filings.toolsItem 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial Statement Schedule:
| Schedule II — Valuation and Qualifying Accounts | 103 | |
|---|---|---|
The financial information included in the financial statement schedule should be read in conjunction with the consolidated financial statements. All other financial statement schedules have been omitted because they are not applicable, or the required information is included in the consolidated financial statements or the notes thereto.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of MGM Resorts International
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of MGM Resorts International and subsidiaries (the “Company”) as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements and financial statement schedule as of and for the year ended December 31, 2020, of the Company and our report dated February 26, 2021, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
Las Vegas, Nevada
February 26, 2021
REPORT OF INDEPENDENT REGISTE****RED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of MGM Resorts International
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of MGM Resorts International and subsidiaries (the "Company") as of December 31, 2020 and 2019, the related consolidated statements of operations and comprehensive income (loss), cash flows and stockholders' equity for each of the three years in the period ended December 31, 2020, and the related notes and the financial statement schedule of Valuation and Qualifying Accounts included in Item 15(a)(2), (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 26, 2021, expressed an unqualified opinion on the Company's internal control over financial reporting.
Change in Accounting Principle
Effective January 1, 2019, the Company adopted FASB ASC Topic 842, Leases, using the modified retrospective approach.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
“MGP BREIT Venture Transaction – Investment in MGP BREIT Venture” — Refer to Notes 1, 2, and 6 to the financial statements
Critical Audit Matter Description
During the year ended December 31, 2020, the Company completed the MGP BREIT Venture Transaction and in connection with the transaction, formed MGP BREIT Venture, which, following the transaction, is owned 50.1% by the MGM Growth Properties Operating Partnership LP and 49.9% by a subsidiary of Blackstone Real Estate Income Trust, Inc. The 50.1% equity interest in MGP BREIT Venture was obtained as partial consideration for the contribution of the real estate assets. The assessment of whether an investment is a variable interest entity (“VIE”) and whether the Company has a controlling financial interest in the investment involves management’s judgment and analysis. The Company concluded that the investment in MGP BREIT Venture did not meet the definition of a VIE and did not qualify for consolidation under the voting interest entity model since MGP BREIT Venture is structured with substantive participating rights whereby both owners of MGP BREIT Venture participate in the decision making
process, thereby preventing the Company from exerting a controlling financial interest, as defined in ASC 810. The Company concluded that the MGP BREIT Venture is therefore accounted for under the equity method.
We identified the assessment of whether the investment in MGP BREIT Venture is a VIE and whether it qualifies for consolidation under the voting interest entity model as a critical audit matter because the VIE and consolidation accounting guidance under ASC 810 is complex and requires management to make significant judgments and assumptions to determine if the Company has a controlling financial interest, as defined in ASC 810, in MGP BREIT Venture based upon the terms of the ownership agreements.
Specifically, the significant judgments made by management include evaluating and concluding MGP BREIT Venture does not meet the definition of a VIE or qualify for consolidation under the voting interest entity model and included the application of consolidation accounting guidance. Given these significant judgments, performing audit procedures to evaluate the reasonableness of management’s evaluation of whether the MGP BREIT Venture does not meet the definition of a VIE or qualify for consolidation under the voting interest entity model required a high degree of auditor judgment, including the need to involve technical accounting specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the Company’s evaluation of whether an investment is a VIE and whether an investment qualifies for consolidation under the voting interest entity model in connection with the MGP BREIT Venture Transaction under ASC 810 included the following, among others:
| • | We tested the effectiveness of the control over management’s assessment of the investment in MGP BREIT Venture for consolidation, including the judgments and factors used in determining that the MGP BREIT Venture did not meet the definition of a VIE and did not qualify for consolidation under the voting interest entity model. |
|---|
| • | We inspected the underlying agreements and evaluated the reasonableness of the application of consolidation accounting guidance. With the assistance of technical accounting specialists, we evaluated the assumptions and judgments used by management to determine whether the investment in MGP BREIT Venture is a VIE and whether it qualifies for consolidation. |
|---|
/s/ Deloitte & Touche LLP
Las Vegas, Nevada
February 26, 2021
We have served as the Company's auditor since 2002.
MGM RESORTS INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
| December 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2020 | 2019 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 5,101,637 | $ | 2,329,604 | ||||
| Accounts receivable, net | 316,502 | 612,717 | ||||||
| Inventories | 88,323 | 102,888 | ||||||
| Income tax receivable | 243,415 | 27,167 | ||||||
| October 1 litigation insurance receivable | — | 735,000 | ||||||
| Prepaid expenses and other | 200,782 | 200,317 | ||||||
| Total current assets | 5,950,659 | 4,007,693 | ||||||
| Property and equipment, net | 14,632,091 | 18,285,955 | ||||||
| Other assets | ||||||||
| Investments in and advances to unconsolidated affiliates | 1,447,043 | 822,366 | ||||||
| Goodwill | 2,091,278 | 2,084,564 | ||||||
| Other intangible assets, net | 3,643,748 | 3,826,504 | ||||||
| Operating lease right-of-use assets, net | 8,286,694 | 4,392,481 | ||||||
| Other long-term assets, net | 443,421 | 456,793 | ||||||
| Total other assets | 15,912,184 | 11,582,708 | ||||||
| $ | 36,494,934 | $ | 33,876,356 | |||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | 142,523 | $ | 235,437 | ||||
| Construction payable | 30,149 | 74,734 | ||||||
| Accrued interest on long-term debt | 138,832 | 122,250 | ||||||
| October 1 litigation liability | — | 735,000 | ||||||
| Other accrued liabilities | 1,545,079 | 2,024,002 | ||||||
| Total current liabilities | 1,856,583 | 3,191,423 | ||||||
| Deferred income taxes, net | 2,153,016 | 2,106,506 | ||||||
| Long-term debt, net | 12,376,684 | 11,168,904 | ||||||
| Other long-term obligations | 472,084 | 363,588 | ||||||
| Operating lease liabilities | 8,390,117 | 4,277,970 | ||||||
| Commitments and contingencies (Note 12) | ||||||||
| Redeemable noncontrolling interests | 66,542 | 105,046 | ||||||
| Stockholders' equity | ||||||||
| Common stock, $.01 par value: authorized 1,000,000,000 shares, issued and outstanding 494,317,865 and 503,147,632 shares | 4,943 | 5,031 | ||||||
| Capital in excess of par value | 3,439,453 | 3,531,099 | ||||||
| Retained earnings | 3,091,007 | 4,201,337 | ||||||
| Accumulated other comprehensive loss | (30,677 | ) | (10,202 | ) | ||||
| Total MGM Resorts International stockholders' equity | 6,504,726 | 7,727,265 | ||||||
| Noncontrolling interests | 4,675,182 | 4,935,654 | ||||||
| Total stockholders' equity | 11,179,908 | 12,662,919 | ||||||
| $ | 36,494,934 | $ | 33,876,356 |
The accompanying notes are an integral part of these consolidated financial statements.
MGM RESORTS INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
| Year Ended December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2020 | 2019 | 2018 | ||||||||||
| Revenues | ||||||||||||
| Casino | $ | 2,871,720 | $ | 6,517,759 | $ | 5,753,150 | ||||||
| Rooms | 830,382 | 2,322,579 | 2,212,573 | |||||||||
| Food and beverage | 696,040 | 2,145,247 | 1,959,021 | |||||||||
| Entertainment, retail and other | 518,991 | 1,477,200 | 1,412,860 | |||||||||
| Reimbursed costs | 244,949 | 436,887 | 425,492 | |||||||||
| 5,162,082 | 12,899,672 | 11,763,096 | ||||||||||
| Expenses | ||||||||||||
| Casino | 1,701,783 | 3,623,899 | 3,199,775 | |||||||||
| Rooms | 419,156 | 829,677 | 791,761 | |||||||||
| Food and beverage | 674,118 | 1,661,626 | 1,501,868 | |||||||||
| Entertainment, retail and other | 412,705 | 1,051,400 | 999,979 | |||||||||
| Reimbursed costs | 244,949 | 436,887 | 425,492 | |||||||||
| General and administrative | 2,122,333 | 2,101,217 | 1,764,638 | |||||||||
| Corporate expense | 460,148 | 464,642 | 419,204 | |||||||||
| Preopening and start-up expenses | 84 | 7,175 | 151,392 | |||||||||
| Property transactions, net | 93,567 | 275,802 | 9,147 | |||||||||
| Gain on REIT transactions, net | (1,491,945 | ) | (2,677,996 | ) | — | |||||||
| Depreciation and amortization | 1,210,556 | 1,304,649 | 1,178,044 | |||||||||
| 5,847,454 | 9,078,978 | 10,441,300 | ||||||||||
| Income from unconsolidated affiliates | 42,938 | 119,521 | 147,690 | |||||||||
| Operating income (loss) | (642,434 | ) | 3,940,215 | 1,469,486 | ||||||||
| Non-operating income (expense) | ||||||||||||
| Interest expense, net of amounts capitalized | (676,380 | ) | (847,932 | ) | (769,513 | ) | ||||||
| Non-operating items from unconsolidated affiliates | (103,304 | ) | (62,296 | ) | (47,827 | ) | ||||||
| Other, net | (89,361 | ) | (183,262 | ) | (18,140 | ) | ||||||
| (869,045 | ) | (1,093,490 | ) | (835,480 | ) | |||||||
| Income (loss) before income taxes | (1,511,479 | ) | 2,846,725 | 634,006 | ||||||||
| Benefit (provision) for income taxes | 191,572 | (632,345 | ) | (50,112 | ) | |||||||
| Net income (loss) | (1,319,907 | ) | 2,214,380 | 583,894 | ||||||||
| Less: Net (income) loss attributable to noncontrolling interests | 287,183 | (165,234 | ) | (117,122 | ) | |||||||
| Net income (loss) attributable to MGM Resorts International | $ | (1,032,724 | ) | $ | 2,049,146 | $ | 466,772 | |||||
| Earnings (loss) per share | ||||||||||||
| Basic | $ | (2.02 | ) | $ | 3.90 | $ | 0.82 | |||||
| Diluted | $ | (2.02 | ) | $ | 3.88 | $ | 0.81 | |||||
| Weighted average common shares outstanding | ||||||||||||
| Basic | 494,152 | 524,173 | 544,253 | |||||||||
| Diluted | 494,152 | 527,645 | 549,536 |
The accompanying notes are an integral part of these consolidated financial statements.
