company has changed the aggregation of its operations into three reportable segments: Las Vegas Strip Resorts, Regional Operations and MGM China. This change of reportable segments reflects realignment within the Company stemming from the expansion of the Company’s regional operations. See Note 16 for additional information about the Company’s segments.

 

 

 

NOTE 2 — BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

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

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

Management has determined that MGP is a VIE because the Class A equity investors as a group lack the power through voting or similar rights to direct the activities of such entity that most significantly impact such entity’s economic performance. The Company has determined that it is the primary beneficiary of MGP and consolidates MGP because (i) its ownership of MGP’s single Class B share entitles it to a majority of the total voting power of MGP’s shares, and (ii) the exchangeable nature of the Operating Partnership units owned provide the Company the right to receive benefits from MGP that could potentially be significant to MGP. The Company has recorded MGP’s ownership interest in the Operating Partnership of 26.7% as of December 31, 2018 as noncontrolling interest in the Company’s consolidated financial statements. As of December 31, 2018, on a consolidated basis MGP had total assets of $11.0 billion, primarily related to its real estate investments, and total liabilities of $5.1 billion, primarily related to its indebtedness.  

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Management’s use of estimates. The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. These principles require the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

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

 

 

Level 1 and Level 2 inputs for its long-term debt fair value disclosures. See Note 9;

 

Level 2 and Level 3 inputs when assessing the fair value of assets acquired and liabilities assumed during the Northfield transaction and Borgata transaction. See Note 4.

 

Cash and cash equivalents. Cash and cash equivalents include investments and interest bearing instruments with maturities of 90 days or less at the date of acquisition. Such investments are carried at cost, which approximates market value. Book overdraft balances resulting from the Company’s cash management program are recorded as accounts payable or construction payable as applicable.

 

Accounts receivable and credit risk. Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of casino accounts receivable. The Company issues credit to approved casino customers and gaming promoters following background checks and investigations of creditworthiness. At December 31, 2018 and 2017, approximately 62% and 40%, respectively, of our gross casino accounts receivable were owed by customers from foreign countries, primarily Asia. Business or economic conditions or other significant events in these countries could affect the collectability of such receivables.

 

Accounts receivable are typically non-interest bearing and are initially recorded at cost. Accounts are written off when management deems the account to be uncollectible. Recoveries of accounts previously written off are recorded when received. An estimated allowance for doubtful accounts is maintained to reduce the Company’s receivables to their net carrying amount, which approximates fair value. The allowance is estimated based on both a specific review of customer accounts as well as historical collection experience and current economic and business conditions. Management believes that as of December 31, 2018, no significant concentrations of credit risk existed for which an allowance had not already been recorded.

 

Inventories. Inventories consist primarily of food and beverage, retail merchandise and operating supplies, and are stated at the lower of cost or net realizable value. Cost is determined primarily using the average cost method for food and beverage and operating supplies. Cost for retail merchandise is determined using the cost method.

 

Property and equipment. Property and equipment are stated at cost. A significant amount of the Company’s property and equipment was acquired through business combinations and therefore recognized at fair value at the acquisition date. Gains or losses on dispositions of property and equipment are included in the determination of income or loss. Maintenance costs are expensed as incurred. As of December 31, 2018 and 2017, the Company had accrued $47 million and $28 million, respectively for property and equipment within accounts payable, and $2 million and $34 million, respectively, related to construction retention within other long-term liabilities.

 

Property and equipment are generally depreciated over the following estimated useful lives on a straight-line basis:

 

Buildings and improvements

 

15 to 40 years

Land improvements

 

10 to 20 years

Furniture and fixtures

 

3 to 20 years

Equipment

 

3 to 15 years

 

The Company evaluates its property and equipment and other long-lived assets for impairment based on its classification as held for sale or to be held and used. Several criteria must be met before an asset is classified as held for sale, including that management with the appropriate authority commits to a plan to sell the asset at a reasonable price in relation to its fair value and is actively seeking a buyer. For assets held for sale, the Company recognizes the asset at the lower of carrying value or fair market value less costs to sell, as estimated based on comparable asset sales, offers received, or a discounted cash flow model. For assets to be held and

62


 

used, the Company reviews for impairment whenever indicators of impairment exist. The Company then compares the estimated future cash flows of the asset, on an undiscounted basis, to the carrying value of the asset. If the undiscounted cash flows exceed the carrying value, no impairment is indicated. If the undiscounted cash flows do not exceed the carrying value, then an impairment charge is recorded based on the fair value of the asset, typically measured using a discounted cash flow model. If an asset is still under development, future cash flows include remaining construction costs. All recognized impairment losses, whether for assets held for sale or assets to be held and used, are recorded as operating expenses.

 

Capitalized interest. The interest cost associated with major development and construction projects is capitalized and included in the cost of the project. When no debt is incurred specifically for a project, interest is capitalized on amounts expended on the project using the weighted-average cost of the Company’s outstanding borrowings. Capitalization of interest ceases when the project is substantially complete or development activity is suspended for more than a brief period.

 

Investments in and advances to unconsolidated affiliates. The Company has investments in unconsolidated affiliates accounted for under the equity method. Under the equity method, carrying value is adjusted for the Company’s share of the investees’ earnings and losses, amortization of certain basis differences, as well as capital contributions to and distributions from these companies. Distributions in excess of equity method earnings are recognized as a return of investment and recorded as investing cash inflows in the accompanying consolidated statements of cash flows. The Company classifies operating income and losses as well as gains and impairments related to its investments in unconsolidated affiliates as a component of operating income or loss and classifies non-operating income or losses related to its investments in unconsolidated affiliates as a component of non-operating income or loss, as the Company’s investments in such unconsolidated affiliates are an extension of the Company’s core business operations.

 

The Company evaluates its investments in unconsolidated affiliates for impairment whenever events or changes in circumstances indicate that the carrying value of its investment may have experienced an “other-than-temporary” decline in value. If such conditions exist, the Company compares the estimated fair value of the investment to its carrying value to determine if an impairment is indicated and determines whether the impairment is “other-than-temporary” based on its assessment of all relevant factors, including consideration of the Company’s intent and ability to retain its investment. The Company estimates fair value using a discounted cash flow analysis based on estimated future results of the investee and market indicators of terminal year capitalization rates, and a market approach that utilizes business enterprise value multiples based on a range of multiples from the Company’s peer group. See Note 6 for results of the Company’s review of its investment in certain of its unconsolidated affiliates.

 

Goodwill and other intangible assets. Goodwill represents the excess of purchase price over fair market value of net assets acquired in business combinations. Goodwill and indefinite-lived intangible assets must be reviewed for impairment at least annually and between annual test dates in certain circumstances. The Company performs its annual impairment tests in the fourth quarter of each fiscal year. No impairments were indicated or recorded as a result of the annual impairment review for goodwill and indefinite-lived intangible assets in 2018, 2017 and 2016.

 

Accounting guidance provides entities the option to perform a qualitative assessment of goodwill and indefinite-lived intangible assets (commonly referred to as “step zero”) in order to determine whether further impairment testing is necessary. In performing the step zero analysis the Company considers macroeconomic conditions, industry and market considerations, current and forecasted financial performance, entity-specific events, and changes in the composition or carrying amount of net assets of reporting units for goodwill. In addition, the Company takes into consideration the amount of excess of fair value over carrying value determined in the last quantitative analysis that was performed, as well as the period of time that has passed since the last quantitative analysis. If the step zero analysis indicates that it is more likely than not that the fair value is less than its carrying amount, the entity would proceed to a quantitative analysis.

 

Under the quantitative analysis, goodwill for relevant reporting units is tested for impairment using a discounted cash flow analysis based on the estimated future results of the Company’s reporting units discounted using market discount rates and market indicators of terminal year capitalization rates, and a market approach that utilizes business enterprise value multiples based on a range of multiples from the Company’s peer group. Effective January 1, 2017, the Company adopted accounting guidance that simplifies goodwill impairment testing by eliminating the requirement to calculate the implied fair value of goodwill (formerly “Step 2”) in the event that impairment is identified. Instead, an impairment charge is recognized for the amount by which the carrying value exceeds the reporting unit’s fair value, not to exceed the total amount of goodwill allocated to that reporting unit. Under the quantitative analysis, license rights are tested for impairment using a discounted cash flow approach, and trademarks are tested for impairment using the relief-from-royalty method. If the fair value of an indefinite-lived intangible asset is less than its carrying amount, an impairment loss is recognized equal to the difference.

 

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

 

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

 

For casino wager transactions that include other goods and services provided by the Company to gaming patrons on a discretionary basis to incentivize gaming, the Company allocates revenue from the casino wager transaction to the good or service delivered based upon stand-alone selling price (“SSP”). Discretionary goods and services provided by the Company and supplied by third parties are recognized as an operating expense.

 

For casino wager transactions that include incentives earned by customers under the Company’s loyalty programs, the Company allocates a portion of net win based upon the SSP of such incentive (less estimated breakage). This allocation is deferred and recognized as revenue when the customer redeems the incentive. When redeemed, revenue is recognized in the department that provides the goods or service. Redemption of loyalty incentives at third party outlets are deducted from the loyalty liability and amounts owed are paid to the third party, with any discount received recorded as other revenue. Commissions and incentives provided to gaming customers were collectively $2.3 billion, $2.1 billion and $1.8 billion for the years ended December 31, 2018, 2017 and 2016, respectively. After allocating revenue to other goods and services provided as part of casino wager transactions, the Company records the residual amount to casino revenue.

 

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

 

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

 

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

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding Chip Liability

 

 

Loyalty Program

 

 

Customer Advances and Other

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

(in thousands)

 

Balance at January 1

$

597,753

 

 

$

227,538

 

 

$

91,119

 

 

$

88,379

 

 

$

539,626

 

 

$

437,287

 

Balance at December 31

 

323,811

 

 

 

597,753

 

 

 

113,293

 

 

 

91,119

 

 

 

667,285

 

 

 

539,626

 

Increase / (decrease)

$

(273,942

)

 

$

370,215

 

 

$

22,174

 

 

$

2,740

 

 

$

127,659

 

 

$

102,339

 

 

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

 

Revenue by source. The Company presents the revenue earned disaggregated by the type or nature of the good or service (casino, room, food and beverage, and entertainment, retail and other) and by relevant geographic region within Note 16. Lease

64


 

revenues earned by the Company from third-parties are classified within the line item corresponding to the type or nature of the tenant’s good or service. Lease revenues include $51 million, $51 million and $50 million recorded within food and beverage revenue for 2018, 2017 and 2016, respectively, and $87 million, $79 million and $77 million recorded within entertainment, retail, and other revenue for the same such periods, respectively.

 

Advertising. The Company expenses advertising costs the first time the advertising takes place. Advertising expense, which is generally included in general and administrative expenses, was $305 million, $223 million and $171 million for 2018, 2017 and 2016, respectively.

 

Corporate expense. Corporate expense represents unallocated payroll, aircraft costs, professional fees and various other expenses not directly related to the Company’s casino resort operations. In addition, corporate expense includes the costs associated with the Company’s evaluation and pursuit of new business opportunities, which are expensed as incurred.

 

Preopening and start-up expenses. Preopening and start-up costs, including organizational costs, are expensed as incurred. Costs classified as preopening and start-up expenses include payroll, outside services, advertising, and other expenses related to new or start-up operations.

 

Property transactions, net. The Company classifies transactions such as write-downs and impairments, demolition costs, and normal gains and losses on the sale of assets as “Property transactions, net.” See Note 15 for a detailed discussion of these amounts.

 

Redeemable noncontrolling interest. Certain noncontrolling interest parties have non-voting economic interests in MGM National Harbor which provide for annual preferred distributions by MGM National Harbor to the noncontrolling interest parties based on a percentage of its annual net gaming revenue (as defined in the MGM National Harbor operating agreement). Such distributions are accrued each quarter and are paid 90-days after the end of each fiscal year.

 

Beginning on December 31, 2019 the noncontrolling interest parties will each have the ability to require MGM National Harbor to purchase all or a portion of their interests for a purchase price based on a contractually agreed upon formula. Additionally, certain noncontrolling interest parties each have the right to sell back all or a portion of their interests prior to such date if MGM National Harbor were to guarantee or grant liens to secure any indebtedness of the Company or its affiliates other than the indebtedness of MGM National Harbor.

 

The Company has recorded the interests as “Redeemable noncontrolling interests” in the mezzanine section of the accompanying consolidated balance sheets and not stockholders’ equity because their redemption is not exclusively in the Company’s control. The interests were initially accounted for at fair value. Subsequently, the Company recognizes changes in the redemption value as they occur and adjusts the carrying amount of the redeemable noncontrolling interests to equal the maximum redemption value, provided such amount does not fall below the initial carrying value, at the end of each reporting period. The Company records any changes caused by such an adjustment in capital in excess of par value. Additionally, the carrying amount of the redeemable noncontrolling interests is adjusted for accrued annual preferred distributions, with changes caused by such adjustments recorded within net income (loss) attributable to noncontrolling interests.   

 

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

 

 

 

Year Ended December 31,

 

 

 

2018

 

 

2017

 

 

2016

 

Numerator:

 

(In thousands)

 

Net income attributable to MGM Resorts International

 

$

466,772

 

 

$

1,952,052

 

 

$

1,100,408

 

Adjustment related to redeemable noncontrolling interests

 

 

(21,326

)

 

 

(18,363

)

 

 

(28

)

Net income available to common stockholders - basic

 

 

445,446

 

 

 

1,933,689

 

 

 

1,100,380

 

Potentially dilutive effect due to MGP and MGM China stock compensation plans

 

 

(206

)

 

 

(268

)

 

 

(51

)

Net income attributable to common stockholders - diluted

 

$

445,240

 

 

$

1,933,421

 

 

$

1,100,329

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding basic

 

 

544,253

 

 

 

572,253

 

 

 

568,134

 

Potential dilution from share-based awards

 

 

5,283

 

 

 

6,542

 

 

 

5,183

 

Weighted-average common and common equivalent shares - diluted

 

 

549,536

 

 

 

578,795

 

 

 

573,317

 

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

 

 

2,668

 

 

 

2,601

 

 

 

4,207

 

 

Currency translation. The Company translates the financial statements of foreign subsidiaries that are not denominated in U.S. dollars. Balance sheet accounts are translated at the exchange rate in effect at each balance sheet date. Income statement accounts are translated at the average rate of exchange prevailing during the period. Translation adjustments resulting from this process are recorded to other comprehensive income (loss).

 

Accumulated other comprehensive income (loss). Comprehensive income (loss) includes net income (loss) and all other non-stockholder changes in equity, or other comprehensive income (loss). Elements of the Company’s accumulated other comprehensive income are reported in the accompanying consolidated statements of stockholders’ equity. Amounts reported in accumulated other comprehensive income related to cash flow hedges will be reclassified to interest expense as interest payments are made on our variable-rate debt.

 

Recently issued accounting standards. In February 2016, the FASB issued ASC 842 “Leases (Topic 842)”, which replaces the existing guidance in Topic 840, “Leases”, (“ASC 842”). ASC 842 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. ASC 842 requires a dual approach for lessee accounting under which a lessee would classify and account for its lease agreements as either finance or operating. Both finance and operating leases will result in the lessee recognizing a right-of-use (“ROU”) asset and a corresponding lease liability. For finance leases, the lessee will recognize interest expense associated with the lease liability and depreciation expense associated with the ROU asset; and for operating leases, the lessee will recognize straight-line rent expense. The Company will adopt ASC 842 on January 1, 2019 utilizing the simplified transition method and accordingly will not recast comparative period financial information. The Company will elect the basket of transition practical expedients which includes not needing to reassess: (1) whether any expired or existing contracts are or contain leases, (2) the lease classification for any expired or existing leases, and (3) direct costs for any existing leases. The Company also currently expects that the most significant impact will be the recognition of ROU assets and lease liabilities for operating leases that exist at the Company on the date of adoption with the most material of such leases being ground leases.

 

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NOTE 3 — ACCOUNTS RECEIVABLE, NET

 

Accounts receivable, net consisted of the following:

 

 

 

December 31,

 

 

 

2018

 

 

2017

 

 

 

(In thousands)

 

Casino

 

$

419,127

 

 

$

343,869

 

Hotel

 

 

154,707

 

 

 

146,931

 

Other

 

 

174,147

 

 

 

144,044

 

 

 

 

747,981

 

 

 

634,844

 

Less: Allowance for doubtful accounts

 

 

(90,775

)

 

 

(92,571

)

 

 

$

657,206

 

 

$

542,273

 

 

 

NOTE 4 — ACQUISITION

 

Northfield

 

On July 6, 2018, MGP completed its acquisition of 100% of the membership interests of Northfield for a purchase price of approximately $1.1 billion (“Northfield Acquisition”). MGP funded the acquisition through a $200 million draw on the Operating Partnership’s term loan A and a $655 million draw under the Operating Partnership’s revolving credit facility, with the remainder of the purchase price paid with cash on hand. The acquisition expanded MGP’s real estate assets and diversified MGP’s geographic reach.

 

MGP recognized 100% of the assets and liabilities of Northfield at fair value at the date of the acquisition. Under the acquisition method, the fair value was allocated to the assets acquired and liabilities assumed in the transaction. The Company estimated fair value using both level 2 inputs, which are observable inputs for similar assets, and level 3 inputs, which are unobservable inputs. The allocation of fair value for substantially all of the assets and liabilities is preliminary and may be adjusted up to one year after the acquisition. Specifically, as of December 31, 2018, the Company is finalizing valuation work related to the asset classes that comprise the property and equipment acquired.

 

The following table sets forth the preliminary purchase price allocation as of July 6, 2018 (in thousands):

 

Fair value of assets acquired and liabilities assumed:

 

 

 

Property and equipment

$

792,807

 

Cash and cash equivalents

 

35,831

 

Racing and gaming license

 

228,000

 

Customer list

 

25,000

 

Goodwill

 

17,915

 

Other assets

 

9,598

 

Other liabilities

 

(38,786

)

 

$

1,070,365

 

 

MGP recognized the identifiable intangible assets at fair value. The estimated fair values of the intangible assets were preliminarily determined using methodologies under the income approach based on significant inputs that were not observable. The goodwill is primarily attributable to the synergies expected to arise after the acquisition.

 

As further discussed in Note 17, the Company entered into an agreement with MGP to acquire all of the operating assets of Northfield (“Northfield OpCo”) from MGP and the real estate assets of Northfield will be leased to a subsidiary of the Company. The transaction is expected to close in the first half of 2019, subject to customary closing conditions. The transaction will be an intercompany transaction and, accordingly, the effect will be eliminated in the Company’s consolidated financial statements.

 

Consolidated results. For the period from July 6, 2018 through December 31, 2018, Northfield’s net revenue was $133 million, operating income and net income were both $33 million. Pro forma results of operations for the acquisition have not been presented because it is not material to the consolidated results of operations.

 

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Empire City

 

On January 29, 2019, the Company acquired the real property and operations associated with the Empire City Casino's race track and casino (“Empire City”) for total consideration of approximately $864 million, plus customary working capital and other adjustments (“Empire City Acquisition”). The fair value of consideration paid included the assumption of debt of approximately $246 million, which was subsequently repaid, the issuance of approximately $266 million of the Company’s common stock, and the remaining balance in cash. If Empire City is awarded a license for live table games on or prior to December 31, 2022 and the Company accepts such license by December 31, 2024, the Company will pay additional consideration of $50 million. Preliminary fair values for assets acquired and liabilities assumed are not reported herein as the Company is still in the process of completing the initial accounting for the acquisition.

 

Following the completion of the acquisition of Empire City, MGP acquired the developed real property associated with Empire City from the Company and leases the real property to a subsidiary of the Company. See Note 17 for additional information.

 

Borgata acquisition

 

On August 1, 2016, the Company completed the acquisition of Boyd Gaming Corporation’s (“Boyd Gaming”) ownership interest in Borgata for cash consideration of $604 million. Following the completion of the acquisition of Boyd Gaming’s interest, MGP acquired Borgata’s real property from the Company and leases the real property to a subsidiary of the Company. Additionally, as discussed in Note 11, Borgata subsequently entered into a property tax reimbursement agreement in February 2017 with the Department of Community Affairs of the State of New Jersey and Atlantic City and received the settlement amount of $72 million in June 2017, half of which the Company paid Boyd Gaming, net of fees and expenses.  

 

Through the acquisition of Boyd Gaming’s interest in Borgata, the Company obtained 100% of the equity interests in Borgata and therefore consolidated Borgata as of August 1, 2016. The Company recognized 100% of the assets and liabilities of Borgata at fair value at the date of the acquisition. Prior to the acquisition, the Company held a 50% ownership interest in Borgata, which was accounted for under the equity method. The fair value of the equity interests of Borgata was determined by the transaction price and equaled approximately $1.2 billion. The carrying value of the Company’s equity method investment was significantly less than its share of the fair value of Borgata at the acquisition date, resulting in a $430 million gain on the acquisition.

 

Borgata’s net revenue for the period from August 1, 2016 through December 31, 2016 was $350 million, operating income was $34 million and net income was $4 million.

Pro forma information. The operating results for Borgata are included in the accompanying consolidated statements of operations from the date of acquisition. The following unaudited pro forma consolidated financial information for the Company has been prepared assuming the Company’s acquisition of its controlling interest has occurred as of January 1, 2015 and excludes the $430 million gain discussed above. The unaudited pro forma financial information below is not necessarily indicative of either future results of operations or results that might have been achieved had the acquisition been consummated as of January 1, 2015.

