Annual Statements Open main menu

MGM Resorts International - Quarter Report: 2019 September (Form 10-Q)

 

UNITED STATES

SECURITIES & EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended September 30, 2019

OR

 

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

 

 

For the transition period from            to            

Commission File No. 001-10362

 

MGM Resorts International

(Exact name of registrant as specified in its charter)

 

 

Delaware

88-0215232

(State or other jurisdiction of
incorporation or organization)

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

3600 Las Vegas Boulevard South, Las Vegas, Nevada 89109

(Address of principal executive offices)

(702) 693-7120

(Registrant’s telephone number, including area code)

 

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

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock (Par Value $0.01)

MGM

New York Stock Exchange (NYSE)

 

 

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

Indicate by check mark whether the registrant has submitted electronically 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       No  

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

 

Large accelerated filer

Accelerated filer

 

Non-accelerated filer

  

Smaller reporting company

 

Emerging growth company

  

 

 

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

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

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

 

 Class 

 

 Outstanding at October 31, 2019 

Common Stock, $0.01 par value

 

514,984,359 shares

 

 

 


MGM RESORTS INTERNATIONAL AND SUBSIDIARIES

 

FORM 10-Q

 

I N D E X

 

 

 

 

 

 

Page

PART I.

FINANCIAL INFORMATION

1

 

 

 

Item 1.

Financial Statements (Unaudited)

1

 

 

Consolidated Balance Sheets at September 30, 2019 and December 31, 2018

1

 

 

Consolidated Statements of Operations for the Three Months and Nine Months Ended September 30, 2019 and September 30, 2018

2

 

 

Consolidated Statements of Comprehensive Income for the Three Months and Nine Months Ended September 30, 2019 and September 30, 2018

3

 

 

Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2019 and September 30, 2018

4

 

 

Consolidated Statements of Stockholders’ Equity for each quarterly period in the Nine Months Ended September 30, 2019 and September 30, 2018

5

 

 

Condensed Notes to Consolidated Financial Statements

7

Item 2.

 

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

31

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

46

Item 4.

 

Controls and Procedures

46

 

PART II.

OTHER INFORMATION

47

Item 1.

 

Legal Proceedings

47

Item 1A.

 

Risk Factors

47

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

49

Item 6.

 

Exhibits

50

 

SIGNATURES

51

 

 

 


 

Part I. FINANCIAL INFORMATION

 

Item 1.

Financial Statements

MGM RESORTS INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)

 

 

September 30,

 

 

December 31,

 

 

2019

 

 

2018

 

ASSETS

 

Current assets

 

 

 

 

 

 

 

Cash and cash equivalents

$

1,233,569

 

 

$

1,526,762

 

Accounts receivable, net

 

550,345

 

 

 

657,206

 

Inventories

 

104,206

 

 

 

110,831

 

Income tax receivable

 

23,877

 

 

 

28,431

 

October 1 litigation insurance receivable

 

735,000

 

 

 

 

Prepaid expenses and other

 

233,749

 

 

 

203,548

 

Total current assets

 

2,880,746

 

 

 

2,526,778

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

20,603,978

 

 

 

20,729,888

 

 

 

 

 

 

 

 

 

Other assets

 

 

 

 

 

 

 

Investments in and advances to unconsolidated affiliates

 

758,992

 

 

 

732,867

 

Goodwill

 

2,076,431

 

 

 

1,821,392

 

Other intangible assets, net

 

3,866,536

 

 

 

3,944,463

 

Operating lease right-of-use assets, net

 

650,990

 

 

 

 

Other long-term assets, net

 

331,198

 

 

 

455,318

 

Total other assets

 

7,684,147

 

 

 

6,954,040

 

 

$

31,168,871

 

 

$

30,210,706

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

Current liabilities

 

 

 

 

 

 

 

Accounts payable

$

253,637

 

 

$

302,578

 

Construction payable

 

144,504

 

 

 

311,793

 

Current portion of long-term debt

 

 

 

 

43,411

 

Accrued interest on long-term debt

 

159,760

 

 

 

140,046

 

October 1 litigation liability

 

735,000

 

 

 

 

Other accrued liabilities

 

2,000,343

 

 

 

2,151,054

 

Total current liabilities

 

3,293,244

 

 

 

2,948,882

 

 

 

 

 

 

 

 

 

Deferred income taxes, net

 

1,536,426

 

 

 

1,342,538

 

Long-term debt, net

 

14,943,874

 

 

 

15,088,005

 

Operating lease liabilities

 

518,365

 

 

 

 

Other long-term obligations

 

250,368

 

 

 

259,240

 

Commitments and contingencies (Note 8)

 

 

 

 

 

 

 

Redeemable noncontrolling interests

 

105,976

 

 

 

102,250

 

Stockholders' equity

 

 

 

 

 

 

 

Common stock, $.01 par value: authorized 1,000,000,000 shares, issued and outstanding 513,913,791 and 527,479,528 shares

 

5,139

 

 

 

5,275

 

Capital in excess of par value

 

3,846,369

 

 

 

4,092,085

 

Retained earnings

 

2,255,885

 

 

 

2,423,479

 

Accumulated other comprehensive loss

 

(46,841

)

 

 

(8,556

)

Total MGM Resorts International stockholders' equity

 

6,060,552

 

 

 

6,512,283

 

Noncontrolling interests

 

4,460,066

 

 

 

3,957,508

 

Total stockholders' equity

 

10,520,618

 

 

 

10,469,791

 

 

$

31,168,871

 

 

$

30,210,706

 

 

 

 

 

 

 

 

 

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

 

 

 

1


 

MGM RESORTS INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Casino

 

$

1,663,049

 

 

$

1,465,380

 

 

$

4,887,707

 

 

$

4,191,910

 

Rooms

 

 

595,636

 

 

 

566,319

 

 

 

1,756,354

 

 

 

1,669,670

 

Food and beverage

 

 

560,200

 

 

 

520,773

 

 

 

1,624,973

 

 

 

1,470,992

 

Entertainment, retail and other

 

 

387,596

 

 

 

370,150

 

 

 

1,114,708

 

 

 

1,063,142

 

Reimbursed costs

 

 

107,901

 

 

 

106,680

 

 

 

330,794

 

 

 

314,520

 

 

 

 

3,314,382

 

 

 

3,029,302

 

 

 

9,714,536

 

 

 

8,710,234

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Casino

 

 

915,207

 

 

 

819,334

 

 

 

2,706,356

 

 

 

2,323,514

 

Rooms

 

 

211,292

 

 

 

206,406

 

 

 

623,929

 

 

 

598,432

 

Food and beverage

 

 

427,400

 

 

 

391,091

 

 

 

1,254,303

 

 

 

1,121,465

 

Entertainment, retail and other

 

 

274,850

 

 

 

263,915

 

 

 

788,463

 

 

 

734,119

 

Reimbursed costs

 

 

107,901

 

 

 

106,680

 

 

 

330,794

 

 

 

314,520

 

General and administrative

 

 

494,228

 

 

 

463,417

 

 

 

1,543,764

 

 

 

1,319,760

 

Corporate expense

 

 

108,545

 

 

 

98,089

 

 

 

346,042

 

 

 

301,036

 

Preopening and start-up expenses

 

 

925

 

 

 

46,890

 

 

 

5,091

 

 

 

132,884

 

Property transactions, net

 

 

249,858

 

 

 

(42,400

)

 

 

264,424

 

 

 

(19,532

)

Depreciation and amortization

 

 

322,009

 

 

 

300,472

 

 

 

973,211

 

 

 

865,502

 

 

 

 

3,112,215

 

 

 

2,653,894

 

 

 

8,836,377

 

 

 

7,691,700

 

Income from unconsolidated affiliates

 

 

36,214

 

 

 

35,495

 

 

 

101,967

 

 

 

115,201

 

Operating income

 

 

238,381

 

 

 

410,903

 

 

 

980,126

 

 

 

1,133,735

 

Non-operating income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net of amounts capitalized

 

 

(215,503

)

 

 

(205,573

)

 

 

(647,452

)

 

 

(554,975

)

Non-operating items from unconsolidated affiliates

 

 

(14,669

)

 

 

(11,583

)

 

 

(54,311

)

 

 

(31,661

)

Other, net

 

 

(9,381

)

 

 

(3,291

)

 

 

(53,964

)

 

 

(11,588

)

 

 

 

(239,553

)

 

 

(220,447

)

 

 

(755,727

)

 

 

(598,224

)

Income (loss) before income taxes

 

 

(1,172

)

 

 

190,456

 

 

 

224,399

 

 

 

535,511

 

Benefit (provision) for income taxes

 

 

7,276

 

 

 

(19,046

)

 

 

(75,969

)

 

 

42,623

 

Net income

 

 

6,104

 

 

 

171,410

 

 

 

148,430

 

 

 

578,134

 

Less: Net income attributable to noncontrolling interests

 

 

(43,237

)

 

 

(28,532

)

 

 

(110,861

)

 

 

(88,035

)

Net income (loss) attributable to MGM Resorts International

 

$

(37,133

)

 

$

142,878

 

 

$

37,569

 

 

$

490,099

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.08

)

 

$

0.26

 

 

$

0.06

 

 

$

0.87

 

Diluted

 

$

(0.08

)

 

$

0.26

 

 

$

0.06

 

 

$

0.86

 

Weighted average common shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

518,983

 

 

 

535,130

 

 

 

528,429

 

 

 

549,418

 

Diluted

 

 

518,983

 

 

 

540,396

 

 

 

531,873

 

 

 

555,521

 

 

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

 

 

2


 

MGM RESORTS INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net income

 

$

6,104

 

 

$

171,410

 

 

$

148,430

 

 

$

578,134

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

(18,602

)

 

 

12,210

 

 

 

(4,627

)

 

 

(10,542

)

Unrealized gain (loss) on cash flow hedges

 

 

(16,504

)

 

 

4,028

 

 

 

(56,125

)

 

 

23,219

 

Other comprehensive income (loss)

 

 

(35,106

)

 

 

16,238

 

 

 

(60,752

)

 

 

12,677

 

Comprehensive income (loss)

 

 

(29,002

)

 

 

187,648

 

 

 

87,678

 

 

 

590,811

 

Less: Comprehensive income attributable to noncontrolling interests

 

 

(28,911

)

 

 

(35,299

)

 

 

(88,298

)

 

 

(90,868

)

Comprehensive income (loss) attributable to MGM Resorts International

 

$

(57,913

)

 

$

152,349

 

 

$

(620

)

 

$

499,943

 

 

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

 

 

3


 

MGM RESORTS INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

Nine Months Ended

 

 

September 30,

 

 

2019

 

 

2018

 

Cash flows from operating activities

 

 

 

 

 

 

 

Net income

$

148,430

 

 

$

578,134

 

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

 

 

 

 

 

 

 

Depreciation and amortization

 

973,211

 

 

 

865,502

 

Amortization of debt discounts, premiums and issuance costs

 

29,539

 

 

 

30,713

 

Loss on retirement of long-term debt

 

55,932

 

 

 

2,193

 

Provision for doubtful accounts

 

30,456

 

 

 

32,651

 

Stock-based compensation

 

64,518

 

 

 

51,010

 

Property transactions, net

 

264,424

 

 

 

(19,532

)

Income from unconsolidated affiliates

 

(47,656

)

 

 

(80,219

)

Distributions from unconsolidated affiliates

 

 

 

 

11,563

 

Deferred income taxes

 

52,785

 

 

 

(58,762

)

Change in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

(655,786

)

 

 

(31,791

)

Inventories

 

7,734

 

 

 

(1,457

)

Income taxes receivable and payable, net

 

4,555

 

 

 

22,997

 

Prepaid expenses and other

 

(23,105

)

 

 

(41,532

)

Accounts payable and accrued liabilities

 

479,272

 

 

 

50,550

 

Other

 

(28,201

)

 

 

(16,554

)

Net cash provided by operating activities

 

1,356,108

 

 

 

1,395,466

 

Cash flows from investing activities

 

 

 

 

 

 

 

Capital expenditures, net of construction payable

 

(482,786

)

 

 

(1,223,924

)

Dispositions of property and equipment

 

1,936

 

 

 

575

 

Proceeds from sale of business units and investment in unconsolidated affiliate

 

 

 

 

163,616

 

Acquisition of Northfield, net of cash acquired

 

 

 

 

(1,034,534

)

Acquisition of Empire City Casino, net of cash acquired

 

(535,681

)

 

 

 

Investments in unconsolidated affiliates

 

(81,271

)

 

 

(2,503

)

Distributions from unconsolidated affiliates

 

99,661

 

 

 

320,287

 

Other

 

(31,112

)

 

 

(22,209

)

Net cash used in investing activities

 

(1,029,253

)

 

 

(1,798,692

)

Cash flows from financing activities

 

 

 

 

 

 

 

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

 

(1,711,007

)

 

 

778,101

 

Issuance of long-term debt

 

3,250,000

 

 

 

1,000,000

 

Retirement of senior notes and senior debentures

 

(1,759,978

)

 

 

(2,265

)

Debt issuance costs

 

(63,391

)

 

 

(64,808

)

Issuance of MGM Growth Properties Class A shares, net

 

699,362

 

 

 

 

Dividends paid to common shareholders

 

(205,163

)

 

 

(197,295

)

Distributions to noncontrolling interest owners

 

(172,239

)

 

 

(149,526

)

Purchases of common stock

 

(638,815

)

 

 

(1,133,334

)

Other

 

(18,655

)

 

 

(23,476

)

Net cash provided by (used in) financing activities

 

(619,886

)

 

 

207,397

 

Effect of exchange rate on cash

 

(162

)

 

 

(1,489

)

Cash and cash equivalents

 

 

 

 

 

 

 

Net decrease for the period

 

(293,193

)

 

 

(197,318

)

Balance, beginning of period

 

1,526,762

 

 

 

1,499,995

 

Balance, end of period

$

1,233,569

 

 

$

1,302,677

 

Supplemental cash flow disclosures

 

 

 

 

 

 

 

Interest paid, net of amounts capitalized

$

597,785

 

 

$

516,868

 

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

 

18,222

 

 

 

(8,220

)

 

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

 

 

4


 

 

MGM RESORTS INTERNATIONAL AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

 

(In thousands)

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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, 2019

 

 

527,480

 

 

$

5,275

 

 

$

4,092,085

 

 

$

2,423,479

 

 

$

(8,556

)

 

$

6,512,283

 

 

$

3,957,508

 

 

$

10,469,791

 

Net income

 

 

 

 

 

 

 

 

 

 

 

31,297

 

 

 

 

 

 

31,297

 

 

 

32,635

 

 

 

63,932

 

Currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,906

)

 

 

(6,906

)

 

 

(5,499

)

 

 

(12,405

)

Other comprehensive income - cash flow

   hedges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,606

)

 

 

(8,606

)

 

 

(4,717

)

 

 

(13,323

)

Stock-based compensation

 

 

 

 

 

 

 

 

30,950

 

 

 

 

 

 

 

 

 

30,950

 

 

 

1,186

 

 

 

32,136

 

Issuance of common stock pursuant to

   stock-based compensation awards

 

 

305

 

 

 

3

 

 

 

(4,278

)

 

 

 

 

 

 

 

 

(4,275

)

 

 

 

 

 

(4,275

)

Cash distributions to noncontrolling

   interest owners

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,133

)

 

 

(5,133

)

Dividends paid to common shareholders ($0.13 per share)

 

 

 

 

 

 

 

 

 

 

 

(69,799

)

 

 

 

 

 

(69,799

)

 

 

 

 

 

(69,799

)

MGP dividend payable to Class A

   shareholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(42,064

)

 

 

(42,064

)

Issuance of performance share units

 

 

 

 

 

 

 

 

1,546

 

 

 

 

 

 

 

 

 

1,546

 

 

 

 

 

 

1,546

 

Adjustment of redeemable non-controlling

   interest to redemption value

 

 

 

 

 

 

 

 

(3,825

)

 

 

 

 

 

 

 

 

(3,825

)

 

 

 

 

 

(3,825

)

Empire City Acquisition

 

 

9,371

 

 

 

94

 

 

 

265,671

 

 

 

 

 

 

 

 

 

265,765

 

 

 

 

 

 

265,765

 

Empire City MGP transaction

 

 

 

 

 

 

 

 

(18,913

)

 

 

 

 

 

195

 

 

 

(18,718

)

 

 

23,745

 

 

 

5,027

 

MGP Class A share issuance

 

 

 

 

 

 

 

 

57,196

 

 

 

 

 

 

(774

)

 

 

56,422

 

 

 

472,421

 

 

 

528,843

 

Park MGM Transaction

 

 

 

 

 

 

 

 

(1,984

)

 

 

 

 

 

16

 

 

 

(1,968

)

 

 

2,496

 

 

 

528

 

Other

 

 

 

 

 

 

 

 

2,015

 

 

 

 

 

 

23

 

 

 

2,038

 

 

 

(917

)

 

 

1,121

 

Balances, March 31, 2019

 

 

537,156

 

 

 

5,372

 

 

 

4,420,463

 

 

 

2,384,977

 

 

 

(24,608

)

 

 

6,786,204

 

 

 

4,431,661

 

 

 

11,217,865

 

Net income

 

 

 

 

 

 

 

 

 

 

 

43,405

 

 

 

 

 

 

43,405

 

 

 

30,476

 

 

 

73,881

 

Currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

14,754

 

 

 

14,754

 

 

 

11,626

 

 

 

26,380

 

Other comprehensive income - cash flow

   hedges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(16,651

)

 

 

(16,651

)

 

 

(9,647

)

 

 

(26,298

)

Stock-based compensation

 

 

 

 

 

 

 

 

15,991

 

 

 

 

 

 

 

 

 

15,991

 

 

 

1,073

 

 

 

17,064

 

Issuance of common stock pursuant to

   stock-based compensation awards

 

 

182

 

 

 

1

 

 

 

(1,141

)

 

 

 

 

 

 

 

 

(1,140

)

 

 

 

 

 

(1,140

)

Cash distributions to noncontrolling

   interest owners

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(13,716

)

 

 

(13,716

)

Dividends paid to common shareholders ($0.13 per share)

 

 

 

 

 

 

 

 

 

 

 

(68,416

)

 

 

 

 

 

(68,416

)

 

 

 

 

 

(68,416

)

MGP dividend payable to Class A

   shareholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(43,310

)

 

 

(43,310

)

Repurchases of common stock

 

 

(11,005

)

 

 

(110

)

 

 

(281,723

)

 

 

 

 

 

 

 

 

(281,833

)

 

 

 

 

 

(281,833

)

Adjustment of redeemable non-controlling

   interest to redemption value

 

 

 

 

 

 

 

 

992

 

 

 

 

 

 

 

 

 

992

 

 

 

 

 

 

992

 

Northfield OpCo transaction

 

 

 

 

 

 

 

 

21,681

 

 

 

 

 

 

(2

)

 

 

21,679

 

 

 

(27,439

)

 

 

(5,760

)

MGP Class A share issuances

 

 

 

 

 

 

 

 

9,905

 

 

 

 

 

 

105

 

 

 

10,010

 

 

 

52,189

 

 

 

62,199

 

Other

 

 

 

 

 

 

 

 

(4,583

)

 

 

 

 

 

72

 

 

 

(4,511

)

 

 

1,324

 

 

 

(3,187

)

Balances, June 30, 2019

 

 

526,333

 

 

 

5,263

 

 

 

4,181,585

 

 

 

2,359,966

 

 

 

(26,330

)

 

 

6,520,484

 

 

 

4,434,237

 

 

 

10,954,721

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

(37,133

)

 

 

 

 

 

(37,133

)

 

 

40,920

 

 

 

3,787

 

Currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(10,509

)

 

 

(10,509

)

 

 

(8,093

)

 

 

(18,602

)

Other comprehensive income - cash flow

   hedges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(10,271

)

 

 

(10,271

)

 

 

(6,233

)

 

 

(16,504

)

Stock-based compensation

 

 

 

 

 

 

 

 

13,891

 

 

 

 

 

 

 

 

 

13,891

 

 

 

1,429

 

 

 

15,320

 