MGM RESORTS INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
| Year Ended December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2020 | 2019 | 2018 | ||||||||||
| Net income (loss) | $ | (1,319,907 | ) | $ | 2,214,380 | $ | 583,894 | |||||
| Other comprehensive income (loss), net of tax: | ||||||||||||
| Foreign currency translation adjustment | 27,762 | 28,870 | (13,022 | ) | ||||||||
| Other comprehensive income (loss) related to cash flow hedges | (79,365 | ) | (29,505 | ) | 3,576 | |||||||
| Other comprehensive loss | (51,603 | ) | (635 | ) | (9,446 | ) | ||||||
| Comprehensive income (loss) | (1,371,510 | ) | 2,213,745 | 574,448 | ||||||||
| Less: Comprehensive (income) loss attributable to noncontrolling interests | 309,969 | (168,447 | ) | (112,622 | ) | |||||||
| Comprehensive income (loss) attributable to MGM Resorts International | $ | (1,061,541 | ) | $ | 2,045,298 | $ | 461,826 |
The accompanying notes are an integral part of these consolidated financial statements.
MGM RESORTS INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
| Year Ended December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2020 | 2019 | 2018 | ||||||||||
| Cash flows from operating activities | ||||||||||||
| Net income (loss) | $ | (1,319,907 | ) | $ | 2,214,380 | $ | 583,894 | |||||
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||||||||||||
| Depreciation and amortization | 1,210,556 | 1,304,649 | 1,178,044 | |||||||||
| Amortization of debt discounts, premiums and issuance costs | 34,363 | 38,972 | 41,102 | |||||||||
| Loss on early retirement of debt | 126,462 | 198,151 | 3,619 | |||||||||
| Provision for credit losses | 71,422 | 39,270 | 39,762 | |||||||||
| Stock-based compensation | 106,956 | 88,838 | 70,177 | |||||||||
| Property transactions, net | 93,567 | 275,802 | 9,147 | |||||||||
| Gain on REIT transactions, net | (1,491,945 | ) | (2,677,996 | ) | — | |||||||
| Noncash lease expense | 183,399 | 71,784 | — | |||||||||
| Loss (income) from unconsolidated affiliates | 60,366 | (57,225 | ) | (96,542 | ) | |||||||
| Distributions from unconsolidated affiliates | 86,584 | 299 | 11,563 | |||||||||
| Deferred income taxes | 18,347 | 595,046 | 46,720 | |||||||||
| Change in operating assets and liabilities: | ||||||||||||
| Accounts receivable | 960,099 | (726,610 | ) | (149,554 | ) | |||||||
| Inventories | 14,705 | 6,522 | (7,860 | ) | ||||||||
| Income taxes receivable and payable, net | (216,250 | ) | 1,259 | 14,120 | ||||||||
| Prepaid expenses and other | (37 | ) | 7,567 | (8,656 | ) | |||||||
| Accounts payable and accrued liabilities | (1,382,980 | ) | 465,602 | 21,508 | ||||||||
| Other | (48,750 | ) | (35,909 | ) | (34,505 | ) | ||||||
| Net cash provided by (used in) operating activities | (1,493,043 | ) | 1,810,401 | 1,722,539 | ||||||||
| Cash flows from investing activities | ||||||||||||
| Capital expenditures, net of construction payable | (270,579 | ) | (739,006 | ) | (1,486,843 | ) | ||||||
| Dispositions of property and equipment | 6,136 | 2,578 | 25,612 | |||||||||
| Proceeds from Mandalay Bay and MGM Grand Las Vegas transaction | 2,455,839 | — | — | |||||||||
| Proceeds from Bellagio transaction | — | 4,151,499 | — | |||||||||
| Proceeds from sale of Circus Circus Las Vegas and adjacent land | — | 652,333 | — | |||||||||
| 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 | (96,925 | ) | (81,877 | ) | (56,295 | ) | ||||||
| Distributions from unconsolidated affiliates | 63,960 | 100,700 | 322,631 | |||||||||
| Other | 873 | (31,112 | ) | (17,208 | ) | |||||||
| Net cash provided by (used in) investing activities | 2,159,304 | 3,519,434 | (2,083,021 | ) | ||||||||
| Cash flows from financing activities | ||||||||||||
| Net borrowings (repayments) under bank credit facilities – maturities of 90 days or less | (1,595,089 | ) | (3,634,049 | ) | 1,242,259 | |||||||
| Issuance of long-term debt | 3,550,000 | 3,250,000 | 1,000,000 | |||||||||
| Retirement of senior notes | (846,815 | ) | (3,764,167 | ) | (2,265 | ) | ||||||
| Debt issuance costs | (62,348 | ) | (63,391 | ) | (76,519 | ) | ||||||
| Proceeds from issuance of bridge loan facility | 1,304,625 | — | — | |||||||||
| Issuance of MGM Growth Properties Class A shares, net | 524,704 | 1,250,006 | — | |||||||||
| Dividends paid to common shareholders | (77,606 | ) | (271,288 | ) | (260,592 | ) | ||||||
| Distributions to noncontrolling interest owners | (286,385 | ) | (223,303 | ) | (184,932 | ) | ||||||
| Purchases of common stock | (353,720 | ) | (1,031,534 | ) | (1,283,333 | ) | ||||||
| Other | (53,939 | ) | (41,868 | ) | (45,384 | ) | ||||||
| Net cash provided by (used in) financing activities | 2,103,427 | (4,529,594 | ) | 389,234 | ||||||||
| Effect of exchange rate on cash | 2,345 | 2,601 | (1,985 | ) | ||||||||
| Cash and cash equivalents | ||||||||||||
| Net increase for the period | 2,772,033 | 802,842 | 26,767 | |||||||||
| Balance, beginning of period | 2,329,604 | 1,526,762 | 1,499,995 | |||||||||
| Balance, end of period | $ | 5,101,637 | $ | 2,329,604 | $ | 1,526,762 | ||||||
| Supplemental cash flow disclosures | ||||||||||||
| Interest paid, net of amounts capitalized | $ | 639,718 | $ | 826,970 | $ | 723,609 | ||||||
| Federal, state and foreign income taxes paid (refunds received), net | 8,543 | 28,493 | (10,100 | ) | ||||||||
| Non-cash investing and financing activities | ||||||||||||
| Note receivable related to sale of Circus Circus Las Vegas and adjacent land | $ | — | $ | 133,689 | $ | — | ||||||
| Investment in Bellagio BREIT Venture | — | 62,133 | — | |||||||||
| Investment in MGP BREIT Venture | 802,000 | — | — | |||||||||
| MGP BREIT Venture assumption of bridge loan facility | 1,304,625 | — | — |
The accompanying notes are an integral part of these consolidated financial statements.