 

 

Year Ended December 31,

 

 

2016

 

 

(In thousands, except per share data)

 

 

(unaudited)

 

Net revenues

$

9,963,322

 

Net income attributable to MGM Resorts International

 

818,247

 

Basis net income per share

$

1.44

 

Diluted net income per share

$

1.43

 

 

 

 

68


 

NOTE 5 — PROPERTY AND EQUIPMENT, NET

 

Property and equipment, net consisted of the following:

 

 

 

December 31,

 

 

 

2018

 

 

2017

 

 

 

(In thousands)

 

Land

 

$

6,923,769

 

 

$

6,531,701

 

Buildings, building improvements and land improvements

 

 

16,437,695

 

 

 

12,245,950

 

Furniture, fixtures and equipment

 

 

6,064,330

 

 

 

5,157,363

 

Construction in progress

 

 

321,944

 

 

 

3,950,635

 

 

 

 

29,747,738

 

 

 

27,885,649

 

Less: Accumulated depreciation

 

 

(9,017,850

)

 

 

(8,250,190

)

 

 

$

20,729,888

 

 

$

19,635,459

 

 

 

NOTE 6 — INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES

 

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

 

 

 

December 31,

 

 

 

2018

 

 

2017

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

CityCenter Holdings, LLC – CityCenter (50%)

 

$

589,965

 

 

$

808,220

 

Elgin Riverboat Resort–Riverboat Casino – Grand Victoria (50% at December 31, 2017)

 

 

 

 

 

124,342

 

Las Vegas Arena Company, LLC (42.5%)

 

 

73,540

 

 

 

76,619

 

Other

 

 

69,362

 

 

 

24,116

 

 

 

$

732,867

 

 

$

1,033,297

 

 

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

 

 

 

Year Ended December 31,

 

 

 

2018

 

 

2017

 

 

2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

Income from unconsolidated affiliates

 

$

147,690

 

 

$

146,222

 

 

$

528,287

 

Preopening and start-up expenses

 

 

(3,321

)

 

 

 

 

 

(3,168

)

Non-operating items from unconsolidated affiliates

 

 

(47,827

)

 

 

(34,751

)

 

 

(53,139

)

 

 

$

96,542

 

 

$

111,471

 

 

$

471,980

 

 

The following table summarizes information related to the Company’s share of income from unconsolidated affiliates:

 

 

 

Year Ended December 31,

 

 

 

2018

 

 

2017

 

 

2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

CityCenter

 

$

138,383

 

 

$

133,401

 

 

$

445,853

 

Borgata (through July 31, 2016)

 

 

 

 

 

 

 

 

61,169

 

Other

 

 

9,307

 

 

 

12,821

 

 

 

21,265

 

 

 

$

147,690

 

 

$

146,222

 

 

$

528,287

 

 

CityCenter

 

Mandarin Oriental sale. In August 2018, CityCenter closed the sale of the Mandarin Oriental and adjacent retail parcels for approximately $214 million. During the year ended December 31, 2018, CityCenter recognized a loss on the sale of the Mandarin Oriental of $133 million and the Company recognized a $12 million gain on the sale related to the reversal of basis differences in excess of its share of the loss recorded by CityCenter, which is recorded within “Income from unconsolidated affiliates”.

 

69


 

Crystals sale. In April 2016, CityCenter closed the sale of Crystals for approximately $1.1 billion. During the year ended December 31, 2016, CityCenter recognized a gain on the sale of Crystals of $400 million and the Company recognized a $401 million gain, which included $200 million representing its 50% share of the gain recorded by CityCenter and $201 million representing the reversal of certain basis differences. The basis differences primarily related to other-than-temporary impairment charges recorded on the Company’s investment in CityCenter that were allocated to Crystals’ building assets.

 

CityCenter distributions. In September 2018, CityCenter paid a $225 million dividend, of which the Company received its 50% share, or approximately $113 million and in May 2018, CityCenter paid a $400 million dividend, of which the Company received its 50% share, or $200 million. In April 2017, CityCenter paid a $600 million dividend, consisting of a $350 million dividend using proceeds from the upsized senior credit facilities and a $250 million dividend from cash on hand, of which $78 million was part of its annual dividend policy. MGM Resorts received its 50% share, or $300 million. In March 2016, a $90 million distribution was declared in accordance with CityCenter’s annual distribution policy and in April 2016, CityCenter declared a $990 million special distribution in connection with the Crystals sale. The Company’s $540 million share of such distributions was received in May 2016.

 

Grand Victoria

 

Grand Victoria sale. In August 2018, the Company, along with its joint venture partner, completed the sale of Grand Victoria, of which a subsidiary of the Company owned a 50% interest, for $328 million in cash. The Company recorded a gain of $45 million related to the sale, which is recorded within “Property transactions, net”.

 

Borgata

 

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

 

Las Vegas Arena Company, LLC

 

Athena Arena transaction. On September 1, 2016, the Company and AEG each sold a 7.5% membership interest in the Las Vegas Arena Company, LLC to Athena Arena, LLC. As a result of this transaction, the Company received $15 million in proceeds and recorded a $3 million gain in “Property transactions, net”.

 

Unconsolidated Affiliate Financial Information - CityCenter

 

Summarized balance sheet information is as follows:

 

 

 

December 31,

 

 

 

2018

 

 

2017

 

 

 

(In thousands)

 

Current assets

 

$

363,755

 

 

$

708,910

 

Property and other assets, net and other long-term assets

 

 

6,167,853

 

 

 

6,280,474

 

Current liabilities

 

 

347,710

 

 

 

348,232

 

Long-term debt and other long-term obligations

 

 

1,763,290

 

 

 

1,557,633

 

 

 

Summarized results of operations are as follows:

 

 

 

Year Ended December 31,

 

 

 

2018

 

 

2017

 

 

2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

Net revenues

 

$

1,277,745

 

 

$

1,227,733

 

 

$

1,160,606

 

Operating income

 

 

185,368

 

 

 

200,109

 

 

 

13,979

 

Income (loss) from continuing operations

 

 

97,091

 

 

 

137,226

 

 

 

(50,376

)

Net income (loss)

 

 

(37,911

)

 

 

131,683

 

 

 

349,716

 

 

 

70


 

Basis Differences

 

The Company’s investments in unconsolidated affiliates do not equal the Company’s share of venture-level equity due to various basis differences. Basis differences related to depreciable assets are being amortized based on the useful lives of the related assets and liabilities, and basis differences related to non–depreciable assets, such as land and indefinite-lived intangible assets, are not being amortized. Differences between the Company’s share of venture-level equity and investment balances are as follows:

 

 

 

December 31,

 

 

 

2018

 

 

2017

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

Venture-level equity attributable to the Company

 

$

2,347,103

 

 

$

2,659,780

 

Adjustment to CityCenter equity upon contribution of net assets by MGM Resorts

   International (1)

 

 

(514,592

)

 

 

(532,501

)

CityCenter capitalized interest (2)

 

 

186,830

 

 

 

206,065

 

CityCenter completion guarantee (3)

 

 

274,685

 

 

 

322,703

 

CityCenter deferred gain (4)

 

 

(212,276

)

 

 

(219,561

)

CityCenter capitalized interest on sponsor notes (5)

 

 

(36,500

)

 

 

(40,258

)

Other-than-temporary impairments of CityCenter investment (6)

 

 

(1,352,118

)

 

 

(1,504,161

)

Acquisition fair value adjustments net of other-than-temporary impairments of Grand

   Victoria investment (7)

 

 

 

 

 

99,619

 

Other adjustments

 

 

39,735

 

 

 

41,611

 

 

 

$

732,867

 

 

$

1,033,297

 

 

 

(1)

Primarily relates to land and fixed assets.

 

(2)

Relates to interest capitalized on the Company’s investment balance during development and construction stages.

 

(3)

Created by contributions to CityCenter under the completion guarantee recognized as equity contributions by CityCenter split between the members.

 

(4)

Relates to a deferred gain on assets contributed to CityCenter upon formation of CityCenter.

 

(5)

Relates to interest on the sponsor notes capitalized by CityCenter during development. Such sponsor notes were converted to equity in 2013.  

 

(6)

The impairment of the Company’s CityCenter investment includes $352 million and $379 million of impairments allocated to land as of December 31, 2018 and December 31, 2017, respectively.

 

(7)

Relates to indefinite-lived gaming license rights for Grand Victoria and other-than-temporary impairments of the Company’s investment in Grand Victoria.

 

 

71


 

NOTE 7 — GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill and other intangible assets consisted of the following:  

 

 

 

December 31,

 

 

 

2018

 

 

2017

 

Goodwill:

 

(In thousands)

 

Las Vegas Strip Resorts

 

$

70,975

 

 

$

70,975

 

Regional Operations

 

 

386,892

 

 

 

386,892

 

Corporate and other

 

 

17,915

 

 

 

 

MGM China

 

 

1,345,610

 

 

 

1,348,664

 

 

 

$

1,821,392

 

 

$

1,806,531

 

Indefinite-lived intangible assets:

 

 

 

 

 

 

 

 

Detroit development rights

 

$

98,098

 

 

$

98,098

 

Northfield racing and gaming licenses

 

 

228,000

 

 

 

 

Trademarks, license rights and other

 

 

312,022

 

 

 

312,022

 

Total indefinite-lived intangible assets

 

 

638,120

 

 

 

410,120

 

Finite-lived intangible assets:

 

 

 

 

 

 

 

 

MGM Grand Paradise gaming subconcession

 

 

4,468,766

 

 

 

4,478,911

 

Less: Accumulated amortization

 

 

(1,342,561

)

 

 

(1,180,908

)

 

 

 

3,126,205

 

 

 

3,298,003

 

MGM Macau land concession

 

 

83,885

 

 

 

84,076

 

Less: Accumulated amortization

 

 

(32,035

)

 

 

(27,870

)

 

 

 

51,850

 

 

 

56,206

 

MGM China customer lists

 

 

127,679

 

 

 

127,969

 

Borgata customer list

 

 

22,000

 

 

 

22,000

 

Northfield customer list

 

 

25,000

 

 

 

 

Less: Accumulated amortization

 

 

(151,465

)

 

 

(145,569

)

 

 

 

23,214

 

 

 

4,400

 

Finite-lived gaming licenses and other intangible assets

 

 

136,127

 

 

 

136,127

 

Less: Accumulated amortization

 

 

(31,053

)

 

 

(26,896

)

 

 

 

105,074

 

 

 

109,231

 

Total finite-lived intangible assets, net

 

 

3,306,343

 

 

 

3,467,840

 

Total other intangible assets, net

 

$

3,944,463

 

 

$

3,877,960

 

 

72


 

Goodwill. A summary of changes in the Company’s goodwill by reportable segment is as follows for 2018 and 2017:

 

 

 

2018

 

 

 

Balance at

January 1

 

 

Acquisitions

 

 

Currency exchange

 

 

Balance at December 31

 

 

 

(In thousands)

 

Goodwill, net by segment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Las Vegas Strip Resorts

 

$

70,975

 

 

$

 

 

$

 

 

$

70,975

 

Regional Operations

 

 

386,892

 

 

 

 

 

 

 

 

 

386,892

 

MGM China

 

 

1,348,664

 

 

 

 

 

 

(3,054

)

 

 

1,345,610

 

Corporate and other

 

 

 

 

 

17,915

 

 

 

 

 

 

17,915

 

 

 

$

1,806,531

 

 

$

17,915

 

 

$

(3,054

)

 

$

1,821,392

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2017

 

 

 

Balance at

January 1

 

 

Acquisitions

 

 

Currency exchange

 

 

Balance at December 31

 

 

 

(In thousands)

 

Goodwill, net by segment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Las Vegas Strip Resorts

 

$

70,975

 

 

$

 

 

$

 

 

$

70,975

 

Regional Operations

 

 

386,892

 

 

 

 

 

 

 

 

 

386,892

 

MGM China

 

 

1,359,252

 

 

 

 

 

 

(10,588

)

 

 

1,348,664

 

 

 

$

1,817,119

 

 

$

 

 

$

(10,588

)

 

$

1,806,531

 

 

Goodwill was recognized by MGP, which is included within Corporate and other, in connection with its acquisition of Northfield in 2018. See Note 4 for discussion of the Northfield Acquisition.

Indefinite-lived intangible assets. The Company’s indefinite-lived intangible assets consist primarily of development rights in Detroit, gaming and racing licenses for Northfield, and trademarks and trade names, of which $210 million is related to the Mandalay Resort Group and $83 million is related to Borgata.

MGM Grand Paradise gaming subconcession. Pursuant to the agreement dated June 19, 2004 between MGM Grand Paradise and Sociedade de Jogos de Macau, S.A., 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 Cotai land concession agreement with the government extends significantly beyond the gaming subconcession. As such, as of December 31, 2018, the Company amortizes the gaming subconcession intangible asset on a straight-line basis over the initial term of the Cotai land concession, ending in January 2038.  

MGM Macau 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. As of December 31, 2018, the land concession intangible asset is amortized on a straight-line basis over the remaining initial contractual term.

Customer lists. The Company recognized an intangible asset related to Northfield’s customer list, which is amortized on a straight-line basis over its estimated useful life of seven years. The Company also recognized intangible assets related to MGM China and Borgata’s customer lists, which became fully amortized in 2016 and 2018, respectively.

Finite-lived gaming licenses. The Company was granted a license to operate a casino in Maryland. The consideration paid to the State of Maryland for the license fee of $22 million is considered a finite-lived intangible asset that is amortized on a straight-line basis over a period of its initial term of 15 years, beginning in December 2016, when the casino started operations. The Company was granted a license to operate a casino in Massachusetts. The consideration paid to the State of Massachusetts for the license fee of $85 million is considered a finite-lived intangible asset that will be amortized over a period of 15 years, beginning in August 2018, when the casino started operations.

Other. The Company’s other finite–lived intangible assets consist primarily of lease acquisition costs amortized over the life of the related leases, and certain license rights amortized over their contractual life.  

73


 

Total amortization expense related to intangible assets was $176 million, $173 million and $180 million for 2018, 2017, and 2016, respectively. As of December 31, 2018, estimated future amortization is as follows:

 

 

 

 

 

 

Years ending December 31,

 

(In thousands)

 

2019

 

$

179,944

 

2020

 

 

179,944

 

2021

 

 

179,944

 

2022

 

 

179,944

 

2023

 

 

179,761

 

Thereafter

 

 

2,406,806

 

 

 

$

3,306,343

 

 

 

NOTE 8 — OTHER ACCRUED LIABILITIES

 

Other accrued liabilities consisted of the following:

 

 

 

 

2018

 

 

2017

 

 

 

(In thousands)

 

Contract and contract-related liabilities:

 

 

 

 

 

 

 

 

    Outstanding chip liability

 

$

323,811

 

 

$

597,753

 

    Loyalty program obligations

 

 

113,293

 

 

 

91,119

 

    Casino front money

 

 

342,941

 

 

 

303,950

 

    Advance deposits and ticket sales

 

 

221,003

 

 

 

149,698

 

    Unpaid wagers and other

 

 

103,341

 

 

 

85,978

 

Other accrued liabilities:

 

 

 

 

 

 

 

 

    Payroll and related

 

 

518,892

 

 

 

483,101

 

    Taxes, other than income taxes

 

 

235,160

 

 

 

170,639

 

    MGP Dividend

 

 

31,732

 

 

 

29,777

 

    Other

 

 

260,881

 

 

 

202,620

 

 

 

$

2,151,054

 

 

$

2,114,635

 

 

 

74


 

NOTE 9 — LONG-TERM DEBT

 

Long-term debt consisted of the following:  

 

 

 

December 31,

 

 

 

2018

 

 

2017

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

Senior credit facility

 

$

750,000

 

 

$

372,500

 

Operating Partnership senior credit facility

 

 

2,819,125

 

 

 

2,091,375

 

MGM China credit facility

 

 

2,433,562

 

 

 

2,301,584

 

$850 million 8.625% senior notes, due 2019

 

 

850,000

 

 

 

850,000

 

$500 million 5.25% senior notes, due 2020

 

 

500,000

 

 

 

500,000

 

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

 

 

1,000,000

 

 

 

1,000,000

 

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

 

 

1,250,000

 

 

 

1,250,000

 

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

 

 

1,000,000

 

 

 

1,000,000

 

$1,250 million 6% senior notes, due 2023

 

 

1,250,000

 

 

 

1,250,000

 

$1,050 million 5.625% Operating Partnership senior notes, due 2024

 

 

1,050,000

 

 

 

1,050,000

 

$1,000 million 5.75% senior notes, due 2025

 

 

1,000,000

 

 

 

 

$500 million 4.50% Operating Partnership senior notes, due 2026

 

 

500,000

 

 

 

500,000

 

$500 million 4.625% senior notes, due 2026

 

 

500,000

 

 

 

500,000

 

$350 million 4.50% Operating Partnership senior notes, due 2028

 

 

350,000

 

 

 

350,000

 

$0.6 million 7% debentures, due 2036

 

 

552

 

 

 

552

 

$2.3 million 6.7% debentures, due 2096

 

 

 

 

 

2,265

 

 

 

 

15,253,239

 

 

 

13,018,276

 

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

 

 

(121,823

)

 

 

(109,182

)

 

 

 

15,131,416

 

 

 

12,909,094

 

Less: Current portion

 

 

(43,411

)

 

 

(158,042

)

 

 

$

15,088,005

 

 

$

12,751,052

 

 

Debt due within one year of the December 31, 2018 and 2017 balance sheet was classified as long-term as the Company had both the intent and ability to refinance current maturities on a long-term basis under its revolving senior credit facilities, with the exception that $43 million and $158 million related to MGM China’s term loan amortization payments in excess of available borrowings under the MGM China revolving credit facility were classified as current as of December 31, 2018 and 2017, respectively.

 

Interest expense, net consisted of the following:

 

 

Year Ended December 31,

 

 

2018

 

 

2017

 

 

2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

Total interest incurred

$

821,229

 

 

$

779,855

 

 

$

814,731

 

Interest capitalized

 

(51,716

)

 

 

(111,110

)

 

 

(119,958

)

 

$

769,513

 

 

$

668,745

 

 

$

694,773

 

 

Senior credit facility. At December 31, 2018, the Company’s senior credit facility consisted of a $750 million term loan A facility and a $1.5 billion revolving facility. In December 2018, the Company amended its senior credit facility to provide for a $250 million increase of the revolving facility to $1.5 billion and a $520 million increase on the term loan A facility. Additionally, the revolving and term loan A facilities were repriced to LIBOR plus 1.50% to 2.25% determined by reference to a total net leverage ratio pricing grid and the final maturity date of the facilities was extended to December 2023. The term loan A facility’s repayment will start on the last business day of each calendar quarter beginning March 31, 2020, for an amount equal to 1.25% of the aggregate principal amount of the term loan A facility outstanding as of the amendment effective date, with the remaining balance due in December 2023. The Company permanently repaid $9 million of the term loan A facility for the year ended December 31, 2018 in accordance with the scheduled amortization. At December 31, 2018, the interest rate on the term loan A facility was 4.77%. At December 31, 2018, no amounts were drawn on the revolving credit facility.

 

The senior credit facility contains representations and warranties, customary events of default, and positive, negative and financial covenants, including that the Company maintain compliance with a maximum total net leverage ratio, a maximum first lien net leverage ratio and a minimum interest coverage ratio. Such financial covenants will become effective beginning in January 2019.

75


 

 

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

 

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

 

Operating Partnership senior credit facility. At December 31, 2018, the Operating Partnership’s senior secured credit facility consisted of a $470 million term loan A facility, a $1.8 billion term loan B facility, and a $1.35 billion revolving credit facility. In March 2018, the Operating Partnership repriced its term loan B interest rate to LIBOR plus 2.00% and extended the maturity of the term loan B facility to March 2025, which became effective in August 2018.

 

In June 2018, the Operating Partnership amended its credit agreement to provide for a $750 million increase of the revolving facility to $1.35 billion, a $200 million increase on the term loan A facility, and extensions of the maturities of the revolving facility and the term loan A facility to June 2023. Additionally, the revolving and term loan A facilities were repriced to LIBOR plus 1.75% to 2.25% determined by reference to a total net leverage ratio pricing grid. In addition, the term loan A facility’s repayment will start on the last business day of each calendar quarter beginning September 30, 2019, for an amount equal to 0.625% of the aggregate principal amount of the term loan A outstanding as of the amendment effective date.

 

Prior to the amendment, the term loan A facility was subject to amortization in equal quarterly installments of 2.5% of the initial aggregate principal amount to be payable each year. The Operating Partnership permanently repaid $4 million of the term loan A facility for the year ended December 31, 2018. The term loan B facility is subject to equal quarterly installments of 1.0% of the initial aggregate principal amount to be payable each year. The Operating Partnership permanently repaid $19 million of the term loan B facility for the year ended December 31, 2018, in accordance with the scheduled amortization. At December 31, 2018, $550 million was drawn on the revolving credit facility. At December 31, 2018, the interest rates on the term loan A facility and the term loan B facility were both 4.52%, and the interest rate on the revolving credit facility was 4.43%.

 

The Operating Partnership credit facility contains customary representations and warranties, events of default and positive and negative covenants. The revolving credit facility and term loan A facility also require the Operating Partnership maintain compliance with a maximum senior secured net debt to adjusted total assets ratio, maximum total net debt to adjusted assets ratio and a minimum interest coverage ratio. The Operating Partnership was in compliance with its credit facility covenants at December 31, 2018. 