Issuance of common stock pursuant to

   stock-based compensation awards

 

 

180

 

 

 

2

 

 

 

(1,982

)

 

 

 

 

 

 

 

 

(1,980

)

 

 

 

 

 

(1,980

)

Cash distributions to noncontrolling

   interest owners

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(26,529

)

 

 

(26,529

)

Dividends paid to common shareholders ($0.13 per share)

 

 

 

 

 

 

 

 

 

 

 

(66,948

)

 

 

 

 

 

(66,948

)

 

 

 

 

 

(66,948

)

MGP dividend payable to Class A

   shareholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(44,870

)

 

 

(44,870

)

Repurchase of common stock

 

 

(12,599

)

 

 

(126

)

 

 

(356,856

)

 

 

 

 

 

 

 

 

(356,982

)

 

 

 

 

 

(356,982

)

Adjustment of redeemable non-controlling

   interest to redemption value

 

 

 

 

 

 

 

 

(3,074

)

 

 

 

 

 

 

 

 

(3,074

)

 

 

 

 

 

(3,074

)

MGP Class A share issuances

 

 

 

 

 

 

 

 

12,399

 

 

 

 

 

 

200

 

 

 

12,599

 

 

 

70,138

 

 

 

82,737

 

Other

 

 

 

 

 

 

 

 

406

 

 

 

 

 

 

69

 

 

 

475

 

 

 

(933

)

 

 

(458

)

Balances, September 30, 2019

 

 

513,914

 

 

$

5,139

 

 

$

3,846,369

 

 

$

2,255,885

 

 

$

(46,841

)

 

$

6,060,552

 

 

$

4,460,066

 

 

$

10,520,618

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

5


 

 

MGM RESORTS INTERNATIONAL AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

 

(In thousands)

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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, 2018

 

 

566,276

 

 

$

5,663

 

 

$

5,357,709

 

 

$

2,217,299

 

 

$

(3,610

)

 

$

7,577,061

 

 

$

4,034,063

 

 

$

11,611,124

 

Net income

 

 

 

 

 

 

 

 

 

 

 

223,444

 

 

 

 

 

 

223,444

 

 

 

40,740

 

 

 

264,184

 

Currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(13,368

)

 

 

(13,368

)

 

 

(10,784

)

 

 

(24,152

)

Other comprehensive loss - cash flow

   hedges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9,498

 

 

 

9,498

 

 

 

4,358

 

 

 

13,856

 

Stock-based compensation

 

 

 

 

 

 

 

 

14,742

 

 

 

 

 

 

 

 

 

14,742

 

 

 

1,375

 

 

 

16,117

 

Issuance of common stock pursuant to

   stock-based compensation awards

 

 

493

 

 

 

5

 

 

 

(8,300

)

 

 

 

 

 

 

 

 

(8,295

)

 

 

 

 

 

(8,295

)

Cash distributions to noncontrolling

   interest owners

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9,791

)

 

 

(9,791

)

Dividends paid to common shareholders ($0.12 per share)

 

 

 

 

 

 

 

 

 

 

 

(67,999

)

 

 

 

 

 

(67,999

)

 

 

 

 

 

(67,999

)

MGP dividend payable to Class A

   shareholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(29,777

)

 

 

(29,777

)

Issuance of performance share units

 

 

 

 

 

 

 

 

3,609

 

 

 

 

 

 

 

 

 

3,609

 

 

 

107

 

 

 

3,716

 

Repurchase of common stock

 

 

(10,000

)

 

 

(100

)

 

 

(362,300

)

 

 

 

 

 

 

 

 

(362,400

)

 

 

 

 

 

(362,400

)

Adjustment of redeemable non-controlling

   interest to redemption value

 

 

 

 

 

 

 

 

(4,598

)

 

 

 

 

 

 

 

 

(4,598

)

 

 

 

 

 

(4,598

)

Other

 

 

 

 

 

 

 

 

(904

)

 

 

 

 

 

 

 

 

(904

)

 

 

(710

)

 

 

(1,614

)

Balances, March 31, 2018

 

 

556,769

 

 

 

5,568

 

 

 

4,999,958

 

 

 

2,372,744

 

 

 

(7,480

)

 

 

7,370,790

 

 

 

4,029,581

 

 

 

11,400,371

 

Net income

 

 

 

 

 

 

 

 

 

 

 

123,777

 

 

 

 

 

 

123,777

 

 

 

14,344

 

 

 

138,121

 

Currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

583

 

 

 

583

 

 

 

817

 

 

 

1,400

 

Other comprehensive loss - cash flow

   hedges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,660

 

 

 

3,660

 

 

 

1,675

 

 

 

5,335

 

Stock-based compensation

 

 

 

 

 

 

 

 

16,430

 

 

 

 

 

 

 

 

 

16,430

 

 

 

1,377

 

 

 

17,807

 

Issuance of common stock pursuant to

   stock-based compensation awards

 

 

102

 

 

 

1

 

 

 

(1,096

)

 

 

 

 

 

 

 

 

(1,095

)

 

 

 

 

 

(1,095

)

Cash distributions to noncontrolling

   interest owners

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(24,287

)

 

 

(24,287

)

Dividends paid to common shareholders ($0.12 per share)

 

 

 

 

 

 

 

 

 

 

 

(65,335

)

 

 

 

 

 

(65,335

)

 

 

 

 

 

(65,335

)

MGP dividend payable to Class A

   shareholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(30,492

)

 

 

(30,492

)

Repurchase of common stock

 

 

(19,004

)

 

 

(190

)

 

 

(594,674

)

 

 

 

 

 

 

 

 

(594,864

)

 

 

 

 

 

(594,864

)

Adjustment of redeemable non-controlling

   interest to redemption value

 

 

 

 

 

 

 

 

(5,986

)

 

 

 

 

 

 

 

 

(5,986

)

 

 

 

 

 

(5,986

)

Other

 

 

 

 

 

 

 

 

(818

)

 

 

 

 

 

 

 

 

(818

)

 

 

(216

)

 

 

(1,034

)

Balances, June 30, 2018

 

 

537,867

 

 

 

5,379

 

 

 

4,413,814

 

 

 

2,431,186

 

 

 

(3,237

)

 

 

6,847,142

 

 

 

3,992,799

 

 

 

10,839,941

 

Net income

 

 

 

 

 

 

 

 

 

 

 

142,878

 

 

 

 

 

 

142,878

 

 

 

26,316

 

 

 

169,194

 

Currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,706

 

 

 

6,706

 

 

 

5,504

 

 

 

12,210

 

Other comprehensive loss - cash flow

   hedges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,765

 

 

 

2,765

 

 

 

1,263

 

 

 

4,028

 

Stock-based compensation

 

 

 

 

 

 

 

 

15,916

 

 

 

 

 

 

 

 

 

15,916

 

 

 

1,190

 

 

 

17,106

 

Issuance of common stock pursuant to

   stock-based compensation awards

 

 

173

 

 

 

1

 

 

 

(2,203

)

 

 

 

 

 

 

 

 

(2,202

)

 

 

 

 

 

(2,202

)

Cash distributions to noncontrolling

   interest owners

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(17,618

)

 

 

(17,618

)

Dividends paid to common shareholders ($0.12 per share)

 

 

 

 

 

 

 

 

 

 

 

(63,961

)

 

 

 

 

 

(63,961

)

 

 

 

 

 

(63,961

)

MGP dividend payable to Class A

   shareholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(31,024

)

 

 

(31,024

)

Repurchase of common stock

 

 

(6,103

)

 

 

(61

)

 

 

(176,009

)

 

 

 

 

 

 

 

 

(176,070

)

 

 

 

 

 

(176,070

)

Adjustment of redeemable non-controlling

   interest to redemption value

 

 

 

 

 

 

 

 

(4,155

)

 

 

 

 

 

 

 

 

(4,155

)

 

 

 

 

 

(4,155

)

Other

 

 

 

 

 

 

 

 

4,339

 

 

 

 

 

 

 

 

 

4,339

 

 

 

(5,609

)

 

 

(1,270

)

Balances, September 30, 2018

 

 

531,937

 

 

$

5,319

 

 

$

4,251,702

 

 

$

2,510,103

 

 

$

6,234

 

 

$

6,773,358

 

 

$

3,972,821

 

 

$

10,746,179

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 


6


 

MGM RESORTS INTERNATIONAL AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)  

 

 

NOTE 1 — ORGANIZATION

 

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

 

The Company owns and operates the following integrated casino, hotel and entertainment resorts in Las Vegas, Nevada: Bellagio, MGM Grand Las Vegas, The Mirage, Mandalay Bay, Luxor, New York-New York, Park MGM, 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. 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. The Company also owns and operates Borgata located on Renaissance Pointe in the Marina area of Atlantic City, New Jersey, Empire City in Yonkers, New York, MGM Northfield Park in Northfield Park, Ohio, 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) 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 10. As of September 30, 2019, the Company owned 67.7% of the Operating Partnership units, and MGP held the remaining 32.3% 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, Empire City, MGM National Harbor, and MGM Northfield Park from the landlord.

 

In January 2019, the Company acquired the real property and operations associated with the Empire City Casino's race track and casino (“Empire City”). Subsequently, MGP acquired the developed real property associated with Empire City from the Company and Empire City was added to the existing master lease between the Company and MGP. Refer to Note 3 for additional information.

 

In March 2019, the Company entered into an amendment to the existing master lease with respect to investments made by the Company related to improvements at Park MGM and NoMad Las Vegas. Additionally, in April 2019, the Company acquired the membership interests of Northfield Park Associates, LLC (“Northfield”), the entity that owned the operating assets associated with Hard Rock Rocksino Northfield Park (rebranded to MGM Northfield Park upon the Company’s acquisition), from MGP, and MGP retained the associated real estate assets. MGM Northfield Park was then added to the existing master lease between the Company and MGP. Refer to Note 12 for additional information on these transactions.

 

On October 14, 2019, the Company entered into an agreement for the sale of Circus Circus Las Vegas and adjacent land. See Note 2 for additional information related to this transaction.

 

7


 

On October 15, 2019, the Company entered into an agreement to form a joint venture with a subsidiary of Blackstone Real Estate Income Trust (“BREIT”). The joint venture will acquire the Bellagio real estate assets from the Company and lease it back to a subsidiary of the Company pursuant to a lease agreement. The lease will provide for initial annual rent of $245 million with a fixed 2% escalator for the first ten years and, thereafter, an escalator equal to the greater of 2% and the CPI increase during the prior year, subject to a cap of 3% during the 11th through 20th years and 4% thereafter. As consideration for the real estate assets, the Company will receive a 5% equity interest in the joint venture and cash of approximately $4.2 billion. The Company will provide a guarantee of the debt of the joint venture pursuant to which the Company will be responsible for any shortfall between the value of the collateral and the debt obligation. The transaction is expected to close in the fourth quarter of 2019, subject to certain closing conditions. The Bellagio real estate assets were classified as held and used in the consolidated balance sheets at September 30, 2019 as the held for sale criteria were not met as of the balance sheet date.

 

The Company has an approximate 56% controlling interest in MGM China Holdings Limited (together with its subsidiaries, “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, as well as the related gaming subconcession and land concessions. In March 2019, MGM Grand Paradise and its concessionaire, Sociedade de Jogos de Macau, S.A (“SJMSA”) entered into a Sub-Concession Extension Contract (the “Extension Agreement”), pursuant to which the gaming sub-concession of MGM Grand Paradise, which was due to expire on March 31, 2020, has been extended to June 26, 2022, which coincides with the current expiration date of all the other concessionaires and sub-concessionaires. In connection with the extension, MGM Grand Paradise paid the government of Macau approximately $25 million upon signing of the Extension Agreement as contract premium for such extension. In addition, in March 2019, MGM Grand Paradise also executed the MGM SJM Agreement with SJMSA, pursuant to which MGM Grand Paradise paid SJMSA an amount of approximately $2 million in connection with the extension of the sub-concession.  

 

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. See Note 4 for additional information related to CityCenter.

 

The Company has three reportable segments: Las Vegas Strip Resorts, Regional Operations and MGM China. See Note 11 for additional information about the Company’s segments.

 

NOTE 2 — BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

 

Basis of presentation. As permitted by the rules and regulations of the Securities and Exchange Commission (“SEC”), certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) have been condensed or omitted. These consolidated financial statements should be read in conjunction with the Company’s 2018 annual consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

 

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

 

Principles of consolidation. Management has determined that MGP is a variable interest entity (“VIE”) because the Class A equity investors as a group lack the power through voting or similar rights to direct the activities of such entity that most significantly impact such entity’s economic performance. The Company has determined that it is the primary beneficiary of MGP and consolidates MGP because (i) its ownership of MGP’s single Class B share entitles it to a majority of the total voting power of MGP’s shares, and (ii) the exchangeable nature of the Operating Partnership units owned provide the Company the right to receive benefits from MGP that could potentially be significant to MGP. The Company has recorded MGP’s ownership interest in the Operating Partnership of 32.3% as of September 30, 2019 as noncontrolling interest in the Company’s consolidated financial statements. As of September 30, 2019 and December 31, 2018, on a consolidated basis, MGP had total assets of $11.9 billion and $11.0 billion, respectively, primarily related to its real estate investments, and total liabilities of $5.5 billion and $5.1 billion, respectively, primarily related to its indebtedness.

 

Reclassifications. Certain reclassifications have been made to conform the prior period presentation.

 

Circus Circus Las Vegas and adjacent land. As discussed in Note 1, the Company entered into an agreement to sell Circus Circus Las Vegas and the adjacent land for $825 million. The $825 million purchase price will consist of $662.5 million paid in cash and a secured note due 2024 with a face value of $162.5 million and fair value of $135.8 million. The transaction is expected to close in the fourth quarter of 2019 subject to customary closing conditions, including receipt of necessary regulatory approvals.

8


 

 

At September 30, 2019, the Company reviewed the carrying value of its Circus Circus Las Vegas and adjacent land long-lived asset groups for impairment as an offer for sale was received during the third quarter of 2019 and due to management’s expectation that it was more likely than not that the assets will be divested in the sale. As a result, the Company recorded a non-cash impairment charge of $219 million, which is classified within “Property transactions, net” in the consolidated statements of operations, and reflects the amount by which the assets’ carrying value exceeds the assets’ fair value (expected selling price). Circus Circus Las Vegas and the adjacent land were classified as held and used in the consolidated balance sheets at September 30, 2019 as the held for sale criteria, while met subsequent to the balance sheet date and before the financial statements were issued, were not met as of the balance sheet date.

 

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

 

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 standalone selling price of such incentive (less estimated breakage). This allocation is deferred and recognized as revenue when the customer redeems the incentive. When redeemed, revenue is recognized in the department that provides the goods or service. Redemption of loyalty incentives at third party outlets are deducted from the loyalty liability and amounts owed are paid to the third party, with any discount received recorded as other revenue. During the three and nine months ended September 30, 2019, commissions and incentives provided to gaming customers were $687 million and $1.9 billion, respectively. During the three and nine months ended September 30, 2018, commissions and incentives provided to gaming customers were $594 million and $1.7 billion, 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.

 

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

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

(in thousands)

 

Balance at January 1

$

323,811

 

 

$

597,753

 

 

$

113,293

 

 

$

91,119

 

 

$

667,285

 

 

$

539,626

 

Balance at September 30

 

328,061

 

 

 

550,041

 

 

 

125,518

 

 

 

105,421

 

 

 

444,573

 

 

 

563,244

 

Increase / (decrease)

$

4,250

 

 

$

(47,712

)

 

$

12,225

 

 

$

14,302

 

 

$

(222,712

)

 

$

23,618

 

 

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 11.

 

Leases. The Company determines if an arrangement is or contains a lease at inception or modification of the arrangement. An arrangement is or contains a lease if there are identified assets and the right to control the use of an identified asset is conveyed for a period in exchange for consideration. Control over the use of the identified asset means the lessee has both the right to obtain substantially all of the economic benefits from the use of the asset and the right to direct the use of the asset.

 

For leases with terms greater than twelve months, the operating lease right-of-use (“ROU”) assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. The initial measurement of the operating lease ROU assets also include any prepaid lease payments and are reduced by any previously accrued deferred rent. When available, the Company uses the rate implicit in the lease to discount lease payments to present value; however, most of the Company’s leases do not provide a readily determinable implicit rate. Therefore, the Company uses its incremental borrowing rate to discount the lease payments based on the information available at commencement date. Many of the Company’s leases include fixed rental escalation clauses that are factored into the determination of lease payments. Lease terms include options to extend or terminate the lease when it is reasonably certain that such option will be exercised. Lease expense for minimum lease payments is recognized on a straight-line basis over the expected lease term.

9


 

 

The Company is a lessor under certain of its lease arrangements. Lease revenues earned by the Company from third-party tenants are classified within the line item corresponding to the type or nature of the tenant’s good or service. During the three and nine months ended September 30, 2019, lease revenues from third-party tenants include $14 million and $39 million recorded within food and beverage revenue, respectively, and $22 million and $67 million recorded within entertainment, retail, and other revenue for the same such periods, respectively. During the three and nine months ended September 30, 2018, lease revenues from third-party tenants include $14 million and $39 million recorded within food and beverage revenue, respectively, and $22 million and $65 million recorded within entertainment, retail, and other revenue for the same such periods, respectively. Lease revenues from the rental of hotel rooms are recorded as rooms revenues within the consolidated statements of operations.

 

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 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 adopted ASC 842 on January 1, 2019 utilizing the simplified transition method and accordingly did not recast comparative period financial information. The Company elected 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. As a result of adoption, the Company recognized $656 million of operating ROU assets and $580 million of operating lease liabilities as of January 1, 2019.

 

Prior to the adoption of ASC 842 on January 1, 2019, the master lease between subsidiaries of MGM and MGP was accounted for as a failed sale of the real estate assets due to the subsidiaries’ investments in the Operating Partnership, which constituted continuing involvement. As such, the real estate assets were reflected in the balance sheets of the applicable MGM subsidiaries as well as the associated finance lease liability. In connection with the adoption of ASC 842, the sale and leaseback of the real estate assets under the master lease now qualify as a passed sale and are determined to be operating leases. Accordingly, the real estate assets are now only reflected on the balance sheet of MGP and the MGM subsidiaries have recorded operating lease liabilities and operating ROU assets. The master lease and its related accounting eliminates in consolidation.

 

In June 2016, the FASB issued ASC 326 “Financial Instruments - Credit Losses (Topic 326): Measurements of Credit Losses on Financial Instruments” (“ASC 326”), which replaces the existing incurred loss model with a current expected credit loss (CECL) model that requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The Company would be required to use a forward-looking CECL model for accounts receivables, guarantees, and other financial instruments. ASC 326 is effective for the Company as of January 1, 2020 with the impact of adoption recorded with a cumulative-effect adjustment to retained earnings as of the effective date. The Company is currently assessing the impact of ASC 326 on its financial statements.

 

NOTE 3 — ACQUISITIONS

 

Empire City

 

On January 29, 2019, the Company acquired the real property and operations associated with Empire City for total consideration of approximately $865 million, plus customary working capital and other adjustments (“Empire City Acquisition”). The fair value of consideration paid included the issuance of approximately $266 million of the Company’s common stock, the incurrence of a new bridge facility, and the remaining balance in cash. If Empire City is awarded a license for live table games on or prior to December 31, 2022 and the Company accepts such license by December 31, 2024, the Company will pay additional consideration of $50 million. The acquisition expands the Company’s presence in the northeast region and greater New York City market. Subsequent to the Company’s acquisition, MGP acquired the developed real property associated with Empire City from the Company and Empire City was added to the existing master lease between the Company and MGP. See Note 12 for additional information.

 

The Company recognized 100% of the assets and liabilities of Empire City at fair value on the date of 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. During the second quarter of 2019, the Company received updated information regarding facts and circumstances in existence as of the acquisition date that impacted the forecasted revenues and expenses utilized in the preliminary purchase price valuation. As a result, the Company recorded a measurement period adjustment that included a $76 million decrease to the racing and

10


 

gaming license, a $17 million decrease to other intangible assets and a $20 million decrease to deferred income taxes, with the offset to goodwill. The allocation of fair value has been finalized as of September 30, 2019.