MGM RESORTS INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years ended December 31, 2020, 2019 and 2018
(In thousands)
| Total | ||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Retained | Accumulated | MGM Resorts | ||||||||||||||||||||||||||||||
| Common Stock | Capital in | Earnings | Other | International | Non- | Total | ||||||||||||||||||||||||||
| Par | Excess of | (Accumulated | Comprehensive | Stockholders' | Controlling | Stockholders' | ||||||||||||||||||||||||||
| Shares | Value | Par Value | Deficit) | Income (Loss) | Equity | Interests | Equity | |||||||||||||||||||||||||
| Balances, January 1, 2018 | 566,276 | $ | 5,663 | $ | 5,357,709 | $ | 2,217,299 | $ | (3,610 | ) | $ | 7,577,061 | $ | 4,034,063 | $ | 11,611,124 | ||||||||||||||||
| Net income | — | — | — | 466,772 | — | 466,772 | 108,114 | 574,886 | ||||||||||||||||||||||||
| Currency translation adjustment | — | — | — | — | (7,422 | ) | (7,422 | ) | (5,600 | ) | (13,022 | ) | ||||||||||||||||||||
| Cash flow hedges | — | — | — | — | 2,476 | 2,476 | 1,100 | 3,576 | ||||||||||||||||||||||||
| Stock-based compensation | — | — | 65,072 | — | — | 65,072 | 5,124 | 70,196 | ||||||||||||||||||||||||
| Issuance of common stock pursuant to stock-based compensation awards | 2,280 | 23 | (32,225 | ) | — | — | (32,202 | ) | — | (32,202 | ) | |||||||||||||||||||||
| Cash distributions to noncontrolling interest owners | — | — | — | — | — | — | (147,321 | ) | (147,321 | ) | ||||||||||||||||||||||
| Dividends declared and paid to common shareholders ($0.48 per share) | — | — | — | (260,592 | ) | — | (260,592 | ) | — | (260,592 | ) | |||||||||||||||||||||
| MGP dividend payable to Class A shareholders | — | — | — | — | — | — | (31,732 | ) | (31,732 | ) | ||||||||||||||||||||||
| Issuance of restricted stock units | — | — | 3,609 | — | — | 3,609 | 107 | 3,716 | ||||||||||||||||||||||||
| Repurchases of common stock | (41,076 | ) | (411 | ) | (1,282,922 | ) | — | — | (1,283,333 | ) | — | (1,283,333 | ) | |||||||||||||||||||
| Adjustment of redeemable noncontrolling interest to redemption value | — | — | (21,326 | ) | — | — | (21,326 | ) | — | (21,326 | ) | |||||||||||||||||||||
| Other | — | — | 2,168 | — | — | 2,168 | (6,347 | ) | (4,179 | ) | ||||||||||||||||||||||
| Balances, December 31, 2018 | 527,480 | 5,275 | 4,092,085 | 2,423,479 | (8,556 | ) | 6,512,283 | 3,957,508 | 10,469,791 | |||||||||||||||||||||||
| Net income | — | — | — | 2,049,146 | — | 2,049,146 | 156,141 | 2,205,287 | ||||||||||||||||||||||||
| Currency translation adjustment | — | — | — | — | 16,125 | 16,125 | 12,745 | 28,870 | ||||||||||||||||||||||||
| Cash flow hedges | — | — | — | — | (19,973 | ) | (19,973 | ) | (9,532 | ) | (29,505 | ) | ||||||||||||||||||||
| Stock-based compensation | — | — | 83,897 | — | — | 83,897 | 4,941 | 88,838 | ||||||||||||||||||||||||
| Issuance of common stock pursuant to stock-based compensation awards | 2,150 | 20 | (25,985 | ) | — | — | (25,965 | ) | — | (25,965 | ) | |||||||||||||||||||||
| Cash distributions to noncontrolling interest owners | — | — | — | — | — | — | (181,816 | ) | (181,816 | ) | ||||||||||||||||||||||
| Dividends declared and paid to common shareholders ($0.52 per share) | — | — | — | (271,288 | ) | — | (271,288 | ) | — | (271,288 | ) | |||||||||||||||||||||
| MGP dividend payable to Class A shareholders | — | — | — | — | — | — | (53,489 | ) | (53,489 | ) | ||||||||||||||||||||||
| Issuance of restricted stock units | — | — | 1,546 | — | — | 1,546 | — | 1,546 | ||||||||||||||||||||||||
| Repurchases of common stock | (35,854 | ) | (358 | ) | (1,031,176 | ) | — | — | (1,031,534 | ) | — | (1,031,534 | ) | |||||||||||||||||||
| Adjustment of redeemable noncontrolling interest to redemption value | — | — | (2,714 | ) | — | — | (2,714 | ) | — | (2,714 | ) | |||||||||||||||||||||
| Empire City acquisition | 9,372 | 94 | 265,671 | — | — | 265,765 | — | 265,765 | ||||||||||||||||||||||||
| Empire City MGP transaction | — | — | (18,913 | ) | — | 195 | (18,718 | ) | 23,745 | 5,027 | ||||||||||||||||||||||
| MGP Class A share issuances | — | — | 150,464 | — | 1,512 | 151,976 | 1,049,582 | 1,201,558 | ||||||||||||||||||||||||
| Park MGM Transaction | — | — | (1,984 | ) | — | 16 | (1,968 | ) | 2,496 | 528 | ||||||||||||||||||||||
| Northfield OpCo transaction | — | — | 21,681 | — | (2 | ) | 21,679 | (27,439 | ) | (5,760 | ) | |||||||||||||||||||||
| Other | — | — | (3,473 | ) | — | 481 | (2,992 | ) | 772 | (2,220 | ) | |||||||||||||||||||||
| Balances, December 31, 2019 | 503,148 | 5,031 | 3,531,099 | 4,201,337 | (10,202 | ) | 7,727,265 | 4,935,654 | 12,662,919 | |||||||||||||||||||||||
| Net loss | — | — | — | (1,032,724 | ) | — | (1,032,724 | ) | (293,401 | ) | (1,326,125 | ) | ||||||||||||||||||||
| Currency translation adjustment | — | — | — | — | 15,711 | 15,711 | 12,051 | 27,762 | ||||||||||||||||||||||||
| Cash flow hedges | — | — | — | — | (44,528 | ) | (44,528 | ) | (34,837 | ) | (79,365 | ) | ||||||||||||||||||||
| Stock-based compensation | — | — | 100,907 | — | — | 100,907 | 6,049 | 106,956 | ||||||||||||||||||||||||
| Issuance of common stock pursuant to stock-based compensation awards | 2,031 | 21 | (16,424 | ) | — | — | (16,403 | ) | — | (16,403 | ) | |||||||||||||||||||||
| Cash distributions to noncontrolling interest owners | — | — | — | — | — | — | (221,690 | ) | (221,690 | ) | ||||||||||||||||||||||
| Dividends declared and paid to common shareholders ($0.1575 per share) | — | — | — | (77,606 | ) | — | (77,606 | ) | — | (77,606 | ) | |||||||||||||||||||||
| MGP dividend payable to Class A shareholders | — | — | — | — | — | — | (64,086 | ) | (64,086 | ) | ||||||||||||||||||||||
| Issuance of restricted stock units | — | — | 2,142 | — | — | 2,142 | — | 2,142 | ||||||||||||||||||||||||
| Repurchases of common stock | (10,861 | ) | (109 | ) | (353,611 | ) | — | — | (353,720 | ) | — | (353,720 | ) | |||||||||||||||||||
| Adjustment of redeemable noncontrolling interest to redemption value | — | — | 35,520 | — | — | 35,520 | — | 35,520 | ||||||||||||||||||||||||
| MGP Class A share issuances | — | — | 64,188 | — | 646 | 64,834 | 442,717 | 507,551 | ||||||||||||||||||||||||
| MGP BREIT Venture Transaction | — | — | (6,503 | ) | — | (59 | ) | (6,562 | ) | 8,287 | 1,725 | |||||||||||||||||||||
| Redemption of Operating Partnership units | — | — | 83,859 | — | 8,773 | 92,632 | (114,924 | ) | (22,292 | ) | ||||||||||||||||||||||
| Other | — | — | (1,724 | ) | — | (1,018 | ) | (2,742 | ) | (638 | ) | (3,380 | ) | |||||||||||||||||||
| Balances, December 31, 2020 | 494,318 | $ | 4,943 | $ | 3,439,453 | $ | 3,091,007 | $ | (30,677 | ) | $ | 6,504,726 | $ | 4,675,182 | $ | 11,179,908 |
The accompanying notes are an integral part of these consolidated financial statements.
MGM RESORTS INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 — ORGANIZATION
Organization. MGM Resorts International (together with its consolidated subsidiaries, unless otherwise indicated or unless the context requires otherwise, the “Company”) is a Delaware corporation that acts largely as a holding company and, through subsidiaries, owns and operates casino resorts.
As of December 31, 2020, 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 and Excalibur. Operations at MGM Grand Las Vegas include management of The Signature at MGM Grand Las Vegas. The Company owns, along with local investors, and operates 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 and operates 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 and Fallen Oak golf course in Saucier, Mississippi.
MGM Growth Properties LLC (“MGP”), a consolidated subsidiary of the Company, is organized as an umbrella partnership REIT (commonly referred to as an UPREIT) structure in which substantially all of its assets are owned by and substantially all of its businesses are conducted through MGM Growth Properties Operating Partnership LP (the “Operating Partnership”). MGP has two classes of authorized and outstanding voting common shares (collectively, the “shares”): Class A shares and a single Class B share. The Company owns MGP’s Class B share, which does not provide its holder any rights to profits or losses or any rights to receive distributions from operations of MGP or upon liquidation or winding up of MGP. MGP’s Class A shareholders are entitled to one vote per share, while the Company, as the owner of the Class B share, is entitled to an amount of votes representing a majority of the total voting power of MGP’s shares so long as the Company and its controlled affiliates’ (excluding MGP) aggregate beneficial ownership of the combined economic interests in MGP and the Operating Partnership does not fall below 30%. The Company and MGP each hold Operating Partnership units representing limited partner interests in the Operating Partnership. The general partner of the Operating Partnership is a wholly owned subsidiary of MGP. The Operating Partnership units held by the Company are exchangeable into Class A shares of MGP on a one-to-one basis, or cash at the fair value of a Class A share. The determination of settlement method is at the option of MGP’s independent conflicts committee. As of December 31, 2020, the Company owned 53.0% of the Operating Partnership units, and MGP held the remaining 47.0% ownership interest in the Operating Partnership.
Pursuant to a master lease agreement between a subsidiary of the Company and a subsidiary of the Operating Partnership, the Company leases the real estate assets of The Mirage, 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. Pursuant to a lease agreement between a subsidiary of the Company and a venture that is 5% owned by such subsidiary and 95% owned by a subsidiary of Blackstone Real Estate Income Trust, Inc. (“BREIT”, and such venture, the “Bellagio BREIT Venture”), the Company leases the real estate assets of Bellagio. Additionally, pursuant to a lease agreement between a subsidiary of the Company and a venture that is 50.1% owned by a subsidiary of the Operating Partnership and 49.9% by a subsidiary of BREIT (such venture, the “MGP BREIT Venture”), the Company leases the real estate assets of Mandalay Bay and MGM Grand Las Vegas. Refer to Note 11 for further discussion of the leases.
In July 2018, MGP acquired the membership interests of Northfield Park Associates, LLC (“Northfield”), a company that owned the real estate assets and operations of the Hard Rock Rocksino Northfield Park (“Northfield Acquisition”). In April 2019, the Company acquired the membership interests of Northfield from MGP and MGP retained the associated real estate assets. The Company then rebranded the property to MGM Northfield Park, and added it to the master lease between the Company and MGP. Refer to Note 4 and Note 18 for additional information.
In January 2019, the Company acquired the real property and operations associated with the Empire City Casino's race track and casino ("Empire City"). Subsequently, MGP acquired the developed real property associated with Empire City from the Company and Empire City was added to the master lease between the Company and MGP. Refer to Note 4 and Note 18 for additional information.