 

The Operating Partnership senior credit facility is guaranteed by each of the Operating Partnership’s existing and subsequently acquired direct and indirect wholly owned material domestic restricted subsidiaries, and secured by a first priority lien security interest on substantially all of the Operating Partnership’s and such restricted subsidiaries’ material assets, including mortgages on its real estate, excluding the real estate assets of MGM National Harbor and Empire City, subject to customary exclusions.

 

The Operating Partnership is party to interest rate swaps to mitigate the interest rate risk inherent in its senior secured term loan B facility. As of December 31, 2018, the Operating Partnership pays a weighted average fixed rate of 1.844% on total notional amount of $1.2 billion and the variable rate received resets monthly to the one-month LIBOR with no minimum floor. In December 2018, the Operating Partnership entered into additional interest rate swaps that have a notional amount of $400 million on which it will pay a fixed rate of 2.735% with the variable rate received resetting monthly to the one-month LIBOR with a floor of 0%. Such interest rate swaps will become effective on December 31, 2019. As of December 31, 2018 and 2017, the derivative financial instruments have been designated as cash flow hedges and qualify for hedge accounting.

 

MGM China credit facility. At December 31, 2018, the MGM China credit facility consisted of $1.8 billion of term loans and a $1.0 billion revolving credit facility, which bear interest at a fluctuating rate per annum based on HIBOR plus 1.375% to 2.50%, as determined by MGM China’s leverage ratio. In June 2018, MGM China amended and restated its credit facility for a reduction in the total revolving credit commitments of $450 million to $1.0 billion and an increase in the total term loan commitments of $450 million to $2.0 billion (the aggregate amount of commitments remained unchanged). The final maturity date was also extended to June 2022, but no revolving credit loans or term loans shall remain outstanding after, and no revolving credit or term loan commitments shall be available after March 31, 2022. Quarterly principal amortization payments of the term loan facilities were amended to be 5% of the original principal amount beginning in September 2018 through December 2021, with the remaining balance due in March 2022. MGM China permanently repaid $507 million of term loans for the year ended December 31, 2018 in accordance with the scheduled amortization. At December 31, 2018, $641 million was drawn on the revolving credit facility. At December 31, 2018, the interest rate on the term loans was 4.74% and the interest rate on the revolving credit facility was 4.72%.

76


 

The MGM China credit facility contains customary representations and warranties, events of default, and positive, negative and financial covenants, including that MGM China maintains compliance with a maximum leverage ratio and a minimum interest coverage ratio. MGM China was in compliance with its credit facility covenants at December 31, 2018.

 

Senior Notes. In February 2019, the Company repaid its $850 million 8.625% notes due 2019.

 

In June 2018, the Company issued $1.0 billion in aggregate principal amount of 5.750% senior notes due 2025.

 

In July 2017, the Company redeemed for cash all $475 million principal amount of its outstanding 11.375% senior notes due 2018. The Company incurred a $30 million loss on the early retirement of such notes recorded in “Other, net” in the consolidated statements of operations.

 

Operating Partnership senior notes. In September 2017, the Operating Partnership issued $350 million in aggregate principal amount of 4.50% senior notes due 2028.

 

In January 2019, the Operating Partnership issued $750 million in aggregate principal amount of 5.75% senior notes due 2027.

 

Each series of the Operating Partnership's senior notes are fully and unconditionally guaranteed, jointly and severally, on a senior basis by all of the Operating Partnership’s subsidiaries that guarantee the Operating Partnership’s credit facilities, other than MGP Finance Co-Issuer, Inc., which is a co-issuer of the senior notes. The Operating Partnership may redeem all or part of the senior notes at a redemption price equal to 100% of the principal amount of the senior notes plus, to the extent the Operating Partnership is redeeming senior notes prior to the date that is three months prior to their maturity date, an applicable make whole premium, plus, in each case, accrued and unpaid interest. The indentures governing the senior notes contain customary covenants and events of default. These covenants are subject to a number of important exceptions and qualifications set forth in the applicable indentures governing the senior notes, including, with respect to the restricted payments covenants, the ability to make unlimited restricted payments to maintain the REIT status of MGP.

 

Maturities of long-term debt. The maturities of the principal amount of the Company’s long-term debt as of December 31, 2018 are as follows:

 

Years ending December 31,

 

 

 

(In thousands)

 

2019

 

 

 

$

1,272,734

 

2020

 

 

 

 

1,966,109

 

2021

 

 

 

 

1,716,109

 

2022

 

 

 

 

2,306,237

 

2023

 

 

 

 

2,884,875

 

Thereafter

 

 

 

 

5,107,175

 

 

 

 

 

$

15,253,239

 

 

 

 

 

 

 

 

Fair value of long-term debt. The estimated fair value of the Company’s long-term debt was $15.1 billion and $13.6 billion at December 31, 2018 and 2017, respectively. Fair value was estimated using quoted market prices for the Company’s senior notes and senior credit facilities.

 

NOTE 10 — INCOME TAXES

 

The Company recognizes deferred income tax assets, net of applicable reserves, related to net operating losses, tax credit carryforwards and certain temporary differences. The Company recognizes future tax benefits to the extent that realization of such benefit is more likely than not. Otherwise, a valuation allowance is applied.

 

Income (loss) before income taxes for domestic and foreign operations consisted of the following:

 

 

 

Year Ended December 31,

 

 

 

2018

 

 

2017

 

 

2016

 

 

 

(In thousands)

 

Domestic operations

 

$

660,832

 

 

$

747,090

 

 

$

984,095

 

Foreign operations

 

 

(26,826

)

 

 

213,700

 

 

 

273,494

 

 

 

$

634,006

 

 

$

960,790

 

 

$

1,257,589

 

 

77


 

The benefit (provision) for income taxes attributable to income (loss) before income taxes is as follows:

 

 

 

Year Ended December 31,

 

 

 

2018

 

 

2017

 

 

2016

 

Federal:

 

(In thousands)

 

Current

 

$

11,991

 

 

$

(120,980

)

 

$

(97,502

)

Deferred (excluding separate components)

 

 

(143,468

)

 

 

204,713

 

 

 

(124,625

)

Deferred change in enacted rates

 

 

 

 

 

987,942

 

 

 

 

Deferred valuation allowance

 

 

(19,753

)

 

 

101,443

 

 

 

222,688

 

Other noncurrent

 

 

576

 

 

 

1,356

 

 

 

3,608

 

Benefit (provision) for federal income taxes

 

 

(150,654

)

 

 

1,174,474

 

 

 

4,169

 

State:

 

 

 

 

 

 

 

 

 

 

 

 

Current

 

 

(12,564

)

 

 

(6,798

)

 

 

4,069

 

Deferred (excluding separate components)

 

 

(12,731

)

 

 

(25,233

)

 

 

2,313

 

Deferred operating loss carryforward

 

 

(29,490

)

 

 

44,242

 

 

 

(16,024

)

Deferred valuation allowance

 

 

41,068

 

 

 

(40,078

)

 

 

23,058

 

Other noncurrent

 

 

(1,334

)

 

 

(3,876

)

 

 

(2,901

)

Benefit (provision) for state income taxes

 

 

(15,051

)

 

 

(31,743

)

 

 

10,515

 

Foreign:

 

 

 

 

 

 

 

 

 

 

 

 

Current

 

 

(2,037

)

 

 

(470

)

 

 

(2,015

)

Deferred (excluding separate components)

 

 

63,827

 

 

 

(40,653

)

 

 

(34,425

)

Deferred operating loss carryforward

 

 

30,574

 

 

 

4,688

 

 

 

2,988

 

Deferred valuation allowance

 

 

23,229

 

 

 

21,098

 

 

 

(2,975

)

Benefit (provision) for foreign income taxes

 

 

115,593

 

 

 

(15,337

)

 

 

(36,427

)

 

 

$

(50,112

)

 

$

1,127,394

 

 

$

(21,743

)

 

A reconciliation of the federal income tax statutory rate and the Company’s effective tax rate is as follows:

 

 

 

Year Ended December 31,

 

 

 

2018

 

 

2017

 

 

2016

 

Federal income tax statutory rate

 

 

21.0

%

 

 

35.0

%

 

 

35.0

%

Change in enacted rates

 

 

 

 

 

(102.7

)

 

 

 

Non-controlling interest

 

 

(2.4

)

 

 

(1.5

)

 

 

(0.9

)

Foreign jurisdiction income/losses taxed at other than U.S. statutory rate

 

 

(9.5

)

 

 

(9.2

)

 

 

(3.8

)

Repatriation of foreign earnings

 

 

 

 

 

35.4

 

 

 

5.2

 

Foreign tax credit

 

 

 

 

 

(70.3

)

 

 

(10.6

)

Federal valuation allowance

 

 

3.1

 

 

 

(10.6

)

 

 

(17.7

)

Macau dividend tax

 

 

(6.4

)

 

 

4.2

 

 

 

 

State taxes, net

 

 

1.9

 

 

 

2.4

 

 

 

 

General business credits

 

 

(2.9

)

 

 

(1.0

)

 

 

(0.7

)

Stock-based compensation

 

 

(1.2

)

 

 

(2.1

)

 

 

 

Gain on Borgata transaction

 

 

 

 

 

 

 

 

(5.4

)

Non-deductible employee dining facility costs

 

 

1.4

 

 

 

 

 

 

 

Permanent and other items

 

 

2.9

 

 

 

3.1

 

 

 

0.6

 

 

 

 

7.9

%

 

 

(117.3

)%

 

 

1.7

%

 

78


 

The tax-effected components of the Company’s net deferred tax liability are as follows:

 

 

 

December 31,

 

 

 

2018

 

 

2017

 

Deferred tax assets – federal and state:

 

(In thousands)

 

Bad debt reserve

 

$

23,497

 

 

$

25,432

 

Deferred compensation

 

 

5,950

 

 

 

5,232

 

Net operating loss carryforward

 

 

23,406

 

 

 

46,702

 

Accruals, reserves and other

 

 

88,139

 

 

 

94,904

 

Investments in unconsolidated affiliates

 

 

83,130

 

 

 

84,188

 

Stock-based compensation

 

 

20,581

 

 

 

24,390

 

Tax credits

 

 

2,926,996

 

 

 

3,045,138

 

 

 

 

3,171,699

 

 

 

3,325,986

 

Less: Valuation allowance

 

 

(2,449,582

)

 

 

(2,462,272

)

 

 

 

722,117

 

 

 

863,714

 

Deferred tax assets – foreign:

 

 

 

 

 

 

 

 

Bad debt reserve

 

 

1,372

 

 

 

821

 

Net operating loss carryforward

 

 

107,308

 

 

 

76,909

 

Accruals, reserves and other

 

 

18,603

 

 

 

 

Property and equipment

 

 

998

 

 

 

 

Stock-based compensation

 

 

5,409

 

 

 

4,423

 

 

 

 

133,690

 

 

 

82,153

 

Less: Valuation allowance

 

 

(28,121

)

 

 

(51,466

)

 

 

 

105,569

 

 

 

30,687

 

Total deferred tax assets

 

$

827,686

 

 

$

894,401

 

Deferred tax liabilities – federal and state:

 

 

 

 

 

 

 

 

Property and equipment

 

$

(1,729,786

)

 

$

(1,670,704

)

Long-term debt

 

 

(3,141

)

 

 

(48,809

)

Intangibles

 

 

(90,758

)

 

 

(79,167

)

 

 

 

(1,823,685

)

 

 

(1,798,680

)

Deferred tax liabilities – foreign:

 

 

 

 

 

 

 

 

Accruals, reserves and other

 

 

 

 

 

(26,657

)

Property and equipment

 

 

 

 

 

(16,277

)

Intangibles

 

 

(346,539

)

 

 

(348,162

)

 

 

 

(346,539

)

 

 

(391,096

)

Total deferred tax liability

 

$

(2,170,224

)

 

$

(2,189,776

)

Net deferred tax liability

 

$

(1,342,538

)

 

$

(1,295,375

)

 

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the U.S. Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code that are generally applicable to tax years beginning after December 31, 2017, including, but not limited to, (1) reducing the U.S. federal corporate tax rate from 35 percent to 21 percent; (2) requiring companies to pay a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries; (3) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (4) adding a new provision designed to tax global intangible low-taxed income (GILTI), which allows for the possibility of using foreign tax credits (FTCs) and a deduction of up to 50 percent to offset the income tax liability (subject to some limitations); (5) creating a new limitation on deductible interest expense; (6) imposing additional limitations on the deductibility of executive compensation and certain employee fringe benefits; and (7) increasing bonus depreciation to allow for full expensing of qualified property.

 

The SEC staff issued Staff Accounting Bulletin No. 118 (SAB 118), which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.  

79


 

 

The Company’s accounting for certain elements of the Tax Act was incomplete as of December 31, 2017. However, the Company was able to make reasonable estimates of certain effects and, therefore, recorded a provisional discrete non-cash net tax benefit of $1.4 billion in the period ended December 31, 2017, consisting of a benefit of $988 million for the corporate rate reduction and a benefit of $438 million from its provisional re-assessment of the Tax Act’s impact on the valuation allowance on its foreign tax credit (“FTC”) carryovers. The Company did not provide tax expense for the transition tax on its unrepatriated earnings, which totaled $669 million without regard to actual 2017 distributions of $62 million, because such earnings were fully offset by FTCs.

 

The Company’s accounting for the impact of the Tax Act is now complete. The Company recorded non-cash income tax expense totaling $20 million during the measurement period in 2018, as it adjusted its valuation allowance on its FTC carryovers to account for guidance clarifying the treatment of FTCs resulting from GILTI and other provisions impacting FTC utilization. These measurement period adjustments increased the Company’s effective tax rate by 3% during the year ended December 31, 2018. In addition, the Company finalized its accounting for the tax treatment of indirect costs of providing certain employee fringe benefits subject to limitation under the Tax Act. This measurement period adjustment had an immaterial impact on the effective tax rate for the year ended December 31, 2018.

 

The Company has made an accounting policy decision to treat taxes due, if any, on future inclusions in U.S. taxable income under the GILTI provisions as a current period expense when incurred. Accordingly, the Company has not provided a deferred tax liability for any GILTI taxes that may result in future periods.

 

The Company has recorded a valuation allowance of $2.4 billion on its FTC carryover of $2.9 billion as of December 31, 2018, resulting in an FTC net deferred tax asset of $481 million. The FTCs are attributable to the Macau Special Gaming Tax, which is 35% of gross gaming revenue in Macau. Because MGM Grand Paradise is presently exempt from the Macau 12% complementary tax on gaming profits, the Company believes that payment of the Macau Special Gaming Tax qualifies as a tax paid in lieu of an income tax that is creditable against U.S. taxes. While the Company generally does not expect to generate new FTC carryovers under the Tax Act, it will be able to utilize its existing FTC carryovers to the extent that it has active foreign source income during the 10-year FTC carryforward period. Such foreign source income includes the recapture, to the extent of U.S. taxable income, of overall domestic losses that totaled $1.7 billion at December 31, 2018. The Company relies on future U.S. source operating income in assessing utilization of the overall domestic losses and, by extension, future FTC realization during the 10-year FTC carryover period. The FTC carryovers will expire if not utilized as follows: $640 million in 2022; $976 million in 2023; $782 million in 2024; $332 million in 2025; and $196 million in 2027.

 

The Company’s assessment of the realization of its FTC deferred tax asset is based on available evidence, including assumptions concerning future U.S. operating profits and our interpretations of the Tax Act based upon guidance issued to date. As a result, significant judgment is required in assessing the possible need for a valuation allowance and changes to such assumptions could result in a material change in the valuation allowance with a corresponding impact on the provision for income taxes in the period including such change.  

 

Income generated from gaming operations of MGM Grand Paradise is exempted from Macau’s 12% complementary tax, pursuant to approval from the Macau government. Absent this exemption, “Net income attributable to MGM Resorts International” would have decreased by $43 million and $38 million in 2018 and 2017, respectively, and diluted earnings per share would have decreased by $0.08 and $0.07 in 2018 and 2017, respectively.

 

MGM Grand Paradise has been granted an exemption from the Macau 12% complementary tax on gaming profits through March 31, 2020, which is the end of the term of its current gaming sub-concession. The Company has assumed that MGM Grand Paradise will pay the Macau 12% complementary tax on gaming profits for all periods beyond March 31, 2020 and has factored that assumption into the measurement of Macau deferred tax assets and liabilities.

 

Non-gaming operations remain subject to the Macau complementary tax. MGM Grand Paradise had at December 31, 2018 a complementary tax net operating loss carryforward of $866 million resulting from non-gaming operations that will expire if not utilized against non-gaming income in years 2019 through 2021.

 

MGM Grand Paradise’s exemption from the 12% complementary tax on gaming profits does not apply to dividend distributions of such profits to MGM China. However, MGM Grand Paradise has had an agreement with the Macau government to settle the 12% complementary tax that would otherwise be due by its shareholder, MGM China, on distributions of its gaming profits by paying a flat annual payment (“annual fee arrangement”) regardless of the amount of distributable dividends. Such annual fee arrangement was effective for distributions of profits earned through December 31, 2016. Since the earnings for 2017 were not covered by an annual fee arrangement as of December 31, 2017, the Company provided deferred taxes on such earnings, which totaled $41 million as of December 31, 2017. On March 15, 2018, MGM Grand Paradise executed an extension of the annual fee arrangement, which covers the distributions of gaming profits earned for the period of January 1, 2017 through March 31, 2020. It requires annual payments of approximately $1 million for 2017 through 2019 and a payment of approximately $300,000 for the first quarter 2020. The Company reversed the $41 million of deferred taxes previously recorded on 2017 earnings, resulting in a reduction in provision for income taxes for the year ended December 31, 2018, partially offset by the 2017 annual payment amount.

80


 

 

The Company has net operating losses in certain of the states in which it operates that total $355 million as of December 31, 2018, which equates to deferred tax assets of $23 million after federal tax effect and before valuation allowance. These net operating loss carryforwards will expire if not utilized by 2029 through 2038. The Company has provided a valuation allowance of $3 million on certain of its state deferred tax assets, including the net operating losses described above.

 

In addition, there is a valuation allowance of $26 million on certain Macau deferred tax assets, and a valuation allowance of $2 million on Hong Kong net operating losses because the Company believes these assets do not meet the “more likely than not” criteria for recognition.

 

A reconciliation of the beginning and ending amounts of gross unrecognized tax benefits is as follows:

 

 

 

Year Ended December 31,

 

 

 

2018

 

 

2017

 

 

2016

 

 

 

(In thousands)

 

Gross unrecognized tax benefits at January 1

 

$

18,588

 

 

$

14,026

 

 

$

13,724

 

Gross increases - prior period tax positions

 

 

5,345

 

 

 

 

 

 

 

Gross decreases - prior period tax positions

 

 

(957

)

 

 

(2,280

)

 

 

(3,375

)

Gross increases - current period tax positions

 

 

1,488

 

 

 

6,842

 

 

 

3,677

 

Gross unrecognized tax benefits at December 31

 

$

24,464

 

 

$

18,588

 

 

$

14,026

 

 

The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $13 million and $11 million at December 31, 2018 and 2017, respectively.

 

The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense, which were not material as of December 31, 2018, 2017 or 2016. The Company does not anticipate that the total amounts of unrecognized tax benefits at December 31, 2018 will change materially within the next twelve months.

 

The Company files income tax returns in the U.S. federal jurisdiction, various state and local jurisdictions, and foreign jurisdictions, although the income taxes paid in foreign jurisdictions are not material. As of December 31, 2018, the IRS can no longer assess tax with respect to years ended prior to 2014; however the IRS may adjust NOLs generated in such years that were utilized in 2014. The Company’s 2014 U.S. consolidated federal income tax return is currently under examination by the IRS. The IRS examination of the 2014 U.S. income tax return of CityCenter Holdings, LLC, an unconsolidated affiliate treated as a partnership for income tax purposes was completed during 2018 and the Company’s share of the resultant adjustments were not material in the aggregate.  

 

As of December 31, 2018, other than adjustments resulting from the federal income tax audits discussed above, the various state and local tax jurisdictions in which the Company files tax returns can no longer assess tax with respect to years ended prior to 2014. However, such jurisdictions may adjust NOLs generated in such years that are utilized in subsequent years. The Company’s state income tax returns filed in Mississippi and New Jersey for the tax years 2014 through 2016 and Michigan for the tax years 2014 through 2017 are currently under examination. No other state or local income tax returns are currently under examination.

 

 

NOTE 11 – COMMITMENTS AND CONTINGENCIES

 

Leases. The Company leases real estate and various equipment under operating and, to a lesser extent, capital lease arrangements. Certain real estate leases provide for escalation of rent based upon a specified price index and/or based upon periodic appraisals.

 

81


 

At December 31, 2018, the Company was obligated under non-cancellable operating leases to make future minimum lease payments as follows:

 

Years ending December 31,

 

(In thousands)

 

2019

 

$

106,643

 

2020

 

 

83,150

 

2021

 

 

62,437

 

2022

 

 

47,036

 

2023

 

 

45,157

 

Thereafter

 

 

1,357,611

 

Total minimum lease payments

 

$

1,702,034

 

 

The table above excludes the Company’s future lease obligations to a subsidiary of the Operating Partnership pursuant to the master lease agreement discussed in Note 17 as these lease obligations are eliminated in consolidation. Rental expense for operating leases was $89 million, $92 million and $80 million for 2018, 2017 and 2016, respectively, which included short-term rentals charged to rent expense. The Company’s operating leases are materially comprised of ground leases for various properties. The Company accounts for the Cotai land concession contract as an operating lease for which the required upfront payments are amortized over the initial 25-year contract term ending in January 2038.