 

The following table sets forth the purchase price allocation (in thousands):

 

Fair value of assets acquired and liabilities assumed:

 

 

 

Property and equipment

$

645,733

 

Cash and cash equivalents

 

63,197

 

Racing and gaming license

 

52,000

 

Other intangible assets

 

34,000

 

Goodwill

 

256,133

 

Other assets

 

24,420

 

Deferred income taxes

 

(125,149

)

Other liabilities

 

(85,690

)

 

$

864,644

 

 

The Company recognized the identifiable intangible assets at fair value. The estimated fair values of the intangible assets were determined using methodologies under the income approach based on significant inputs that were not observable. The gaming license is an indefinite-lived intangible asset and the customer lists and trade name acquired, both of which comprise other intangible assets above, are amortized over their estimated useful lives of approximately four and five years, respectively. The goodwill is primarily attributable to the potential for a conversion to a full-scale gaming facility.

 

For the period from January 29, 2019 through September 30, 2019, Empire City’s net revenue was $143 million, operating income was $13 million and net income was $28 million. Pro forma results of operations for the acquisition have not been presented because it is not material to the consolidated results of operations.

 

Northfield

 

On July 6, 2018, MGP completed its acquisition of 100% of the membership interests of Northfield. The financial results of Northfield have been included in the consolidated financial statements from the date of acquisition.

 

In April 2019, the Company subsequently acquired the membership interests of Northfield from MGP, and MGP retained the associated real estate assets. MGM Northfield Park was then added to the existing master lease between the Company and MGP. Refer to Note 12 for additional information on this intercompany transaction, which eliminates in consolidation.

 

NOTE 4 — INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES

 

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

 

 

September 30,

 

 

December 31,

 

 

2019

 

 

2018

 

 

(In thousands)

 

CityCenter Holdings, LLC – CityCenter (50%)

$

553,761

 

 

$

589,965

 

Other

 

205,231

 

 

 

142,902

 

 

$

758,992

 

 

$

732,867

 

 

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

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

(In thousands)

 

Income from unconsolidated affiliates

$

36,214

 

 

$

35,495

 

 

$

101,967

 

 

$

115,201

 

Preopening and start-up expenses

 

 

 

 

 

 

 

 

 

 

(3,321

)

Non-operating items from unconsolidated affiliates

 

(14,669

)

 

 

(11,583

)

 

 

(54,311

)

 

 

(31,661

)

 

$

21,545

 

 

$

23,912

 

 

$

47,656

 

 

$

80,219

 

 

11


 

Grand Victoria sale. On August 7, 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.

 

CityCenter

 

Summarized income statement information for CityCenter is as follows:

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

(In thousands)

 

Net revenues

$

320,352

 

 

$

294,387

 

 

$

993,215

 

 

$

942,871

 

Operating income

 

61,464

 

 

 

26,105

 

 

 

159,831

 

 

 

139,977

 

Income from continuing operations

 

33,082

 

 

 

4,842

 

 

 

56,079

 

 

 

81,718

 

Net income (loss)

 

33,082

 

 

 

(1,227

)

 

 

56,079

 

 

 

(52,899

)

 

Mandarin Oriental. On August 30, 2018, CityCenter closed the sale of the Mandarin Oriental Las Vegas (“Mandarin Oriental”) and adjacent retail parcels for approximately $214 million. During the three and nine months ended September 30, 2018, CityCenter recognized a loss on sale of the Mandarin Oriental of $6 million and $133 million, respectively. During the three and nine months ended September 30, 2018, the Company recognized a $12 million gain on 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.”

 

CityCenter distributions. In March 2019, CityCenter paid a $64 million dividend, of which the Company received its 50% share, or approximately $32 million. In April 2019, CityCenter paid a $116 million dividend, of which the Company received its 50% share, or approximately $58 million. In September 2018, CityCenter paid a $225 million dividend, of which the Company received its 50% share, or approximately $113 million. In May 2018, CityCenter paid a $400 million dividend, of which the Company received its 50% share, or $200 million.

 

12


 

NOTE 5 — LONG-TERM DEBT

 

Long-term debt consisted of the following:

 

 

September 30,

 

 

December 31,

 

 

2019

 

 

2018

 

 

(In thousands)

 

Senior credit facility

$

1,260,000

 

 

$

750,000

 

Operating Partnership senior credit facility

 

2,252,313

 

 

 

2,819,125

 

MGM China credit facility

 

775,658

 

 

 

2,433,562

 

$850 million 8.625% senior notes, due 2019

 

 

 

 

850,000

 

$500 million 5.25% senior notes, due 2020

 

267,476

 

 

 

500,000

 

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

 

360,826

 

 

 

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

 

$750 million 5.375% MGM China senior notes, due 2024

 

750,000

 

 

 

 

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

 

1,000,000

 

 

 

1,000,000

 

$750 million 5.875% MGM China senior notes, due 2026

 

750,000

 

 

 

 

$500 million 4.5% Operating Partnership senior notes, due 2026

 

500,000

 

 

 

500,000

 

$500 million 4.625% senior notes, due 2026

 

500,000

 

 

 

500,000

 

$750 million 5.75% Operating Partnership senior notes, due 2027

 

750,000

 

 

 

 

$1,000 million 5.5% senior notes, due 2027

 

1,000,000

 

 

 

 

$350 million 4.5% Operating Partnership senior notes, due 2028

 

350,000

 

 

 

350,000

 

$0.6 million 7% debentures, due 2036

 

552

 

 

 

552

 

 

 

15,066,825

 

 

 

15,253,239

 

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

 

(122,951

)

 

 

(121,823

)

 

 

14,943,874

 

 

 

15,131,416

 

Less: Current portion

 

 

 

 

(43,411

)

 

$

14,943,874

 

 

$

15,088,005

 

 

 

 

 

 

 

 

 

 

Debt due within one year of the September 30, 2019 and December 31, 2018 balance sheets 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 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 at December 31, 2018.

 

Senior credit facility. At September 30, 2019, the Company’s senior credit facility consisted of a $750 million term loan A facility and a $1.5 billion revolving facility. At September 30, 2019, $510 million was drawn on the revolving credit facility. At September 30, 2019, the interest rate on the term loan A facility was 4.04% and the interest rate on the revolving credit facility was 4.03%. The Company was in compliance with its credit facility covenants at September 30, 2019.

 

Operating Partnership senior credit facility. At September 30, 2019, the Operating Partnership senior credit facility consisted of a $467 million term loan A facility, a $1.79 billion term loan B facility, and a $1.35 billion revolving credit facility. At September 30, 2019, the interest rate on each of the term loan A facility and the term loan B facility was 4.04%, respectively. At September 30, 2019, no amounts were drawn on the revolving credit facility. The Operating Partnership was in compliance with its credit facility covenants at September 30, 2019. 

 

The Operating Partnership is party to interest rate swaps to mitigate the interest rate risk inherent in its senior credit facility. As of September 30, 2019, the Operating Partnership pays a weighted average fixed rate of 1.707% on total notional amount of $1.5 billion. As of September 30, 2019 and December 31, 2018, the derivative financial instruments have been designated as cash flow hedges and qualify for hedge accounting.

    

13


 

MGM China credit facility. At September 30, 2019, the MGM China credit facility consisted of a $1.25 billion unsecured revolving credit facility. In August 2019, MGM China entered into a new $1.25 billion senior unsecured revolving credit facility, on which it drew $776 million and used the proceeds to fully repay the borrowings outstanding under its previous secured credit facility. The new revolving credit facility matures in May 2024 and bears interest at a fluctuating rate per annum based on HIBOR plus 1.625% to 2.75%, as determined by MGM China’s leverage ratio. The new revolving credit facility contains customary representations and warranties, events of default, and affirmative, negative and financial covenants, including covenants requiring MGM China to maintain compliance with a maximum leverage ratio and a minimum interest coverage ratio.

 

During the nine months ended September 30, 2019, MGM China also used the proceeds from its senior notes issuance, discussed below, to permanently repay $1.0 billion of the previous term loan facilities, with the remaining proceeds used to pay down outstanding borrowings under its previous revolving credit facility. At September 30, 2019, $776 million was outstanding on the revolving credit facility. At September 30, 2019, the interest rate on the revolving credit facility was 4.25%. MGM China was in compliance with its credit facility covenants at September 30, 2019.

 

Bridge Facility. In connection with the Empire City transaction, the Company borrowed $246 million under a bridge facility, which was subsequently assumed by the Operating Partnership. The Operating Partnership repaid the bridge facility with a combination of cash on hand and a draw on its revolving credit facility, which was subsequently repaid with proceeds from its offering of its 5.75% senior notes due 2027, discussed below.

 

Senior Notes. In April 2019, the Company issued $1.0 billion in aggregate principal amount of 5.50% senior notes due 2027. The Company primarily used the net proceeds from the offering to fund the purchase of $639 million in aggregate principal amount of its outstanding 6.75% senior notes due 2020 and $233 million in aggregate principal amount of its outstanding 5.25% senior notes due 2020 through cash tender offers.

 

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

 

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

 

MGM China senior notes. In May 2019, MGM China issued $750 million in aggregate principal amount of 5.375% senior notes due 2024 and $750 million in aggregate principal amount of 5.875% senior notes due 2026. The Company primarily used the net proceeds from the offering to pay down outstanding borrowings under the MGM China credit facility, as discussed above.

 

Fair value of long-term debt. The estimated fair value of the Company’s long-term debt was $16 billion and $15.1 billion at September 30, 2019 and December 31, 2018, respectively. Fair value was estimated using quoted market prices for the Company’s senior notes and senior credit facilities.

 

NOTE 6 — INCOME TAXES

 

For interim income tax reporting the Company estimates its annual effective tax rate and applies it to its year-to-date ordinary income. The tax effects of unusual or infrequently occurring items, including changes in judgment about valuation allowances and effects of changes in tax laws or rates, are reported in the interim period in which they occur. The Company’s effective income tax rate was a benefit of 620.8% and a provision of 33.9% for the three and nine months ended September 30, 2019, respectively, compared to a provision of 10.0% and a benefit of 8.0% for the three and nine months ended September 30, 2018, respectively.

 

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.

 

MGM Grand Paradise was previously granted an exemption from the Macau 12% complementary tax on gaming profits through March 31, 2020 and, given the Extension Agreement entered into during the first quarter, has applied for an extension of such exemption to June 26, 2022 to run concurrent with its extended sub-concession. Competitors of MGM Grand Paradise have received additional extensions of their complementary tax exemptions through June 26, 2022, which runs concurrent with the end of the term of their gaming concessions. The Company believes MGM Grand Paradise should also be entitled to such extension in order to ensure non-discriminatory treatment among gaming concessionaires and sub-concessionaires, a requirement under Macanese law. Based upon these developments, the Company, during the first quarter, re-measured the net deferred tax liability of MGM Grand Paradise assuming that it will receive an additional extension of its complementary tax exemption through June 26, 2022. This change in assumption resulted in a net increase in deferred tax liabilities in the amount of $35 million, due to an increase in the valuation allowance on certain net operating loss deferred tax assets partially offset by a reduction in certain intangible deferred tax liabilities, and a corresponding increase in the provision for income taxes for the nine months ended September 30, 2019.

 

The Company recorded a $20 million increase in its valuation allowance on its foreign tax credit carryovers (“FTCs”) and a corresponding increase in its income tax expense for the nine months ended September 30, 2019 based upon revisions of certain assumptions impacting the valuation allowance. The FTCs are attributable to the Macau Special Gaming Tax, which is 35% of gross gaming revenue in Macau. Significant judgment is required in assessing the need for a valuation allowance and future changes to these

14


 

assumptions could result in material changes in the valuation allowance with a corresponding impact on the provision for income taxes in the period including such change.

 

Finally, the Empire City Acquisition required a re-measurement of existing state deferred tax liabilities resulting in a $10 million increase in deferred tax liabilities and a corresponding income tax expense for the nine months ended September 30, 2019.

 

NOTE 7 — LEASES

 

The Company leases the land underlying certain of its properties, real estate, and various equipment under operating and, to a lesser extent, finance lease arrangements. The Company’s master lease agreement with a subsidiary of MGP for certain real estate assets is eliminated in consolidation and, accordingly is not included within the disclosures below; refer to Note 12 for further discussion of the master lease.

 

Lease expense for the three and nine months ended September 30, 2019 includes operating lease cost of $26 million and $76 million, respectively. Other information related to the Company’s operating leases was as follows (in thousands, except for lease term and discount rate information):

 

 

September 30, 2019

 

Supplemental balance sheet information

(In thousands)

 

Operating lease right-of-use assets

$

650,990

 

Operating lease obligation - short-term (recorded within “Other accrued liabilities”)

$

69,694

 

Operating lease obligation - long-term

 

518,365

 

Total operating lease liabilities

$

588,059

 

 

 

 

 

Weighted-average remaining lease term (years)

37

 

Weighted-average discount rate (%)

7

 

 

 

Nine Months Ended

 

 

September 30, 2019

 

Supplemental cash flows information

(In thousands)

 

Cash paid for amounts included in the measurement of lease liabilities - operating cash outflows

   from operating leases

$

66,562

 

 

Maturities of operating lease liabilities were as follows:

 

Year ending December 31,

(In thousands)

 

2019 (excluding the nine months ended September 30, 2019)

$

25,542

 

2020

 

94,646

 

2021

 

74,759

 

2022

 

58,776

 

2023

 

56,261

 

Thereafter

 

1,442,944

 

Total future minimum lease payments

 

1,752,928

 

Less: Amount of lease payments representing interest

 

(1,164,869

)

Total

$

588,059

 

 

NOTE 8 — COMMITMENTS AND CONTINGENCIES

 

October 1 litigation. The Company and/or certain of its subsidiaries were 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. Lawsuits were first filed in October 2017 and include actions originally filed in the District Court of Clark County, Nevada and in the Superior Court of Los Angeles County, California. In June 2018, the Company removed to federal court all actions that remained pending in California and Nevada state courts. The Company also initiated declaratory relief actions in federal courts in various districts against individuals who had sued or stated an intent to sue.

 

15


 

In connection with the mediation of these matters, the Company and law firms representing plaintiffs in the majority of pending matters and purporting to represent substantially all claimants known to the Company (collectively, the “Claimants”) have entered into a settlement agreement (the “Settlement Agreement”) whereby, subject to the satisfaction of certain monetary and non-monetary conditions, the Company’s insurance carriers will deposit funds into a settlement fund covering the plaintiffs and certain other cases that emerged or were filed prior to October 1, 2019.  Pursuant to the terms of the Settlement Agreement, the Company expects that the total amount placed in the fund to be between $735 million and $800 million, subject to and depending on obtaining a minimum level of participation with escalators based on greater participation increasing the amount payable up to $800 million in the event of 100% participation by certain categories of claimants, as defined in the Settlement Agreement. The Company has $751 million of insurance coverage available to fund. Following the mediation, and shortly before the statute of limitations expired, a few additional lawsuits were filed against the Company and/or certain of its subsidiaries. While it is possible that these lawsuits may be resolved as part of the Settlement Agreement, no assurances can be made that they will be included. Although the Company continues to believe it is not legally responsible for the perpetrator’s criminal acts, in the interest of avoiding protracted litigation and the related impact on the community, the Company believed it was in the best interests of all parties involved to negotiate and enter into the Settlement Agreement. As a result of the foregoing, the Company believes that it is probable a loss will be incurred and, as of September 30, 2019, the Company accrued a liability of $735 million, which represents the low end of the range of probable loss. In addition, the Company recorded an insurance receivable of $735 million, which represents the entire amount of the liability recorded for the settlement of these cases. While the Company intends for substantially all claimants to be covered by the Settlement Agreement, it remains possible that certain claimants may not join the settlement. In addition, no assurances can be given that the significant conditions to the Settlement Agreement will be satisfied by the Claimants.

 

If the conditions in the Settlement Agreement are not satisfied and the mediation stay is lifted, the Company is currently unable to reliably predict the future developments in, outcome of, and economic costs and other consequences of any such 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 any such lawsuits and believes it ultimately 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 would be 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. 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. 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.

 

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.

 

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, and the Operating Partnership’s senior credit facility limits the amount to $75 million. At September 30, 2019, $11 million in letters of credit were outstanding under the Company’s senior credit facility. No letters of credit were outstanding under the Operating Partnership’s senior credit facility at September 30, 2019. The amount of available borrowings under each of the credit facilities are reduced by any outstanding letters of credit.

 

In connection with the Extension Agreement, MGM Grand Paradise provided a bank guarantee in an amount of approximately $102 million to the government of Macau in May 2019 to warrant the fulfillment of labor debts upon the expiration of the Extension Agreement in June 2022.

 

16


 

NOTE 9 — 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.   

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

(In thousands)

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to MGM Resorts International

$

(37,133

)

 

$

142,878

 

 

$

37,569

 

 

$

490,099

 

Adjustment related to redeemable noncontrolling interests

 

(3,074

)

 

 

(4,155

)

 

 

(5,906

)

 

 

(14,739

)

Net income (loss) available to common stockholders - basic

 

(40,207

)

 

 

138,723

 

 

 

31,663

 

 

 

475,360

 

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

 

(30

)

 

 

(43

)

 

 

(111

)

 

 

(179

)

Net income (loss) attributable to common stockholders - diluted

$

(40,237

)

 

$

138,680

 

 

$

31,552

 

 

$

475,181

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding - basic

 

518,983

 

 

 

535,130

 

 

 

528,429

 

 

 

549,418

 

Potential dilution from share-based awards

 

 

 

 

5,266

 

 

 

3,444

 

 

 

6,103

 

Weighted-average common and common equivalent shares - diluted

 

518,983

 

 

 

540,396

 

 

 

531,873

 

 

 

555,521

 

Antidilutive share-based awards excluded from the calculation of diluted

   earnings per share

 

1,108

 

 

 

2,432

 

 

 

1,816

 

 

 

1,681

 

 

NOTE 10 — STOCKHOLDERS’ EQUITY

 

Noncontrolling interest ownership transactions

 

Empire City transaction. As further discussed in Note 12, in January 2019, MGP acquired the developed real property associated with Empire City from the Company for consideration that included the issuance of approximately 13 million Operating Partnership units to a subsidiary of the Company. The Company adjusted the carrying value of the noncontrolling interests 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 the Empire City transaction, the Company indirectly owned 74.6% of the partnership units in the Operating Partnership.

 

MGP Class A share issuance. In January 2019, MGP completed an offering of approximately 20 million of its Class A shares. In connection with the offering, the Operating Partnership issued 20 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 69.7% of the partnership units in the Operating Partnership.

 

Park MGM Lease Transaction. As further discussed in Note 12, in March 2019, the Company and MGP completed the Park MGM Lease Transaction (as defined in Note 12) for which consideration included the issuance of approximately 1 million Operating Partnership units to a subsidiary of the Company. The Company has adjusted the carrying value of the noncontrolling interests 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 the issuance of the incremental shares, the Company indirectly owned 69.8% of the partnership units in the Operating Partnership.

 

Northfield OpCo transaction. As further discussed in Note 12, in April 2019, the Company acquired the membership interests of Northfield from MGP for consideration of approximately 9 million Operating Partnership units that were ultimately redeemed by the Operating Partnership and MGP retained the real estate assets. The Company has adjusted the carrying value of the noncontrolling interests 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 the Northfield OpCo transaction, the Company indirectly owned 68.8% of the partnership units in the Operating Partnership.  

17


 

 

MGP Class A share issuances – At-the-Market (“ATM”) program. During the three and nine months ended September 30, 2019, MGP issued approximately 3 million and 5 million Class A shares under its ATM program, respectively. In connection with the issuances, the Operating Partnership issued 3 million and 5 million Operating Partnership units to MGP during the three and nine months ended September 30, 2019, respectively. The Company has adjusted the carrying value of the noncontrolling interests 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 the collective issuances, and as of September 30, 2019, the Company indirectly owned 67.7% of the partnership units in the Operating Partnership.

 

Other equity activity

 

MGM Resorts International dividends. On October 30, 2019 the Company’s Board of Directors approved a quarterly dividend of $0.13 per share that will be payable on December 16, 2019 to holders of record on December 10, 2019.