In March 2019, the Company entered into an amendment to the master lease with respect to improvements made by the Company related to the rebranding of the Park MGM and NoMad Las Vegas. Refer to Note 18 for additional information on this transaction.
On November 15, 2019, the Bellagio BREIT Venture was formed, which acquired the Bellagio real estate assets from the Company and leased such assets back to the Company pursuant to a lease agreement. In exchange for the contribution of the real estate assets, the Company received total consideration of $4.25 billion, which consisted of a 5% equity interest in the venture and cash of approximately $4.2 billion. The Company recorded a gain of $2.7 billion related to sale of the Bellagio real estate assets, recorded in “Gain on REIT transactions, net” in the consolidated statements of operations, which primarily reflects the difference between the carrying value of the real estate assets sold and the consideration received. The Company also provides a shortfall guarantee of the principal amount of indebtedness of the debt of the Bellagio BREIT Venture’s $3.01 billion of debt (and any interest accrued and unpaid thereon). Refer to Note 11 and Note 12 for additional information relating to the lease and guarantee, respectively.
In December 2019, the Company completed the sale of Circus Circus Las Vegas and adjacent land. See Note 16 for additional information related to this transaction.
On February 14, 2020, the Company completed a series of transactions (collectively the “MGP BREIT Venture Transaction”) pursuant to which the real estate assets of MGM Grand Las Vegas and Mandalay Bay (including Mandalay Place) were contributed to the newly formed MGP BREIT Venture. In exchange for the contribution of the real estate assets, the Company received total consideration of $4.6 billion, which was comprised of $2.5 billion of cash, $1.3 billion of the Operating Partnership’s secured indebtedness assumed by the MGP BREIT Venture, and the Operating Partnership’s 50.1% equity interest in the MGP BREIT Venture. In addition, the Operating Partnership issued approximately 3 million Operating Partnership units to the Company representing 5% of the equity value of the MGP BREIT Venture. The Company recorded the difference between consideration received of $2.5 billion and the carrying value of the MGM Grand Las Vegas real estate assets of $733 million and selling costs of $27 million as a net gain on sale of assets of $1.7 billion, which is reflected within “Gain on REIT transactions, net” in the consolidated statements of operations. The Company also recorded the difference between consideration received of $2.1 billion and the carrying value of the Mandalay Bay real estate assets of $2.3 billion and selling costs of $10 million as a net loss on sale of assets of $252 million, which is reflected within “Gain on REIT transactions, net” in the consolidated statements of operations. In connection with the transactions, the Company provides a shortfall guarantee of the principal amount of indebtedness of the MGP BREIT Venture (and any interest accrued and unpaid thereon) as further discussed in Note 12. On the closing date, BREIT also purchased approximately 5 million MGP Class A shares for $150 million.
In connection with the MGP BREIT Venture Transaction, MGP BREIT Venture entered into a lease with a subsidiary of the Company for the real estate assets of Mandalay Bay and MGM Grand Las Vegas as further discussed in Note 11. Additionally, the master lease with MGP was modified to remove the Mandalay Bay property and the annual cash rent under the MGP master lease was reduced by $133 million, as further discussed in Note 18.
Also, on January 14, 2020, the Company, the Operating Partnership, and MGP entered into an agreement for the Operating Partnership to waive its right following the closing of the MGP BREIT Venture Transaction to issue MGP Class A shares, in lieu of cash, to the Company in connection with the Company exercising its right to require the Operating Partnership to redeem Operating Partnership units that the Company holds, at a price per unit equal to a 3% discount to the ten day average closing price prior to the date of the notice of redemption. The waiver was effective upon closing of the transaction on February 14, 2020 and was scheduled to terminate on the earlier of February 14, 2022 or upon the Company’s receipt of cash proceeds of $1.4 billion as consideration for the redemption of the Company’s Operating Partnership units. On May 18, 2020, the Operating Partnership redeemed approximately 30 million Operating Partnership units that the Company held for $700 million, or $23.10 per unit, and on December 2, 2020, the Operating Partnership redeemed approximately 24 million of the Operating Partnership units that the Company held for the remaining $700 million, or $29.78 per unit. As a result, the waiver terminated in accordance with its terms.
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 and MGM Cotai, two integrated casino, hotel and entertainment resorts in Macau, as well as the related gaming subconcession and land concessions.
The Company owns 50% of and manages CityCenter Holdings, LLC (“CityCenter”), located between Bellagio and Park MGM. The other 50% of CityCenter is owned by Infinity World Development Corp, a wholly owned subsidiary of Dubai World, a Dubai, United Arab Emirates government decree entity. CityCenter consists of Aria, an integrated casino, hotel and entertainment resort; and Vdara, a luxury condominium-hotel. See Note 6 and Note 18 for additional information related to CityCenter.
The Company owns 50% of BetMGM LLC (“BetMGM”), which provides online sports betting and iGaming in certain jurisdictions in the United States. The other 50% of BetMGM is owned by Entain plc.
The Company has three reportable segments: Las Vegas Strip Resorts, Regional Operations and MGM China. See Note 17 for additional information about the Company’s segments.
Financial Impact of COVID-19. The spread of the novel 2019 coronavirus (“COVID-19”) and developments surrounding the global pandemic have had, and we expect will continue to have, a significant impact on the Company’s business, financial condition, results of operations and cash flows in 2021. In March 2020, all of the Company’s domestic properties temporarily closed pursuant to state and local government restrictions imposed as a result of COVID-19. Throughout the second and third quarters of 2020, all of the Company’s properties re-opened to the public but continue to operate without certain amenities and subject to certain occupancy limitations, with restrictions varying by jurisdiction and with further temporary re-closures and re-openings occurring for our properties or portions of our properties into the first quarter of 2021. In response to reduced demand, the Company temporarily closed the hotel tower operations at Mandalay Bay and Park MGM midweek and temporarily closed The Mirage midweek, which are expected to resume full week operations on March 3, 2021. Accordingly, the Company’s properties have continued to generate revenues that are significantly lower than historical results. In addition, as a result of the continued impact of the COVID-19 pandemic and the emergence of variant strains, our properties may be subject to temporary, complete, or partial shutdowns in the future. At this time, we cannot predict whether the jurisdictions in which our properties are located, states or the federal government will continue to impose operating restrictions on us or adopt similar or more restrictive measures in the future, including stay-at-home orders or ordering the temporary closures of all or a portion of our properties. The Company has implemented certain measures to mitigate the spread of COVID-19, including limitations on the number of gaming tables allowed to operate and on the number of seats at each table game, as well as slot machine spacing, temperature checks, mask protection, limitations on restaurant capacity, entertainment events and conventions, as well as other measures to enforce social distancing. In addition, following a temporary closure of the Company’s Macau properties on February 5, 2020, operations resumed on February 20, 2020, subject to certain health safeguards, such as limiting the number of gaming tables allowed to operate and the number of seats available at each table game, slot machine spacing, reduced operating hours at a number of restaurants and bars, temperature checks, mask protection and the need to present negative COVID-19 test results and health declarations submitted through the Macau Health Code system which remain in effect. Effective July 15, 2020, all guests entering our casinos were required to provide a negative nucleic acid test result with a valid ‘green’ Macau Health Code. Although the issuance of tourist visas (including the individual visa scheme) for residents of Zhuhai, Guangdong Province and all other provinces in mainland China to travel to Macau resumed on August 12, 2020, August 26, 2020 and September 23, 2020, respectively, several travel and entry restrictions in Macau, Hong Kong and mainland China remain in place (including the temporary suspension of ferry services from Hong Kong to Macau, the nucleic acid test result certificate and mandatory quarantine requirements for visitors from Hong Kong and Taiwan, and bans on entry or enhanced quarantine requirements on other visitors into Macau), which have significantly impacted visitation to the Company’s Macau properties.
While the Company has engaged in aggressive cost reduction efforts to minimize cash outflows while the Company’s properties were initially closed, and has continued to engage in such efforts as the properties have re-opened, the Company still has significant fixed and variable expenses, which have and will continue to adversely affect its profitability. In addition, the Company has seen, and expects to continue to see, weakened demand at its properties as a result of continued domestic and international travel restrictions or warnings, restrictions on amenity use, such as gaming, restaurant and pool capacity limitations, consumer fears and reduced consumer discretionary spending, general economic uncertainty, and increased rates of unemployment. In light of the foregoing, the Company is unable to determine when its properties will return to pre-pandemic demand and pricing, or if the Company’s properties will remain re-opened. The COVID-19 pandemic has had a material impact on its consolidated results of operations during 2020 and we expect that it will continue to have a material impact on our consolidated results of operations during 2021 and potentially thereafter.
NOTE 2 — BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation. The Company evaluates entities for which control is achieved through means other than voting rights to determine if it is the primary beneficiary of a variable interest entity (“VIE”). A VIE is an entity in which either (i) the equity investors as a group, if any, lack the power through voting or similar rights to direct the activities of such entity that most significantly impact such entity’s economic performance or (ii) the equity investment at risk is insufficient to finance that entity’s activities without additional subordinated financial support. The Company identifies the primary beneficiary of a VIE as the enterprise that has both of the following characteristics: (i) the power to direct the activities of the VIE that most significantly impact the entity’s economic performance; and (ii) the obligation to absorb losses or receive benefits of the VIE that could potentially be significant to the entity. The Company consolidates its investment in a VIE when it determines that it is its primary beneficiary. For these VIEs, the Company records a noncontrolling interest in the consolidated balance sheets. The Company may change its original assessment of a VIE upon subsequent events such as the modification of contractual arrangements that affect the characteristics or adequacy of the entity’s equity investments at risk and the disposition of all or a portion of an interest held by the primary beneficiary. The Company performs this analysis on an ongoing basis.