 

Additionally, the Company has a series of ground leases for a total of approximately 11 acres of land on which the Borgata employee parking garage, public space expansion, rooms expansion, and modified surface parking lot reside. The Company recorded an unfavorable lease liability for the excess contractual lease obligations over the market value of the leases, which will be amortized on a straight-line basis over the term of the lease contracts through December 2070. The remaining balance of the unfavorable lease liability was $46 million and $47 million as of December 31, 2018 and 2017, respectively. The ground lease is accounted for as an operating lease.

 

Also, the Company has a ground lease agreement for an approximate 23-acre parcel of land at MGM National Harbor. The ground lease has an initial term of 25 years and the right to extend for up to 13 additional six-year periods with the first 7 of those additional periods considered to be reasonably assured. The Company therefore amortizes the lease on a straight-line basis over a 67-year term to December 2082.

 

October 1 litigation. The Company and/or certain of its subsidiaries have been named as defendants in a number of lawsuits related to the October 1, 2017 shooting in Las Vegas. The matters involve in large degree the same legal and factual issues, each case being filed on behalf of individuals who are seeking damages for emotional distress, physical injury, medical expenses, economic damages and/or wrongful death based on assertions that the Company and/or certain of its subsidiaries were negligent. The Company also received letters from attorneys purporting to represent other persons with claims related to the October 1, 2017 shooting. Lawsuits were first filed in October 2017 and include actions filed by multiple individuals in the District Court of Clark County, Nevada and in the Superior Court of Los Angeles County, California. Some of the original actions have been voluntarily dismissed, and plaintiffs’ counsel indicate they anticipate re-filing the lawsuits in similar form. In June 2018, the Company removed to federal court all actions that remained pending in California and Nevada state courts following the voluntary dismissals. Motions to remand have been filed in several cases, and the Company anticipates that there may be additional motions to remand filed in the future. The Company also initiated declaratory relief actions in federal courts in various districts against individuals who had sued or stated an intent to sue. Additional lawsuits related to this incident may be filed in the future. In February of 2019, the Company and plaintiffs’ counsel commenced mediation of these matters.  The above-described litigation currently is stayed pending mediation.

 

The Company is currently unable to reliably predict the future developments in, outcome of, and economic costs and other consequences of pending or future litigation related to this matter. The Company will continue to investigate the factual and legal defenses, and evaluate these matters based on subsequent events, new information and future circumstances. The Company intends to defend against these lawsuits and ultimately believes it should prevail, but litigation of this type is inherently unpredictable. Although there are significant procedural, factual and legal issues to be resolved that could significantly affect the Company’s belief as to the possibility of liability, the Company currently believes that it is reasonably possible that it could incur liability in connection with certain of these lawsuits. The foregoing determination was made in accordance with generally accepted accounting principles, as codified in ASC 450-20, and is not an admission of any liability on the part of the Company or any of its affiliates. Given that these cases are in the early stages and in light of the uncertainties surrounding them, the Company does not currently possess sufficient information to determine a range of reasonably possible liability. In the event the Company incurs any liability, the Company believes it is unlikely it would incur losses in connection with these claims in excess of its insurance coverage. The insurance carriers have not expressed a reservation of rights or coverage defense that affects the Company’s evaluation of potential losses in connection with these claims. In addition, the Company’s general liability insurance coverage provides, as part of the contractual “duty to defend”, payment of legal fees and associated costs incurred to defend covered lawsuits that are filed arising from the October 1, 2017 shooting in Las Vegas. Payment of such fees and costs is in addition to (and not limited by) the limits of the insurance policies and does not erode the total liability coverage available.

 

82


 

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

 

Borgata property tax reimbursement agreement. On February 15, 2017, Borgata, the Department of Community Affairs of the State of New Jersey and Atlantic City entered into an agreement wherein Borgata was to be reimbursed $72 million as settlement for property tax refunds in satisfaction of New Jersey Tax Court and Superior Court judgments totaling approximately $106 million, plus interest for the 2009-2012 tax years and the settlement of pending tax appeals for the tax years 2013-2015. Those pending tax appeals could potentially have resulted in Borgata being awarded additional refunds due of approximately $65 million. In June 2017, Atlantic City and the State of New Jersey issued bonds and used the proceeds to pay the $72 million settlement in full. The Company recorded the amounts received pursuant to the reimbursement agreement as an offset to general and administrative expenses in the consolidated statements of operations. As required by the purchase and sale agreement to acquire Borgata in August 2016, the Company paid Boyd Gaming half of the settlement amount received by the Company, net of fees and expenses. Amounts paid to Boyd Gaming were recorded in general and administrative expenses in the consolidated statements of operations.

 

NV Energy. In July 2016, the Company filed its notice to exit the fully bundled sales system of NV Energy and now purchases energy, capacity, and/or ancillary services from a provider other than NV Energy. The Company paid an upfront impact payment of $83 million, including $14 million related to CityCenter, in September 2016. Under the terms of the exit agreement, the Company and CityCenter were required to make ongoing payments to NV Energy for non-bypassable rate charges, which primarily relate to each entity’s share of NV Energy’s portfolio of renewable energy contracts which extended through 2040 and each entity’s share of the costs of decommissioning and remediation of coal-fired power plants in Nevada. The Company’s initial estimate of its obligation related to non-bypassable charges was $71 million. The expense recognized related to the upfront payment and the initial accrual for the liability associated with the non-bypassable charges was recorded within “NV Energy exit expense” in the Company’s consolidated statements of operations for the year ended December 31, 2016. Subsequent accretion of the liability and changes in estimates are recognized within general and administrative expenses in the consolidated statement of operations. In the second quarter of 2017, the terms of the ongoing impact fee obligations were modified. Such modifications included a credit to be applied against future non-bypassable rate charges and substantially shortened the period over which the Company and CityCenter are responsible for such charges, with an end date in 2022. As such, the Company recognized a reduction in its liability for future charges of $41 million with a corresponding credit to “NV Energy exit expense”. Additionally, CityCenter recorded an $8 million reduction in liability and credit to expense. As of December 31, 2018 and 2017, the Company has recorded an estimate of its remaining liability on a discounted basis of $8 million and $10 million, respectively, in “Other accrued liabilities” and $15 million and $23 million, respectively, in “Other long-term obligations.”

 

Grand Paradise Macau deferred cash payment. On September 1, 2016, the Company purchased 188.1 million common shares of its MGM China subsidiary from Grand Paradise Macau (“GPM”), an entity controlled by Ms. Ho, Pansy Catilina Chiu King (“Ms. Ho”). As part of the consideration for the purchase, the Company agreed to pay GPM or its nominee a deferred cash payment of $50 million, which will be paid in amounts equal to the ordinary dividends received on such shares, with a final lump sum payment due on the fifth anniversary of the closing date of the transaction if any portion of the deferred cash payment remains unpaid at that time. In 2018 and 2017, the total amount paid under the deferred cash payment arrangement was $11 million and $7 million, respectively. Such amount was paid to Expert Angles Limited, an entity controlled by Ms. Ho through November 2018 and subsequently controlled by an immediate family member of Ms. Ho. As of December 31, 2018, the Company recorded a remaining liability on a discounted basis of $36 million in “Other long-term obligations.” 

 

Other guarantees. The Company and its subsidiaries are party to various guarantee contracts in the normal course of business, which are generally supported by letters of credit issued by financial institutions. The Company’s senior credit facility limits the amount of letters of credit that can be issued to $250 million, the Operating Partnership’s senior credit facility limits the amount to $75 million, and MGM China’s credit facility limits the amount to $100 million. At December 31, 2018, $12 million in letters of credit were outstanding under the Company’s senior credit facility. No letters of credit were outstanding under the Operating Partnership senior credit facility or MGM China’s credit facility at December 31, 2018. The amount of available borrowings under each of the credit facilities is reduced by any outstanding letters of credit.

 

 

 

83


 

NOTE 12 — STOCKHOLDERS’ EQUITY

 

Accumulated Other Comprehensive Income (Loss)

 

The following is a summary of the changes in the accumulated balance of other comprehensive income (loss) attributable to MGM Resorts International:

 

 

 

Currency Translation Adjustments

 

 

Cash Flow Hedges

 

 

Other

 

 

Total

 

 

 

(In thousands)

 

Balance, January 1, 2017

 

$

12,545

 

 

$

1,434

 

 

$

1,074

 

 

$

15,053

 

Other comprehensive income (loss) before reclassifications

 

 

(43,188

)

 

 

(1,221

)

 

 

98

 

 

 

(44,311

)

Amounts reclassified from accumulated other comprehensive income (loss) to interest expense

 

 

 

 

 

9,216

 

 

 

 

 

 

9,216

 

Other comprehensive income (loss), net of tax

 

 

(43,188

)

 

 

7,995

 

 

 

98

 

 

 

(35,095

)

Other comprehensive income (loss) attributable to noncontrolling interest

 

 

19,193

 

 

 

(2,761

)

 

 

 

 

 

16,432

 

Balance, December 31, 2017

 

 

(11,450

)

 

 

6,668

 

 

 

1,172

 

 

 

(3,610

)

Other comprehensive income (loss) before reclassifications

 

 

(13,022

)

 

 

4,706

 

 

 

 

 

 

(8,316

)

Amounts reclassified from accumulated other comprehensive income (loss) to interest expense

 

 

 

 

 

(1,130

)

 

 

 

 

 

(1,130

)

Other comprehensive income (loss), net of tax

 

 

(13,022

)

 

 

3,576

 

 

 

 

 

 

(9,446

)

Other comprehensive income (loss) attributable to noncontrolling interest

 

 

5,600

 

 

 

(1,100

)

 

 

 

 

 

4,500

 

Balance, December 31, 2018

 

$

(18,872

)

 

$

9,144

 

 

$

1,172

 

 

$

(8,556

)

 

Noncontrolling interest

 

The following is a summary of net income attributable to MGM Resorts International and transfers to noncontrolling interest:

 

 

 

 

 

For the Years Ended December 31,

 

 

 

 

 

2018

 

 

2017

 

 

 

 

 

(In thousands)

 

Net income attributable to MGM Resorts International

 

 

 

$

466,772

 

 

$

1,952,052

 

Transfers from/(to) to noncontrolling interest:

 

 

 

 

 

 

 

 

 

 

MGP Class A share issuance

 

 

 

 

 

 

 

35,138

 

MGM National Harbor transaction

 

 

 

 

 

 

 

(12,497

)

Other

 

 

 

 

(5,667

)

 

 

(2,889

)

Net transfers from/(to) noncontrolling interest

 

 

 

 

(5,667

)

 

 

19,752

 

Change from net income attributable to MGM Resorts International and transfers to noncontrolling interest

 

 

 

$

461,105

 

 

$

1,971,804

 

 

Noncontrolling interest ownership transactions

MGP Class A share issuance. In September 2017, MGP completed a public offering of 13.2 million of its Class A shares. In connection with the offering, the Operating Partnership issued 13.2 million Operating Partnership units to MGP. The Company has adjusted the carrying value of the noncontrolling interests as a result of MGP’s Class A share issuance to adjust for the change in noncontrolling interests ownership percentage of the Operating Partnership's net assets, with offsetting adjustments to capital in excess of par value and accumulated other comprehensive income. Subsequent to MGP’s issuance of the incremental shares, the Company indirectly owned 72.3% of partnership units in the Operating Partnership.

84


 

MGM National Harbor transaction. On October 5, 2017, MGP acquired the long-term leasehold interest and real property associated with MGM National Harbor from a subsidiary of the Company in exchange for cash of $463 million, the assumption of $425 million of indebtedness, which was immediately repaid by MGP on the closing date, and the issuance of 9.8 million Operating Partnership units to a subsidiary of the Company. The Company adjusted the carrying value of noncontrolling interests to adjust for the change in noncontrolling interests ownership percentage of the Operating Partnership’s net assets, including assets and liabilities transferred, with offsetting adjustments to capital in excess of par value and accumulated other comprehensive income. Subsequent to the MGM National Harbor transaction, the Company indirectly owned 73.4% of the partnership units in the Operating Partnership.

Other events. In January 2019, MGP issued 12.9 million Operating Partnership units to a subsidiary of the Company in connection with the Empire City Transaction.  The Company will adjust the carrying value of noncontrolling interests to adjust for the change in noncontrolling interests ownership percentage of the Operating Partnership’s net assets, including assets and liabilities transferred, with offsetting adjustments to capital in excess of par value and accumulated other comprehensive income, as needed, within the first quarter 2019.

In January 2019, MGP completed an offering of 19.6 million of its Class A shares. In connection with the offering, the Operating Partnership issued 19.6 million Operating Partnership units to MGP. The Company will adjust the carrying value of the noncontrolling interests as a result of MGP’s Class A share issuance to adjust for the change in noncontrolling interests ownership percentage of the Operating Partnership's net assets, with offsetting adjustments to capital in excess of par value and accumulated other comprehensive income, as needed, within the first quarter 2019.

 

Stock repurchase program

 

MGM Resorts International stock repurchase program. In May 2018, the Company’s Board of Directors authorized a $2.0 billion stock repurchase program and completed the previously announced $1.0 billion stock repurchase program. Under each stock repurchase program, the Company may repurchase shares from time to time in the open market or in privately negotiated agreements. Repurchases of common stock may also be made under a Rule 10b5-1 plan, which would permit common stock to be repurchased when the Company might otherwise be precluded from doing so under insider trading laws. The timing, volume and nature of stock repurchases will be at the sole discretion of management, dependent on market conditions, applicable securities laws, and other factors, and may be suspended or discontinued at any time.

 

During the year ended December 31, 2018, the Company repurchased approximately 41 million shares at an average purchase price of $31.25 per share for an aggregate amount of $1.3 billion. Repurchased shares were retired. The remaining availability under the $2.0 billion stock repurchase program was approximately $1.4 billion as of December 31, 2018.

 

During the year ended December 31, 2017, the Company repurchased 10 million shares at $32.75 per share for a total aggregate amount of $328 million. Repurchased shares were retired.

 

MGM Resorts International dividends. On February 13, 2019 the Company’s Board of Directors approved a quarterly dividend of $0.13 per share that will be payable on March 15, 2019 to holders of record on March 8, 2019.

 

 

 

NOTE 13 — STOCK-BASED COMPENSATION

 

MGM Resorts 2005 Omnibus Incentive Plan. The Company’s omnibus incentive plan, as amended (the “Omnibus Plan”), allows it to grant up to 45 million shares or share-based awards, such as stock options, stock appreciation rights (“SARs”), restricted stock units (“RSUs”), performance share units (“PSUs”) and other stock-based awards to eligible directors, officers and employees of the Company and its subsidiaries.

 

As of December 31, 2018, the Company had an aggregate of approximately 20 million shares of common stock available for grant as share-based awards under the Omnibus Plan. Additionally, as of December 31, 2018, the Company had approximately 7 million aggregate SARs outstanding and approximately 7 million aggregate RSUs and PSUs outstanding, including deferred share units and dividend equivalent units related to RSUs and PSUs.

 

85


 

Intrinsic value. The following table includes information related to the intrinsic value:

 

 

 

 

Year ended

 

 

 

 

December 31, 2018

 

 

 

 

(In thousands)

 

Share-based awards exercised and RSUs and PSUs vested

 

 

$

97,302

 

Stock options and SARs outstanding

 

 

 

21,563

 

Stock options and SARs vested and expected to vest

 

 

 

21,547

 

Stock options and SARs exercisable

 

 

 

19,745

 

 

As of December 31, 2018, there was a total of $134 million of unamortized compensation related to stock options, SARs, RSUs, and PSUs, which is expected to be recognized over a weighted-average period of 2.1 years.

 

MGM Growth Properties 2016 Omnibus Incentive Plan and MGM China Share Option Plan. The Company’s subsidiaries, MGP and MGM China, each adopted their own equity award plans for the issuance of share-based awards to each subsidiary’s eligible recipients.

 

Recognition of compensation cost. Compensation cost was recognized as follows:

 

 

 

Year Ended December 31,

 

 

 

2018

 

 

2017

 

 

2016

 

Compensation cost:

 

(In thousands)

 

Omnibus Plan

 

$

57,735

 

 

$

49,383

 

 

$

43,661

 

MGM Growth Properties Omnibus Incentive Plan

 

 

2,092

 

 

 

2,568

 

 

 

3,401

 

MGM China Share Option Plan

 

 

10,369

 

 

 

10,571

 

 

 

8,545

 

Total compensation cost

 

 

70,196

 

 

 

62,522

 

 

 

55,607

 

Less:  Reimbursed costs and capitalized cost

 

 

(1,710

)

 

 

(1,398

)

 

 

(1,350

)

Compensation cost after reimbursed costs and capitalized cost

 

 

68,486

 

 

 

61,124

 

 

 

54,257

 

Less:  Related tax benefit

 

 

(13,218

)

 

 

(18,650

)

 

 

(16,782

)

Compensation cost, net of tax benefit

 

$

55,268

 

 

$

42,474

 

 

$

37,475

 

 

 

NOTE 14 — EMPLOYEE BENEFIT PLANS

 

Multiemployer benefit plans. The Company currently participates in multiemployer pension plans in which the risks of participating differs from single-employer plans in the following aspects:

 

 

a)

Assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other participating employers;

 

b)

If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers;

 

c)

If an entity chooses to stop participating in some of its multiemployer plans, the entity may be required to pay those plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability; and

 

d)

If the plan is terminated by withdrawal of all employers and if the value of the nonforfeitable benefits exceeds plan assets and withdrawal liability payments, employers are required by law to make up the insufficient difference.

 

86


 

The Company’s participation in these plans is presented below.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EIN/Pension

 

Pension Protection Act Zone Status (2)

 

FIP/RP

 

Contributions by the Company

(in thousands)(4)

 

 

Surcharge

 

Expiration Dates of Collective Bargaining

Pension Fund(1)

 

Plan Number

 

2017

 

2016

 

Status (3)

 

2018

 

 

2017

 

 

2016

 

 

Imposed

 

Agreements

Southern Nevada Culinary and Bartenders Pension Plan

 

88-6016617/001

 

Green

 

Green

 

No

 

$

47,825

 

 

$

45,297

 

 

$

44,001

 

 

No

 

5/31/2019; 5/31/2023(5)

Legacy Plan of the National Retirement Fund (NRF)(6)

 

13-6130178/001

 

Red

 

Red

 

Yes

 

$

9,794

 

 

$

9,416

 

 

$

3,788

 

 

Yes

 

2/29/2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

The Company was listed in the plan's Form 5500 as providing more than 5% of the total contributions for the plan years 2017 and 2016 for the Southern Nevada Culinary and Bartenders Pension Plan and for the plan year 2016 for the NRF. At the date the financial statements were issued, Form 5500 was not available for the plan year 2018.

 

(2)

The zone status is based on information that the Company received from the plan and is certified by the plan's actuary. Plans in the red zone are generally less than 65% funded (critical status) and plans in the green zone are at least 80% funded.

 

(3)

Indicates plans for which a Financial Improvement Plan (FIP) or a Rehabilitation Plan (RP) is either pending or has been implemented.

 

(4)

There have been no significant changes that affect the comparability of contributions, other than those for the UNITE HERE Retirement Fund (“UHF”), formally known as the Legacy Plan of the National Retirement Fund (“NRF”) prior to January 1, 2018, which reflect the period from acquisition of Borgata of August 1, 2016 through December 31, 2016 within the 2016 column and a full-year of contributions within the 2018 and 2017 columns.

 

(5)

The Company is party to ten collective bargaining agreements (CBA) that require contributions with the Local Joint Executive Board of Las Vegas, which is made up of the Culinary and Bartenders Unions. The agreements between CityCenter Hotel Casino, LLC, Bellagio, Mandalay Corp., and MGM Grand Hotel, LLC are the most significant because more than half of the Company’s employee participants in this plan are covered by those four agreements.

 

(6)

In December 2017, the Pension Benefit Guaranty Corporation approved the spin-off of the UNITE HERE portion of the NRF to the plan of a newly-formed Legacy Plan of the UNITE HERE Retirement Fund. As a result of the spin-off, the pension liabilities as well as certain assets of the plan were transferred to the new Plan. The terms of the Plan are identical to the NRF. The spin-off was effective as of January 1, 2018.

 

Multiemployer benefit plans other than pensions. Pursuant to its collective bargaining agreements referenced above, the Company also contributes to UNITE HERE Health (the “Health Fund”), which provides healthcare benefits to its active and retired members. The Company contributed $191 million, $183 million, and $187 million to the Health Fund in the years ended December 31, 2018, 2017, and 2016, respectively.  

 

Self-insurance. The Company is self-insured for most health care benefits and workers compensation for its non-union employees. The liability for self-insurance was $93 million and $87 million at December 31, 2018 and 2017, respectively, which is included in “Other accrued liabilities.”

 

 

NOTE 15 — PROPERTY TRANSACTIONS, NET

 

Property transactions, net consisted of the following:

 

 

 

Year Ended December 31,

 

 

 

2018

 

 

2017

 

 

2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

Gain on sale of Grand Victoria

 

$

(44,703

)

 

$

 

 

$

 

Other property transactions, net

 

 

53,850

 

 

 

50,279

 

 

 

17,078

 

 

 

$

9,147

 

 

$

50,279

 

 

$

17,078

 

 

Grand Victoria investment sale. See Note 6 for additional information related to the sale of Grand Victoria investment in 2018.