 

MGM Resorts International stock repurchase program. In May 2018, the Company’s Board of Directors authorized a $2.0 billion stock repurchase program, and the Company completed the previously announced $1.0 billion stock repurchase program. Under the 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 three months ended September 30, 2019, the Company repurchased approximately 13 million shares of its common stock at an average price of $28.33 per share for an aggregate amount of $357 million. During the nine months ended September 30, 2019, the Company repurchased approximately 24 million shares of its common stock at an average price of $27.06 per share for an aggregate amount of $639 million. Repurchased shares were retired. The remaining availability under the $2.0 billion stock repurchase program was approximately $750 million as of September 30, 2019.

 

During the three months ended September 30, 2018, the Company repurchased approximately 6 million shares of its common stock at an average price of $28.87 per share for an aggregate amount of $176 million. During the nine months ended September 30, 2018, the Company repurchased approximately 35 million shares of its common stock at an average price of $32.29 per share for an aggregate amount of $1.1 billion. Repurchased shares were retired.

 

18


 

Accumulated other comprehensive income. Changes in accumulated other comprehensive income attributable to MGM Resorts International are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Currency Translation

 

 

Cash Flow

 

 

 

 

 

 

 

 

 

 

Adjustments

 

 

Hedges

 

 

Other

 

 

Total

 

 

(In thousands)

 

Balances, January 1, 2019

$

(18,872

)

 

$

9,144

 

 

$

1,172

 

 

$

(8,556

)

Other comprehensive loss before reclassifications

 

(12,405

)

 

 

(11,476

)

 

 

 

 

 

(23,881

)

Amounts reclassified from accumulated other comprehensive loss to interest expense

 

 

 

 

(1,847

)

 

 

 

 

 

(1,847

)

Empire City MGP transaction

 

 

 

 

 

 

 

195

 

 

 

195

 

MGP Class A share issuances

 

 

 

 

 

 

 

(774

)

 

 

(774

)

Park MGM Transaction

 

 

 

 

 

 

 

16

 

 

 

16

 

Other

 

 

 

 

 

 

 

23

 

 

 

23

 

Other comprehensive loss, net of tax

 

(12,405

)

 

 

(13,323

)

 

 

(540

)

 

 

(26,268

)

Less: Other comprehensive loss attributable to noncontrolling interest

 

5,499

 

 

 

4,717

 

 

 

 

 

 

10,216

 

Balances, March 31, 2019

 

(25,778

)

 

 

538

 

 

 

632

 

 

 

(24,608

)

Other comprehensive income (loss) before reclassifications

 

26,380

 

 

 

(24,531

)

 

 

 

 

 

1,849

 

Amounts reclassified from accumulated other comprehensive loss to interest expense

 

 

 

 

(1,767

)

 

 

 

 

 

(1,767

)

MGP Class A share issuances

 

 

 

 

 

 

 

105

 

 

 

105

 

Northfield OpCo transaction

 

 

 

 

 

 

 

(2

)

 

 

(2

)

Other

 

 

 

 

 

 

 

72

 

 

 

72

 

Other comprehensive income (loss), net of tax

 

26,380

 

 

 

(26,298

)

 

 

175

 

 

 

257

 

Less: Other comprehensive (income) loss attributable to noncontrolling interest

 

(11,626

)

 

 

9,647

 

 

 

 

 

 

(1,979

)

Balances, June 30, 2019

 

(11,024

)

 

 

(16,113

)

 

 

807

 

 

 

(26,330

)

Other comprehensive loss before reclassifications

 

(18,602

)

 

 

(15,223

)

 

 

 

 

 

(33,825

)

Amounts reclassified from accumulated other comprehensive loss to interest expense

 

 

 

 

(1,281

)

 

 

 

 

 

(1,281

)

MGP Class A share issuances

 

 

 

 

 

 

 

200

 

 

 

200

 

Other

 

 

 

 

 

 

 

69

 

 

 

69

 

Other comprehensive income (loss), net of tax

 

(18,602

)

 

 

(16,504

)

 

 

269

 

 

 

(34,837

)

Less: Other comprehensive loss attributable to noncontrolling interest

 

8,093

 

 

 

6,233

 

 

 

 

 

 

14,326

 

Balances, September 30, 2019

$

(21,533

)

 

$

(26,384

)

 

$

1,076

 

 

$

(46,841

)

 

 

NOTE 11 — SEGMENT INFORMATION

 

The Company’s management views each of its casino resorts as an operating segment. Operating segments are aggregated based on their similar economic characteristics, types of customers, types of services and products provided, the regulatory environments in which they operate and their management and reporting structure. The Company has aggregated its operating segments into the following reportable segments: Las Vegas Strip Resorts, Regional Operations and MGM China.

 

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.

 

19


 

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; MGM Springfield in Springfield, Massachusetts (upon commencing operations in August 2018); Empire City in Yonkers, New York (upon acquisition in January 2019); and MGM Northfield Park in Northfield Park, Ohio (upon acquisition of the operations from MGP in April 2019).

 

MGM China.  MGM China consists of MGM Macau and MGM Cotai.

 

The Company’s operations related to investments in unconsolidated affiliates, MGM Northfield Park (prior to April 1, 2019 as the operations were owned by MGP until that date), 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 and underlying operating segments. Adjusted Property EBITDA is a measure defined as Adjusted EBITDA before corporate expense and stock compensation expense, which are not allocated to each operating segment, and before rent expense related to the master lease with MGP that eliminates in consolidation. 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, restructuring costs (which represents costs related to severance, accelerated stock compensation expense, and consulting fees directly related to the operating model component of the MGM 2020 Plan), and property transactions, net.

20


 

The following tables present the Company’s segment information:

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

(In thousands)

 

Net revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Las Vegas Strip Resorts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Casino

$

336,262

 

 

$

345,933

 

 

$

969,149

 

 

$

1,068,446

 

Rooms

 

469,145

 

 

 

443,477

 

 

 

1,407,733

 

 

 

1,343,563

 

Food and beverage

 

401,362

 

 

 

368,823

 

 

 

1,156,657

 

 

 

1,069,977

 

Entertainment, retail and other

 

300,679

 

 

 

296,123

 

 

 

868,441

 

 

 

858,988

 

 

 

1,507,448

 

 

 

1,454,356

 

 

 

4,401,980

 

 

 

4,340,974

 

Regional Operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Casino

 

660,748

 

 

 

526,041

 

 

 

1,888,852

 

 

 

1,477,623

 

Rooms

 

90,197

 

 

 

90,152

 

 

 

243,449

 

 

 

242,581

 

Food and beverage

 

126,625

 

 

 

113,953

 

 

 

368,374

 

 

 

314,136

 

Entertainment, retail and other

 

57,448

 

 

 

46,965

 

 

 

149,241

 

 

 

117,828

 

 

 

935,018

 

 

 

777,111

 

 

 

2,649,916

 

 

 

2,152,168

 

MGM China

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Casino

 

662,838

 

 

 

536,650

 

 

 

1,959,582

 

 

 

1,584,140

 

Rooms

 

36,294

 

 

 

32,690

 

 

 

105,171

 

 

 

83,526

 

Food and beverage

 

32,214

 

 

 

31,606

 

 

 

93,836

 

 

 

80,447

 

Entertainment, retail and other

 

6,409

 

 

 

5,068

 

 

 

19,459

 

 

 

15,112

 

 

 

737,755

 

 

 

606,014

 

 

 

2,178,048

 

 

 

1,763,225

 

Reportable segment net revenues

 

3,180,221

 

 

 

2,837,481

 

 

 

9,229,944

 

 

 

8,256,367

 

Corporate and other

 

134,161

 

 

 

191,821

 

 

 

484,592

 

 

 

453,867

 

 

$

3,314,382

 

 

$

3,029,302

 

 

$

9,714,536

 

 

$

8,710,234

 

Adjusted Property EBITDA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Las Vegas Strip Resorts

$

441,155

 

 

$

419,699

 

 

$

1,262,879

 

 

$

1,304,758

 

Regional Operations

 

263,616

 

 

 

207,249

 

 

 

725,343

 

 

 

564,277

 

MGM China

 

182,010

 

 

 

130,046

 

 

 

543,628

 

 

 

401,672

 

Reportable segment Adjusted Property EBITDA

 

886,781

 

 

 

756,994

 

 

 

2,531,850

 

 

 

2,270,707

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other operating income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate and other

 

(73,117

)

 

 

(41,129

)

 

 

(222,419

)

 

 

(158,118

)

Preopening and start-up expenses

 

(925

)

 

 

(46,890

)

 

 

(5,091

)

 

 

(132,884

)

Property transactions, net

 

(249,858

)

 

 

42,400

 

 

 

(264,424

)

 

 

19,532

 

Depreciation and amortization

 

(322,009

)

 

 

(300,472

)

 

 

(973,211

)

 

 

(865,502

)

Restructuring

 

(2,491

)

 

 

 

 

 

(86,579

)

 

 

 

Operating income

 

238,381

 

 

 

410,903

 

 

 

980,126

 

 

 

1,133,735

 

Non-operating income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net of amounts capitalized

 

(215,503

)

 

 

(205,573

)

 

 

(647,452

)

 

 

(554,975

)

Non-operating items from unconsolidated affiliates

 

(14,669

)

 

 

(11,583

)

 

 

(54,311

)

 

 

(31,661

)

Other, net

 

(9,381

)

 

 

(3,291

)

 

 

(53,964

)

 

 

(11,588

)

 

 

(239,553

)

 

 

(220,447

)

 

 

(755,727

)

 

 

(598,224

)

Income (loss) before income taxes

 

(1,172

)

 

 

190,456

 

 

 

224,399

 

 

 

535,511

 

Benefit (provision) for income taxes

 

7,276

 

 

 

(19,046

)

 

 

(75,969

)

 

 

42,623

 

Net income

 

6,104

 

 

 

171,410

 

 

 

148,430

 

 

 

578,134

 

Less: Net income attributable to noncontrolling interests

 

(43,237

)

 

 

(28,532

)

 

 

(110,861

)

 

 

(88,035

)

Net income (loss) attributable to MGM Resorts International

$

(37,133

)

 

$

142,878

 

 

$

37,569

 

 

$

490,099

 

 

21


 

NOTE 12 — RELATED PARTY TRANSACTIONS

 

MGM China

 

Ms. Ho, Pansy Catilina Chiu King (“Ms. Ho”) is a member of the Board of Directors of, and holds a minority ownership interest in, MGM China. MGM Branding and Development Holdings, Ltd. (together with its subsidiary MGM Development Services, Ltd., “MGM Branding and Development”), an entity included in the Company’s consolidated financial statements in which Ms. 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. Entities owned by Ms. Ho received distributions in connection with her ownership of a noncontrolling interest in MGM Branding and Development Holdings, Ltd. of $5 million and $15 million during the three and nine months ended September 30, 2019, respectively, and $4 million and $17 million during the three and nine months ended September 30, 2018, respectively.

MGP

 

As 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, Empire City, MGM National Harbor and MGM Northfield Park from the landlord.

 

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, which included the assumption of debt of approximately $246 million, which was immediately repaid, and the remaining paid through the issuance of Operating Partnership units. The real estate assets of Empire City were then 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% of this rent will be fixed and contractually grow at 2% 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.

 

On March 7, 2019, the tenant entered into an amendment to the existing master lease with respect to investments made by the Company related to the Park MGM and NoMad Las Vegas property (the “Park MGM Lease Transaction”). In connection with the transaction, the Company received consideration of $638 million, of which approximately $606 million was paid in cash and the remaining paid through the issuance of Operating Partnership units. Additionally, the annual rent payment to MGP was increased 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.

 

Additionally, on April 1, 2019, the Company acquired the membership interests of Northfield from MGP, which held the operations of Northfield, for fair value of consideration of approximately $305 million consisting primarily of approximately 9 million Operating Partnership units that were ultimately redeemed by the Operating Partnership, and MGP retained the associated real estate assets. The Company then rebranded the property to MGM Northfield Park, which was then added to the existing master lease between the landlord and tenant, increasing the annual rent payment to MGP by $60 million. Consistent with the master lease terms, 90% of this rent will be fixed and contractually grow at 2% per year until 2022.

 

The addition of Empire City and the Park MGM Lease Transaction in January 2019 and March 2019, respectively, increased annual rent payments associated with the master lease for the third lease year to $870 million from $770 million. In connection with the commencement of the fourth lease year on April 1, 2019, as well as the addition of MGM Northfield Park on April 1, 2019, annual rent payments under the master lease increased to $946 million from $870 million. The master lease contains customary events of default and financial covenants. The Company was in compliance with all applicable covenants as of September 30, 2019.

 

All intercompany transactions, including transactions under the master lease and those described above, 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.

 

22


 

NOTE 13 — CONDENSED CONSOLIDATING FINANCIAL INFORMATION

 

As of September 30, 2019, 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 September 30, 2019 and December 31, 2018 and for the three and nine months ended September 30, 2019 and 2018 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. Prior to the adoption of ASC 842 on January 1, 2019, for these subsidiaries, such investment constituted continuing involvement, and accordingly, the sale and leaseback of the real estate assets under the master lease did not qualify for sale-leaseback accounting. The real estate assets were 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 were also reflected on the balance sheet of the MGP subsidiary that received such assets. The condensed consolidating financial information presented below therefore included the accounting for such activity within the respective columns presented and in the elimination column. In connection with the adoption of ASC 842, the sale and leaseback of the real estate assets under the master lease now qualify as a passed sale and are determined to be operating leases.  As such, the real estate assets, finance liabilities, and related interest expense component of rent payments are no longer reflected in the results of the applicable MGM subsidiaries.  Instead, the real estate assets are now only reflected on the balance sheet of the MGP subsidiary that received such assets and the MGM subsidiaries have recorded operating lease liabilities and operating ROU assets with the related rental payment reflected within “general and administrative” expense within the condensed consolidating financial information.

 

23


 

CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION

 

 

At September 30, 2019

 

 

 

 

 

 

Guarantor

 

 

Non-Guarantor Subsidiaries

 

 

 

 

 

 

 

 

 

 

Parent

 

 

Subsidiaries

 

 

MGP

 

 

Other

 

 

Elimination

 

 

Consolidated

 

 

(In thousands)

 

Current assets

$

774,542

 

 

$

1,123,697

 

 

$

166,402

 

 

$

827,858

 

 

$

(11,753

)

 

$

2,880,746

 

Property and equipment, net

 

 

 

 

5,197,751

 

 

 

10,894,121

 

 

 

4,524,078

 

 

 

(11,972

)

 

 

20,603,978

 

Investments in subsidiaries

 

23,371,673

 

 

 

3,776,537

 

 

 

 

 

 

 

 

 

(27,148,210

)

 

 

 

Investments in the MGP Operating Partnership

 

 

 

 

3,657,793

 

 

 

 

 

 

771,393

 

 

 

(4,429,186

)

 

 

 

Investments in and advances to unconsolidated affiliates

 

 

 

 

712,292

 

 

 

 

 

 

21,700

 

 

 

25,000

 

 

 

758,992

 

Intercompany accounts

 

 

 

 

8,270,168

 

 

 

 

 

 

 

 

 

(8,270,168

)

 

 

 

Other non-current assets

 

69,752

 

 

 

10,300,179

 

 

 

869,040

 

 

 

7,088,325

 

 

 

(11,402,141

)

 

 

6,925,155

 

 

$

24,215,967

 

 

$

33,038,417

 

 

$

11,929,563

 

 

$

13,233,354

 

 

$

(51,248,430

)

 

$

31,168,871

 

Current liabilities

$

879,192

 

 

$

1,614,524

 

 

$

181,890

 

 

$

907,330

 

 

$

(289,692

)

 

$

3,293,244

 

Intercompany accounts

 

8,189,657

 

 

 

 

 

 

298

 

 

 

80,213

 

 

 

(8,270,168

)

 

 

 

Deferred income taxes, net

 

1,161,765

 

 

 

125,149

 

 

 

29,721

 

 

 

249,512

 

 

 

(29,721

)

 

 

1,536,426

 

Long-term debt, net

 

7,841,161

 

 

 

569

 

 

 

4,847,408

 

 

 

2,254,736

 

 

 

 

 

 

14,943,874

 

Other non-current liabilities

 

83,640

 

 

 

9,314,211

 

 

 

485,942

 

 

 

2,320,021

 

 

 

(11,435,081

)

 

 

768,733

 

Total liabilities

 

18,155,415

 

 

 

11,054,453

 

 

 

5,545,259

 

 

 

5,811,812

 

 

 

(20,024,662

)

 

 

20,542,277

 

Redeemable noncontrolling interests

 

 

 

 

 

 

 

 

 

 

105,976

 

 

 

 

 

 

105,976

 

MGM Resorts International stockholders' equity

 

6,060,552

 

 

 

21,982,631

 

 

 

4,309,794

 

 

 

4,931,343

 

 

 

(31,223,768

)

 

 

6,060,552

 

Noncontrolling interests

 

 

 

 

1,333

 

 

 

2,074,510

 

 

 

2,384,223

 

 

 

 

 

 

4,460,066

 

Total stockholders' equity

 

6,060,552

 

 

 

21,983,964

 

 

 

6,384,304

 

 

 

7,315,566

 

 

 

(31,223,768

)

 

 

10,520,618

 

 

$

24,215,967

 

 

$

33,038,417

 

 

$

11,929,563

 

 

$

13,233,354

 

 

$

(51,248,430

)

 

$

31,168,871

 

 

 

 

At December 31, 2018

 

 

 

 

 

 

Guarantor

 

 

Non-Guarantor Subsidiaries

 

 

 

 

 

 

 

 

 

 

Parent

 

 

Subsidiaries

 

 

MGP

 

 

Other

 

 

Elimination

 

 

Consolidated

 

 

(In thousands)

 

Current assets

$

304,741

 

 

$

1,244,864

 

 

$

12,054

 

 

$

972,820

 

 

$

(7,701

)

 

$

2,526,778

 

Property and equipment, net

 

 

 

 

13,585,370

 

 

 

10,506,129

 

 

 

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

 

 

 

 

7,135,183

 

 

 

 

 

 

 

 

 

(7,135,183

)

 

 

 

Other non-current assets

 

67,214

 

 

 

1,186,666

 

 

 

77,436

 

 

 

4,932,872

 

 

 

(43,015

)

 

 

6,221,173

 

Assets held for sale

 

 

 

 

 

 

 

355,688

 

 

 

 

 

 

(355,688

)

 

 

 

 

$

22,791,237

 

 

$

30,666,464

 

 

$

10,951,307

 

 

$

13,158,319

 

 

$

(47,356,621

)

 

$

30,210,706

 

Current liabilities

$

154,484

 

 

$

1,646,481

 

 

$

160,441

 

 

$

1,224,752

 

 

$

(237,276

)

 

$

2,948,882

 

Intercompany accounts

 

6,932,325

 

 

 

 

 

 

227

 

 

 

202,631

 

 

 

(7,135,183

)

 

 

 

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 non-current liabilities

 

39,019

 

 

 

7,210,948

 

 

 

215,613

 

 

 

2,247,584

 

 

 

(9,453,924

)

 

 

259,240

 

Liabilities related to assets held for sale

 

 

 

 

 

 

 

28,937

 

 

 

 

 

 

(28,937

)

 

 

 

Total liabilities

 

16,278,954

 

 

 

8,857,999

 

 

 

5,105,801

 

 

 

6,280,951

 

 

 

(16,885,040

)

 

 

19,638,665

 

Redeemable noncontrolling interests

 

 

 

 

 

 

 

 

 

 

102,250

 

 

 

 

 

 

102,250

 

MGM Resorts International stockholders' equity

 

6,512,283

 

 

 

21,808,465

 

 

 

4,279,535

 

 

 

4,383,581

 

 

 

(30,471,581

)

 

 

6,512,283

 

Noncontrolling interests

 

 

 

 

 

 

 

1,565,971

 

 

 

2,391,537

 

 

 

 

 

 

3,957,508

 

Total stockholders' equity

 

6,512,283

 

 

 

21,808,465

 

 

 

5,845,506

 

 

 