Management has determined that MGP is a VIE because the Class A equity investors as a group lack the power through voting or similar rights to direct the activities of such entity that most significantly impact such entity’s economic performance. The Company has determined that it is the primary beneficiary of MGP and consolidates MGP because (i) its ownership of MGP’s single Class B share entitles it to a majority of the total voting power of MGP’s shares, and (ii) the exchangeable nature of the Operating
Partnership units owned provide the Company the right to receive benefits from MGP that could potentially be significant to MGP. The Company has recorded MGP’s ownership interest in the Operating Partnership as noncontrolling interest in the Company’s consolidated financial statements. As of December 31, 2020, on a consolidated basis MGP had total assets of $10.6 billion, primarily related to its real estate investments, and total liabilities of $5.0 billion, primarily related to its indebtedness.
Management has determined that Bellagio BREIT Venture is a VIE because the equity holders 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 not the primary beneficiary of Bellagio BREIT Venture and, accordingly, does not consolidate the venture, because the Company does not have power to direct the activities that could potentially be significant to the venture; BREIT, as the managing member, has such power. The Company has recorded its 5% ownership interest in Bellagio BREIT Venture as an investment in unconsolidated affiliates in the Company’s consolidated financial statements, for which such amount was $60 million as of December 31, 2020. The Company’s maximum exposure to loss as a result of its involvement with Bellagio BREIT Venture is equal to the carrying value of its investment, assuming no future capital funding requirements, plus the exposure to loss resulting from the Company’s guarantee of the debt of Bellagio BREIT Venture, which guarantee is immaterial as of December 31, 2020, as further discussed in Note 12.
For entities determined not to be a VIE, the Company consolidates such entities in which the Company owns 100% of the equity. For entities in which the Company owns less than 100% of the equity interest, the Company consolidates the entity under the voting interest model if it has a controlling financial interest based upon the terms of the respective entities’ ownership agreements, such as MGM China. For these entities, the Company records a noncontrolling interest in the consolidated balance sheets and all intercompany balances and transactions are eliminated in consolidation. If the entity does not qualify for consolidation under the voting interest model and the Company has significant influence over the operating and financial decisions of the entity, the Company accounts for the entity under the equity method, such as the Company’s investments in CityCenter, MGP BREIT Venture, and BetMGM, which do not qualify for consolidation as the Company has joint control, given the entities are structured with substantive participating rights whereby both owners participate in the decision making process which prevents the Company from exerting a controlling financial interest in such entities, as defined in ASC 810.
Reclassifications. Certain reclassifications have been made to conform the prior period presentation.
Management’s use of estimates. The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. These principles require the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Fair value measurements. Fair value measurements affect the Company’s accounting and impairment assessments of its long-lived assets, investments in unconsolidated affiliates, cost method investments, assets acquired, and liabilities assumed in an acquisition, and goodwill and other intangible assets. Fair value measurements also affect the Company’s accounting for certain of its financial assets and liabilities. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and is measured according to a hierarchy that includes: Level 1 inputs, such as quoted prices in an active market; Level 2 inputs, which are observable inputs for similar assets; or Level 3 inputs, which are unobservable inputs. The Company used the following inputs in its fair value measurements:
| • | Level 1 and Level 2 inputs for its long-term debt fair value disclosures. See Note 9; |
|---|
| • | Level 2 inputs when measuring the Operating Partnership’s fair value of its interest rate swaps. See Note 9; |
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| • | Level 2 and Level 3 inputs when assessing the fair value of assets acquired and liabilities assumed during the Empire City acquisition. See Note 4; |
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| • | Level 2 and Level 3 inputs when assessing the fair value of the note receivable relating to the Circus Circus Las Vegas and adjacent land sale. See Note 16. |
|---|
Cash and cash equivalents. Cash and cash equivalents include cash on hand, investments and interest-bearing instruments with maturities of 90 days or less at the date of acquisition. Such investments are carried at cost, which approximates market value. Book overdraft balances resulting from the Company’s cash management program are recorded as “Accounts payable” or “Construction payable” as applicable.
Accounts receivable and credit risk. Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of casino accounts receivable. The Company issues credit to approved casino customers and gaming promoters following background checks and investigations of creditworthiness. At December 31, 2020 and 2019, approximately 52% and 57%, respectively, of the Company’s gross casino accounts receivable were owed by customers from foreign countries, primarily within Asia. Business or economic conditions or other significant events in these countries could affect the collectability of such receivables.
Accounts receivable are typically non-interest bearing and are initially recorded at cost. Accounts are written off when management deems the account to be uncollectible. Recoveries of accounts previously written off are recorded when received. An estimated loss reserve is maintained to reduce the Company’s receivables to their net carrying amount, which approximates fair value. The loss reserve is estimated based on both a specific review of customer accounts as well as historical collection experience and current and expected future economic and business conditions. Management believes that as of December 31, 2020, no significant concentrations of credit risk existed for which a loss reserve had not already been recorded.
Inventories. Inventories consist primarily of food and beverage, retail merchandise and operating supplies, and are stated at the lower of cost or net realizable value. Cost is determined primarily using the average cost method for food and beverage and operating supplies. Cost for retail merchandise is determined using the cost method.
Property and equipment. Property and equipment are stated at cost. A significant amount of the Company’s property and equipment was acquired through business combinations and therefore recognized at fair value at the acquisition date. Gains or losses on dispositions of property and equipment are included in the determination of income or loss. Maintenance costs are expensed as incurred.
Property and equipment are generally depreciated over the following estimated useful lives on a straight-line basis:
| Buildings and improvements | 15 to 40 years | |
|---|---|---|
| Land improvements | 10 to 20 years | |
| Furniture and fixtures | 3 to 20 years | |
| Equipment | 3 to 15 years |
The Company evaluates its property and equipment and other long-lived assets for impairment based on its classification as held for sale or to be held and used. Several criteria must be met before an asset is classified as held for sale, including that management with the appropriate authority commits to a plan to sell the asset at a reasonable price in relation to its fair value and is actively seeking a buyer. For assets held for sale, the Company recognizes the asset at the lower of carrying value or fair market value less costs to sell, as estimated based on comparable asset sales, offers received, or a discounted cash flow model. For assets to be held and used, the Company reviews for impairment whenever indicators of impairment exist. The Company then compares the estimated future cash flows of the asset, on an undiscounted basis, to the carrying value of the asset. If the undiscounted cash flows exceed the carrying value, no impairment is indicated. If the undiscounted cash flows do not exceed the carrying value, then an impairment charge is recorded based on the fair value of the asset, typically measured using a discounted cash flow model. If an asset is still under development, future cash flows include remaining construction costs. All recognized impairment losses, whether for assets held for sale or assets to be held and used, are recorded as operating expenses. Refer to Note 16 for discussion on the impairment loss recorded on Circus Circus Las Vegas and adjacent land in 2019.
Capitalized interest. The interest cost associated with major development and construction projects is capitalized and included in the cost of the project. When no debt is incurred specifically for a project, interest is capitalized on amounts expended on the project using the weighted average cost of the Company’s outstanding borrowings. Capitalization of interest ceases when the project is substantially complete, or development activity is suspended for more than a brief period.
Investments in and advances to unconsolidated affiliates. The Company has investments in unconsolidated affiliates accounted for under the equity method. Under the equity method, carrying value is adjusted for the Company’s share of the investees’ earnings and losses, amortization of certain basis differences, as well as capital contributions to and distributions from these companies. Distributions in excess of equity method earnings are recognized as a return of investment and recorded as investing cash inflows in the accompanying consolidated statements of cash flows. The Company classifies operating income and losses as well as gains and impairments related to its investments in unconsolidated affiliates as a component of operating income or loss and classifies non-operating income or losses related to its investments in unconsolidated affiliates as a component of non-operating income or loss, as the Company’s investments in such unconsolidated affiliates are an extension of the Company’s core business operations.
The Company evaluates its investments in unconsolidated affiliates for impairment whenever events or changes in circumstances indicate that the carrying value of its investment may have experienced an “other-than-temporary” decline in value. If such conditions exist, the Company compares the estimated fair value of the investment to its carrying value to determine if an impairment is indicated and determines whether the impairment is “other-than-temporary” based on its assessment of all relevant factors, including consideration of the Company’s intent and ability to retain its investment. The Company estimates fair value using a discounted cash flow analysis based on estimated future results of the investee and market indicators of terminal year capitalization rates, and a market approach that utilizes business enterprise value multiples based on a range of multiples from the Company’s peer group.
Goodwill and other intangible assets. Goodwill represents the excess of purchase price over fair market value of net assets acquired in business combinations. Goodwill and indefinite-lived intangible assets must be reviewed for impairment at least annually and between annual test dates in certain circumstances. The Company performs its annual impairment tests in the fourth quarter of each fiscal year. No material impairments were indicated or recorded as a result of the annual impairment review for goodwill and indefinite-lived intangible assets in 2020, 2019, and 2018.
Accounting guidance provides entities the option to perform a qualitative assessment of goodwill and indefinite-lived intangible assets (commonly referred to as “step zero”) in order to determine whether further impairment testing is necessary. In performing the step zero analysis the Company considers macroeconomic conditions, industry and market considerations, current and forecasted financial performance, entity-specific events, and changes in the composition or carrying amount of net assets of reporting units for goodwill. In addition, the Company takes into consideration the amount of excess of fair value over carrying value determined in the last quantitative analysis that was performed, as well as the period of time that has passed since the last quantitative analysis. If the step zero analysis indicates that it is more likely than not that the fair value is less than its carrying amount, the entity would proceed to a quantitative analysis.