 

Other. Other property transactions, net includes miscellaneous asset disposals and demolition costs in the periods presented in the above table, including a loss of $24 million related to MGM Cotai production show costs in 2018, and a loss of $20 million and $34 million related to the rebranding of the Monte Carlo Resort and Casino to Park MGM and NoMad Las Vegas in 2018 and 2017, respectively.

 

87


 

NOTE 16 — 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. During the fourth quarter of 2018, the Company changed its reportable segments to Las Vegas Strip Resorts, Regional Operations and MGM China. This change of reportable segments reflects realignment within the Company stemming from the expansion of the Company’s regional operations.

Las Vegas Strip Resorts.  Las Vegas Strip Resorts consists of the following casino resorts: Bellagio, MGM Grand Las Vegas (including The Signature), Mandalay Bay (including Delano and Four Seasons), The Mirage, Luxor, New York-New York (including the Park), Excalibur, Park MGM (including NoMad Las Vegas) and Circus Circus Las Vegas.

Regional Operations. Regional Operations consists of the following casino resorts: MGM Grand Detroit in Detroit, Michigan; Beau Rivage in Biloxi, Mississippi; Gold Strike Tunica in Tunica, Mississippi; Borgata in Atlantic City, New Jersey; MGM National Harbor in Prince George’s County, Maryland; and MGM Springfield in Springfield, Massachusetts (upon commencing operations in August 2018).

MGM China.  MGM China consists of MGM Macau and MGM Cotai (upon commencing operations in February 2018).

The Company’s operations related to investments in unconsolidated affiliates, MGP’s Northfield casino, and certain other corporate operations and management services 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 measure defined as Adjusted EBITDA before corporate expense and stock compensation expense, which are not allocated to each property. Adjusted EBITDA is a measure defined as earnings before interest and other non-operating income (expense), taxes, depreciation and amortization, preopening and start-up expenses, NV Energy exit expense, gain on Borgata transaction, and property transactions, net.

88


 

The following tables present the Company’s segment information. As a result of the change in reportable segments described above, we have recast previously reported segment information to conform to the current presentation in the following tables:

 

 

 

Year Ended December 31,

 

 

 

2018

 

 

2017

 

 

2016

 

 

 

(In thousands)

 

Net Revenues

 

 

 

 

 

 

 

 

 

 

 

 

Las Vegas Strip Resorts

 

 

 

 

 

 

 

 

 

 

 

 

Casino

 

$

1,407,733

 

 

$

1,436,830

 

 

$

1,394,820

 

Rooms

 

 

1,776,029

 

 

 

1,778,869

 

 

 

1,762,850

 

Food and beverage

 

 

1,402,378

 

 

 

1,410,496

 

 

 

1,432,717

 

Entertainment, retail and other

 

 

1,130,532

 

 

 

1,119,928

 

 

 

1,074,307

 

 

 

 

5,716,672

 

 

 

5,746,123

 

 

 

5,664,694

 

Regional Operations

 

 

 

 

 

 

 

 

 

 

 

 

Casino

 

 

2,026,925

 

 

 

1,834,803

 

 

 

1,017,857

 

Rooms

 

 

318,017

 

 

 

319,049

 

 

 

182,809

 

Food and beverage

 

 

428,934

 

 

 

410,143

 

 

 

235,383

 

Entertainment, retail and other

 

 

160,645

 

 

 

145,725

 

 

 

84,108

 

 

 

 

2,934,521

 

 

 

2,709,720

 

 

 

1,520,157

 

MGM China

 

 

 

 

 

 

 

 

 

 

 

 

Casino

 

 

2,195,144

 

 

 

1,741,635

 

 

 

1,695,023

 

Rooms

 

 

118,527

 

 

 

54,824

 

 

 

57,367

 

Food and beverage

 

 

114,862

 

 

 

51,330

 

 

 

51,237

 

Entertainment, retail and other

 

 

21,424

 

 

 

10,371

 

 

 

8,331

 

 

 

 

2,449,957

 

 

 

1,858,160

 

 

 

1,811,958

 

Reportable segment net revenues

 

 

11,101,150

 

 

 

10,314,003

 

 

 

8,996,809

 

Corporate and other

 

 

661,946

 

 

 

483,476

 

 

 

481,460

 

 

 

$

11,763,096

 

 

$

10,797,479

 

 

$

9,478,269

 

Adjusted Property EBITDA

 

 

 

 

 

 

 

 

 

 

 

 

Las Vegas Strip Resorts

 

$

1,705,479

 

 

$

1,780,600

 

 

$

1,661,921

 

Regional Operations

 

 

759,096

 

 

 

731,916

 

 

 

399,701

 

MGM China

 

 

568,294

 

 

 

535,524

 

 

 

529,281

 

Reportable segment Adjusted Property EBITDA

 

 

3,032,869

 

 

 

3,048,040

 

 

 

2,590,903

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other operating income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

Corporate and other

 

 

(224,800

)

 

 

(213,908

)

 

 

203,193

 

NV Energy exit expense

 

 

 

 

 

40,629

 

 

 

(139,335

)

Preopening and start-up expenses

 

 

(151,392

)

 

 

(118,475

)

 

 

(140,075

)

Property transactions, net

 

 

(9,147

)

 

 

(50,279

)

 

 

(17,078

)

Gain on Borgata transaction

 

 

 

 

 

 

 

 

430,118

 

Depreciation and amortization

 

 

(1,178,044

)

 

 

(993,480

)

 

 

(849,527

)

Operating income

 

 

1,469,486

 

 

 

1,712,527

 

 

 

2,078,199

 

Non-operating income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net of amounts capitalized

 

 

(769,513

)

 

 

(668,745

)

 

 

(694,773

)

Non-operating items from unconsolidated affiliates

 

 

(47,827

)

 

 

(34,751

)

 

 

(53,139

)

Other, net

 

 

(18,140

)

 

 

(48,241

)

 

 

(72,698

)

 

 

 

(835,480

)

 

 

(751,737

)

 

 

(820,610

)

Income before income taxes

 

 

634,006

 

 

 

960,790

 

 

 

1,257,589

 

Benefit (provision) for income taxes

 

 

(50,112

)

 

 

1,127,394

 

 

 

(21,743

)

Net income

 

 

583,894

 

 

 

2,088,184

 

 

 

1,235,846

 

Less: Net income attributable to noncontrolling interests

 

 

(117,122

)

 

 

(136,132

)

 

 

(135,438

)

Net income attributable to MGM Resorts International

 

$

466,772

 

 

$

1,952,052

 

 

$

1,100,408

 

 

 

89


 

 

 

December 31,

 

 

 

2018

 

 

2017

 

 

2016

 

Total assets:

 

(In thousands)

 

Las Vegas Strip Resorts

 

$

11,783,736

 

 

$

11,648,168

 

 

$

11,650,747

 

Regional Operations

 

 

5,751,826

 

 

 

4,780,717

 

 

 

4,800,714

 

MGM China

 

 

9,093,307

 

 

 

9,461,535

 

 

 

8,443,411

 

Reportable segment total assets

 

 

26,628,869

 

 

 

25,890,420

 

 

 

24,894,872

 

Corporate and other

 

 

3,666,586

 

 

 

3,339,746

 

 

 

3,334,724

 

Eliminated in consolidation

 

 

(84,749

)

 

 

(70,124

)

 

 

(55,196

)

 

 

$

30,210,706

 

 

$

29,160,042

 

 

$

28,174,400

 

 

 

 

December 31,

 

 

 

2018

 

 

2017

 

 

2016

 

Property and equipment, net:

 

(In thousands)

 

Las Vegas Strip Resorts

 

$

10,605,454

 

 

$

10,568,296

 

 

$

10,568,317

 

Regional Operations

 

 

4,503,104

 

 

 

3,752,528

 

 

 

3,785,654

 

MGM China

 

 

3,818,460

 

 

 

3,827,391

 

 

 

2,857,626

 

Reportable segment property and equipment, net

 

 

18,927,018

 

 

 

18,148,215

 

 

 

17,211,597

 

Corporate and other

 

 

1,887,619

 

 

 

1,557,368

 

 

 

1,268,622

 

Eliminated in consolidation

 

 

(84,749

)

 

 

(70,124

)

 

 

(55,196

)

 

 

$

20,729,888

 

 

$

19,635,459

 

 

$

18,425,023

 

 

 

 

Year Ended December 31,

 

 

 

2018

 

 

2017

 

 

2016

 

Capital expenditures:

 

(In thousands)

 

Las Vegas Strip Resorts

 

$

501,044

 

 

$

419,983

 

 

$

288,526

 

Regional Operations

 

 

72,865

 

 

 

66,628

 

 

 

29,425

 

MGM China

 

 

390,212

 

 

 

923,346

 

 

 

984,355

 

Reportable segment capital expenditures

 

 

964,121

 

 

 

1,409,957

 

 

 

1,302,306

 

Corporate and other

 

 

537,347

 

 

 

469,053

 

 

 

973,446

 

Eliminated in consolidation

 

 

(14,625

)

 

 

(14,928

)

 

 

(13,279

)

 

 

$

1,486,843

 

 

$

1,864,082

 

 

$

2,262,473

 

 

 

NOTE 17 — RELATED PARTY TRANSACTIONS

 

CityCenter

 

Management agreements. The Company and CityCenter have entered into agreements whereby the Company is responsible for management of the operations of CityCenter for a fee of 2% of revenue and 5% of EBITDA (as defined) for Aria and Vdara. The Company earned fees of $47 million, $49 million and $43 million for the years ended December 31, 2018, 2017 and 2016, respectively. The Company is being reimbursed for certain costs in performing its development and management services. During the years ended December 31, 2018, 2017 and 2016, the Company incurred $409 million, $390 million and $387 million, respectively, of costs reimbursable by CityCenter, primarily for employee compensation and certain allocated costs. As of December 31, 2018 and 2017, CityCenter owed the Company $83 million and $77 million, respectively, for management services and reimbursable costs recorded in “Accounts receivable, net” in the accompanying consolidated balance sheets.

 

MGM China

 

Ms. Ho is a member of the Board of Directors of, and holds a minority ownership interest in, MGM China. Ms. Ho is also the managing director of Shun Tak Holdings Limited (together with its subsidiaries “Shun Tak”), a leading conglomerate in Hong Kong with core businesses in transportation, property, hospitality and investments. Shun Tak provides various services and products, including ferry tickets, travel products, rental of hotel rooms, laundry services, advertising services and property cleaning services to MGM China. MGM China incurred expenses relating to Shun Tak of $17 million, $13 million and $10 million for the years ended December 31, 2018, 2017 and 2016, respectively.

 

90


 

MGM Branding and Development Holdings, Ltd. (together with its subsidiary MGM Development Services, Ltd., “MGM Branding and Development”), an entity included in the Company’s consolidated financial statements in which Ms. Ho indirectly holds a noncontrolling interest, is party to a brand license agreement and a development services agreement with MGM China, for which the related amounts are eliminated in consolidation. An entity owned by Ms. Ho received distributions of $22 million, $15 million and $15 million for the years ended December 31, 2018, 2017 and 2016, respectively, in connection with the ownership of a noncontrolling interest in MGM Branding and Development Holdings, Ltd.  

 

MGP

 

As further described in Note 1, pursuant to the master lease, the tenant leases the real estate assets of The Mirage, Mandalay Bay, Luxor, New York-New York, Park MGM, Excalibur, The Park, Gold Strike Tunica, MGM Grand Detroit, Beau Rivage, Borgata and MGM National Harbor from the landlord.

 

The master lease has an initial lease term of ten years that began on April 25, 2016 (other than with respect to MGM National Harbor, as described below) with the potential to extend the term for four additional five-year terms thereafter at the option of the tenant. The master lease provides that any extension of its term must apply to all of the real estate under the master lease at the time of the extension. The master lease has a triple-net structure, which requires the tenant to pay substantially all costs associated with the lease, including real estate taxes, insurance, utilities and routine maintenance, in addition to the base rent. Additionally, the master lease provides the landlord with a right of first offer with respect to MGM Springfield, which the landlord may exercise should the Company elect to sell this property in the future. In connection with the MGM National Harbor transaction, the master lease was amended to provide that the initial term with respect to MGM National Harbor ends on April 31, 2024. Thereafter, the initial term of the master lease with respect to MGM National Harbor may be renewed at the option of the tenant for an initial renewal period lasting until the earlier of the end of the then-current term of the master lease or the next renewal term (depending on whether the Company elects to renew the other properties under the master lease in connection with the expiration of the initial ten-year term). If, however, the tenant chooses not to renew the lease with respect to MGM National Harbor after the initial MGM National Harbor term under the master lease, the tenant would also lose the right to renew the master lease with respect to the rest of the properties when the initial ten-year lease term ends related to the rest of the properties in 2026.

 

In connection with the commencement of the third lease year on April 1, 2018, annual rent payments under the master lease increased to $770 million from $757 million. Rent under the master lease consists of a “base rent” component and a “percentage rent” component. As of December 31, 2018, the base rent represents approximately 90% of the rent payments due under the master lease and the percentage rent represents approximately 10% of the rent payments due under the master lease. The master lease also provides for fixed annual escalators of 2% on the base rent through the sixth lease year and the possibility for additional 2% increases thereafter subject to the tenant meeting an adjusted net revenue to rent ratio, as well as potential increases in percentage rent in year six and every five years thereafter based on a percentage of average actual annual net revenue during the preceding five year period calculated in accordance with the terms under the master lease. The master lease also contains customary events of default and financial covenants. The Company was in compliance with all applicable covenants as of December 31, 2018.

 

Subsequent to the Company completing its acquisition of Empire City in January 2019, MGP acquired the developed real property associated with Empire City from the Company for consideration of approximately $634 million. The real estate assets of Empire City will be leased to the Company pursuant to an amendment to the master lease, increasing the annual rent payment to MGP by $50 million, prorated for the remainder of the lease year. Consistent with the master lease terms, 90 percent of this rent will be fixed and contractually grow at 2 percent per year until 2022. In addition, the master lease provides the landlord with a right of first offer with respect to certain undeveloped land adjacent to the property to the extent the Company develops additional gaming facilities, which the landlord may exercise should the Company elect to sell this property in the future.  

Additionally, in September 2018, the Company entered into a definitive agreement with MGP to acquire Northfield OpCo from MGP for approximately $275 million, subject to customary purchase price adjustments. The real estate assets of Northfield will be leased to the Company pursuant to an amendment to the master lease, increasing the annual rent payment to MGP by $60 million, prorated for the remainder of the lease year. Consistent with the master lease terms, 90 percent of this rent will be fixed and contractually grow at 2 percent per year until 2022. The transaction is expected to close in the first half of 2019, subject to customary closing conditions.

 

Also, in December 2018, the Company entered into an agreement with MGP whereby MGP will pay the Company consideration of $638 million for renovations undertaken by the Company regarding the Park MGM and NoMad Las Vegas property (the “Park MGM Lease Transaction”). Additionally, at closing, the parties will enter into an amendment to the master lease whereby the annual rent payment to MGP will increase by $50 million, prorated for the remainder of the lease year. Consistent with the master lease terms, 90% of this rent will be fixed and contractually grow at 2% per year until 2022. The transaction is expected to close in the first quarter of 2019 and is subject to customary closing conditions.

91


 

All intercompany transactions, including transactions under the master lease, have been eliminated in the Company’s consolidation of MGP. The public ownership of MGP’s Class A shares is recognized as non-controlling interests in the Company’s consolidated financial statements.

 

NOTE 18 —CONDENSED CONSOLIDATING FINANCIAL INFORMATION

 

As of December 31, 2018, all of the Company’s principal debt arrangements are guaranteed by each of its material domestic subsidiaries, other than MGP and the Operating Partnership, MGM Grand Detroit, MGM National Harbor, MGM Springfield, and each of their respective subsidiaries. The Company’s international subsidiaries, including MGM China and its subsidiaries, are not guarantors of such indebtedness. Separate condensed financial statement information for the subsidiary guarantors and non-guarantors as of December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016, are presented below. Within the Condensed Consolidating Statements of Cash Flows, the Company has presented net changes in intercompany accounts as investing activities if the applicable entities have a net asset in intercompany accounts and as a financing activity if the applicable entities have a net intercompany liability balance.

 

Certain of the Company’s subsidiaries collectively own Operating Partnership units and each subsidiary accounts for its respective investment under the equity method within the condensed consolidating financial information presented below. For these subsidiaries, such investment constitutes continuing involvement, and accordingly, the sale and leaseback of the real estate assets under the master lease do not qualify for sale-leaseback accounting. The real estate assets are reflected in the balance sheets of the applicable MGM subsidiaries. In addition, such subsidiaries recognized finance liabilities within “Other long-term obligations” related to rent payments due under the master lease and recognized the related interest expense component of such payments. These real estate assets are also reflected on the balance sheet of the MGP subsidiary that received such assets. The condensed consolidating financial information presented below therefore includes the accounting for such activity within the respective columns presented and in the elimination column. In connection with the adoption of ASC 842, the Company is reassessing whether the sale and leaseback of the real estate assets under the master lease now qualify as a passed sale and, accordingly, the corresponding lease classification, both of which could impact the condensed consolidating financial information.

92


 

CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION

 

 

 

December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

Non-Guarantor

Subsidiaries

 

 

 

 

 

 

 

 

 

 

 

Parent

 

 

Guarantor

Subsidiaries

 

 

MGP

 

 

Other

 

 

Elimination

 

 

Consolidated

 

 

 

(In thousands)

 

Current assets

 

$

304,741

 

 

$

1,178,696

 

 

$

78,222

 

 

$

972,820

 

 

$

(7,701

)

 

$

2,526,778

 

Property and equipment, net

 

 

 

 

 

13,564,979

 

 

 

10,526,520

 

 

 

6,392,014

 

 

 

(9,753,625

)

 

 

20,729,888

 

Investments in subsidiaries

 

 

22,419,282

 

 

 

3,401,031

 

 

 

 

 

 

 

 

 

(25,820,313

)

 

 

 

Investments in the MGP Operating Partnership

 

 

 

 

 

3,434,602

 

 

 

 

 

 

831,494

 

 

 

(4,266,096

)

 

 

 

Investments in and advances to unconsolidated affiliates

 

 

 

 

 

678,748

 

 

 

 

 

 

29,119

 

 

 

25,000

 

 

 

732,867

 

Intercompany accounts

 

 

 

 

 

7,135,263

 

 

 

 

 

 

 

 

 

(7,135,263

)

 

 

 

Other non-current assets

 

 

67,214

 

 

 

917,537

 

 

 

346,565

 

 

 

4,932,872

 

 

 

(43,015

)

 

 

6,221,173

 

 

 

$

22,791,237

 

 

$

30,310,856

 

 

$

10,951,307

 

 

$

13,158,319

 

 

$

(47,001,013

)

 

$

30,210,706

 

Current liabilities

 

$

154,484

 

 

$

1,617,675

 

 

$

189,247

 

 

$

1,224,752

 

 

$

(237,276

)

 

$

2,948,882

 

Intercompany accounts

 

 

6,932,325

 

 

 

 

 

 

307

 

 

 

202,631

 

 

 

(7,135,263

)

 

 

 

Deferred income taxes, net

 

 

1,097,654

 

 

 

 

 

 

33,634

 

 

 

240,970

 

 

 

(29,720

)

 

 

1,342,538

 

Long-term debt, net

 

 

8,055,472

 

 

 

570

 

 

 

4,666,949

 

 

 

2,365,014

 

 

 

 

 

 

15,088,005

 

Other long-term obligations

 

 

39,019

 

 

 

7,210,897

 

 

 

215,664

 

 

 

2,247,584

 

 

 

(9,453,924

)

 

 

259,240

 

Total liabilities

 

 

16,278,954

 

 

 

8,829,142

 

 

 

5,105,801

 

 

 

6,280,951

 

 

 

(16,856,183

)

 

 

19,638,665

 

Redeemable noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

102,250

 

 

 

 

 

 

102,250

 

MGM Resorts International stockholders' equity

 

 

6,512,283

 

 

 

21,481,714

 

 

 

4,279,535

 

 

 

4,383,581

 

 

 

(30,144,830

)

 

 

6,512,283

 

Noncontrolling interests

 

 

 

 

 

 

 

 

1,565,971

 

 

 

2,391,537

 

 

 

 

 

 

3,957,508

 

Total stockholders' equity

 

 

6,512,283

 

 

 

21,481,714

 

 

 

5,845,506

 

 

 

6,775,118

 

 

 

(30,144,830

)

 

 

10,469,791

 

 

 

$

22,791,237

 

 

$

30,310,856

 

 

$

10,951,307

 

 

$

13,158,319

 

 

$

(47,001,013

)

 

$

30,210,706

 

 

 

 

December 31, 2017

 

 

 

 

 

 

 

 

 

 

 

Non-Guarantor

Subsidiaries

 

 

 

 

 

 

 

 

 

 

 

Parent

 

 

Guarantor

Subsidiaries

 

 

MGP

 

 

Other

 

 

Elimination

 

 

Consolidated

 

 

 

(In thousands)

 

Current assets

 

$

78,909

 

 

$

1,015,802

 

 

$

266,627

 

 

$

1,022,340

 

 

$

(7,323

)

 

$

2,376,355

 

Property and equipment, net

 

 

 

 

 

13,521,221

 

 

 