6,775,118

 

 

 

(30,471,581

)

 

 

10,469,791

 

 

$

22,791,237

 

 

$

30,666,464

 

 

$

10,951,307

 

 

$

13,158,319

 

 

$

(47,356,621

)

 

$

30,210,706

 

 

24


 

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) INFORMATION

 

 

Three Months Ended September 30, 2019

 

 

 

 

 

 

Guarantor

 

 

Non-Guarantor Subsidiaries

 

 

 

 

 

 

 

 

 

 

Parent

 

 

Subsidiaries

 

 

MGP

 

 

Other

 

 

Elimination

 

 

Consolidated

 

 

(In thousands)

 

Net revenues

$

 

 

$

2,142,108

 

 

$

226,011

 

 

$

1,172,280

 

 

$

(226,017

)

 

$

3,314,382

 

Equity in subsidiaries' earnings

 

120,836

 

 

 

30,349

 

 

 

 

 

 

 

 

 

(151,185

)

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Casino and hotel operations

 

1,525

 

 

 

1,200,554

 

 

 

 

 

 

734,577

 

 

 

(6

)

 

 

1,936,650

 

General and administrative

 

2,749

 

 

 

542,664

 

 

 

5,922

 

 

 

187,109

 

 

 

(244,216

)

 

 

494,228

 

Corporate expense

 

42,231

 

 

 

56,782

 

 

 

4,566

 

 

 

4,966

 

 

 

 

 

 

108,545

 

Preopening and start-up expenses

 

 

 

 

926

 

 

 

 

 

 

(1

)

 

 

 

 

 

925

 

Property transactions, net

 

7,530

 

 

 

232,289

 

 

 

9,921

 

 

 

118

 

 

 

 

 

 

249,858

 

Depreciation and amortization

 

 

 

 

108,126

 

 

 

71,957

 

 

 

141,926

 

 

 

 

 

 

322,009

 

 

 

54,035

 

 

 

2,141,341

 

 

 

92,366

 

 

 

1,068,695

 

 

 

(244,222

)

 

 

3,112,215

 

Income (loss) from unconsolidated affiliates

 

 

 

 

41,143

 

 

 

 

 

 

(4,929

)

 

 

 

 

 

36,214

 

Operating income

 

66,801

 

 

 

72,259

 

 

 

133,645

 

 

 

98,656

 

 

 

(132,980

)

 

 

238,381

 

Interest expense, net of amounts capitalized

 

(118,819

)

 

 

(221

)

 

 

(63,048

)

 

 

(33,415

)

 

 

 

 

 

(215,503

)

Other non-operating, net

 

18,135

 

 

 

33,793

 

 

 

(65

)

 

 

(16,457

)

 

 

(59,456

)

 

 

(24,050

)

Income (loss) before income taxes

 

(33,883

)

 

 

105,831

 

 

 

70,532

 

 

 

48,784

 

 

 

(192,436

)

 

 

(1,172

)

Benefit (provision) for income taxes

 

(3,250

)

 

 

 

 

 

(1,979

)

 

 

12,505

 

 

 

 

 

 

7,276

 

Net income (loss)

 

(37,133

)

 

 

105,831

 

 

 

68,553

 

 

 

61,289

 

 

 

(192,436

)

 

 

6,104

 

Less: Net income attributable to noncontrolling interests

 

 

 

 

(1,333

)

 

 

(22,515

)

 

 

(19,389

)

 

 

 

 

 

(43,237

)

Net income (loss) attributable to MGM Resorts International

$

(37,133

)

 

$

104,498

 

 

$

46,038

 

 

$

41,900

 

 

$

(192,436

)

 

$

(37,133

)

Net income (loss)

$

(37,133

)

 

$

105,831

 

 

$

68,553

 

 

$

61,289

 

 

$

(192,436

)

 

$

6,104

 

Other comprehensive loss, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

(10,509

)

 

 

(10,509

)

 

 

 

 

 

(18,602

)

 

 

21,018

 

 

 

(18,602

)

Unrealized loss on cash flow hedges

 

(10,271

)

 

 

 

 

 

(19,270

)

 

 

 

 

 

13,037

 

 

 

(16,504

)

Other comprehensive loss

 

(20,780

)

 

 

(10,509

)

 

 

(19,270

)

 

 

(18,602

)

 

 

34,055

 

 

 

(35,106

)

Comprehensive income (loss)

 

(57,913

)

 

 

95,322

 

 

 

49,283

 

 

 

42,687

 

 

 

(158,381

)

 

 

(29,002

)

Less: Comprehensive income attributable to noncontrolling interests

 

 

 

 

 

 

 

(16,282

)

 

 

(12,629

)

 

 

 

 

 

(28,911

)

Comprehensive income (loss) attributable to MGM Resorts International

$

(57,913

)

 

$

95,322

 

 

$

33,001

 

 

$

30,058

 

 

$

(158,381

)

 

$

(57,913

)

25


 

 

 

Nine Months Ended September 30, 2019

 

 

 

 

 

 

Guarantor

 

 

Non-Guarantor Subsidiaries

 

 

 

 

 

 

 

 

 

 

Parent

 

 

Subsidiaries

 

 

MGP

 

 

Other

 

 

Elimination

 

 

Consolidated

 

 

(In thousands)

 

Net revenues

$

 

 

$

6,221,722

 

 

$

655,193

 

 

$

3,492,820

 

 

$

(655,199

)

 

$

9,714,536

 

Equity in subsidiaries' earnings

 

630,307

 

 

 

96,737

 

 

 

 

 

 

 

 

 

(727,044

)

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Casino and hotel operations

 

6,042

 

 

 

3,538,069

 

 

 

 

 

 

2,170,763

 

 

 

(11,029

)

 

 

5,703,845

 

General and administrative

 

23,595

 

 

 

1,634,652

 

 

 

17,401

 

 

 

564,569

 

 

 

(696,453

)

 

 

1,543,764

 

Corporate expense

 

145,920

 

 

 

163,826

 

 

 

21,555

 

 

 

14,741

 

 

 

 

 

 

346,042

 

Preopening and start-up expenses

 

 

 

 

3,083

 

 

 

 

 

 

2,008

 

 

 

 

 

 

5,091

 

Property transactions, net

 

7,530

 

 

 

244,451

 

 

 

11,344

 

 

 

1,099

 

 

 

 

 

 

264,424

 

Depreciation and amortization

 

 

 

 

319,902

 

 

 

223,062

 

 

 

430,247

 

 

 

 

 

 

973,211

 

 

 

183,087

 

 

 

5,903,983

 

 

 

273,362

 

 

 

3,183,427

 

 

 

(707,482

)

 

 

8,836,377

 

Income (loss) from unconsolidated affiliates

 

 

 

 

109,555

 

 

 

 

 

 

(7,588

)

 

 

 

 

 

101,967

 

Operating income

 

447,220

 

 

 

524,031

 

 

 

381,831

 

 

 

301,805

 

 

 

(674,761

)

 

 

980,126

 

Interest expense, net of amounts capitalized

 

(363,882

)

 

 

(638

)

 

 

(190,973

)

 

 

(91,959

)

 

 

 

 

 

(647,452

)

Other non-operating, net

 

14,276

 

 

 

143,363

 

 

 

1,383

 

 

 

(27,026

)

 

 

(240,271

)

 

 

(108,275

)

Income from continuing operations before income taxes

 

97,614

 

 

 

666,756

 

 

 

192,241

 

 

 

182,820

 

 

 

(915,032

)

 

 

224,399

 

Provision for income taxes

 

(60,045

)

 

 

(8

)

 

 

(5,771

)

 

 

(10,145

)

 

 

 

 

 

(75,969

)

Income from continuing operations, net of tax

 

37,569

 

 

 

666,748

 

 

 

186,470

 

 

 

172,675

 

 

 

(915,032

)

 

 

148,430

 

Income from discontinued operations, net of tax

 

 

 

 

 

 

 

16,216

 

 

 

 

 

 

(16,216

)

 

 

 

Net income

 

37,569

 

 

 

666,748

 

 

 

202,686

 

 

 

172,675

 

 

 

(931,248

)

 

 

148,430

 

Less: Net income attributable to noncontrolling interests

 

 

 

 

(4,192

)

 

 

(64,328

)

 

 

(42,341

)

 

 

 

 

 

(110,861

)

Net income attributable to MGM Resorts International

$

37,569

 

 

$

662,556

 

 

$

138,358

 

 

$

130,334

 

 

$

(931,248

)

 

$

37,569

 

Net income

$

37,569

 

 

$

666,748

 

 

$

202,686

 

 

$

172,675

 

 

$

(931,248

)

 

$

148,430

 

Other comprehensive loss, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

(2,661

)

 

 

(2,661

)

 

 

 

 

 

(4,627

)

 

 

5,322

 

 

 

(4,627

)

Unrealized loss on cash flow hedges

 

(35,528

)

 

 

 

 

 

(65,657

)

 

 

 

 

 

45,060

 

 

 

(56,125

)

Other comprehensive loss

 

(38,189

)

 

 

(2,661

)

 

 

(65,657

)

 

 

(4,627

)

 

 

50,382

 

 

 

(60,752

)

Comprehensive income (loss)

 

(620

)

 

 

664,087

 

 

 

137,029

 

 

 

168,048

 

 

 

(880,866

)

 

 

87,678

 

Less: Comprehensive income attributable to noncontrolling interests

 

 

 

 

 

 

 

(43,731

)

 

 

(44,567

)

 

 

 

 

 

(88,298

)

Comprehensive income (loss) attributable to MGM Resorts International

$

(620

)

 

$

664,087

 

 

$

93,298

 

 

$

123,481

 

 

$

(880,866

)

 

$

(620

)

26


 

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION

 

 

Nine Months Ended September 30, 2019

 

 

 

 

 

 

Guarantor

 

 

Non-Guarantor Subsidiaries

 

 

 

 

 

 

 

 

 

 

Parent

 

 

Subsidiaries

 

 

MGP

 

 

Other

 

 

Elimination

 

 

Consolidated

 

 

(In thousands)

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by (used in) operating activities

$

(344,621

)

 

$

1,306,819

 

 

$

(84,517

)

 

$

494,018

 

 

$

(15,591

)

 

$

1,356,108

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures, net of construction payable

 

 

 

 

(334,870

)

 

 

 

 

 

(147,928

)

 

 

12

 

 

 

(482,786

)

Dispositions of property and equipment

 

 

 

 

1,870

 

 

 

 

 

 

66

 

 

 

 

 

 

1,936

 

Acquisition of Empire City Casino, net of cash acquired

 

 

 

 

(535,681

)

 

 

 

 

 

 

 

 

 

 

 

(535,681

)

Investments in unconsolidated affiliates

 

 

 

 

(81,271

)

 

 

 

 

 

 

 

 

 

 

 

(81,271

)

Distributions from unconsolidated affiliates

 

 

 

 

99,661

 

 

 

 

 

 

 

 

 

 

 

 

99,661

 

Intercompany accounts

 

 

 

 

(1,134,905

)

 

 

 

 

 

 

 

 

1,134,905

 

 

 

 

Northfield OpCo transaction

 

 

 

 

(3,779

)

 

 

3,779

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

(4,500

)

 

 

 

 

 

(26,612

)

 

 

 

 

 

(31,112

)

Net cash provided by (used in) investing activities

 

 

 

 

(1,993,475

)

 

 

3,779

 

 

 

(174,474

)

 

 

1,134,917

 

 

 

(1,029,253

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

510,000

 

 

 

245,950

 

 

 

(812,763

)

 

 

(1,654,194

)

 

 

 

 

 

(1,711,007

)

Issuance of long-term debt

 

1,000,000

 

 

 

 

 

 

750,000

 

 

 

1,500,000

 

 

 

 

 

 

3,250,000

 

Retirement of senior notes and senior debentures

 

(1,721,698

)

 

 

(38,280

)

 

 

 

 

 

 

 

 

 

 

 

(1,759,978

)

Debt issuance costs

 

(14,080

)

 

 

 

 

 

(9,983

)

 

 

(39,328

)

 

 

 

 

 

(63,391

)

Issuance of MGM Growth Properties Class A shares, net

 

 

 

 

 

 

 

699,362

 

 

 

 

 

 

 

 

 

699,362

 

Dividends paid to common shareholders

 

(205,163

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(205,163

)

MGP dividends paid to consolidated subsidiaries

 

 

 

 

 

 

 

(277,899

)

 

 

 

 

 

277,899

 

 

 

 

Distributions to noncontrolling interest owners

 

 

 

 

(3,574

)

 

 

(117,106

)

 

 

(51,559

)

 

 

 

 

 

(172,239

)

Purchases of common stock

 

(638,815

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(638,815

)

Intercompany accounts

 

1,176,224

 

 

 

464,988

 

 

 

 

 

 

(228,408

)

 

 

(1,412,804

)

 

 

 

Other

 

(8,789

)

 

 

(43,291

)

 

 

(1,342

)

 

 

(3,133

)

 

 

37,900

 

 

 

(18,655

)

Net cash provided by (used in) financing activities

 

97,679

 

 

 

625,793

 

 

 

230,269

 

 

 

(476,622

)

 

 

(1,097,005

)

 

 

(619,886

)

Effect of exchange rate on cash

 

 

 

 

 

 

 

 

 

 

(162

)

 

 

 

 

 

(162

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from (used in) discontinued operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from operating activities

 

 

 

 

 

 

 

15,591

 

 

 

 

 

 

(15,591

)

 

 

 

Cash flows used in investing activities

 

 

 

 

 

 

 

(12

)

 

 

 

 

 

12

 

 

 

 

Cash flows used in financing activities

 

 

 

 

 

 

 

(37,900

)

 

 

 

 

 

37,900

 

 

 

 

Net cash flows used in discontinued operations

 

 

 

 

 

 

 

(22,321

)

 

 

 

 

 

22,321

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in cash and cash equivalents classified as assets held for sale

 

 

 

 

 

 

 

(22,321

)

 

 

 

 

 

22,321

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net increase (decrease) for the period

 

(246,942

)

 

 

(60,863

)

 

 

149,531

 

 

 

(157,240

)

 

 

22,321

 

 

 

(293,193

)

Balance, beginning of period

 

259,738

 

 

 

445,423

 

 

 

3,995

 

 

 

817,606

 

 

 

 

 

 

1,526,762

 

Balance, end of period

$

12,796

 

 

$

384,560

 

 

$

153,526

 

 

$

660,366

 

 

$

22,321

 

 

$

1,233,569

 

 

27


 

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) INFORMATION

 

 

Three Months Ended September 30, 2018

 

 

 

 

 

 

Guarantor

 

 

Non-Guarantor Subsidiaries

 

 

 

 

 

 

 

 

 

 

Parent

 

 

Subsidiaries

 

 

MGP

 

 

Other

 

 

Elimination

 

 

Consolidated

 

 

(In thousands)

 

Net revenues

$

 

 

$

2,032,404

 

 

$

216,659

 

 

$

996,987

 

 

$

(216,748

)

 

$

3,029,302

 

Equity in subsidiaries' earnings

 

335,237

 

 

 

27,390

 

 

 

 

 

 

 

 

 

(362,627

)

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Casino and hotel operations

 

2,602

 

 

 

1,165,476

 

 

 

 

 

 

629,205

 

 

 

(9,857

)

 

 

1,787,426

 

General and administrative

 

2,417

 

 

 

325,809

 

 

 

20,925

 

 

 

127,980

 

 

 

(13,714

)

 

 

463,417

 

Corporate expense

 

33,767

 

 

 

51,545

 

 

 

13,703

 

 

 

4,933

 

 

 

(5,859

)

 

 

98,089

 

Preopening and start-up expenses

 

 

 

 

3,212

 

 

 

 

 

 

43,678

 

 

 

 

 

 

46,890

 

Property transactions, net

 

 

 

 

(42,345

)

 

 

339

 

 

 

(55

)

 

 

(339

)

 

 

(42,400

)

Depreciation and amortization

 

 

 

 

159,226

 

 

 

63,468

 

 

 

138,951

 

 

 

(61,173

)

 

 

300,472

 

 

 

38,786

 

 

 

1,662,923

 

 

 

98,435

 

 

 

944,692

 

 

 

(90,942

)

 

 

2,653,894

 

Income (loss) from unconsolidated affiliates

 

 

 

 

35,925

 

 

 

 

 

 

(430

)

 

 

 

 

 

35,495

 

Operating income

 

296,451

 

 

 

432,796

 

 

 

118,224

 

 

 

51,865

 

 

 

(488,433

)

 

 

410,903

 

Interest expense, net of amounts capitalized

 

(125,234

)

 

 

(95

)

 

 

(58,743

)

 

 

(21,501

)

 

 

 

 

 

(205,573

)

Other non-operating, net

 

16,179

 

 

 

(104,534

)

 

 

(857

)

 

 

(44,919

)

 

 

119,257

 

 

 

(14,874

)

Income (loss) from continuing operations before income taxes

 

187,396

 

 

 

328,167

 

 

 

58,624

 

 

 

(14,555

)

 

 

(369,176

)

 

 

190,456

 

Benefit (provision) for income taxes

 

(44,518

)

 

 

 

 

 

(2,650

)

 

 

26,033

 

 

 

2,089

 

 

 

(19,046

)

Income from continuing operations, net of tax

 

142,878

 

 

 

328,167

 

 

 

55,974

 

 

 

11,478

 

 

 

(367,087

)

 

 

171,410

 

Income from discontinued operations, net of tax

 

 

 

 

 

 

 

13,949

 

 

 

 

 

 

(13,949

)

 

 

 

Net income

 

142,878

 

 

 

328,167

 

 

 

69,923

 

 

 

11,478

 

 

 

(381,036

)

 

 

171,410

 

Less: Net income attributable to noncontrolling interests

 

 

 

 

 

 

 

(19,484

)

 

 

(9,048

)

 

 

 

 

 

(28,532

)

Net income attributable to MGM Resorts International

$

142,878

 

 

$

328,167

 

 

$

50,439

 

 

$

2,430

 

 

$

(381,036

)

 

$

142,878

 

Net income

$

142,878

 

 

$

328,167

 

 

$

69,923

 

 

$

11,478

 

 

$

(381,036

)

 

$

171,410

 

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

6,706

 

 

 

6,706

 

 

 

 

 

 

12,210

 

 

 

(13,412

)

 

 

12,210

 

Unrealized gain on cash flow hedges

 

2,765

 

 

 

 

 

 

4,736

 

 

 

 

 

 

(3,473

)

 

 

4,028

 

Other comprehensive income

 

9,471

 

 

 

6,706

 

 

 

4,736

 

 

 

12,210

 

 

 

(16,885

)

 

 

16,238

 

Comprehensive income

 

152,349

 

 

 

334,873

 

 

 

74,659

 

 

 

23,688

 

 

 

(397,921

)

 

 

187,648

 

Less: Comprehensive income attributable to noncontrolling interests

 

 

 

 

 

 

 

(20,747

)

 

 

(14,552

)

 

 

 

 

 

(35,299

)

Comprehensive income attributable to MGM Resorts International

$

152,349

 

 

$

334,873

 

 

$

53,912

 

 

$

9,136

 

 

$

(397,921

)

 

$

152,349

 

 

28


 

 

Nine Months Ended September 30, 2018

 

 

 

 

 

 

Guarantor

 

 

Non-Guarantor Subsidiaries

 

 

 

 

 

 

 

 

 

 

Parent

 

 

Subsidiaries

 

 

MGP

 

 

Other

 

 

Elimination

 

 

Consolidated

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net revenues

$

 

 

$

5,859,591

 

 

$

652,888

 

 

$

2,851,316

 

 

$

(653,561

)

 

$

8,710,234

 

Equity in subsidiaries' earnings

 

972,838

 

 

 

94,444

 

 

 

 

 

 

 

 

 

(1,067,282

)

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Casino and hotel operations

 

7,879

 

 

 

3,310,367

 

 

 

 

 

 

1,784,245

 

 

 

(10,441

)

 

 

5,092,050

 

General and administrative

 

7,175

 

 

 

952,318

 

 

 

70,643

 

 

 

353,056

 

 

 

(63,432

)

 

 

1,319,760

 