Under the quantitative analysis, goodwill for relevant reporting units is tested for impairment using a discounted cash flow analysis based on the estimated future results of the Company’s reporting units discounted using market discount rates and market indicators of terminal year capitalization rates, and a market approach that utilizes business enterprise value multiples based on a range of multiples from the Company’s peer group. If the fair value of the reporting unit is less than its carrying value, an impairment charge is recognized equal to the difference. Under the quantitative analysis, license rights are tested for impairment using a discounted cash flow approach, and trademarks are tested for impairment using the relief-from-royalty method. If the fair value of an indefinite-lived intangible asset is less than its carrying amount, an impairment loss is recognized equal to the difference.
Revenue recognition. The Company’s revenue from contracts with customers consists of casino wagers transactions, hotel room sales, food and beverage transactions, entertainment shows, and retail transactions.
The transaction price for a casino wager is the difference between gaming wins and losses (“net win”). In certain circumstances, the Company offers discounts on markers, which is estimated based upon historical business practice, and recorded as a reduction of casino revenue. Commissions rebated to gaming promoters and VIP players at MGM China are also recorded as a reduction of casino revenue. The Company accounts for casino revenue on a portfolio basis given the similar characteristics of wagers by recognizing net win per gaming day versus on an individual wager basis.
For casino wager transactions that include other goods and services provided by the Company to gaming patrons on a discretionary basis to incentivize gaming, the Company allocates revenue from the casino wager transaction to the good or service delivered based upon standalone selling price (“SSP”). Discretionary goods and services provided by the Company and supplied by third parties are recognized as an operating expense.
For casino wager transactions that include incentives earned by customers under the Company’s loyalty programs, the Company allocates a portion of net win based upon the SSP of such incentive (less estimated breakage). This allocation is deferred and recognized as revenue when the customer redeems the incentive. When redeemed, revenue is recognized in the department that provides the goods or service. Redemption of loyalty incentives at third party outlets are deducted from the loyalty liability and amounts owed are paid to the third party, with any discount received recorded as other revenue. Commissions and incentives provided to gaming customers were $1.1 billion, $2.5 billion and $2.3 billion for the years ended December 31, 2020, 2019 and 2018, respectively. After allocating revenue to other goods and services provided as part of casino wager transactions, the Company records the residual amount to casino revenue.
The transaction price of rooms, food and beverage, and retail contracts is the net amount collected from the customer for such goods and services. The transaction price for such contracts is recorded as revenue when the good or service is transferred to the customer over their stay at the hotel or when the delivery is made for the food & beverage and retail & other contracts. Sales and usage-based taxes are excluded from revenues. For some arrangements, the Company acts as an agent in that it arranges for another party to transfer goods and services and the Company is not the controlling entity, which primarily include certain of the Company’s entertainment shows and, in certain jurisdictions, the Company’s arrangement with BetMGM for online sports betting and iGaming.
The Company also has other contracts that include multiple goods and services, such as packages that bundle food, beverage, or entertainment offerings with hotel stays and convention services. For such arrangements, the Company allocates revenue to each good or service based on its relative SSP. The Company primarily determines the SSP of rooms, food and beverage, entertainment, and retail goods and services based on the amount that the Company charges when sold separately in similar circumstances to similar customers.
Contract and Contract-Related Liabilities. There may be a difference between the timing of cash receipts from the customer and the recognition of revenue, resulting in a contract or contract-related liability. The Company generally has three types of liabilities related to contracts with customers: (1) outstanding chip liability, which represents the amounts owed in exchange for gaming chips held by a customer, (2) loyalty program obligations, which represents the deferred allocation of revenue relating to loyalty program incentives earned, as discussed above, and (3) customer advances and other, which is primarily funds deposited by customers before gaming play occurs (“casino front money”) and advance payments on goods and services yet to be provided such as advance ticket sales and deposits on rooms and convention space or for unpaid wagers. These liabilities are generally expected to be recognized as revenue within one year of being purchased, earned, or deposited and are recorded within “Other accrued liabilities” on the Company’s consolidated balance sheets.
The following table summarizes the activity related to contract and contract-related liabilities:
| Outstanding Chip Liability | Loyalty Program | Customer Advances and Other | |||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2020 | 2019 | 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Balance at January 1 | $ | 314,570 | $ | 323,811 | $ | 126,966 | $ | 113,293 | $ | 481,095 | $ | 667,285 | |||||||||||
| Balance at December 31 | 212,671 | 314,570 | 139,756 | 126,966 | 382,287 | 481,095 | |||||||||||||||||
| Increase / (decrease) | $ | (101,899 | ) | $ | (9,241 | ) | $ | 12,790 | $ | 13,673 | $ | (98,808 | ) | $ | (186,190 | ) |
Reimbursed cost. Costs reimbursed pursuant to management services are recognized as revenue in the period it incurs the costs as this reflects when the Company performs its related performance obligation and is entitled to reimbursement. Reimbursed costs relate primarily to the Company’s management of CityCenter.
Revenue by source. The Company presents the revenue earned disaggregated by the type or nature of the good or service (casino, room, food and beverage, and entertainment, retail and other) and by relevant geographic region within Note 17.
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 of time 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 right-of-use (“ROU”) assets and 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 includes 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 typically uses its incremental borrowing rate to discount the lease payments based on the information available at the 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. For operating leases, lease expense for minimum lease payments is recognized on a straight-line basis over the expected lease term. For finance leases, the ROU asset depreciates on a straight-line basis over the shorter of the lease term or useful life of the ROU asset and the lease liability accretes interest based on the interest method using the discount rate determined at lease commencement.
Refer to Note 11 for discussion of leases under which the Company is a lessee. The Company is a lessor under certain other lease arrangements. Lease revenues earned by the Company from third parties are classified within the line item corresponding to the type or nature of the tenant’s good or service. Lease revenues from third party tenants include $24 million, $53 million and $51 million recorded within food and beverage revenue for 2020, 2019 and 2018, respectively, and $60 million, $89 million and $87 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.
Advertising. The Company expenses advertising costs as they are incurred. Advertising expense that primarily relates to media placement costs and which is generally included in general and administrative expenses, was $88 million, $195 million and $226 million for 2020, 2019 and 2018, respectively.
Corporate expense. Corporate expense represents unallocated payroll, professional fees and various other expenses not directly related to the Company’s casino resort operations. In addition, corporate expense includes the costs associated with the Company’s evaluation and pursuit of new business opportunities, which are expensed as incurred.
Preopening and start-up expenses. Preopening and start-up costs, including organizational costs, are expensed as incurred. Costs classified as preopening and start-up expenses include payroll, outside services, advertising, and other expenses related to new or start-up operations.
Property transactions, net. The Company classifies transactions such as write-downs and impairments, demolition costs, and normal gains and losses on the sale of assets as “Property transactions, net.” See Note 16 for a detailed discussion of these amounts.
Redeemable noncontrolling interest. Certain noncontrolling interest parties have non-voting economic interests in MGM National Harbor which provide for annual preferred distributions by MGM National Harbor to the noncontrolling interest parties based on a percentage of its annual net gaming revenue (as defined in the MGM National Harbor operating agreement). Such distributions are accrued each quarter and are paid 90-days after the end of each fiscal year. The noncontrolling interest parties each have the ability to require MGM National Harbor to purchase all or a portion of their interests for a purchase price based on a contractually agreed upon formula.
The Company has recorded the interests as “Redeemable noncontrolling interests” in the mezzanine section of the accompanying consolidated balance sheets and not stockholders’ equity because their redemption is not exclusively in the Company’s control. The interests were initially accounted for at fair value. Subsequently, the Company recognizes changes in the redemption value as they occur and adjusts the carrying amount of the redeemable noncontrolling interests to equal the maximum redemption value, provided such amount does not fall below the initial carrying value, at the end of each reporting period. The Company records any changes caused by such an adjustment in capital in excess of par value. Additionally, the carrying amount of the redeemable noncontrolling interests is adjusted for accrued annual preferred distributions, with changes caused by such adjustments recorded within net income (loss) attributable to noncontrolling interests.
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. Diluted weighted average common and common equivalent shares include adjustments for potential dilution of share-based awards outstanding under the Company’s stock compensation plan.
| Year Ended December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2020 | 2019 | 2018 | ||||||||||
| Numerator: | (In thousands) | |||||||||||
| Net income (loss) attributable to MGM Resorts International | $ | (1,032,724 | ) | $ | 2,049,146 | $ | 466,772 | |||||
| Adjustment related to redeemable noncontrolling interests | 35,520 | (2,713 | ) | (21,326 | ) | |||||||
| Net income (loss) available to common stockholders - basic | (997,204 | ) | 2,046,433 | 445,446 | ||||||||
| Other | — | (194 | ) | (206 | ) | |||||||
| Net income (loss) attributable to common stockholders - diluted | $ | (997,204 | ) | $ | 2,046,239 | $ | 445,240 | |||||
| Denominator: | ||||||||||||
| Weighted average common shares outstanding basic | 494,152 | 524,173 | 544,253 | |||||||||
| Potential dilution from share-based awards | — | 3,472 | 5,283 | |||||||||
| Weighted average common and common equivalent shares - diluted | 494,152 | 527,645 | 549,536 | |||||||||
| Antidilutive share-based awards excluded from the calculation of diluted earnings per share | 9,493 | 1,617 | 2,668 |
Currency translation. The Company translates the financial statements of foreign subsidiaries that are not denominated in U.S. dollars. Balance sheet accounts are translated at the exchange rate in effect at each balance sheet date. Income statement accounts are translated at the average rate of exchange prevailing during the period. Translation adjustments resulting from this process are recorded to other comprehensive income (loss). Gains or losses from foreign currency remeasurements are recorded to other non-operating income (expense).