10,021,938

 

 

 

6,125,722

 

 

 

(10,033,422

)

 

 

19,635,459

 

Investments in subsidiaries

 

 

21,040,147

 

 

 

3,304,768

 

 

 

 

 

 

 

 

 

(24,344,915

)

 

 

 

Investments in the MGP Operating Partnership

 

 

 

 

 

3,549,063

 

 

 

 

 

 

862,037

 

 

 

(4,411,100

)

 

 

 

Investments in and advances to unconsolidated affiliates

 

 

 

 

 

1,002,903

 

 

 

 

 

 

5,394

 

 

 

25,000

 

 

 

1,033,297

 

Intercompany accounts

 

 

 

 

 

5,998,499

 

 

 

 

 

 

 

 

 

(5,998,499

)

 

 

 

Other non-current assets

 

 

49,142

 

 

 

913,602

 

 

 

62,555

 

 

 

5,134,220

 

 

 

(44,588

)

 

 

6,114,931

 

 

 

$

21,168,198

 

 

$

29,305,858

 

 

$

10,351,120

 

 

$

13,149,713

 

 

$

(44,814,847

)

 

$

29,160,042

 

Current liabilities

 

$

153,159

 

 

$

1,445,031

 

 

$

144,537

 

 

$

1,609,110

 

 

$

(213,540

)

 

$

3,138,297

 

Intercompany accounts

 

 

5,783,578

 

 

 

 

 

 

962

 

 

 

213,959

 

 

 

(5,998,499

)

 

 

 

Deferred income taxes, net

 

 

934,966

 

 

 

 

 

 

28,544

 

 

 

360,409

 

 

 

(28,544

)

 

 

1,295,375

 

Long-term debt, net

 

 

6,682,574

 

 

 

2,835

 

 

 

3,934,628

 

 

 

2,131,015

 

 

 

 

 

 

12,751,052

 

Other long-term obligations

 

 

36,860

 

 

 

7,268,664

 

 

 

174,710

 

 

 

2,305,353

 

 

 

(9,501,171

)

 

 

284,416

 

Total liabilities

 

 

13,591,137

 

 

 

8,716,530

 

 

 

4,283,381

 

 

 

6,619,846

 

 

 

(15,741,754

)

 

 

17,469,140

 

Redeemable noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

79,778

 

 

 

 

 

 

79,778

 

MGM Resorts International stockholders' equity

 

 

7,577,061

 

 

 

20,589,328

 

 

 

4,443,089

 

 

 

4,040,676

 

 

 

(29,073,093

)

 

 

7,577,061

 

Noncontrolling interests

 

 

 

 

 

 

 

 

1,624,650

 

 

 

2,409,413

 

 

 

 

 

 

4,034,063

 

Total stockholders' equity

 

 

7,577,061

 

 

 

20,589,328

 

 

 

6,067,739

 

 

 

6,450,089

 

 

 

(29,073,093

)

 

 

11,611,124

 

 

 

$

21,168,198

 

 

$

29,305,858

 

 

$

10,351,120

 

 

$

13,149,713

 

 

$

(44,814,847

)

 

$

29,160,042

 

 

 

93


 

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME INFORMATION

 

 

 

Year Ended December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

Non-Guarantor

Subsidiaries

 

 

 

 

 

 

 

 

 

 

 

Parent

 

 

Guarantor

Subsidiaries

 

 

MGP

 

 

Other

 

 

Elimination

 

 

Consolidated

 

 

 

(In thousands)

 

Net revenues

 

$

 

 

$

7,647,304

 

 

$

1,002,444

 

 

$

3,983,575

 

 

$

(870,227

)

 

$

11,763,096

 

Equity in subsidiaries' earnings

 

 

1,216,482

 

 

 

116,676

 

 

 

 

 

 

 

 

 

(1,333,158

)

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Casino and hotel operations

 

 

11,130

 

 

 

4,350,634

 

 

 

88,053

 

 

 

2,491,007

 

 

 

(21,949

)

 

 

6,918,875

 

General and administrative

 

 

9,945

 

 

 

1,238,461

 

 

 

96,607

 

 

 

495,015

 

 

 

(75,390

)

 

 

1,764,638

 

Corporate expense

 

 

156,503

 

 

 

216,318

 

 

 

48,675

 

 

 

21,317

 

 

 

(23,609

)

 

 

419,204

 

Preopening and start-up expenses

 

 

 

 

 

26,100

 

 

 

 

 

 

125,292

 

 

 

 

 

 

151,392

 

Property transactions, net

 

 

 

 

 

(15,955

)

 

 

20,319

 

 

 

25,033

 

 

 

(20,250

)

 

 

9,147

 

Depreciation and amortization

 

 

 

 

 

622,552

 

 

 

273,031

 

 

 

543,606

 

 

 

(261,145

)

 

 

1,178,044

 

 

 

 

177,578

 

 

 

6,438,110

 

 

 

526,685

 

 

 

3,701,270

 

 

 

(402,343

)

 

 

10,441,300

 

Income (loss) from unconsolidated affiliates

 

 

 

 

 

148,866

 

 

 

 

 

 

(1,176

)

 

 

 

 

 

147,690

 

Operating income

 

 

1,038,904

 

 

 

1,474,736

 

 

 

475,759

 

 

 

281,129

 

 

 

(1,801,042

)

 

 

1,469,486

 

Interest expense, net of amounts capitalized

 

 

(480,985

)

 

 

(510

)

 

 

(215,532

)

 

 

(72,486

)

 

 

 

 

 

(769,513

)

Other, net

 

 

63,722

 

 

 

(444,897

)

 

 

(4,690

)

 

 

(187,786

)

 

 

507,684

 

 

 

(65,967

)

Income before income taxes

 

 

621,641

 

 

 

1,029,329

 

 

 

255,537

 

 

 

20,857

 

 

 

(1,293,358

)

 

 

634,006

 

Benefit (provision) for income taxes

 

 

(154,869

)

 

 

 

 

 

(10,835

)

 

 

115,592

 

 

 

 

 

 

(50,112

)

Net income

 

 

466,772

 

 

 

1,029,329

 

 

 

244,702

 

 

 

136,449

 

 

 

(1,293,358

)

 

 

583,894

 

Less: Net income attributable to noncontrolling interests

 

 

 

 

 

 

 

 

(67,065

)

 

 

(50,057

)

 

 

 

 

 

(117,122

)

Net income attributable to MGM Resorts International

 

$

466,772

 

 

$

1,029,329

 

 

$

177,637

 

 

$

86,392

 

 

$

(1,293,358

)

 

$

466,772

 

Net income

 

$

466,772

 

 

$

1,029,329

 

 

$

244,702

 

 

$

136,449

 

 

$

(1,293,358

)

 

$

583,894

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

(7,422

)

 

 

(7,422

)

 

 

 

 

 

(13,022

)

 

 

14,844

 

 

 

(13,022

)

Unrealized gain on cash flow hedges

 

 

2,476

 

 

 

 

 

 

4,128

 

 

 

 

 

 

(3,028

)

 

 

3,576

 

Other comprehensive income (loss)

 

 

(4,946

)

 

 

(7,422

)

 

 

4,128

 

 

 

(13,022

)

 

 

11,816

 

 

 

(9,446

)

Comprehensive income

 

 

461,826

 

 

 

1,021,907

 

 

 

248,830

 

 

 

123,427

 

 

 

(1,281,542

)

 

 

574,448

 

Less: Comprehensive income attributable to noncontrolling interests

 

 

 

 

 

 

 

 

(68,165

)

 

 

(44,457

)

 

 

 

 

 

(112,622

)

Comprehensive income attributable to MGM Resorts International

 

$

461,826

 

 

$

1,021,907

 

 

$

180,665

 

 

$

78,970

 

 

$

(1,281,542

)

 

$

461,826

 

 

94


 

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION

 

 

 

Year Ended December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

Non-Guarantor

Subsidiaries

 

 

 

 

 

 

 

 

 

 

 

Parent

 

 

Guarantor

Subsidiaries

 

 

MGP

 

 

Other

 

 

Elimination

 

 

Consolidated

 

 

 

(In thousands)

 

Cash flows from operating activities

 

 

 

Net cash provided by (used in) operating activities

 

$

(460,117

)

 

$

1,271,583

 

 

$

580,207

 

 

$

330,866

 

 

$

 

 

$

1,722,539

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures, net of construction payable

 

 

 

 

 

(696,076

)

 

 

(1,578

)

 

 

(789,189

)

 

 

 

 

 

(1,486,843

)

Dispositions of property and equipment

 

 

 

 

 

25,507

 

 

 

 

 

 

105

 

 

 

 

 

 

25,612

 

Proceeds from sale of business units and investment in unconsolidated affiliate

 

 

 

 

 

163,616

 

 

 

 

 

 

 

 

 

 

 

 

163,616

 

Acquisition of Northfield, net of cash acquired

 

 

 

 

 

 

 

 

(1,034,534

)

 

 

 

 

 

 

 

 

(1,034,534

)

Investments in and advances to unconsolidated affiliates

 

 

 

 

 

(56,295

)

 

 

 

 

 

 

 

 

 

 

 

(56,295

)

Distributions from unconsolidated affiliates in excess of cumulative earnings

 

 

 

 

 

322,631

 

 

 

 

 

 

 

 

 

 

 

 

322,631

 

Intercompany accounts

 

 

 

 

 

(1,136,764

)

 

 

 

 

 

 

 

 

1,136,764

 

 

 

 

Other

 

 

 

 

 

(13,416

)

 

 

 

 

 

(3,792

)

 

 

 

 

 

(17,208

)

Net cash used in investing activities

 

 

 

 

 

(1,390,797

)

 

 

(1,036,112

)

 

 

(792,876

)

 

 

1,136,764

 

 

 

(2,083,021

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

377,500

 

 

 

 

 

 

727,750

 

 

 

137,009

 

 

 

 

 

 

1,242,259

 

Issuance of long-term debt

 

 

1,000,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,000,000

 

Retirement of senior debentures

 

 

 

 

 

(2,265

)

 

 

 

 

 

 

 

 

 

 

 

(2,265

)

Debt issuance costs

 

 

(26,125

)

 

 

 

 

 

(17,490

)

 

 

(32,904

)

 

 

 

 

 

(76,519

)

Dividends paid to common shareholders

 

 

(260,592

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(260,592

)

MGP dividends paid to consolidated subsidiaries

 

 

 

 

 

 

 

 

(333,192

)

 

 

 

 

 

333,192

 

 

 

 

Distributions to noncontrolling interest owners

 

 

 

 

 

 

 

 

(121,069

)

 

 

(63,863

)

 

 

 

 

 

(184,932

)

Intercompany accounts

 

 

917,760

 

 

 

207,015

 

 

 

 

 

 

345,181

 

 

 

(1,469,956

)

 

 

 

Purchases of common stock

 

 

(1,283,333

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,283,333

)

Other

 

 

(32,225

)

 

 

(6,979

)

 

 

 

 

 

(6,180

)

 

 

 

 

 

(45,384

)

Net cash provided by financing activities

 

 

692,985

 

 

 

197,771

 

 

 

255,999

 

 

 

379,243

 

 

 

(1,136,764

)

 

 

389,234

 

Effect of exchange rate on cash

 

 

 

 

 

 

 

 

 

 

 

(1,985

)

 

 

 

 

 

(1,985

)

Cash and cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net increase (decrease) for the period

 

 

232,868

 

 

 

78,557

 

 

 

(199,906

)

 

 

(84,752

)

 

 

 

 

 

26,767

 

Balance, beginning of period

 

 

26,870

 

 

 

311,044

 

 

 

259,722

 

 

 

902,359

 

 

 

 

 

 

1,499,995

 

Balance, end of period

 

$

259,738

 

 

$

389,601

 

 

$

59,816

 

 

$

817,607

 

 

$

 

 

$

1,526,762

 

 

95


 

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME INFORMATION

 

 

 

Year Ended December 31, 2017

 

 

 

 

 

 

 

 

 

 

 

Non-Guarantor

Subsidiaries

 

 

 

 

 

 

 

 

 

 

 

Parent

 

 

Guarantor

Subsidiaries

 

 

MGP

 

 

Other

 

 

Elimination

 

 

Consolidated

 

 

 

(In thousands)

 

Net revenues

 

$

 

 

$

7,649,990

 

 

$

765,695

 

 

$

3,151,304

 

 

$

(769,510

)

 

$

10,797,479

 

Equity in subsidiaries' earnings

 

 

1,391,725

 

 

 

156,081

 

 

 

 

 

 

 

 

 

(1,547,806

)

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Casino and hotel operations

 

 

10,784

 

 

 

4,262,212

 

 

 

 

 

 

1,923,942

 

 

 

(3,816

)

 

 

6,193,122

 

General and administrative

 

 

8,742

 

 

 

1,180,989

 

 

 

84,348

 

 

 

369,844

 

 

 

(84,348

)

 

 

1,559,575

 

Corporate expense

 

 

127,092

 

 

 

200,801

 

 

 

34,085

 

 

 

(515

)

 

 

(4,591

)

 

 

356,872

 

NV Energy exit expense

 

 

 

 

 

(40,629

)

 

 

 

 

 

 

 

 

 

 

 

(40,629

)

Preopening and start-up expenses

 

 

 

 

 

8,258

 

 

 

 

 

 

110,217

 

 

 

 

 

 

118,475

 

Property transactions, net

 

 

 

 

 

43,985

 

 

 

34,022

 

 

 

6,294

 

 

 

(34,022

)

 

 

50,279

 

Depreciation and amortization

 

 

 

 

 

649,676

 

 

 

260,455

 

 

 

343,804

 

 

 

(260,455

)

 

 

993,480

 

 

 

 

146,618

 

 

 

6,305,292

 

 

 

412,910

 

 

 

2,753,586

 

 

 

(387,232

)

 

 

9,231,174

 

Income (loss) from unconsolidated affiliates

 

 

 

 

 

147,234

 

 

 

 

 

 

(1,012

)

 

 

 

 

 

146,222

 

Operating income

 

 

1,245,107

 

 

 

1,648,013

 

 

 

352,785

 

 

 

396,706

 

 

 

(1,930,084

)

 

 

1,712,527

 

Interest expense, net of amounts capitalized

 

 

(466,907

)

 

 

(982

)

 

 

(184,175

)

 

 

(16,681

)

 

 

 

 

 

(668,745

)

Other, net

 

 

26,215

 

 

 

(402,602

)

 

 

2,286

 

 

 

(142,997

)

 

 

434,106

 

 

 

(82,992

)

Income before income taxes

 

 

804,415

 

 

 

1,244,429

 

 

 

170,896

 

 

 

237,028

 

 

 

(1,495,978

)

 

 

960,790

 

Benefit (provision) for income taxes

 

 

1,147,637

 

 

 

 

 

 

(4,906

)

 

 

(15,337

)

 

 

 

 

 

1,127,394

 

Net income

 

 

1,952,052

 

 

 

1,244,429

 

 

 

165,990

 

 

 

221,691

 

 

 

(1,495,978

)

 

 

2,088,184

 

Less: Net income attributable to noncontrolling interests

 

 

 

 

 

 

 

 

(41,775

)

 

 

(94,357

)

 

 

 

 

 

(136,132

)

Net income attributable to MGM Resorts International

 

$

1,952,052

 

 

$

1,244,429

 

 

$

124,215

 

 

$

127,334

 

 

$

(1,495,978

)

 

$

1,952,052

 

Net income

 

$

1,952,052

 

 

$

1,244,429

 

 

$

165,990

 

 

$

221,691

 

 

$

(1,495,978

)

 

$

2,088,184

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

(23,995

)

 

 

(23,995

)

 

 

 

 

 

(43,188

)

 

 

47,990

 

 

 

(43,188

)

Unrealized gain on cash flow hedges

 

 

5,234

 

 

 

 

 

 

9,782

 

 

 

 

 

 

(7,021

)

 

 

7,995

 

Other comprehensive income (loss)

 

 

(18,761

)

 

 

(23,995

)

 

 

9,782

 

 

 

(43,188

)

 

 

40,969

 

 

 

(35,193

)

Comprehensive income

 

 

1,933,291

 

 

 

1,220,434

 

 

 

175,772

 

 

 

178,503

 

 

 

(1,455,009

)

 

 

2,052,991

 

Less: Comprehensive income attributable to noncontrolling interests

 

 

 

 

 

 

 

 

(44,536

)

 

 

(75,164

)

 

 

 

 

 

(119,700

)

Comprehensive income attributable to MGM Resorts International

 

$

1,933,291

 

 

$

1,220,434

 

 

$

131,236

 

 

$

103,339

 

 

$

(1,455,009

)

 

$

1,933,291

 

 

96


 

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION

 

 

 

Year Ended December 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-Guarantor

Subsidiaries

 

 

 

 

 

 

 

 

 

 

 

Parent

 

 

 

 

Guarantor

Subsidiaries

 

 

MGP

 

 

Other

 

 

Elimination

 

 

Consolidated

 

 

 

(In thousands)

 

Cash flows from operating activities

 

 

 

Net cash provided by (used in) operating activities

 

$

(584,252

)

 

 

 

$

1,152,083

 

 

$

482,578

 

 

$

1,156,002

 

 

$

 

 

$

2,206,411

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures, net of construction payable

 

 

 

 

 

 

 

(482,024

)

 

 

(488

)

 

 

(1,381,570

)

 

 

 

 

 

(1,864,082

)

Dispositions of property and equipment

 

 

 

 

 

 

 

502

 

 

 

 

 

 

216

 

 

 

 

 

 

718

 

Acquisition of National Harbor, net of cash acquired

 

 

 

 

 

 

 

 

 

 

(462,500

)

 

 

 

 

 

462,500

 

 

 

 

Investments in and advances to unconsolidated affiliates

 

 

 

 

 

 

 

(16,727

)

 

 

 

 

 

 

 

 

 

 

 

(16,727

)

Distributions from unconsolidated affiliates in excess of cumulative earnings

 

 

 

 

 

 

 

301,211

 

 

 

 

 

 

 

 

 

 

 

 

301,211

 

Intercompany accounts

 

 

462,500

 

 

 

 

 

(1,186,942

)

 

 

 

 

 

 

 

 

724,442

 

 

 

 

Other

 

 

 

 

 

 

 

(1,754

)

 

 

 

 

 

42

 

 

 

 

 

 

(1,712

)

Net cash provided by (used in) investing activities

 

 

462,500

 

 

 

 

 

(1,385,734

)

 

 

(462,988

)

 

 

(1,381,312

)

 

 

1,186,942

 

 

 

(1,580,592

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

122,500

 

 

 

 

 

 

 

 

(466,875

)

 

 

359,376

 

 

 

 

 

 

15,001

 

Issuance of long-term debt

 

 

 

 

 

 

 

 

 

 

350,000

 

 

 

 

 

 

 

 

 

350,000

 

Retirement of senior notes

 

 

(502,669

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(502,669

)

Debt issuance costs

 

 

 

 

 

 

 

 

 

 

(5,598

)

 

 

(4,379

)

 

 

 

 

 

(9,977

)

Issuance of MGM Growth Properties Class A shares in public offering

 

 

 

 

 

 

 

 

 

 

404,685

 

 

 

 

 

 

 

 

 

404,685

 

MGM Growth Properties Class A share issuance costs

 

 

 

 

 

 

 

 

 

 

(17,137

)

 

 

 

 

 

 

 

 

(17,137

)

Dividends paid to common shareholders

 

 

(252,014

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(252,014

)

MGP dividends paid to consolidated subsidiaries

 

 

 

 

 

 

 

 

 

 

(290,091

)

 

 

 

 

 

290,091

 

 

 

 

Distributions to noncontrolling interest owners

 

 

 

 

 

 

 

 

 

 

(95,344

)

 

 

(75,058

)

 

 

 

 

 

(170,402

)

Intercompany accounts

 

 

1,042,111

 

 

 

 

 

248,626

 

 

 

 

 

 

186,296

 

 

 

(1,477,033

)

 

 

 

Purchases of common stock

 

 

(327,500

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(327,500

)

Other

 

 

(33,801

)

 

 

 

 

(11,644

)

 

 

 

 

 

(13,320

)

 

 

 

 

 

(58,765

)

Net cash provided by (used in) financing activities

 

 

48,627

 

 

 

 

 

236,982

 

 

 

(120,360

)

 

 

452,915

 

 

 

(1,186,942

)

 

 

(568,778

)

Effect of exchange rate on cash

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,627

)

 

 

 

 

 

(3,627

)

Cash and cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net increase (decrease) for the period

 

 

(73,125

)

 

 

 

 

3,331

 

 

 

(100,770

)

 

 

223,978

 

 

 

 

 

 

53,414

 

Balance, beginning of period

 

 

99,995

 

 

 

 

 

307,713

 

 

 

360,492

 

 

 

678,381

 

 

 

 

 

 

1,446,581

 

Balance, end of period

 

$

26,870

 

 

 

 

$

311,044

 

 

$

259,722

 

 

$

902,359

 

 

$

 

 

$

1,499,995

 

 

97


 

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME INFORMATION

 

 

 

Year Ended December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

Non-Guarantor

Subsidiaries

 

 

 

 

 

 

 

 

 

 

 

Parent

 

 

Guarantor

Subsidiaries

 

 

MGP

 

 

Other

 

 

Elimination

 

 

Consolidated

 

 

 

(In thousands)

 

Net revenues

 

$

 

 

$

7,050,893

 

 

$

467,548

 

 