Corporate expense

 

112,775

 

 

 

155,604

 

 

 

34,930

 

 

 

15,477

 

 

 

(17,750

)

 

 

301,036

 

Preopening and start-up expenses

 

 

 

 

11,891

 

 

 

 

 

 

120,993

 

 

 

 

 

 

132,884

 

Property transactions, net

 

 

 

 

(20,120

)

 

 

18,851

 

 

 

588

 

 

 

(18,851

)

 

 

(19,532

)

Depreciation and amortization

 

 

 

 

474,626

 

 

 

199,933

 

 

 

388,539

 

 

 

(197,596

)

 

 

865,502

 

 

 

127,829

 

 

 

4,884,686

 

 

 

324,357

 

 

 

2,662,898

 

 

 

(308,070

)

 

 

7,691,700

 

Income (loss) from unconsolidated affiliates

 

 

 

 

115,851

 

 

 

 

 

 

(650

)

 

 

 

 

 

115,201

 

Operating income

 

845,009

 

 

 

1,185,200

 

 

 

328,531

 

 

 

187,768

 

 

 

(1,412,773

)

 

 

1,133,735

 

Interest expense, net of amounts capitalized

 

(350,323

)

 

 

(388

)

 

 

(157,249

)

 

 

(47,015

)

 

 

 

 

 

(554,975

)

Other non-operating, net

 

47,307

 

 

 

(330,852

)

 

 

(3,936

)

 

 

(140,894

)

 

 

385,126

 

 

 

(43,249

)

Income (loss) from continuing operations before income taxes

 

541,993

 

 

 

853,960

 

 

 

167,346

 

 

 

(141

)

 

 

(1,027,647

)

 

 

535,511

 

Benefit (provision) for income taxes

 

(51,894

)

 

 

 

 

 

(5,144

)

 

 

97,572

 

 

 

2,089

 

 

 

42,623

 

Income from continuing operations, net of tax

 

490,099

 

 

 

853,960

 

 

 

162,202

 

 

 

97,431

 

 

 

(1,025,558

)

 

 

578,134

 

Income from discontinued operations, net of tax

 

 

 

 

 

 

 

13,949

 

 

 

 

 

 

(13,949

)

 

 

 

Net income

 

490,099

 

 

 

853,960

 

 

 

176,151

 

 

 

97,431

 

 

 

(1,039,507

)

 

 

578,134

 

Less: Net income attributable to noncontrolling interests

 

 

 

 

 

 

 

(48,460

)

 

 

(39,575

)

 

 

 

 

 

(88,035

)

Net income attributable to MGM Resorts International

$

490,099

 

 

$

853,960

 

 

$

127,691

 

 

$

57,856

 

 

$

(1,039,507

)

 

$

490,099

 

Net income

$

490,099

 

 

$

853,960

 

 

$

176,151

 

 

$

97,431

 

 

$

(1,039,507

)

 

$

578,134

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

(6,079

)

 

 

(6,079

)

 

 

 

 

 

(10,542

)

 

 

12,158

 

 

 

(10,542

)

Unrealized gain on cash flow hedges

 

15,923

 

 

 

 

 

 

27,372

 

 

 

 

 

 

(20,076

)

 

 

23,219

 

Other comprehensive income (loss)

 

9,844

 

 

 

(6,079

)

 

 

27,372

 

 

 

(10,542

)

 

 

(7,918

)

 

 

12,677

 

Comprehensive income

 

499,943

 

 

 

847,881

 

 

 

203,523

 

 

 

86,889

 

 

 

(1,047,425

)

 

 

590,811

 

Less: Comprehensive income attributable to noncontrolling interests

 

 

 

 

 

 

 

(55,756

)

 

 

(35,112

)

 

 

 

 

 

(90,868

)

Comprehensive income attributable to MGM Resorts International

$

499,943

 

 

$

847,881

 

 

$

147,767

 

 

$

51,777

 

 

$

(1,047,425

)

 

$

499,943

 

 

29


 

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION

 

 

Nine Months Ended September 30, 2018

 

 

 

 

 

 

Guarantor

 

 

Non-Guarantor Subsidiaries

 

 

 

 

 

 

 

 

 

 

Parent

 

 

Subsidiaries

 

 

MGP

 

 

Other

 

 

Elimination

 

 

Consolidated

 

 

(In thousands)

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by (used in) operating activities

$

(338,197

)

 

$

961,795

 

 

$

424,837

 

 

$

355,281

 

 

$

(8,250

)

 

$

1,395,466

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures, net of construction payable

 

 

 

 

(541,497

)

 

 

(191

)

 

 

(682,840

)

 

 

604

 

 

 

(1,223,924

)

Dispositions of property and equipment

 

 

 

 

477

 

 

 

 

 

 

98

 

 

 

 

 

 

575

 

Proceeds from sale of business units and investment in unconsolidated affiliate

 

 

 

 

163,616

 

 

 

 

 

 

 

 

 

 

 

 

163,616

 

Acquisition of Northfield Park, net of cash acquired

 

 

 

 

67,606

 

 

 

(1,068,337

)

 

 

 

 

 

(33,803

)

 

 

(1,034,534

)

Investments in unconsolidated affiliates

 

 

 

 

(2,503

)

 

 

 

 

 

 

 

 

 

 

 

(2,503

)

Distributions from unconsolidated affiliates

 

 

 

 

320,287

 

 

 

 

 

 

 

 

 

 

 

 

320,287

 

Intercompany accounts

 

 

 

 

(992,845

)

 

 

 

 

 

 

 

 

992,845

 

 

 

 

Other

 

 

 

 

(13,416

)

 

 

 

 

 

(8,793

)

 

 

 

 

 

(22,209

)

Net cash used in investing activities

 

 

 

 

(998,275

)

 

 

(1,068,528

)

 

 

(691,535

)

 

 

959,646

 

 

 

(1,798,692

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

(144,375

)

 

 

 

 

 

747,375

 

 

 

175,101

 

 

 

 

 

 

778,101

 

Issuance of long-term debt

 

1,000,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,000,000

 

Retirement of senior notes and senior debentures

 

 

 

 

(2,265

)

 

 

 

 

 

 

 

 

 

 

 

(2,265

)

Debt issuance costs

 

(14,414

)

 

 

 

 

 

(17,490

)

 

 

(32,904

)

 

 

 

 

 

(64,808

)

Dividends paid to common shareholders

 

(197,295

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(197,295

)

MGP dividends paid to consolidated subsidiaries

 

 

 

 

 

 

 

(247,820

)

 

 

 

 

 

247,820

 

 

 

 

Distributions to noncontrolling interest owners

 

 

 

 

 

 

 

(90,045

)

 

 

(59,481

)

 

 

 

 

 

(149,526

)

Purchases of common stock

 

(1,133,334

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,133,334

)

Intercompany accounts

 

859,461

 

 

 

124,252

 

 

 

 

 

 

256,952

 

 

 

(1,240,665

)

 

 

 

Other

 

(11,594

)

 

 

(5,714

)

 

 

 

 

 

(6,168

)

 

 

 

 

 

(23,476

)

Net cash provided by financing activities

 

358,449

 

 

 

116,273

 

 

 

392,020

 

 

 

333,500

 

 

 

(992,845

)

 

 

207,397

 

Effect of exchange rate on cash

 

 

 

 

 

 

 

 

 

 

(1,489

)

 

 

 

 

 

(1,489

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from (used in) discontinued operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from operating activities

 

 

 

 

 

 

 

8,250

 

 

 

 

 

 

(8,250

)

 

 

 

Cash flows used in investing activities

 

 

 

 

 

 

 

33,199

 

 

 

 

 

 

(33,199

)

 

 

 

Cash flows used in financing activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash flows used in discontinued operations

 

 

 

 

 

 

 

41,449

 

 

 

 

 

 

(41,449

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in cash and cash equivalents classified as assets held for sale

 

 

 

 

 

 

 

41,449

 

 

 

 

 

 

(41,449

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net increase (decrease) for the period

 

20,252

 

 

 

79,793

 

 

 

(251,671

)

 

 

(4,243

)

 

 

(41,449

)

 

 

(197,318

)

Balance, beginning of period

 

26,870

 

 

 

311,043

 

 

 

259,722

 

 

 

902,360

 

 

 

 

 

 

1,499,995

 

Balance, end of period

$

47,122

 

 

$

390,836

 

 

$

8,051

 

 

$

898,117

 

 

$

(41,449

)

 

$

1,302,677

 

 

30


 

Item 2.

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

 

This management’s discussion and analysis of financial condition and results of operations contain forward-looking statements that involve risks and uncertainties. Please see “Cautionary Statement Concerning Forward-Looking Statements” for a discussion of the uncertainties, risks and assumptions that may cause our actual results to differ materially from those discussed in the forward-looking statements. This discussion should be read in conjunction with our historical financial statements and related notes thereto and the other disclosures contained elsewhere in this Quarterly Report on Form 10-Q, the audited consolidated financial statements and notes for the fiscal year ended December 31, 2018, which were included in our Form 10-K, filed with the Securities and Exchange Commission (“SEC”) on February 27, 2019. The results of operations for the periods reflected herein are not necessarily indicative of results that may be expected for future periods. MGM Resorts International together with its subsidiaries may be referred to as “we,” “us” or “our.” MGM China Holdings Limited together with its subsidiaries is referred to as “MGM China.” MGM Growth Properties LLC together with its subsidiaries is referred to as “MGP.”

 

Description of our business and key performance indicators

 

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, repay debt financings and return capital to our shareholders. 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.

 

In January 2019, we announced the implementation of a company-wide business optimization initiative (the “MGM 2020 Plan”) to further reduce costs, improve efficiencies and position us for growth. We expect to deliver annualized Adjusted EBITDA uplift of $300 million by the end of 2021. As part of the first phase of the MGM 2020 Plan, which includes operating model changes to improve operating efficiency, we targeted Adjusted EBITDA uplift of $200 million by the end of 2020, and we currently anticipate achieving those first phase targets. As part of the second phase, we plan to invest in our digital transformation to drive revenue growth through a customer-centric strategy aimed at increasing customer spend, increasing our wallet share, and attracting our most valuable customers. We expect the second phase to provide Adjusted EBITDA uplift of $100 million by the end of 2021.

 

Also, in January 2019, we acquired the real property and operations associated with Empire City in Yonkers, New York. Subsequently, MGP acquired the developed real property associated with Empire City from us and leased the assets back to us pursuant to an amendment to the existing master lease. 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.  See Note 3 and Note 12 in the accompanying consolidated financial statements for information regarding this acquisition.  

 

In March 2019, we entered into an amendment to the existing master lease with respect to investments made by us related to improvements at Park MGM and NoMad Las Vegas. Additionally, in April 2019, we completed the acquisition of the membership interests of Northfield Park Associates, LLC, the entity that owned the operating assets associated with Hard Rock Rocksino Northfield Park (“Northfield Park,” subsequently rebranded to MGM Northfield Park), from MGP, and MGP retained the real estate assets. MGM Northfield Park was added to the existing master lease between the Company and MGP. See Note 12 in the accompanying financial statements for information regarding these transactions with MGP.  

 

In October 2019, we entered into an agreement to sell Circus Circus Las Vegas and adjacent land.  The transaction is expected to close in the fourth quarter of 2019 subject to customary closing conditions, including receipt of necessary regulatory approvals.  In connection with our review of the carrying value of assets to be sold due to the offer for sale received during the third quarter of 2019, we recorded a non-cash impairment charge of $219 million.  See Note 1 and Note 2 in the accompanying financial statements for information regarding this transaction and the impairment recorded.

 

Also, in October 2019, we entered into an agreement to form a joint venture with a subsidiary of Blackstone Real Estate Income Trust (“BREIT”).  The joint venture will acquire the Bellagio real estate assets from us and lease the assets back to us pursuant to a lease agreement (the “Bellagio Sale-Leaseback Transaction”).  As consideration, we will receive a 5% equity interest in the joint venture with the remaining consideration in cash. We will also provide a guarantee of the debt of the joint venture. The transaction is expected to close in the fourth quarter of 2019, subject to certain closing conditions.  See Note 1 in the accompanying financial statements for information regarding this transaction.

 

31


 

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 at our Las Vegas Strip Resorts is in the range of 25.0% to 35.0% of table games drop for Baccarat and 19.0% to 23.0% for non-Baccarat; 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 2.6% to 3.3% of turnover.

 

Results of Operations

 

Summary Financial Results

 

The following table summarizes our consolidated financial results for the three and nine months ended September 30, 2019 and 2018:

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

(In thousands)

 

Net revenues

$

3,314,382

 

 

$

3,029,302

 

 

$

9,714,536

 

 

$

8,710,234

 

Operating income

 

238,381

 

 

 

410,903

 

 

 

980,126

 

 

 

1,133,735

 

Net income

 

6,104

 

 

 

171,410

 

 

 

148,430

 

 

 

578,134

 

Net income (loss) attributable to MGM Resorts International

 

(37,133

)

 

 

142,878

 

 

 

37,569

 

 

 

490,099

 

 

Summary Operating Results

 

Consolidated net revenues increased 9% for the quarter ended September 30, 2019 compared to the prior year quarter due primarily to the continued ramp up of operations at MGM Cotai following its opening in February 2018, a full quarter of operating results at MGM Springfield, which opened in August 2018, the acquisition of Empire City in January 2019, and an increase in non-casino revenues at our Las Vegas Strip Resorts, as discussed further below.

 

Consolidated operating income decreased 42% for the quarter ended September 30, 2019 compared to the prior year quarter, primarily driven by a $219 million non-cash impairment charge related to the long-lived assets of Circus Circus Las Vegas and the adjacent land, included in property transactions, net. The prior year quarter included a $45 million gain related to the sale of Grand Victoria. Corporate expense, including normal share-based compensation for corporate employees, increased $10 million compared to the prior year quarter due primarily to $7 million in costs incurred to implement the MGM 2020 Plan and $3 million in finance modernization initiative costs. Preopening and start-up expenses decreased by $46 million compared to the prior year quarter due primarily to the openings of MGM Springfield and MGM Cotai. Depreciation and amortization expense, and general and administrative expense increased in the current quarter compared to the prior year quarter due primarily to the operations of MGM Cotai, MGM Springfield, and Empire City.

 

Consolidated net revenues increased 12% for the nine months ended September 30, 2019 compared to the prior year period due primarily to the continued ramp up of operations at MGM Cotai, and the operating results of MGM Springfield, Empire City, and MGM Northfield Park, which MGP acquired in July 2018, and an increase in non-casino revenue at our Las Vegas Strip Resorts, as discussed further below.

 

32


 

Consolidated operating income decreased 14% for the nine months ended September 30, 2019 compared to the prior year period. The current year period included a $219 million non-cash impairment charge, discussed above and $87 million in restructuring costs related to severance, accelerated stock compensation expense and consulting fees directly related to the operating model component of the MGM 2020 Plan. The prior year period included a $45 million gain related to the sale of Grand Victoria, as discussed above. Corporate expense, including normal share-based compensation for corporate employees, increased $45 million compared to the prior year period. The current period included $20 million of Empire City acquisition costs, primarily related to transfer taxes and advisory fees, $28 million in costs incurred to implement the MGM 2020 Plan, of which $12 million is included in the restructuring costs discussed above, and $10 million in finance modernization initiative costs. The prior year period included $25 million of corporate brand campaign expenses. Preopening and start-up expenses decreased by $128 million compared to the prior year period due primarily to the opening of MGM Springfield and MGM Cotai. Depreciation and amortization expense, and general and administrative expense increased in the nine months ended September 30, 2019 compared to the prior year period due primarily to the operations of MGM Cotai, MGM Springfield, MGM Northfield Park and Empire City.

 

Net Revenues by Segment

 

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

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

(In thousands)

 

Las Vegas Strip Resorts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table games win

$

203,882

 

 

$

227,922

 

 

$

606,333

 

 

$

726,942

 

Slots win

 

308,780

 

 

 

290,831

 

 

 

882,058

 

 

 

835,276

 

Other

 

14,573

 

 

 

14,009

 

 

 

48,866

 

 

 

45,712

 

Less: Incentives

 

(190,973

)

 

 

(186,829

)

 

 

(568,108

)

 

 

(539,484

)

Casino revenue

 

336,262

 

 

 

345,933

 

 

 

969,149

 

 

 

1,068,446

 

Rooms

 

469,145

 

 

 

443,477

 

 

 

1,407,733

 

 

 

1,343,563

 

Food and beverage

 

401,362

 

 

 

368,823

 

 

 

1,156,657

 

 

 

1,069,977

 

Entertainment, retail and other

 

300,679

 

 

 

296,123

 

 

 

868,441

 

 

 

858,988

 

Non-casino revenue

 

1,171,186

 

 

 

1,108,423

 

 

 

3,432,831

 

 

 

3,272,528

 

 

 

1,507,448

 

 

 

1,454,356

 

 

 

4,401,980

 

 

 

4,340,974

 

Regional Operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table games win

 

219,542

 

 

 

204,365

 

 

 

620,788

 

 

 

568,530

 

Slots win

 

627,325

 

 

 

515,675

 

 

 

1,757,386

 

 

 

1,436,603

 

Other

 

81,766

 

 

 

30,541

 

 

 

226,231

 

 

 

77,871

 

Less: Incentives

 

(267,885

)

 

 

(224,540

)

 

 

(715,553

)

 

 

(605,381

)

Casino revenue

 

660,748

 

 

 

526,041

 

 

 

1,888,852

 

 

 

1,477,623

 

Rooms

 

90,197

 

 

 

90,152

 

 

 

243,449

 

 

 

242,581

 

Food and beverage

 

126,625

 

 

 

113,953

 

 

 

368,374

 

 

 

314,136

 

Entertainment, retail and other

 

57,448

 

 

 

46,965

 

 

 

149,241

 

 

 

117,828

 

Non-casino revenue

 

274,270

 

 

 

251,070

 

 

 

761,064

 

 

 

674,545

 

 

 

935,018

 

 

 

777,111

 

 

 

2,649,916

 

 

 

2,152,168

 

MGM China

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

VIP table games win

 

317,824

 

 

 

303,924

 

 

 

947,414

 

 

 

873,878

 

Main floor table games win

 

500,411

 

 

 

339,898

 

 

 

1,402,575

 

 

 

1,005,799

 

Slots win

 

73,102

 

 

 

70,858

 

 

 

212,984

 

 

 

208,697

 

Less: Commissions and incentives

 

(228,499

)

 

 

(178,030

)

 

 

(603,391

)

 

 

(504,234

)

Casino revenue

 

662,838

 

 

 

536,650

 

 

 

1,959,582

 

 

 

1,584,140

 

Rooms

 

36,294

 

 

 

32,690

 

 

 

105,171

 

 

 

83,526

 

Food and beverage

 

32,214

 

 

 

31,606

 

 

 

93,836

 

 

 

80,447

 

Entertainment, retail and other

 

6,409

 

 

 

5,068

 

 

 

19,459

 

 

 

15,112

 

Non-casino revenue

 

74,917

 

 

 

69,364

 

 

 

218,466

 

 

 

179,085

 

 

 

737,755

 

 

 

606,014

 

 

 

2,178,048

 

 

 

1,763,225

 

Reportable segment net revenues

 

3,180,221

 

 

 

2,837,481

 

 

 

9,229,944

 

 

 

8,256,367

 

Corporate and other

 

134,161

 

 

 

191,821

 

 

 

484,592

 

 

 

453,867

 

 

$

3,314,382

 

 

$

3,029,302

 

 

$

9,714,536

 

 

$

8,710,234

 

 

 

33


 

Las Vegas Strip Resorts

 

Las Vegas Strip Resorts casino revenue decreased 3% for the quarter ended September 30, 2019 compared to the prior year quarter due primarily to an 11% decrease in tables games win primarily resulting from a 6% decrease in table games drop, driven by baccarat, partially offset by a 6% increase in slots win.

 

Las Vegas Strip Resorts casino revenue decreased 9% for the nine months ended September 30, 2019 compared to the prior year period due primarily to a 17% decrease in table games win primarily resulting from a 7% decrease in table games drop, driven by baccarat, and an increase in incentives, partially offset by a 6% increase in slots win.