Accumulated other comprehensive income (loss). Comprehensive income (loss) includes net income (loss) and all other non-stockholder changes in equity, or other comprehensive income (loss). Elements of the Company’s accumulated other comprehensive income (loss) are reported in the accompanying consolidated statements of stockholders’ equity.
Recently issued accounting standards. 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 adopted ASC 326 on January 1, 2020, which did not have a material impact on its financial statements or accounting policies. The Company now utilizes a forward-looking current expected credit loss model for accounts receivable, guarantees, and other financial instruments.
In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,” (“ASU 2019-12”), which simplifies the accounting for income taxes and includes removal of certain exceptions to the general principles of ASC 740, Income Taxes, and simplification in several other areas such as accounting for a franchise tax (or similar tax) that is partially based on income. The Company will adopt ASU 2019-12 on January 1, 2021, and it will not have a material impact on its financial statements.
NOTE 3 — ACCOUNTS RECEIVABLE, NET
Accounts receivable, net consisted of the following:
| December 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2020 | 2019 | |||||||
| (In thousands) | ||||||||
| Casino | $ | 260,998 | $ | 394,163 | ||||
| Hotel | 46,288 | 164,079 | ||||||
| Other | 135,805 | 149,036 | ||||||
| 443,091 | 707,278 | |||||||
| Less: Loss reserves | (126,589 | ) | (94,561 | ) | ||||
| $ | 316,502 | $ | 612,717 |
NOTE 4 — ACQUISITION
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. 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 master lease between the Company and MGP. See Note 18 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 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 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 December 31, 2019, Empire City’s net revenue was $193 million, operating income was $12 million and net income was $36 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 for a purchase price of approximately $1.1 billion (“Northfield Acquisition”). MGP funded the acquisition through a $200 million draw on the Operating Partnership’s term loan A and a $655 million draw under the Operating Partnership’s revolving credit facility, with the remainder of the purchase price paid with cash on hand. The acquisition expanded MGP’s real estate assets and diversified MGP’s geographic reach.
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 master lease between the Company and MGP. Refer to Note 18 for additional information.
For the period from July 6, 2018 through December 31, 2018, Northfield’s net revenue was $133 million, operating income and net income were both $33 million. Pro forma results of operations for the acquisition have not been presented because it is not material to the consolidated results of operations.
NOTE 5 — PROPERTY AND EQUIPMENT, NET
Property and equipment, net consisted of the following:
| December 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2020 | 2019 | |||||||
| (In thousands) | ||||||||
| Land | $ | 4,081,029 | $ | 5,348,223 | ||||
| Buildings, building improvements and land improvements | 12,053,422 | 15,291,801 | ||||||
| Furniture, fixtures and equipment | 5,600,579 | 5,924,439 | ||||||
| Construction in progress | 170,957 | 209,890 | ||||||
| 21,905,987 | 26,774,353 | |||||||
| Less: Accumulated depreciation | (7,474,876 | ) | (8,581,835 | ) | ||||
| Finance lease ROU assets, net | 200,980 | 93,437 | ||||||
| $ | 14,632,091 | $ | 18,285,955 |
NOTE 6 — INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES
Investments in and advances to unconsolidated affiliates consisted of the following:
| December 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2020 | 2019 | |||||||
| (In thousands) | ||||||||
| CityCenter Holdings, LLC – CityCenter (50%) | $ | 441,893 | $ | 568,879 | ||||
| MGP BREIT Venture (50.1% owned by the Operating Partnership) | 810,066 | — | ||||||
| Other | 195,084 | 253,487 | ||||||
| $ | 1,447,043 | $ | 822,366 |
The Company recorded its share of income (loss) from unconsolidated affiliates, including adjustments for basis differences, as follows:
| Year Ended December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2020 | 2019 | 2018 | ||||||||||
| (In thousands) | ||||||||||||
| Income from unconsolidated affiliates | $ | 42,938 | $ | 119,521 | $ | 147,690 | ||||||
| Preopening and start-up expenses | — | — | (3,321 | ) | ||||||||
| Non-operating items from unconsolidated affiliates | (103,304 | ) | (62,296 | ) | (47,827 | ) | ||||||
| $ | (60,366 | ) | $ | 57,225 | $ | 96,542 |
The following table summarizes further information related to the Company’s share of operating income (loss) from unconsolidated affiliates:
| Year Ended December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2020 | 2019 | 2018 | ||||||||||
| (In thousands) | ||||||||||||
| CityCenter | $ | (29,753 | ) | $ | 128,421 | $ | 138,383 | |||||
| MGP BREIT Venture | 136,755 | — | — | |||||||||
| Other | (64,064 | ) | (8,900 | ) | 9,307 | |||||||
| $ | 42,938 | $ | 119,521 | $ | 147,690 |
MGP BREIT Venture distributions. For year ended December 31, 2020, the Operating Partnership received $81 million in distributions from MGP BREIT Venture.
Other. During the year ended December 31, 2020, the Company recognized other-than-temporary impairment charges of $64 million within “Property transactions, net” in the consolidated statements of operations related to an investment in an unconsolidated affiliate classified within “Other” in the “Investments in and advances to unconsolidated affiliates” table above.
CityCenter
Mandarin Oriental sale. On August 30, 2018, CityCenter closed the sale of the Mandarin Oriental and adjacent retail parcels for approximately $214 million. During the year ended December 31, 2018, CityCenter recognized a loss on the sale of the Mandarin Oriental of $133 million and the Company recognized a $12 million gain on the sale related to the reversal of basis differences in excess of its share of the loss recorded by CityCenter, which is recorded within “Income from unconsolidated affiliates” in the consolidated statements of operations.
CityCenter distributions. During the year ended December 31, 2020, CityCenter paid $101 million in distributions, of which the Company received its 50% share, or approximately $51 million. During the year ended December 31, 2019, CityCenter paid $180 million in distributions, of which the Company received its 50% share, or approximately $90 million. During the year ended December 31, 2018, CityCenter paid $625 million in distributions, of which the Company received its 50% share, or approximately $313 million.
Grand Victoria
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” in the consolidated statements of operations.
Unconsolidated Affiliate Financial Information – CityCenter & MGP BREIT Venture
Summarized balance sheet information is as follows:
| December 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2020 | 2019 | |||||||
| (In thousands) | ||||||||
| Cash and cash equivalents | $ | 96,758 | $ | 246,269 | ||||
| Property and equipment, net | 10,237,004 | 5,937,382 | ||||||
| Other assets, net | 256,813 | 204,326 | ||||||
| Debt, net | 4,715,997 | 1,734,770 | ||||||
| Other liabilities | 270,583 | 343,456 |
Summarized results of operations are as follows:
| Year Ended December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2020 | 2019 | 2018 | ||||||||||
| (In thousands) | ||||||||||||
| Net revenues | $ | 869,638 | $ | 1,294,861 | $ | 1,277,745 | ||||||
| Income (loss) from continuing operations | (43,749 | ) | 69,143 | 97,091 | ||||||||
| Net income (loss) | (43,749 | ) | 69,143 | (37,911 | ) |
Basis Differences
The Company’s investments in unconsolidated affiliates do not equal the Company’s share of venture-level equity due to various basis differences. Basis differences related to depreciable assets are being amortized based on the useful lives of the related assets and liabilities, and basis differences related to non–depreciable assets, such as land and indefinite-lived intangible assets, are not being amortized. Differences between the Company’s share of venture-level equity and investment balances are as follows:
| December 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2020 | 2019 | |||||||
| (In thousands) | ||||||||
| Venture-level equity attributable to the Company | $ | 2,981,550 | $ | 2,399,993 | ||||
| Adjustment to CityCenter equity upon contribution of net assets by MGM Resorts International (1) | (504,171 | ) | (509,382 | ) | ||||
| CityCenter capitalized interest (2) | 168,966 | 177,898 | ||||||
| CityCenter completion guarantee (3) | 248,730 | 261,708 | ||||||
| CityCenter deferred gain (4) | (208,204 | ) | (210,240 | ) | ||||
| CityCenter capitalized interest on sponsor notes (5) | (33,010 | ) | (34,755 | ) | ||||
| Other-than-temporary impairments of CityCenter investment (6) | (1,256,516 | ) | (1,304,317 | ) | ||||
| Other adjustments | 49,698 | 41,461 | ||||||
| $ | 1,447,043 | $ | 822,366 |
| (1) | Primarily relates to land and fixed assets. |
|---|
| (2) | Relates to interest capitalized on the Company’s investment balance during development and construction stages. |
|---|
| (3) | Created by contributions to CityCenter under the completion guarantee recognized as equity contributions by CityCenter split between the members. |
|---|
| (4) | Relates to a deferred gain on assets contributed to CityCenter upon formation of CityCenter. |
|---|
| (5) | Relates to interest on the sponsor notes capitalized by CityCenter during development. Such sponsor notes were converted to equity in 2013. |
|---|
| (6) | The impairment of the Company’s CityCenter investment includes $352 million of impairments allocated to land. |
|---|
NOTE 7 — GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets consisted of the following:
| December 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2020 | 2019 | |||||||
| (In thousands) | ||||||||
| Goodwill | $ | 2,091,278 | $ | 2,084,564 | ||||
| Indefinite-lived intangible assets: | ||||||||
| Detroit development rights | $ | 98,098 | $ | 98,098 | ||||
| MGM Northfield Park and Empire City racing and gaming licenses | 280,000 | 280,000 | ||||||
| Trademarks and other | 299,238 | 300,212 | ||||||
| Total indefinite-lived intangible assets | 677,336 | 678,310 | ||||||
| Finite-lived intangible assets: | ||||||||
| MGM Grand Paradise gaming subconcession | 4,541,990 | 4,519,558 | ||||||
| Less: Accumulated amortization | (1,697,481 | ) | (1,514,772 | ) | ||||
| 2,844,509 | 3,004,786 | |||||||
| MGM National Harbor and MGM Springfield gaming licenses | 106,600 | 106,600 | ||||||
| Less: Accumulated amortization | (19,102 | ) | (11,996 | ) | ||||
| 87,498 | 94,604 | |||||||
| Other finite-lived intangible assets | 60,649 | 79,197 | ||||||
| Less: Accumulated amortization | (26,244 | ) | (30,393 | ) | ||||
| 34,405 | 48,804 | |||||||
| Total finite-lived intangible assets, net | 2,966,412 | 3,148,194 | ||||||
| Total other intangible assets, net | $ | 3,643,748 | $ | 3,826,504 |
Goodwill. A summary of changes in the Company’s goodwill by reportable segment is as follows for 2020 and 2019:
| 2020 | ||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Balance at January 1 | Acquisitions | Reclassifications | Currency exchange | Balance at December 31 | ||||||||||||||||
| (In thousands) | ||||||||||||||||||||
| Goodwill, net by segment: | ||||||||||||||||||||
| Las Vegas Strip Resorts | $ | 30,452 | $ | — | $ | — | $ | — | $ | 30,452 | ||||||||||
| Regional Operations | 701,463 | — | — | — | 701,463 | |||||||||||||||
| MGM China | 1,352,649 | — | — | 6,714 | 1,359,363 | |||||||||||||||
| $ | 2,084,564 | $ | — | $ | — | $ | 6,714 | $ | 2,091,278 |
| 2019 | ||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Balance at January 1 | Acquisitions | Reclassifications | Currency exchange | Balance at December 31 | ||||||||||||||||
| (In thousands) | ||||||||||||||||||||
| Goodwill, net by segment: | ||||||||||||||||||||
| Las Vegas Strip Resorts | $ | 70,975 | $ | — | $ | (40,523 | ) | $ | — | $ | 30,452 | |||||||||
| Regional Operations | 386,892 | 256,133 | 58,438 | — | 701,463 | |||||||||||||||
| MGM China | 1,345,610 | — | — | 7,039 | 1,352,649 | |||||||||||||||
| Corporate and other | 17,915 | — | (17,915 | ) | — | — | ||||||||||||||
| $ | 1,821,392 | $ | 256,133 | $ | — | $ | 7,039 | $ | 2,084,564 |
Goodwill was recognized in 2019 related to the acquisition of Empire City, which is included in Regional Operations, as further discussed in Note 4.