$

2,430,795

 

 

$

(470,967

)

 

$

9,478,269

 

Equity in subsidiaries' earnings

 

 

1,779,119

 

 

 

174,587

 

 

 

 

 

 

 

 

 

(1,953,706

)

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Casino and hotel operations

 

 

9,063

 

 

 

4,027,602

 

 

 

 

 

 

1,487,975

 

 

 

(3,419

)

 

 

5,521,221

 

General and administrative

 

 

6,834

 

 

 

1,137,027

 

 

 

68,063

 

 

 

214,839

 

 

 

(48,229

)

 

 

1,378,534

 

Corporate expense

 

 

131,938

 

 

 

160,887

 

 

 

20,360

 

 

 

(194

)

 

 

(286

)

 

 

312,705

 

NV Energy exit expense

 

 

 

 

 

139,335

 

 

 

 

 

 

 

 

 

 

 

 

139,335

 

Preopening and start-up expenses

 

 

 

 

 

8,775

 

 

 

 

 

 

131,300

 

 

 

 

 

 

140,075

 

Property transactions, net

 

 

 

 

 

16,449

 

 

 

4,684

 

 

 

(246

)

 

 

(3,809

)

 

 

17,078

 

Gain on Borgata transaction

 

 

 

 

 

(430,118

)

 

 

 

 

 

 

 

 

 

 

 

(430,118

)

Depreciation and amortization

 

 

 

 

 

524,123

 

 

 

220,667

 

 

 

261,730

 

 

 

(156,993

)

 

 

849,527

 

 

 

 

147,835

 

 

 

5,584,080

 

 

 

313,774

 

 

 

2,095,404

 

 

 

(212,736

)

 

 

7,928,357

 

Income (loss) from unconsolidated affiliates

 

 

 

 

 

528,605

 

 

 

 

 

 

(318

)

 

 

 

 

 

528,287

 

Operating income

 

 

1,631,284

 

 

 

2,170,005

 

 

 

153,774

 

 

 

335,073

 

 

 

(2,211,937

)

 

 

2,078,199

 

Interest expense, net of amounts capitalized

 

 

(562,536

)

 

 

(1,500

)

 

 

(115,438

)

 

 

(15,299

)

 

 

 

 

 

(694,773

)

Other, net

 

 

(7,864

)

 

 

(324,141

)

 

 

(726

)

 

 

(93,145

)

 

 

300,039

 

 

 

(125,837

)

Income before income taxes

 

 

1,060,884

 

 

 

1,844,364

 

 

 

37,610

 

 

 

226,629

 

 

 

(1,911,898

)

 

 

1,257,589

 

Benefit (provision) for income taxes

 

 

39,524

 

 

 

(22,579

)

 

 

(2,264

)

 

 

(36,424

)

 

 

 

 

 

(21,743

)

Net income

 

 

1,100,408

 

 

 

1,821,785

 

 

 

35,346

 

 

 

190,205

 

 

 

(1,911,898

)

 

 

1,235,846

 

Less: Net income attributable to noncontrolling interests

 

 

 

 

 

 

 

 

(29,938

)

 

 

(105,500

)

 

 

 

 

 

(135,438

)

Net income attributable to MGM Resorts International

 

$

1,100,408

 

 

$

1,821,785

 

 

$

5,408

 

 

$

84,705

 

 

$

(1,911,898

)

 

$

1,100,408

 

Net income

 

$

1,100,408

 

 

$

1,821,785

 

 

$

35,346

 

 

$

190,205

 

 

$

(1,911,898

)

 

$

1,235,846

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

(1,477

)

 

 

(1,477

)

 

 

 

 

 

(2,680

)

 

 

2,954

 

 

 

(2,680

)

Unrealized gain on cash flow hedges

 

 

1,434

 

 

 

 

 

 

1,879

 

 

 

 

 

 

(1,434

)

 

 

1,879

 

Other comprehensive income (loss)

 

 

(43

)

 

 

(1,477

)

 

 

1,879

 

 

 

(2,680

)

 

 

1,520

 

 

 

(801

)

Comprehensive income

 

 

1,100,365

 

 

 

1,820,308

 

 

 

37,225

 

 

 

187,525

 

 

 

(1,910,378

)

 

 

1,235,045

 

Less: Comprehensive income attributable to noncontrolling interests

 

 

 

 

 

 

 

 

(30,383

)

 

 

(104,297

)

 

 

 

 

 

(134,680

)

Comprehensive income attributable to MGM Resorts International

 

$

1,100,365

 

 

$

1,820,308

 

 

$

6,842

 

 

$

83,228

 

 

$

(1,910,378

)

 

$

1,100,365

 

 

98


 

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION

 

 

 

Year Ended December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

Non-Guarantor

Subsidiaries

 

 

 

 

 

 

 

 

 

 

 

Parent

 

 

Guarantor

Subsidiaries

 

 

MGP

 

 

Other

 

 

Elimination

 

 

Consolidated

 

 

 

(In thousands)

 

Cash flows from operating activities

 

 

 

Net cash provided by (used in) operating activities

 

$

(603,136

)

 

$

1,313,595

 

 

$

297,781

 

 

$

525,732

 

 

$

 

 

$

1,533,972

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures, net of construction payable

 

 

 

 

 

(290,455

)

 

 

(138,987

)

 

 

(1,833,031

)

 

 

 

 

 

(2,262,473

)

Dispositions of property and equipment

 

 

 

 

 

1,940

 

 

 

 

 

 

2,004

 

 

 

 

 

 

3,944

 

Proceeds from partial disposition of investment in unconsolidated affiliates

 

 

 

 

 

15,000

 

 

 

 

 

 

 

 

 

 

 

 

15,000

 

Acquisition of Borgata, net of cash acquired

 

 

 

 

 

(559,443

)

 

 

 

 

 

 

 

 

 

 

 

(559,443

)

Investments in and advances to unconsolidated affiliates

 

 

 

 

 

(3,633

)

 

 

 

 

 

 

 

 

 

 

 

(3,633

)

Distributions from unconsolidated affiliates in excess of cumulative earnings

 

 

 

 

 

542,097

 

 

 

 

 

 

 

 

 

 

 

 

542,097

 

Intercompany accounts

 

 

 

 

 

(1,562,442

)

 

 

 

 

 

 

 

 

1,562,442

 

 

 

 

Other

 

 

 

 

 

(7,651

)

 

 

 

 

 

(4,045

)

 

 

 

 

 

(11,696

)

Net cash used in investing activities

 

 

 

 

 

(1,864,587

)

 

 

(138,987

)

 

 

(1,835,072

)

 

 

1,562,442

 

 

 

(2,276,204

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

(2,016,000

)

 

 

4,094,850

 

 

 

(2,411,600

)

 

 

823,782

 

 

 

 

 

 

491,032

 

Borrowings under bank credit facilities - maturities longer than 90 days

 

 

1,845,375

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,845,375

 

Repayments under bank credit facilities - maturities longer than 90 days

 

 

(1,845,375

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,845,375

)

Issuance of long-term debt

 

 

500,000

 

 

 

 

 

 

1,550,000

 

 

 

 

 

 

 

 

 

2,050,000

 

Retirement of senior notes

 

 

(2,255,392

)

 

 

(2,661

)

 

 

 

 

 

 

 

 

 

 

 

(2,258,053

)

Repayment of Borgata credit facility

 

 

 

 

 

(583,598

)

 

 

 

 

 

 

 

 

 

 

 

(583,598

)

Debt issuance costs

 

 

(29,871

)

 

 

 

 

 

(77,163

)

 

 

(32,550

)

 

 

 

 

 

(139,584

)

Issuance of MGM Growth Properties Class A shares in public offering

 

 

 

 

 

 

 

 

1,207,500

 

 

 

 

 

 

 

 

 

1,207,500

 

MGM Growth Properties Class A share issuance costs

 

 

 

 

 

 

 

 

(75,032

)

 

 

 

 

 

 

 

 

(75,032

)

Acquisition of MGM China shares

 

 

(100,000

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(100,000

)

MGP dividends paid to consolidated subsidiaries

 

 

 

 

 

 

 

 

(113,414

)

 

 

 

 

 

113,414

 

 

 

 

Distributions to noncontrolling interest owners

 

 

 

 

 

 

 

 

(37,415

)

 

 

(65,952

)

 

 

 

 

 

(103,367

)

Intercompany accounts

 

 

4,082,303

 

 

 

(2,954,054

)

 

 

158,822

 

 

 

388,785

 

 

 

(1,675,856

)

 

 

 

Proceeds from issuance of redeemable noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

47,325

 

 

 

 

 

 

47,325

 

Other

 

 

(16,765

)

 

 

 

 

 

 

 

 

(36

)

 

 

 

 

 

(16,801

)

Net cash provided by financing activities

 

 

164,275

 

 

 

554,537

 

 

 

201,698

 

 

 

1,161,354

 

 

 

(1,562,442

)

 

 

519,422

 

Effect of exchange rate on cash

 

 

 

 

 

 

 

 

 

 

 

(921

)

 

 

 

 

 

(921

)

Cash and cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net increase (decrease) for the period

 

 

(438,861

)

 

 

3,545

 

 

 

360,492

 

 

 

(148,907

)

 

 

 

 

 

(223,731

)

Balance, beginning of period

 

 

538,856

 

 

 

304,168

 

 

 

 

 

 

827,288

 

 

 

 

 

 

1,670,312

 

Balance, end of period

 

$

99,995

 

 

$

307,713

 

 

$

360,492

 

 

$

678,381

 

 

$

 

 

$

1,446,581

 

 

 

 

99


 

NOTE 19 — SELECTED QUARTERLY FINANCIAL RESULTS (UNAUDITED)

 

 

 

Quarter

 

 

 

First

 

 

Second

 

 

Third

 

 

Fourth

 

 

Total

 

2018

 

(In thousands, except per share data)

 

Net revenues

 

$

2,822,237

 

 

$

2,858,695

 

 

$

3,029,302

 

 

$

3,052,862

 

 

$

11,763,096

 

Operating income

 

 

359,757

 

 

 

363,075

 

 

 

410,903

 

 

 

335,751

 

 

 

1,469,486

 

Net income

 

 

266,301

 

 

 

140,423

 

 

 

171,410

 

 

 

5,760

 

 

 

583,894

 

Net income (loss) attributable to MGM Resorts

   International

 

 

223,444

 

 

 

123,777

 

 

 

142,878

 

 

 

(23,327

)

 

 

466,772

 

Earnings (loss) per share-basic

 

$

0.39

 

 

$

0.21

 

 

$

0.26

 

 

$

(0.06

)

 

$

0.82

 

Earnings (loss) per share-diluted

 

$

0.38

 

 

$

0.21

 

 

$

0.26

 

 

$

(0.06

)

 

$

0.81

 

2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net revenues

 

$

2,717,566

 

 

$

2,652,133

 

 

$

2,830,175

 

 

$

2,597,605

 

 

$

10,797,479

 

Operating income

 

 

496,511

 

 

 

499,898

 

 

 

492,704

 

 

 

223,414

 

 

 

1,712,527

 

Net income

 

 

252,574

 

 

 

240,873

 

 

 

175,744

 

 

 

1,418,993

 

 

 

2,088,184

 

Net income attributable to MGM Resorts

   International

 

 

206,412

 

 

 

209,864

 

 

 

148,363

 

 

 

1,387,413

 

 

 

1,952,052

 

Earnings per share-basic

 

$

0.36

 

 

$

0.36

 

 

$

0.26

 

 

$

2.42

 

 

$

3.38

 

Earnings per share-diluted

 

$

0.36

 

 

$

0.36

 

 

$

0.26

 

 

$

2.39

 

 

$

3.34

 

 

Because earnings per share amounts are calculated using the weighted average number of common and dilutive common equivalent shares outstanding during each quarter, the sum of the per share amounts for the four quarters does not equal the total earnings per share amounts for the year. The following sections list certain items affecting comparability of quarterly and year-to-date results and related per share amounts. Additional information related to these items is included elsewhere in the notes to the accompanying financial statements.

 

Certain items affecting comparability for the year ended December 31, 2018 are as follows:

 

 

First Quarter. The Company recorded a $72 million tax benefit ($0.13 per share in the quarter) related to a measurement period adjustment of the Tax Act;

 

Second Quarter. None;

 

Third Quarter. The Company recorded a $45 million gain ($0.07 per share in the quarter and $0.06 per share in the full year of 2018) related to the sale of Grand Victoria. Additionally, the Company recorded a $12 million gain ($0.02 per share in the quarter and full year of 2018) related to the sale of Mandarin Oriental; and

 

Fourth Quarter. The Company recorded business interruption insurance proceeds of $24 million ($0.04 per share in the quarter and $0.03 per share in the full year of 2018) primarily at Mandalay Bay. Additionally, the Company recorded a $92 million tax expense ($0.17 per share in the quarter) related to the Tax Act.

 

Certain items affecting comparability for the year ended December 31, 2017 are as follows:

 

 

First Quarter. None;

 

Second Quarter. The Company recorded a $41 million gain ($0.05 per share in the quarter and full year of 2017) related to a modification of the 2016 NV Energy exit fee. Additionally, the Company recorded a $36 million gain ($0.04 per share in the quarter and full year of 2017) related to Borgata’s share of a property tax settlement from Atlantic City;

 

Third Quarter. None; and

 

Fourth Quarter. The Company recorded a $1.4 billion tax benefit ($2.49 per share in the quarter and $2.46 per share for full year of 2017) related to the enactment of the Tax Act.

 

 


100


 

SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS

(In thousands)

 

 

 

Balance at

 

 

Provision for

 

 

Write-offs,

 

 

 

 

 

 

 

Beginning of

 

 

Doubtful

 

 

Net of

 

 

Balance at

 

 

 

Period

 

 

Accounts

 

 

Recoveries

 

 

End of Period

 

Allowance for doubtful accounts:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31, 2018

 

$

92,571

 

 

$

39,762

 

 

$

(41,558

)

 

$

90,775

 

Year Ended December 31, 2017

 

 

97,920

 

 

 

20,603

 

 

 

(25,952

)

 

 

92,571

 

Year Ended December 31, 2016

 

 

89,789

 

 

 

10,863

 

 

 

(2,732

)

 

 

97,920

 

 

 

 

Balance at

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning of

 

 

 

 

 

 

 

 

 

 

Balance at

 

 

 

Period

 

 

Increase

 

 

Decrease

 

 

End of Period

 

Deferred income tax valuation allowance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31, 2018

 

$

2,513,738

 

 

$

 

 

$

(36,035

)

 

$

2,477,703

 

Year Ended December 31, 2017

 

 

2,583,274

 

 

 

 

 

 

(69,536

)

 

 

2,513,738

 

Year Ended December 31, 2016

 

 

2,807,131

 

 

 

2,975

 

 

 

(226,832

)

 

 

2,583,274

 

 

 


101


 

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

None.

 

ITEM 9A.

CONTROLS AND PROCEDURES

 

Disclosure 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 (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“the Exchange Act”)) were effective as of December 31, 2018 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 SEC 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 Rules 13a-15(b) and 15d-15(b) under the Exchange Act conducted under the supervision and participation of the principal executive officer and principal financial officer along with company management.

 

Changes in Internal Control over Financial Reporting

 

During the quarter ended December 31, 2018, 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.

 

Management’s Annual Report on Internal Control over Financial Reporting

 

Management’s Responsibilities

 

Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Sections 13a-15(f) and 15d-15(f) of the Exchange Act) for MGM Resorts International and subsidiaries (the “Company”).

 

Objective of Internal Control over Financial Reporting

 

In establishing adequate internal control over financial reporting, management has developed and maintained a system of internal control, policies and procedures designed to provide reasonable assurance that information contained in the accompanying consolidated financial statements and other information presented in this annual report is reliable, does not contain any untrue statement of a material fact or omit to state a material fact, and fairly presents in all material respects the financial condition, results of operations and cash flows of the Company as of and for the periods presented in this annual report. These include controls and procedures designed to ensure that this information is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate for all timely decisions regarding required disclosure. Significant elements of the Company’s internal control over financial reporting include, for example:

 

Hiring skilled accounting personnel and training them appropriately;

 

Written accounting policies;

 

Written documentation of accounting systems and procedures;

 

Segregation of incompatible duties;

 

Internal audit function to monitor the effectiveness of the system of internal control; and

 

Oversight by an independent Audit Committee of the Board of Directors.

 

Management’s Evaluation

 

Management, with the participation of the Company’s principal executive officer and principal financial officer, has evaluated the Company’s internal control over financial reporting using the criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

 

Based on its evaluation as of December 31, 2018, management believes that the Company’s internal control over financial reporting is effective in achieving the objectives described above.

 

The Company’s independent registered public accounting firm’s report on the effectiveness of our internal control over financial reporting appears herein.

102


 

ITEM 9B.  

OTHER INFORMATION

 

None.

 

 

PART III

 

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

We incorporate by reference the information appearing under “Executive Officers of the Registrant” in Item 1 of this Form 10-K and under “Election of Directors” and “Corporate Governance” in our definitive Proxy Statement for our 2019 Annual Meeting of Stockholders, which we expect to file with the SEC on or before April 2, 2019 (the “Proxy Statement”).

 

ITEM 11.

EXECUTIVE COMPENSATION

 

We incorporate by reference the information appearing under “Director Compensation” and “Executive Compensation” and “Corporate Governance — Compensation Committee Interlocks and Insider Participation” and “Compensation Committee Report” in the Proxy Statement.

 

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

We incorporate by reference the information appearing under “Principal Stockholders” and “Election of Directors” in the Proxy Statement.

 

Equity Compensation Plan Information

 

The following table includes information about our equity compensation plans at December 31, 2018:

 

 

 

Securities to be issued

 

 

Weighted average

 

 

Securities available for

 

 

 

upon exercise of

 

 

exercise price of

 

 

future issuance under

 

 

 

outstanding options,

 

 

outstanding options,

 

 

equity compensation

 

 

 

warrants and rights

 

 

warrants and rights

 

 

plans

 

 

 

(In thousands, except per share data)

 

Equity compensation plans approved by

   security holders (1)

 

 

13,494

 

 

$

21.81

 

 

 

20,005

 

Equity compensation plans not approved by

   security holders

 

 

 

 

 

 

 

 

 

 

(1)

As of December 31, 2018 we had 3.8 million restricted stock units and 2.8 million performance share units outstanding that do not have an exercise price; therefore, the weighted average per share exercise price only relates to outstanding stock appreciation rights. The amount included in the securities outstanding above for performance share units assumes that each target price is achieved.

 

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

We incorporate by reference the information appearing under “Transactions with Related Persons” and “Corporate Governance” in the Proxy Statement.

 

ITEM 14.

PRINCIPAL ACCOUNTING FEES AND SERVICES

 

We incorporate by reference the information appearing under “Selection of Independent Registered Public Accounting Firm” in the Proxy Statement.

 

 

103


 

PART IV

ITEM 15.

EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a)(1).Financial Statements. The following consolidated financial statements of the Company are filed as part of this report under Item 8 – “Financial Statements and Supplementary Data.”

 

 

 

Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting

 

 

Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements

 

 

Consolidated Balance Sheets — December 31, 2018 and 2017

 

 

Years Ended December 31, 2018, 2017 and 2016

 

 

Consolidated Statements of Operations

 

 

Consolidated Statements of Comprehensive Income (Loss)

 

 

Consolidated Statements of Cash Flows

 

 

Consolidated Statements of Stockholders’ Equity

 

 

Notes to Consolidated Financial Statements

 

 

 

Audited consolidated financial statements for CityCenter Holdings, LLC as of December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016 are presented in Exhibit 99.3 and are incorporated herein by reference.

 

(a)(2).Financial Statement Schedule. The following financial statement schedule of the Company is filed as part of this report under Item 8 – “Financial Statements and Supplementary Data.”

 

Years Ended December 31, 2018, 2017 and 2016

 

 

Schedule II — Valuation and Qualifying Accounts

 

 

 

The financial information included in the financial statement schedule should be read in conjunction with the consolidated financial statements. All other financial statement schedules have been omitted because they are not applicable, or the required information is included in the consolidated financial statements or the notes thereto.

 

 

(a)(3).

Exhibits.

 

Exhibit
Number

 

Description

2.1

 

Master Contribution Agreement by and among the Company, MGM Growth Properties LLC and MGM Growth Properties Operating Partnership LP, dated as of April 25, 2016 (incorporated by reference to Exhibit 2.1 of the Current Report on Form 8-K of MGM Growth Properties LLC filed on April 25, 2016).

3.1

 

Amended and Restated Certificate of Incorporation of the Company, dated June 14, 2011 (incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q filed on August 9, 2011).

3.2

 

Amended and Restated Bylaws of the Company, effective January 13, 2016 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on January 15, 2016).

4.1(1)

 

Indenture, dated November 15, 1996, by and between Mandalay and Wells Fargo Bank (Colorado), N.A., as Trustee (the “Mandalay November 1996 Indenture”) (incorporated by reference to Exhibit 4(e) to the Mandalay October 1996 10-Q).

4.1(2)

 

Supplemental Indenture, dated as of November 15, 1996, to the Mandalay November 1996 Indenture, with respect to $150 million aggregate principal amount of 7.0% Senior Notes due 2036 (incorporated by reference to Exhibit 4(f) to the Mandalay October 1996 10-Q).

4.1(3)

 

7.0% Senior Notes due February 15, 2036, in the principal amount of $150,000,000 (incorporated by reference to Exhibit 4(g) to the Mandalay October 1996 10-Q).