 

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

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

(Dollars in millions)

 

Table Games Drop

$

842

 

 

$

897

 

 

$

2,661

 

 

$

2,848

 

Table Games Win %

 

24.2

%

 

 

25.4

%

 

 

22.8

%

 

 

25.5

%

Slots Handle

$

3,280

 

 

$

3,143

 

 

$

9,458

 

 

$

9,226

 

Slots Hold %

 

9.4

%

 

 

9.3

%

 

 

9.3

%

 

 

9.1

%

 

Las Vegas Strip Resorts rooms revenue increased 6% and 5% for the three and nine months ended September 30, 2019 compared to the prior year periods, respectively, due primarily to a 4% and 3% increase in REVPAR, respectively, as well as a 2% increase in available rooms in each period as a result of the completion of the rebranding and repositioning of Park MGM.

 

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

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Occupancy

 

92

%

 

 

93

%

 

 

92

%

 

 

92

%

Average Daily Rate (ADR)

$

164

 

 

$

157

 

 

$

167

 

 

$

162

 

Revenue per Available Room (REVPAR)

$

152

 

 

$

146

 

 

$

154

 

 

$

149

 

 

Las Vegas Strip Resorts food and beverage revenue increased 9% and 8% for the three and nine months ended September 30, 2019 compared to the prior year periods, respectively, due primarily to the opening of new outlets at Park MGM and NoMad Las Vegas and an increase in catering and banquets revenue driven by the completion of the expansion of MGM Grand’s Conference Center in 2019.

 

Regional Operations

 

Regional Operations casino revenue increased 26% and 28% for the three and nine months ended September 30, 2019 compared to the prior year periods, respectively, due primarily to the inclusion of Empire City’s video lottery terminal revenue in other casino revenue, the acquisition of MGM Northfield Park’s operations from MGP, the opening of MGM Springfield, and increases in slots win at MGM National Harbor.

 

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

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

(Dollars in millions)

 

Table Games Drop

$

1,122

 

 

$

1,054

 

 

$

3,158

 

 

$

2,945

 

Table Games Win %

 

19.6

%

 

 

19.4

%

 

 

19.7

%

 

 

19.3

%

Slots Handle

$

6,666

 

 

$

5,755

 

 

$

18,717

 

 

$

15,942

 

Slots Hold %

 

9.4

%

 

 

9.0

%

 

 

9.4

%

 

 

9.0

%

34


 

Regional Operations food and beverage revenue increased 11% and 17% for the three and nine months ended September 30, 2019 compared to the prior year periods, respectively, primarily due to the opening of MGM Springfield, the acquisition of Empire City, and the acquisition of MGM Northfield Park’s operations from MGP.

Regional Operations entertainment, retail and other revenue increased 22% and 27% for the three and nine months ended September 30, 2019 compared to the prior year periods, respectively. The increase for both periods is due primarily to entertainment events related to MGM Springfield, entertainment events at Center Stage at MGM Northfield Park, and ATM fees from the operations of MGM Springfield, Empire City, and MGM Northfield Park.

 

MGM China

 

The following table shows key gaming statistics for MGM China:

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

(Dollars in millions)

 

VIP Table Games Turnover

$

8,646

 

 

$

9,419

 

 

$

29,619

 

 

$

29,618

 

VIP Table Games Win %

 

3.7

%

 

 

3.2

%

 

 

3.2

%

 

 

3.0

%

Main Floor Table Games Drop

$

2,117

 

 

$

1,882

 

 

$

6,147

 

 

$

5,532

 

Main Floor Table Games Win %

 

23.6

%

 

 

18.1

%

 

 

22.8

%

 

 

18.2

%

 

MGM China net revenues increased 22% to $738 million for the quarter ended September 30, 2019 compared to the prior year quarter primarily as a result of the continued ramp up of operations at MGM Cotai and an increase in main floor table games win percentage. Main floor table games win increased 47% compared to the prior year quarter due to the addition of 25 new-to-market tables at MGM Cotai in 2019 and a 559 basis point increase in win percentage. VIP table games win increased 5% compared to the prior year quarter due to the opening of VIP gaming areas at the end of the third quarter of 2018 at MGM Cotai and an increase in the VIP table games win percentage.

 

MGM China net revenues increased 24% to $2.2 billion for the nine months ended September 30, 2019 compared to the prior year period primarily as a result of continued ramp up of operations at MGM Cotai and an increase in main floor table games win percentage. Main floor table games win increased 39% compared to the prior year period due to the addition of the new-to-market tables at MGM Cotai in January 2019 and a 463 basis point increase in win percentage. VIP table games win increased 8% compared to the prior year period due to the opening of VIP gaming areas at the end of the third quarter of 2018 at MGM Cotai and an increase in the VIP table games win percentage.

 

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. Corporate and other revenue for the three and nine months ended September 30, 2019 included $0 and $68 million in net revenues from MGP’s Northfield casino, respectively, which represents revenues prior to our acquisition of MGM Northfield Park’s operations from MGP on April 1, 2019. Corporate and other revenue for each of the three and nine months ended September 30, 2018 included $66 million in net revenues from MGP’s Northfield casino. Reimbursed costs revenue represents reimbursement of costs, primarily payroll-related, incurred by us in connection with the provision of management services and was $108 million and $107 million for the three months ended September 30, 2019 and 2018, respectively and $331 million and $315 million for the nine months ended September 30, 2019 and 2018, respectively. See below for additional discussion of our share of operating results from unconsolidated affiliates.

 

35


 

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.

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

(In thousands)

 

Las Vegas Strip Resorts

$

441,155

 

 

$

419,699

 

 

$

1,262,879

 

 

$

1,304,758

 

Regional Operations

 

263,616

 

 

 

207,249

 

 

 

725,343

 

 

 

564,277

 

MGM China

 

182,010

 

 

 

130,046

 

 

 

543,628

 

 

 

401,672

 

Reportable segment Adjusted Property EBITDA

 

886,781

 

 

 

756,994

 

 

 

2,531,850

 

 

 

2,270,707

 

Corporate and other

 

(73,117

)

 

 

(41,129

)

 

 

(222,419

)

 

 

(158,118

)

Adjusted EBITDA

$

813,664

 

 

$

715,865

 

 

$

2,309,431

 

 

$

2,112,589

 

 

Las Vegas Strip Resorts

 

Adjusted Property EBITDA at our Las Vegas Strip Resorts increased 5% and Adjusted Property EBITDA margin increased 41 basis points to 29.3% for the quarter ended September 30, 2019 compared to the prior year quarter primarily as a result of an increase in non-casino revenues, as discussed above.

 

Adjusted Property EBITDA at our Las Vegas Strip Resorts decreased 3% and Adjusted Property EBITDA margin decreased 137 basis points to 28.7% for the nine months ended September 30, 2019 compared to the prior year period due primarily to a decrease in table games revenue, as discussed above, and an increase in general and administrative expenses.

 

Regional Operations

 

Adjusted Property EBITDA at our Regional Operations increased 27% for the quarter ended September 30, 2019 compared to the prior year quarter and benefited from a full quarter of operations at MGM Springfield, the acquisition of Empire City and the acquisition of MGM Northfield Park’s operations from MGP. Adjusted Property EBITDA margin increased by 152 basis points for the quarter ended September 30, 2019 compared to the prior year quarter to 28.2%, primarily as a result of the inclusion of Empire City and MGM Northfield Park, partially offset by the continued ramp up of operations at MGM Springfield.

 

Adjusted Property EBITDA at our Regional Operations increased 29% for the nine months ended September 30, 2019 compared to the prior year period and benefited from the opening of MGM Springfield, the acquisition of Empire City and the acquisition of MGM Northfield Park’s operations from MGP. Adjusted Property EBITDA margin increased by 115 basis points for the nine months ended September 30, 2019 compared to the prior year period to 27.4%, primarily as a result of the inclusion of Empire City and MGM Northfield Park, partially offset by the continued ramp up of operations at MGM Springfield.

 

MGM China

 

MGM China’s Adjusted Property EBITDA increased 40% for the quarter ended September 30, 2019 compared to the prior year quarter due primarily to the ramp up of operations at MGM Cotai, and an increase in main floor table games win percentage, as discussed above. Adjusted Property EBITDA margin was 24.7%, a 321 basis point increase compared to the prior year quarter due to the reasons discussed above. Excluding intercompany license fees of $13 million and $11 million for the quarter ended September 30, 2019 and 2018, respectively, Adjusted Property EBITDA increased 39% compared to the prior year quarter.

 

MGM China’s Adjusted Property EBITDA increased 35% for the nine months ended September 30, 2019 compared to the prior year period due primarily to the ramp up of operations at MGM Cotai, and an increase in main floor table games win percentage, as discussed above. Adjusted Property EBITDA margin was 25.0%, a 218 basis point increase compared to the prior year period due to the reasons discussed above. Excluding intercompany license fees of $38 million and $31 million for the nine months ended September 30, 2019 and 2018, respectively, Adjusted Property EBITDA increased 34% compared to the prior year period.

 

36


 

Corporate and other

 

Adjusted EBITDA related to corporate and other for the quarter ended September 30, 2019 decreased $32 million compared to the prior year quarter. The prior year quarter included $22 million of Adjusted Property EBITDA related to MGM Northfield Park’s operating results, prior to our acquisition of the operations from MGP on April 1, 2019. In addition, corporate expense increased, as described in “Summary Operating Results.”

 

Adjusted EBITDA related to corporate and other for the nine months ended September 30, 2019 decreased $64 million compared to the prior year period primarily due to $14 million of non-recurring charges including certain one-time management termination fees and other fees, as well as an increase in corporate expense, as described in “Summary Operating Results.”

 

 

Operating Results – Income from Unconsolidated Affiliates

 

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

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

(In thousands)

 

CityCenter

$

39,317

 

 

$

33,232

 

 

$

105,672

 

 

$

107,294

 

Other

 

(3,103

)

 

 

2,263

 

 

 

(3,705

)

 

 

7,907

 

 

$

36,214

 

 

$

35,495

 

 

$

101,967

 

 

$

115,201

 

 

Our share of CityCenter’s operating income, including certain basis difference adjustments, for the quarter ended September 30, 2019 was $39 million compared to $33 million in the prior year quarter due primarily to an increase in casino and non-casino revenues. At Aria, casino revenues increased 24% for the quarter ended September 30, 2019 compared to the prior year quarter due primarily to a 13% increase in each of table games win and slots win. CityCenter’s non-casino revenues increased 4% for the quarter ended September 30, 2019 compared to the prior year quarter primarily related to an increase in food and beverage revenue due to the opening of a new outlet and a 4% increase in rooms revenue due primarily to a 4% increase in REVPAR at Aria.

 

Our share of CityCenter’s operating income, including certain basis difference adjustments, for the nine months ended September 30, 2019 was $106 million compared to $107 million in the prior year period. The current period included $12 million in charges related to restructuring costs and certain one-time management agreement termination fees. At Aria, casino revenues increased 5% for the nine months ended September 30, 2019 compared to the prior year period due primarily to a 9% increase in slots win. CityCenter’s non-casino revenues increased 5% for the nine months ended September 30, 2019 compared to the prior year period primarily related to increases in food and beverage revenue due to the opening of a new outlet and an increase in catering and banquet revenue, and a 4% increase in rooms revenue due primarily to a 5% increase in REVPAR at Aria.

 

Non-operating Results

 

Interest Expense

 

Gross interest expense was $216 million for both the three months ended September 30, 2019 and 2018 as the decrease in average debt outstanding under our senior credit facilities and decrease in the weighted average interest rate related to our senior notes was offset by an increase in average debt outstanding related to our senior notes, due to the issuance of notes during the year. Gross interest expense increased $49 million for the nine months ended September 30, 2019 compared to the prior year period due to an increase in the average debt outstanding relating to our senior notes and an increase in the weighted average interest rate related to our senior credit facilities, which was partially offset by a decrease in the weighted average interest rate related to our senior notes. Capitalized interest was $1 million and $4 million during the three and nine months ended September 30, 2019, respectively, compared to $11 million and $48 million during the three and nine months ended September 30, 2018, respectively. The decrease in capitalized interest was due primarily to the completion of MGM Springfield, which opened in August 2018, and the completion of MGM Cotai, which opened in February 2018. See Note 5 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.

 

37


 

Other, net

 

Other expenses for the three months ended September 30, 2019 increased $6 million compared to the prior year quarter, primarily due to a $2 million loss incurred on the early retirement of debt related to MGM China’s senior secured credit facility and a $7 million remeasurement loss on MGM China’s U.S. dollar-denominated senior notes. Refer to note 5 for further discussion of our long-term debt.

 

Other expenses for the nine months ended September 30, 2019 increased $42 million compared to the prior year period, primarily due to a $56 million loss incurred on the early retirement of debt related to our senior notes and MGM China’s senior secured credit facility, partially offset by a $2 million remeasurement gain on MGM China’s U.S. dollar-denominated senior notes. Refer to Note 5 for further discussion on long-term debt.

 

Income Taxes

 

Our effective tax rate for the quarter ended September 30, 2019 was a benefit of 620.8% compared to a provision of 10.0% in the prior year quarter. Our effective tax rate for the nine months ended September 30, 2019 was a provision of 33.9% compared to a benefit of 8.0% in the prior year period. The net tax benefit for the quarter ended September 30, 2019 was primarily due to tax benefit resulting from the $219 million non-cash impairment charge related to Circus Circus Las Vegas and adjacent land. The effective rate for the nine months ended September 30, 2019 was unfavorably impacted by the remeasurement of Macau deferred taxes due to the extension of the subconcession agreement in Macau, the recording of deferred state taxes resulting from the Empire City Acquisition and adjustments to our foreign tax credit valuation allowance, partially offset by the tax benefit resulting from the Circus Circus Las Vegas and adjacent land non-cash impairment charge. The quarter ended September 30, 2018 was favorably impacted by tax benefits related to changes in state income tax rates. The nine months ended September 30, 2018 was favorably impacted by the reversal of Macau shareholder dividend tax accrued prior to the extension of the current annual fee arrangement, a measurement period tax benefit adjustment for U.S. Tax Reform, and tax benefits related to changes in state income tax rates.

 

The annual effective tax rate calculation for all periods is impacted by assumptions made regarding projected foreign tax credit usage and valuation allowance. See Note 6 in the accompanying consolidated financial statements for further discussion.

 

Non-GAAP Measures

“Adjusted EBITDA” is earnings before interest and other non-operating income (expense), taxes, depreciation and amortization, preopening and start-up expenses, restructuring costs (which represents costs related to severance, accelerated stock compensation expense, and consulting fees directly related to the operating model component of the MGM 2020 Plan), and property transactions, net. We utilize “Adjusted Property EBITDA” as the primary profit measures for our reportable segments and underlying operating segments. Adjusted Property EBITDA is a measure defined as Adjusted EBITDA before corporate expense and stock compensation expense, which are not allocated to each operating segment, and before rent expense related to the master lease with MGP that eliminates in consolidation. “Adjusted Property EBITDA margin” is Adjusted Property EBITDA divided by related segment net revenues.

Adjusted EBITDA information is presented solely as a supplemental disclosure to reported GAAP measures because we believe these measures are 1) widely used measures of operating performance in the gaming industry, and 2) a principal basis for valuation of gaming companies. We believe that while items excluded from Adjusted EBITDA, 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 our operating resorts’ 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.

38


 

 

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

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

(In thousands)

 

Net income (loss) attributable to MGM Resorts International

$

(37,133

)

 

$

142,878

 

 

$

37,569

 

 

$

490,099

 

Plus: Net income attributable to noncontrolling interests

 

43,237

 

 

 

28,532

 

 

 

110,861

 

 

 

88,035

 

Net income

 

6,104

 

 

 

171,410

 

 

 

148,430

 

 

 

578,134

 

Provision (benefit) for income taxes

 

(7,276

)

 

 

19,046

 

 

 

75,969

 

 

 

(42,623

)

Income (loss) before income taxes

 

(1,172

)

 

 

190,456

 

 

 

224,399

 

 

 

535,511

 

Non-operating (income) expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net of amounts capitalized

 

215,503

 

 

 

205,573

 

 

 

647,452

 

 

 

554,975

 

Non-operating items from unconsolidated affiliates

 

14,669

 

 

 

11,583

 

 

 

54,311

 

 

 

31,661

 

Other, net

 

9,381

 

 

 

3,291

 

 

 

53,964

 

 

 

11,588

 

 

 

239,553

 

 

 

220,447

 

 

 

755,727

 

 

 

598,224

 

Operating income

 

238,381

 

 

 

410,903

 

 

 

980,126

 

 

 

1,133,735

 

Preopening and start-up expenses

 

925

 

 

 

46,890

 

 

 

5,091

 

 

 

132,884

 

Property transactions, net

 

249,858

 

 

 

(42,400

)

 

 

264,424

 

 

 

(19,532

)

Depreciation and amortization

 

322,009

 

 

 

300,472

 

 

 

973,211

 

 

 

865,502

 

Restructuring

 

2,491

 

 

 

 

 

 

86,579

 

 

 

 

Adjusted EBITDA

$

813,664

 

 

$

715,865

 

 

$

2,309,431

 

 

$

2,112,589

 

 

39


 

The following table presents Adjusted Property EBITDA and Adjusted EBITDA:

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

(In thousands)

 

Bellagio

$

117,589

 

 

$

104,715

 

 

$

355,914

 

 

$

371,716

 

MGM Grand Las Vegas

 

85,694

 

 

 

116,647

 

 

 

219,055

 

 

 

298,846

 

Mandalay Bay

 

66,256

 

 

 

58,649

 

 

 

184,998

 

 

 

194,415

 

The Mirage

 

41,186

 

 

 

27,098

 

 

 

119,153

 

 

 

99,715

 

Luxor

 

32,560

 

 

 

31,985

 

 

 

94,201

 

 

 

94,530

 

New York-New York

 

34,790

 

 

 

32,128

 

 

 

109,011

 

 

 

102,464

 

Excalibur

 

29,576

 

 

 

28,478

 

 

 

86,960

 

 

 

84,106

 

Park MGM

 

15,739

 

 

 

1,403

 

 

 

45,589

 

 

 

9,776

 

Circus Circus Las Vegas

 

17,765

 

 

 

18,596

 

 

 

47,998

 

 

 

49,190

 

Las Vegas Strip Resorts

 

441,155

 

 

 

419,699

 

 

 

1,262,879

 

 

 

1,304,758

 

MGM Grand Detroit

 

45,569

 

 

 

48,440

 

 

 

145,254

 

 

 

146,966

 

Beau Rivage

 

29,863

 

 

 

29,438

 

 

 

84,226

 

 

 

76,906

 

Gold Strike Tunica

 

15,506

 

 

 

14,668

 

 

 

50,808

 

 

 

39,477

 

Borgata

 

67,168

 

 

 

60,806

 

 

 

159,431

 

 

 

154,955

 

MGM National Harbor

 

52,879

 

 

 

46,253

 

 

 

150,978

 

 

 

138,329

 

MGM Springfield

 

9,228

 

 

 

7,644

 

 

 

31,090

 

 

 

7,644

 

Empire City Casino

 

19,980

 

 

 

 

 

 

56,333

 

 

 

 

MGM Northfield Park

 

23,423

 

 

 

 

 

 

47,223

 

 

 

 

Regional Operations

 

263,616

 

 

 

207,249

 

 

 

725,343

 

 

 

564,277

 

MGM Macau

 

102,216

 

 

 

118,211

 

 

 

347,780

 

 

 

363,859

 

MGM Cotai

 

79,794

 

 

 

11,835

 

 

 

195,848

 

 

 

37,813

 

MGM China

 

182,010

 

 

 

130,046

 

 

 

543,628

 

 

 

401,672

 

Unconsolidated resorts

 

36,192

 

 

 

35,495

 

 

 

105,031

 

 

 

115,201

 

Management and other operations

 

2,232

 

 

 

27,978

 

 

 

24,279

 

 

 

48,314

 

Stock compensation

 

(14,419

)

 

 

(16,618

)

 

 

(45,280

)

 

 

(49,521

)

Corporate

 

(97,122

)

 

 

(87,984

)

 

 

(306,449

)

 

 

(272,112

)

 

$

813,664

 

 

$

715,865

 

 

$

2,309,431

 

 

$

2,112,589

 

 

Liquidity and Capital Resources

 

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 $1.36 billion in the nine months ended September 30, 2019 compared to cash provided by operating activities of $1.4 billion in the nine months ended September 30, 2018. Operating cash flows decreased due to the current year period being negatively affected by a change in working capital primarily related to gaming deposits, as well as an increase in cash paid for interest, as discussed in “Non-operating Results,” and an increase in cash paid for taxes, partially offset by increases in our operating results from MGM China and our Regional Operations.