4.1(4)

 

Indenture, dated as of January 17, 2012, among the Company, the guarantors named therein and U.S. Bank National Association, as Trustee with respect to $850 million aggregate principal amount of 8.625% Senior Notes due 2019 (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on January 17, 2012).

104


 

4.1(5)

 

Indenture, dated March 22, 2012, between the Company 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).

4.1(6)

 

First Supplemental Indenture, dated March 22, 2012, among the Company, the guarantors named therein and U.S. Bank National Association, as trustee with respect to $1.0 billion aggregate principal amount of 7.75% senior notes due 2022 (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on March 22, 2012).

4.1(7)

 

Indenture, dated as of September 19, 2012, among the Company, the guarantors named therein and U.S. Bank National Association, as trustee with respect to $1.0 billion aggregate principal amount of 6.750% Senior Notes due 2020 (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on September 19, 2012).

4.1(8)

 

Second Supplemental Indenture, dated December 20, 2012, among the Company, the guarantors named therein and U.S. Bank National Association, as trustee to the Indenture, dated as of March 22, 2012, among the Company and U.S. Bank National Association, as trustee, relating to the 6.625% senior notes due 2021 (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on December 20, 2012).

4.1(9)

 

Third Supplemental Indenture, dated December 19, 2013, among the Company, the guarantors named therein and U.S. Bank National Association, as trustee to the Indenture, dated as of March 22, 2012, among the Company and U.S. Bank National Association, as trustee, relating to the 5.250% senior notes due 2020 (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on December 19, 2013).

4.1(10)

 

Fourth Supplemental Indenture, dated November 25, 2014, among the Company, the guarantors named therein and U.S. Bank National Association, as trustee, to the Indenture, dated as of March 22, 2012, among the Company and U.S. Bank National Association, as trustee, relating to the 6.000% senior notes due 2023 (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on November 25, 2014).

4.1(11)

 

Fifth Supplemental Indenture, dated August 19, 2016, among MGM Resorts International, the guarantors named therein and U.S. Bank National Association, as trustee, to the Indenture, dated as of March 22, 2012, among MGM Resorts International and U.S. Bank National Association, as trustee, relating to the 4.625% senior notes due 2026 (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on August 19, 2016).

4.1(12)

 

Sixth Supplemental Indenture, dated June 18, 2018, among MGM Resorts International, the guarantors named therein and U.S. Bank National Association, as trustee, to the Indenture, dated as of March  22, 2012, among MGM Resorts International and U.S. Bank National Association, as trustee, relating to the 5.750% senior notes due 2025 (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on June 18, 2018).

4.1(13)

 

Indenture, dated as of August 12, 2016, among MGM Growth Properties Operating Partnership LP, MGP Finance Co-Issuer, Inc., the subsidiary guarantors party thereto and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 of the Current Report on Form 8-K of MGM Growth Properties LLC filed on August 12, 2016).

4.1(14)

 

Indenture, dated as of April 20, 2016, among MGP Escrow Issuer, LLC and MGP Escrow Co-Issuer, Inc. 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 April 21, 2016).

4.1(15)

 

Indenture, dated as of September 21, 2017, among MGM Growth Properties Operating Partnership LP, MGP Finance Co-Issuer, Inc., the subsidiary guarantors party thereto and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 of the Current Report on Form 8-K of MGM Growth Properties LLC and MGM Growth Properties Operating Partnership LP filed on September 21, 2017).

4.1(16)

 

Supplemental Indenture to the Indentures, dated as of June 15, 2018, among MGP OH, Inc., MGP Finance Co-Issuer, Inc. and MGM Growth Properties Operating Partnership LP (incorporated by reference to Exhibit 4.1 to the Quarterly Report on Form 10-Q of MGM Growth Properties LLC and MGM Growth Properties Operating Partnership LP filed on August 7, 2018).

4.1(17)

 

Second Supplemental Indenture to the Indentures, dated as of July 10, 2018, among Northfield Park Associates LLC, Cedar Downs OTB, LLC, MGP Finance Co-Issuer, Inc. and MGM Growth Properties Operating Partnership LP (incorporated by reference to Exhibit 4.1 to the Quarterly Report on Form 10-Q of MGM Growth Properties LLC and MGM Growth Properties Operating Partnership LP filed on November 6, 2018).

 

105


 

4.2(1)

 

Guarantee (Mandalay Resort Group 6.70% Senior Notes due 2096), dated as of April 25, 2005, by the Company certain subsidiaries of the Company, in favor of The Bank of New York, as successor in interest to First Interstate Bank of Nevada, N.A., as trustee for the benefit of the holders of the Notes pursuant to the Indenture referred to therein (incorporated by reference to Exhibit 10.21 to the September 2005 10-Q).

 

4.2(2)

 

Guarantee (Mandalay Resort Group 7.0% Senior Notes due 2036), dated as of April 25, 2005, by the Company and certain subsidiaries of the Company, in favor of The Bank of New York, as trustee for the benefit of the holders of the Notes pursuant to the Indenture referred to therein (incorporated by reference to Exhibit 10.22 to the September 2005 10-Q).

4.3

 

Amended and Restated Registration Rights Agreement, between MGM Growth Properties LLC and MGM Resorts International, dated as of October 5, 2017 (incorporated by reference to Exhibit 10.8 of the Annual Report on Form 10-K of MGM Growth Properties LLC and MGM Growth Properties Operating Partnership LP filed on March 1, 2018).

 

10.1(1)

 

Amended and Restated Credit Agreement, dated as of April 25, 2016, among MGM Resorts International, the Lenders from time to time party thereto 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 April 25, 2016).

10.1(2)

 

First Amendment, dated as of December 21, 2018, to the Amended and Restated Credit Agreement, dated as of April 25, 2016 among the Company, the Administrative Agent and the other parties lenders thereto (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed December 28, 2018).

10.1(3)

 

Credit Agreement, dated as of April 25, 2016, among MGM Growth Properties Operating Partnership LP, the financial institutions referred to as Lenders therein and Bank of America, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.17 of the Current Report on Form 8-K of MGM Growth Properties LLC filed on April 25, 2016).

10.1(4)

 

First Amendment to Credit Agreement, dated October 26, 2016, among MGM Growth Properties Operating Partnership LP, the other loan parties and lenders named therein and Bank of America, N.A., as administrative agent (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K of MGM Growth Properties LLC filed on October 26, 2016).

10.1(5)

 

Second Amendment to Credit Agreement, dated May 1, 2017, among MGM Growth Properties Operating Partnership LP, the other loan parties and lenders named therein and Bank of America, N.A., as administrative agent (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K of MGM Growth Properties LLC filed on May 1, 2017).

 

10.1(6)

 

Third Amendment to Credit Agreement, dated March 23, 2018, among MGM Growth Properties Operating Partnership LP, the other loan parties and lenders named therein and Bank of America, N.A., as administrative agent (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K of MGM Growth Properties LLC filed on March 26, 2018).

 

10.1(7)

 

Fourth Amendment to Credit Agreement, dated June 14, 2018, among MGM Growth Properties Operating Partnership LP, the other loan parties and lenders named therein and Bank of America, N.A., as administrative agent (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K of MGM Growth Properties LLC filed on June 18, 2018).

10.1(8)

 

Second Supplemental Agreement, dated June 9, 2015, between MGM China Holdings Limited and MGM Grand Paradise, S.A., certain Lenders and Arrangers named therein, Bank of America, N.A., Hong Kong Branch, as Facility Agent and Issuing Bank, and Banco Nacional Ultramarino, S.A., as Original Security Agent (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 12, 2015).

10.1(9)

 

Third Supplemental Agreement, by and among MGM China Holdings Limited, MGM Grand Paradise, S.A., the guarantors named therein, and Bank of America, N.A., as facility agent, dated February 2, 2016 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February 4, 2016).

106


 

10.1 (10)

 

Fourth Supplemental Agreement, dated February 15, 2017, among MGM China Holdings Limited, MGM Grand Paradise, S.A., the guarantors named therein and Bank of America, N.A., as facility agent (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed February 16, 2017).

10.1 (11)

 

Fifth Supplemental Agreement, dated June 15, 2018, by and among MGM China Holdings Limited, MGM Grand Paradise, S.A., and certain Lenders and Arrangers party thereto (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed June 18, 2018).

10.2(1)

 

Subconcession Contract for the Exploitation of Games Fortune and Chance or Other Games in Casino in the Special Administrative Region of Macau, dated April 19, 2005, between Sociedade de Jogos de Macau, S.A., as concessionaire, and MGM Grand Paradise S.A., as subconcessionaire (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on November 7, 2011).

10.2(2)

 

Land Concession Agreement, dated as of April 18, 2005, relating to the MGM Macau resort and casino between the Special Administrative Region of Macau and MGM Grand Paradise, S.A. (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed on August 9, 2011).

10.2(3)

 

Land Concession Agreement, effective as of January 9, 2013, relating to the MGM Macau resort and casino between the Special Administrative Region of Macau and MGM Grand Paradise S.A. (incorporated by reference to Exhibit 10.2(4) to the Company’s Annual Report on Form 10-K filed on March 1, 2013).

10.3(1)

 

Third Amended and Restated Limited Liability Company Agreement of CityCenter Holdings, LLC, dated December 22, 2015 (incorporated by reference to Exhibit 10.3(1) to the Company’s Annual Report on Form 10-K filed on February 29, 2016).

10.3(2)

 

Company Stock Purchase and Support Agreement, dated August 21, 2007, by and between the Company and Infinity World Investments, LLC (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed August 27, 2007).

10.3(3)

 

Amendment No. 1, dated October 17, 2007, to the Company Stock Purchase and Support Agreement by and between the Company and Infinity World Investments, LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 23, 2007).

10.4(1)

 

Master Lease between MGP Lessor, LLC and MGM Lessee, LLC, dated April 25, 2016 (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K of MGM Growth Properties LLC filed on April 25, 2016).

10.4(2)

 

First Amendment to Master Lease, dated as of August 1, 2016, between MGP Lessor, LLC and MGM Lessee, LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on August 1, 2016).

10.4(3)

 

Second Amendment to Master Lease, dated as of October 5, 2017, between MGP Lessor, LLC and MGM Lessee, LLC (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K of MGM Growth Properties LLC and MGM Growth Properties Operating Partnership LP filed on October 6, 2017).

*10.5(1)

 

Amended and Restated 2005 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 10, 2014).

*10.5(2)

 

Second Amended and Restated Annual Performance-Based Incentive Plan for Executive Officers (incorporated by reference to Appendix A to the Company’s Proxy Statement filed on April 20, 2016).

*10.5(3)

 

Deferred Compensation Plan II, as Amended and Restated, effective December 17, 2014 (incorporated by reference to Exhibit 10.4(6) to the Company’s Annual Report on Form 10-K filed on March 2, 2015).

*10.5(4)

 

Supplemental Executive Retirement Plan II, dated as of December 30, 2004 (incorporated by reference to Exhibit 10.1 on Form 8-K filed on January 10, 2005).

*10.5(5)

 

Amendment No. 1 to the Supplemental Executive Retirement Plan II, dated as of July 10, 2007 (incorporated by reference to Exhibit 10.3(12) to the 2007 10-K).

*10.5(6)

 

Amendment No. 2 to the Supplemental Executive Retirement Plan II, dated as of October 15, 2007 (incorporated by reference to Exhibit 10.3(14) to the 2007 10-K).

107


 

*10.5(7)

 

Amendment No. 1 to the Supplemental Executive Retirement Plan II, dated as of November 4, 2008 (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on November 7, 2008).

*10.5(8)

 

Employment Agreement, effective as of December 13, 2014, between the Company and Robert H. Baldwin (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on January 13, 2015).

*10.5(9)

 

Separation Agreement and Complete Release of Claims, between MGM Resorts International and Robert H. Baldwin, dated October 10, 2018 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 11, 2018).

 

*10.5(10)

 

Employment Agreement, dated as of October 3, 2016, by and between the Company and James J. Murren (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 5, 2016).

*10.5(11)

 

Employment Agreement, executed as of August 24, 2015, between the Company and Daniel J. D’Arrigo (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on August 28, 2015).

*10.5(12)

 

Employment Agreement, effective as of November 15, 2016, between the Company and Corey Sanders (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on December 7, 2016).

*10.5(13)

 

Employment Agreement, effective as of November 15, 2016, between the Company and William Hornbuckle (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on December 7, 2016).

*10.5(14)

 

Employment Agreement, effective as of November 15, 2016, between the Company and John McManus.

*10.5(15)

 

Amended and Restated Deferred Compensation Plan for Non-employee Directors, effective as of June 5, 2014 (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed on August 11, 2014).

*10.5(16)

 

Form of Restricted Stock Units Agreement of the Company, effective for awards granted in August 2012 through 2015 (incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q filed on August 9, 2012).

*10.5(17)

 

Form of Restricted Stock Units Agreement of the Company (Non-Employee Director), effective for awards granted in August 2012 and thereafter (incorporated by reference to Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q filed on August 9, 2012).

*10.5(18)

 

Form of Restricted Stock Units Agreement of the Company (Performance), effective for awards granted in August 2012 through 2015 (incorporated by reference to Exhibit 10.7 to the Company’s Quarterly Report on Form 10-Q filed on August 9, 2012).

*10.5(19)

 

Form of Restricted Stock Units Agreement of the Company effective for awards granted in October 2015 and thereafter (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q filed on November 6, 2015).

*10.5(20)

 

Form of Restricted Stock Units Agreement of the Company (Performance) effective for awards granted in October 2015 and thereafter (incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q filed on November 6, 2015).

*10.5(21)

 

Form of Sign-On RSU Award Agreement (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on October 5, 2016).

*10.5(22)

 

Form of Performance Share Units Agreement of the Company, effective for bonus awards granted in March 2014 through March 2015 (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on May 8, 2014).

*10.5(23)

 

Form of Performance Share Units Agreement of the Company effective for awards granted in October 2015 and thereafter (incorporated by reference to Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q filed on November 6, 2015).

*10.5(24)

 

Form of Bonus Performance Share Units Agreement of the Company, effective for bonus awards granted in March 2016 and thereafter (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q filed on May 6, 2016).

108


 

*10.5(25)

 

Change of Control Policy for Executive Officers, dated as of November 5, 2012 (incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K filed on November 8, 2012).

*10.5(26)

 

Form of Memorandum Agreement re: Changes to Severance and Change of Control Policies (incorporated by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K filed on November 8, 2012).

*10.5(27)

 

Form of Freestanding Stock Appreciation Right Agreement of the Company effective for awards granted in August 2012 and thereafter (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q filed on August 9, 2012).

*10.5(28)

 

Form of Freestanding Stock Appreciation Right Agreement of the Company effective for awards granted in October 2013 and thereafter (incorporated by reference to Exhibit 10.4(43) of the Company’s Annual Report on Form 10-K for the year ended December 31, 2013).

*10.5(29)

 

Amendment to all Stock Appreciation Right Agreements adopted by the Compensation Committee of the Board of Directors on October 7, 2013 (incorporated by reference to Exhibit 10.4(44) of the Company’s Annual Report on Form 10-K for the year ended December 31, 2013).

*10.5(30)

 

Form of Freestanding Stock Appreciation Right Agreement of the Company effective for awards granted in October 2015 and thereafter (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q filed on November 6, 2015).

*10.5(31)

 

Profit Growth Share Incentive Plan of the Company (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on November 6, 2015).

*10.5(32)

 

Form of Performance Share Units Agreement (Profit Growth Share Incentive Plan) of the Company (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed on November 6, 2015).

*10.5(33)

 

MGM Growth Properties LLC 2016 Omnibus Incentive Plan (incorporated by reference to Exhibit 99.1 of the Registration Statement on Form S-8 of MGM Growth Properties LLC (File No. 333-210832) filed on April 19, 2016).

*10.5(34)

 

MGM Growth Properties LLC Form of 2016 Restricted Share Units Agreement (MGM Non-Employee Directors) (incorporated by reference to Exhibit 10.15 of the Current Report on Form 8-K of MGM Growth Properties LLC filed on April 25, 2016).

*10.5(35)

 

MGM Growth Properties LLC Form of 2016 Restricted Share Units Agreement (MGM Employees) (incorporated by reference to Exhibit 10.16 of the Current Report on Form 8-K of MGM Growth Properties LLC filed on April 25, 2016). 

*10.5(36)

 

Retirement Policy for Senior Officers, adopted January 10, 2017 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed January 12, 2017).

*10.5(37)

 

Form of Letter to Employees re: Existing Equity Awards (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed March 10, 2017).

*10.5(38)

 

Form of Performance Share Unit Agreement (Bonus Payout) (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed March 10, 2017).

*10.5(39)

 

Form of Performance Share Unit Agreement (Annual Grant) (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed March 10, 2017).

*10.5(40)

 

Form of Restricted Stock Unit Agreement (Non-Employee Director) (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed March 10, 2017).

*10.5(41)

 

Form of Restricted Stock Unit Agreement (with Performance Hurdle) (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed March 10, 2017).

*10.5(42)

 

Form of Restricted Stock Unit Agreement (no Performance Hurdle) (incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K filed March 10, 2017).

109


 

*10.5(43)

 

Form of Restricted Stock Unit Agreement (Bonus RSUs) (incorporated by reference to Exhibit 10.5(40) to the Company’s Annual Report on Form 10 K filed on March 1, 2018).

*10.5(44)

 

Form of Restricted Stock Unit (Deferred Payment Bonus) (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on May 7, 2018).

*10.5(45)

 

Form of Relative Performance Share Unit Agreement (Annual Grant) (incorporated by reference to Exhibit 10.5(41) to the Company’s Annual Report on Form 10‑K filed on March 1, 2018).

21

 

List of subsidiaries of the Company.

23.1

 

Consent of Deloitte & Touche LLP, independent auditors to the Company.

23.2

 

Consent of Deloitte & Touche LLP, independent auditors to CityCenter Holdings, LLC.

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.

99.1

 

Description of our Operating Resorts.

99.2

 

Description of Regulation and Licensing.

99.3

 

Audited consolidated financial statements of CityCenter Holdings, LLC, as of and for the three years in the period ended December 31, 2018.

101

 

The following information from the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 formatted in eXtensible Business Reporting Language: (i) Consolidated Balance Sheets at December 31, 2018 and December 31, 2017; (ii) Consolidated Statements of Operations for the years ended December 31, 2018, 2017and 2016; (iii) Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2018, 2017 and 2016; (iv) Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017 and 2017; (v) Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2018, 2017 and 2016; (vi) Notes to the Consolidated Financial Statements and (vii) Financial Statement Schedule.

*

Management contract or compensatory plan or arrangement.

**

Exhibits 32.1 and 32.2 shall not be deemed filed with the SEC, nor shall they be deemed incorporated by reference in any filing with the SEC under the Exchange Act or the Securities Act of 1933, as amended, whether made before or after the date hereof and irrespective of any general incorporation language in any filings

 

 

ITEM 16.

FORM 10K SUMMARY

 

None.

110


 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) 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

 

By:

 

/s/ JAMES J. MURREN

 

 

James J. Murren

 

 

Chairman of the Board and Chief Executive Officer

 

 

(Principal Executive Officer)

 

Dated: February 27, 2019

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

 

Signature

 

Title

 

Date

 

/s/ James J. Murren

 

 

 

Chairman of the Board and

Chief Executive Officer

(Principal Executive Officer)

 

 

February 27, 2019

James J. Murren

 

 

 

/s/ Daniel J. D’Arrigo

 

 

 

Executive Vice President,

Chief Financial Officer and Treasurer

(Principal Financial Officer)

 

 

February 27, 2019

Daniel J. D’Arrigo

 

 

 

/s/ Robert C. Selwood

 

 

 

Executive Vice President

and Chief Accounting Officer

(Principal Accounting Officer)

 

 

February 27, 2019

Robert C. Selwood

 

 

 

/s/ William A. Bible

 

 

 

Director

 

 

 

February 27, 2019

William A. Bible

 

 

 

/s/ Mary Chris Gay

 

 

Director

 

 

 

February 27, 2019

Mary Chris Gay

 

 

 

 

/s/ William W. Grounds

 

 

Director

 

 

 

February 27, 2019

William W. Grounds

 

 

 

 

/s/ Alexis M. Herman

 

 

Director

 

 

 

February 27, 2019

Alexis M. Herman

 

 

 

 

/s/ Roland Hernandez

 

 

Director

 

 

 

February 27, 2019

Roland Hernandez

 

 

 

 

/s/ John B. Kilroy, Jr.

 

 

Director

 

 

 

February 27, 2019

John B. Kilroy, Jr.

 

 

 


111


 

 

/s/ Rose McKinney-James

 

 

Director

 

 

 

February 27, 2019

Rose McKinney-James

 

 

 

 

/s/ Keith A. Meister

 

 

 

Director

 

 

 

February 27, 2019

Keith A. Meister

 

 

 

 

 

/s/ Paul Salem

 

 

Director

 

 

 

February 27, 2019

Paul Salem

 

 

 

 

 

/s/ Gregory M. Spierkel

 

 

Director

 

 

 

February 27, 2019

Gregory M. Spierkel

 

 

 

 

 

/s/ Jan Swartz

 

 

Director

 

 

 

February 27, 2019

Jan Swartz

 

 

 

 

 

/s/ Daniel J. Taylor

 

 

Director

 

 

 

February 27, 2019

Daniel J. Taylor

 

 

 

 

 

112