 

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.

 

40


 

Cash used in investing activities decreased $769 million to $1.0 billion in the nine months ended September 30, 2019 from $1.8 billion in the nine months ended September 30, 2018. The change was due primarily to a decrease of $741 million in capital expenditures and the inclusion of the $1.0 billion outflow for MGP’s acquisition of Northfield Park in 2018, partially offset by the $536 million outflow for the acquisition of Empire City, $106 million of outflows related to investments in unconsolidated affiliates and the extension of our subconcession at MGM China, and a $221 million decrease in distributions from unconsolidated affiliates. Distributions from unconsolidated affiliates in the nine months ended September 30, 2019 included our $90 million share of a $180 million annual dividend paid by CityCenter in 2019. Distributions from unconsolidated affiliates for the nine months ended September 30, 2018 consisted of our $200 million share of a $400 million dividend paid by CityCenter in May 2018, our $113 million share of a $225 million dividend paid by CityCenter in September 2018, and our $8 million share of distributions from other unconsolidated affiliates during the period. The decrease in capital expenditures primarily reflects substantial completion of our development projects at MGM Cotai, MGM Springfield, and the rebranding at Park MGM, as discussed in further detail below.

 

Capital Expenditures

 

We made capital expenditures of $483 million in the nine months ended September 30, 2019, of which $83 million related to MGM China. Capital expenditures at MGM China included $63 million related to projects at MGM Cotai and $20 million related to projects at MGM Macau. Capital expenditures at our Las Vegas Strip Resorts, Regional Operations and corporate entities of $400 million included $43 million related to the construction of MGM Springfield, $43 million related to the Park MGM rebranding project, as well as expenditures relating to information technology, the expansion of the convention center at MGM Grand Las Vegas and various room, restaurant, and entertainment venue remodels.

 

We made capital expenditures of $1.2 billion in the nine months ended September 30, 2018, of which $327 million related to MGM China, excluding development fees and capitalized interest on development fees eliminated in consolidation. Capital expenditures at MGM China included $299 million related to the construction of MGM Cotai and $27 million related to projects at MGM Macau. Capital expenditures at our Las Vegas Strip Resorts, Regional Operations and corporate entities of $897 million included $318 million related to the construction of MGM Springfield, $178 million related to the Park MGM rebranding project, $58 million related to a deposit for the purchase of an airplane, 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.

 

Financing activities. Cash used in financing activities was $620 million in the nine months ended September 30, 2019 compared to cash provided by financing activities of $207 million in the nine months ended September 30, 2018. The change was due primarily to net debt repayments of $221 million in the nine months ended September 30, 2019 compared to net debt borrowings of $1.8 billion in the nine months ended September 30, 2018. Additionally, we had net proceeds from MGP’s issuances of Class A shares in 2019 of $700 million and a decrease of $495 million in share repurchases.

 

Borrowings and Repayments of Long-term Debt  

 

During the nine months ended September 30, 2019, we repaid net debt of $221 million which consisted of the repayment of our $850 million 8.625% notes due 2019, the repayment of an aggregate $872 million of our senior notes pursuant to cash tender offers, $1.7 billion of net repayments on the previous MGM China senior secured credit facility, and $567 million of net repayments on the Operating Partnership’s senior credit facility, partially offset by our issuance of $1.0 billion of senior notes, the Operating Partnership’s issuance of $750 million of senior notes, MGM China’s issuance of $1.5 billion of senior notes, and $510 million of net borrowings on our senior credit facility.

 

In April 2019, we issued $1.0 billion in aggregate principal amount of 5.50% senior notes due 2027. We used the net proceeds from the offering to fund the purchase of $639 million in aggregate principal amount of our outstanding 6.75% senior notes due 2020 and $233 million in aggregate principal amount of our outstanding 5.25% senior notes due 2020 through our cash tender offers.

 

In May 2019, MGM China issued $750 million in aggregate principal amount of 5.375% senior notes due 2024 and $750 million in aggregate principal amount of 5.875% senior notes due 2026 and used the proceeds to permanently repay approximately $1.0 billion on its term loan facility with the remainder used to pay down its revolving credit facility under its prior senior secured credit facility. In August 2019, MGM China entered into a new $1.25 billion senior unsecured revolving credit facility, on which it drew $776 million and used the proceeds to fully repay the borrowings outstanding under its previous senior secured credit facility.

 

The proceeds from the Operating Partnership’s issuance of $750 million 5.75% senior notes due 2027 along with the proceeds from MGP’s Class A share issuance, discussed above, were primarily used to finance MGP’s acquisition of the real property associated with Empire City, finance the Park MGM Lease Transaction, and repay amounts drawn under the Operating Partnership’s revolving credit facility. The draws under our senior credit facility were primarily used to repay our senior notes due 2019, partially finance our acquisition of Empire City, pay dividends, and repurchase shares of our common stock. Additionally, we paid $63 million

41


 

of debt issuance costs related to the issuance of the Operating Partnership’s senior notes, our senior notes and MGM China’s senior notes.

During the nine months ended September 30, 2018, we borrowed net debt of $1.8 billion which consisted of the issuance of $1.0 billion 5.750% senior notes due 2025, $175 million of net borrowings on the MGM China credit facility, $747 million of net borrowings on the Operating Partnership senior credit facility, and $144 million of net repayments on the MGM senior credit facility. Additionally, we paid $65 million of debt issuance costs related to 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 and the issuance of the $1.0 billion 5.750% senior notes.

 

Dividends, Distributions to Noncontrolling Interest Owners and Share Repurchases

 

During the nine months ended September 30, 2019, we repurchased and retired $639 million of our common stock pursuant to our current $2.0 billion stock repurchase plan. During the nine months ended September 30, 2018, we repurchased and retired $1.1 billion of our common stock pursuant to our current and prior stock repurchase plans. The remaining availability under our $2.0 billion stock repurchase program was approximately $750 million as of September 30, 2019.

 

In June 2019, MGM China paid the final dividend for 2018 of $16 million, of which we received $9 million and noncontrolling interests received $7 million. In August 2019, MGM China paid an interim dividend for 2019 of $46 million, of which we received $25 million and noncontrolling interests received $20 million.

 

During the nine months ended September 30, 2019 we paid dividends each quarter of $0.13 per share, totaling $205 million, compared to dividends each quarter of $0.12 per share, totaling $197 million, paid in the nine months ended September 30, 2018.

 

The Operating Partnership paid the following distributions to its partnership unit holders during the nine months ended September 30, 2019 and 2018:

 

 

$395 million of distributions paid in 2019, of which we received $278 million and MGP received $117 million, which MGP concurrently paid as a dividend to its Class A shareholders; and

 

$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.

 

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.

 

We held cash and cash equivalents of $1.2 billion at September 30, 2019, of which MGM China held $490 million and the Operating Partnership held $154 million. At September 30, 2019, we had $15.1 billion in principal amount of indebtedness, including $1.3 billion of borrowings outstanding under our $2.25 billion senior secured credit facility, $2.3 billion outstanding under the $3.6 billion Operating Partnership credit facility, and $776 million outstanding under the $1.25 billion MGM China revolving credit facility. We expect to meet our debt maturities and planned capital expenditure requirements with future anticipated operating cash flows, cash and cash equivalents, and available borrowings under our credit facilities. We expect to make domestic capital investments at our resorts and corporate entities of $175 million to $225 million, which includes $5 million of construction costs remaining to close out MGM Springfield. Additionally, we expect to make capital investments at MGM China of $105 million to $110 million, which includes approximately $85 million of construction closeout costs at MGM Cotai and approximately $20 million to $25 million of maintenance capital expenditures.

 

In October 2019, we entered into an agreement for the sale of Circus Circus Las Vegas and adjacent land for consideration of $825 million, consisting of $662.5 million paid in cash, and also entered into an agreement to sell the real estate assets of Bellagio for $4.25 billion, consisting of approximately $4.2 billion paid in cash, and lease the real estate assets back pursuant to the Bellagio Sale-Leaseback Transaction. We expect to use the net cash proceeds from these transactions to repay debt and repurchase shares. We also expect to pay rent and other required cash outlays relating to the Bellagio Sale-Leaseback Transaction with future anticipated operating cash flows.  See Note 1 and Note 2 in the accompanying financial statements for information regarding these transactions.

42


 

 

On October 30, 2019, our Board of Directors approved a quarterly dividend of $0.13 per share that will be payable on December 16, 2019 to holders of record on December 10, 2019.

 

In October 2019, the Operating Partnership paid $139 million of distributions to its partnership unit holders, of which we received $94 million and MGP received $45 million, which MGP concurrently paid as a dividend to its Class A shareholders.

 

Critical Accounting Policies and Estimates

A complete discussion of our critical accounting policies and estimates is included in our Form 10-K for the fiscal year ended December 31, 2018. There have been no significant changes in our critical accounting policies and estimates since year end.

 

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 September 30, 2019, variable rate borrowings represented approximately 19% of our total borrowings after giving effect to the $1.5 billion total notional amount Operating Partnership interest rate swaps currently effective, on which it pays a weighted average fixed rate of 1.707%. 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

 

 

September 30,

 

 

2019

 

 

2020

 

 

2021

 

 

2022

 

 

2023

 

 

Thereafter

 

 

Total

 

 

2019

 

 

(In millions)

 

Fixed-rate

$

 

 

$

628

 

 

$

1,250

 

 

$

1,000

 

 

$

1,250

 

 

$

6,651

 

 

$

10,779

 

 

$

11,679

 

Average interest rate

N/A

 

 

 

6.1

%

 

 

6.6

%

 

 

7.8

%

 

 

6.0

%

 

 

5.4

%

 

 

5.9

%

 

 

 

 

Variable rate

$

8

 

 

$

68

 

 

$

68

 

 

$

68

 

 

$

1,595

 

 

$

2,481

 

 

$

4,288

 

 

$

4,287

 

Average interest rate

 

4.0

%

 

 

4.0

%

 

 

4.0

%

 

 

4.0

%

 

 

4.0

%

 

 

4.1

%

 

 

4.1

%

 

 

 

 

 

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. For U.S. dollar denominated debt incurred by MGM China, fluctuations in the exchange rates of the Hong Kong dollar in relation to the U.S. dollar could have adverse effects on our financial position and results of operations. As of September 30, 2019, a 1% weakening of the Hong Kong dollar (the functional currency of MGM China) to the U.S. dollar would result in a foreign currency transaction loss of $15 million.

 

Cautionary Statement Concerning Forward-Looking Statements

 

This Form 10-Q contains “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as “anticipates,” “intends,” “plans,” “seeks,” “believes,” “estimates,” “expects,” “will,” “may” and similar references to future periods. Examples of forward-looking statements include, but are not limited to, statements we make regarding our ability to generate significant cash flow and execute on ongoing and future projects, such as our MGM 2020 Plan, and the expected results of the MGM 2020 Plan, including our ability to achieve our MGM 2020 Plan goals and targets, the closing of the Bellagio Sale-Leaseback Transaction and the Circus Circus Las Vegas transaction, the expected net cash proceeds from the Bellagio Sale-Leaseback Transaction and the Circus Circus Las Vegas transaction, amounts we will spend in capital expenditures and investments, and our expectations with respect to future cash dividends on our common stock,

43


 

and dividends and distributions we will receive from MGM China, the Operating Partnership or CityCenter. 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, rent we will be required to make in connection with the Bellagio lease, and guarantee we will provide of the indebtedness of the BREIT venture 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 our MGM 2020 Plan or our asset light strategy;

 

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 2022;

44


 

 

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 majority 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;

 

our transaction with BREIT to monetize the Bellagio real property is subject to certain closing conditions, which, if not satisfied, may delay or prevent the closing;

 

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, 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.

45


 

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

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

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

 

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

 

Item 4.

Controls and Procedures

 

Our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer) have concluded that our disclosure controls and procedures (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 September 30, 2019 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.

 

46


 

Part II. OTHER INFORMATION

 

Item 1.

 

October 1 litigation. We and/or certain of our subsidiaries were 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. Lawsuits were first filed in October 2017 and include actions originally filed in the District Court of Clark County, Nevada and in the Superior Court of Los Angeles County, California. In June 2018, we removed to federal court all actions that remained pending in California and Nevada state courts. We also initiated declaratory relief actions in federal courts in various districts against individuals who had sued or stated an intent to sue.

 

In connection with the mediation of these matters, we and law firms representing plaintiffs in the majority of pending matters and purporting to represent substantially all claimants known to us (collectively, the “Claimants”) have entered into a settlement agreement (the “Settlement Agreement”) whereby, subject to the satisfaction of certain monetary and non-monetary conditions, our insurance carriers will deposit funds into a settlement fund covering the plaintiffs and certain other cases that emerged or were filed prior to October 1, 2019.  Pursuant to the terms of the Settlement Agreement, we expect that the total amount placed in the fund to be between $735 million and $800 million, subject to and depending on obtaining a minimum level of participation with escalators based on greater participation increasing the amount payable up to $800 million in the event of 100% participation by certain categories of claimants, as defined in the Settlement Agreement. We have $751 million of insurance coverage available to fund. Following the mediation, and shortly before the statute of limitations expired, a few additional lawsuits were filed against us and/or certain of our subsidiaries.  While it is possible that these lawsuits may be resolved as part of the Settlement Agreement, no assurances can be made that they will be included. Although we continue to believe we are not legally responsible for the perpetrator’s criminal acts, in the interest of avoiding protracted litigation and the related impact on the community, we believed it was in the best interests of all parties involved to negotiate and enter into the Settlement Agreement. As a result of the foregoing, we believe that it is probable a loss will be incurred and, as of September 30, 2019, we accrued a liability of $735 million, which represents the low end of the range of probable loss. In addition, we recorded an insurance receivable of $735 million, which represents the entire amount of the liability recorded for the settlement of these cases. While we intend for substantially all claimants to be covered by the Settlement Agreement, it remains possible that certain claimants may not join the settlement. In addition, no assurances can be given that the significant conditions to the Settlement Agreement will be satisfied by the Claimants.

 

If the conditions in the Settlement Agreement are not satisfied and the mediation stay is lifted, we are currently unable to reliably predict the future developments in, outcome of, and economic costs and other consequences of any such 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 any such lawsuits and believe we ultimately 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 our part or any of our affiliates. Given that these cases would be 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. 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. 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 1A.

Risk Factors

 

A description of certain factors that may affect our future results and risk factors is set forth in our Annual Report on Form 10-K for the year ended December 31, 2018. There have been no material changes to those factors previously disclosed in our 2018 Annual Report on Form 10-K, except as discussed below.

 

47


 

Risks Related to Our Business

 

The anticipated benefits of our asset light strategy, including the Bellagio Sale-Leaseback Transaction, may take longer to realize than expected or may not be realized at all.  Our current growth strategy is to pursue and execute on an asset-light business model, which involves a comprehensive review of our owned real estate assets to determine whether those assets can be monetized efficiently to allow unlocked capital to be redeployed towards balance sheet improvements, new growth opportunities and to return value to our shareholders. Our ability to execute on this strategy will depend on our ability to identify accretive transactions that optimize the value of our remaining assets. There can be no assurances, however, that we will be able to monetize our remaining real property assets on commercially reasonable terms, or at all, or that any anticipated benefits from any such potential transactions will be realized.

 

The Bellagio Sale-Leaseback Transaction is subject to certain closing conditions, which, if not satisfied, may delay or prevent the closing. On October 15, 2019, we entered into an agreement with BREIT to transfer the real estate assets associated with Bellagio to a newly formed joint venture, to be owned 5% by us and 95% by BREIT (the “BREIT Venture”). The completion of this transaction is subject to closing conditions, some of which are not within our control, and we cannot predict when, or if, these conditions will be satisfied. Failure to meet any or all of the closing conditions could delay the transaction or prevent it from being consummated. If the transaction does not proceed or is materially delayed for any reason, we may incur increased transaction costs, we may not recognize some or all of the benefits that we expect to achieve from the transaction, and the price of our common stock may be adversely impacted.

 

In connection with the Bellagio Sale-Leaseback Transaction, the Company will provide a guarantee of the indebtedness of the BREIT Venture. In connection with the Bellagio Sale-Leaseback Transaction, we will provide a guarantee of the debt of the BREIT Venture, which is expected to be in the principal amount of approximately $3.0 billion. The terms of the guarantee will provide that, in connection with a foreclosure, we are responsible for any shortfall between the value of the collateral and the debt obligation, which amount may be material, and we may not have sufficient cash on hand to fund any such obligation to the extent it is triggered in the future. If we do not have sufficient cash on hand, we may need to raise capital, including incurring additional indebtedness, in order to satisfy our obligation. There can be no assurance that any financing will be available to us, or, if available, will be on terms that are satisfactory to us.

 

We are required to pay a significant portion of our cash flows as rent, 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. We are currently required to make annual rent payments of $946.1 million under the master lease with MGP, which also provides for fixed annual escalators of 2% on the base rent in the second through sixth years and additional 2% increases thereafter subject to the tenant meeting an adjusted net revenue to rent ratio, as well as potential changes 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. Following the Bellagio Sale-Leaseback Transaction, the lease with BREIT will provide for an initial rent of $245 million with a fixed 2% escalator for the first ten years and, thereafter, an escalator equal to the greater of 2% and the CPI increase during the prior year subject to a cap of 3% during the 11th through 20th years, and 4% cap thereafter. The annual rent escalations under lease with BREIT will continue to apply regardless of the amount of cash flows generated by Bellagio. The leases, and, in particular the BREIT lease, also require us to spend a certain amount on capital expenditures at the leased properties. As a result of the foregoing rent and capital expenditure obligations, our ability to fund our 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.

 

48


 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

The following table provides information about share repurchases made by the Company of its common stock during the quarter ended September 30, 2019:

 

 

 

 

 

 

 

 

 

 

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)

 

July 1, 2019 — July 31, 2019

 

5,000,000

 

 

$

29.04

 

 

 

5,000,000

 

 

$

961,996

 

August 1, 2019 — August 31, 2019

 

4,879,166

 

 

$

27.97

 

 

 

4,879,166

 

 

$

825,542

 

September 1, 2019 — September 30, 2019

 

2,720,298

 

 

$

27.69

 

 

 

2,720,298

 

 

$

750,216

 

 

In May 2018, the Company’s Board of Directors authorized a $2.0 billion stock repurchase program. Under the 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 purchased 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. All shares repurchased by the Company during the quarter ended September 30, 2019 were purchased pursuant to the Company’s publicly announced stock repurchase program and have been retired.

49


 

Item 6.

Exhibits

 

  10.1

Revolving Credit Facility Agreement, dated August 12, 2019, by and among MGM China Holdings Limited and certain Arrangers and Lenders party thereto (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on August 13, 2019).

  31.1

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

  31.2

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

  32.1

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

  32.2

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

101.INS

Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH

Inline XBRL Taxonomy Extension Schema Document.

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104

The cover page from this Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, has been formatted in Inline XBRL.

 

In accordance with Rule 402 of Regulation S-T, the XBRL information included in Exhibit 101 and Exhibit 104 to this Form 10-Q shall not be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

 

50


 

SIGNATURES

 

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

 

 

MGM Resorts International

 

Date: November 4, 2019

By:    

/s/ JAMES J. MURREN

 

 

James J. Murren

 

 

Chairman of the Board and Chief Executive Officer (Principal Executive Officer)

 

 

 

Date: November 4, 2019

 

/s/ COREY I. SANDERS

 

 

Corey I. Sanders

 

 

Chief Financial Officer and Treasurer (Principal Financial Officer)

 

51