The goodwill balance attributable to MGM Northfield Park, which was previously included within Corporate and other in 2018, was reclassed to Regional Operations in 2019 in connection with the Company’s acquisition of the membership interests of Northfield in 2019 as further discussed in Note 4. The presentation of the goodwill balance attributable to Gold Strike Tunica was reclassified in 2019 from Las Vegas Strip Resorts to Regional Operations.
MGM Grand Paradise gaming subconcession. Pursuant to the agreement dated June 19, 2004 between MGM Grand Paradise and Sociedade de Jogos de Macau, S.A. (“SJMSA”), a gaming subconcession was acquired by MGM Grand Paradise for the right to operate casino games of chance and other casino games for a period of 15 years commencing on April 20, 2005. In March 2019, MGM Grand Paradise and SJMSA entered into a Subconcession Extension Contract (the “Extension Agreement”), pursuant to which the gaming subconcession was extended to June 26, 2022, which coincides with the current expiration of all the other concessionaires and subconcessionaires. MGM Grand Paradise paid the government of Macau approximately $25 million and paid SJMSA approximately $2 million as a contract premium for such extension. The Company cannot provide any assurance that the gaming subconcession will be extended beyond the current terms; however, management believes that the gaming subconcession will be extended, given that the Cotai land concession agreement with the government extends significantly beyond the gaming subconcession. As such, as of December 31, 2020, the Company amortizes the gaming subconcession intangible asset on a straight-line basis over the initial term of the Cotai land concession, ending in January 2038.
MGM National Harbor and MGM Springfield gaming licenses. The license fee paid to the State of Maryland of $22 million is considered a finite-lived intangible asset that is amortized on a straight-line basis over a period of its initial term of 15 years, beginning in December 2016, when MGM National Harbor started operations. The license fee paid to the State of Massachusetts of $85 million is considered a finite-lived intangible asset that is amortized over a period of 15 years, beginning in August 2018, when MGM Springfield started operations.
Total amortization expense related to intangible assets was $194 million, $192 million and $176 million for 2020, 2019, and 2018, respectively. As of December 31, 2020, estimated future amortization is as follows:
| Years ending December 31, | (In thousands) | |||
| 2021 | $ | 197,104 | ||
| 2022 | 190,981 | |||
| 2023 | 178,672 | |||
| 2024 | 176,685 | |||
| 2025 | 174,900 | |||
| Thereafter | 2,048,070 | |||
| $ | 2,966,412 |
NOTE 8 — OTHER ACCRUED LIABILITIES
Other accrued liabilities consisted of the following:
| December 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2020 | 2019 | |||||||
| (In thousands) | ||||||||
| Contract and contract-related liabilities: | ||||||||
| Outstanding chip liability | $ | 212,671 | $ | 314,570 | ||||
| Loyalty program obligations | 139,756 | 126,966 | ||||||
| Casino front money | 133,114 | 176,827 | ||||||
| Advance deposits and ticket sales | 123,079 | 190,325 | ||||||
| Unpaid wagers and other | 126,094 | 113,943 | ||||||
| Other accrued liabilities: | ||||||||
| Payroll and related | 327,644 | 507,041 | ||||||
| Taxes, other than income taxes | 109,100 | 218,027 | ||||||
| Operating Partnership interest rate swaps - current | 32,155 | — | ||||||
| MGP dividend | 64,086 | 53,489 | ||||||
| Operating lease liabilities - current (Refer to Note 11) | 31,843 | 67,473 | ||||||
| Finance lease liabilities - current (Refer to Note 11) | 80,193 | 27,975 | ||||||
| Other | 165,344 | 227,366 | ||||||
| $ | 1,545,079 | $ | 2,024,002 |
NOTE 9 — LONG-TERM DEBT
Long-term debt consisted of the following:
| December 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2020 | 2019 | |||||||
| (In thousands) | ||||||||
| Senior credit facility | $ | — | $ | — | ||||
| Operating Partnership senior credit facility | 10,000 | 1,703,750 | ||||||
| MGM China credit facility | 770,034 | 667,404 | ||||||
| 7.75% senior notes, due 2022 | 1,000,000 | 1,000,000 | ||||||
| 6% senior notes, due 2023 | 1,250,000 | 1,250,000 | ||||||
| 5.625% Operating Partnership senior notes, due 2024 | 1,050,000 | 1,050,000 | ||||||
| 5.375% MGM China senior notes, due 2024 | 750,000 | 750,000 | ||||||
| 6.75% senior notes, due 2025 | 750,000 | — | ||||||
| 5.75% senior notes, due 2025 | 675,000 | 1,000,000 | ||||||
| 4.625% Operating Partnership senior notes, due 2025 | 800,000 | — | ||||||
| 5.25% MGM China senior notes, due 2025 | 500,000 | — | ||||||
| 5.875% MGM China senior notes, due 2026 | 750,000 | 750,000 | ||||||
| 4.5% Operating Partnership senior notes, due 2026 | 500,000 | 500,000 | ||||||
| 4.625% senior notes, due 2026 | 400,000 | 500,000 | ||||||
| 5.75% Operating Partnership senior notes, due 2027 | 750,000 | 750,000 | ||||||
| 5.5% senior notes, due 2027 | 675,000 | 1,000,000 | ||||||
| 4.5% Operating Partnership senior notes, due 2028 | 350,000 | 350,000 | ||||||
| 4.75% senior notes, due 2028 | 750,000 | — | ||||||
| 3.875% Operating Partnership senior notes, due 2029 | 750,000 | — | ||||||
| 7% debentures, due 2036 | 552 | 552 | ||||||
| 12,480,586 | 11,271,706 | |||||||
| Less: Premiums, discounts, and unamortized debt issuance costs, net | (103,902 | ) | (102,802 | ) | ||||
| $ | 12,376,684 | $ | 11,168,904 |
Debt due within one year of the December 31, 2019 balance sheet was classified as long-term as the Company had both the intent and ability to refinance current maturities on a long-term basis under its revolving credit facilities.
Interest expense, net consisted of the following:
| Year Ended December 31, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| 2020 | 2019 | 2018 | |||||||||
| (In thousands) | |||||||||||
| Total interest incurred | $ | 679,251 | $ | 853,007 | $ | 821,229 | |||||
| Interest capitalized | (2,871 | ) | (5,075 | ) | (51,716 | ) | |||||
| $ | 676,380 | $ | 847,932 | $ | 769,513 |
Senior credit facility. At December 31, 2020, the Company’s senior credit facility consisted of a $1.5 billion revolving facility. The revolving facility bears interest of LIBOR plus 1.50% to 2.25% determined by reference to a total net leverage ratio pricing grid. At December 31, 2020, no amounts were drawn on the revolving credit facility.
On February 14, 2020, in connection with the MGP BREIT Venture Transaction, the Company used proceeds from the transaction to repay and terminate the $1.5 billion outstanding on its existing revolving facility in full and entered into an unsecured credit agreement, comprised of a $1.5 billion unsecured revolving facility that matures in February 2025. As a result, the Company incurred a $4 million loss on early retirement of debt recorded in “Other, net” in the consolidated statements of operations.
In April 2020, the Company amended its credit facility to provide it with certain relief from the effects of the COVID-19 pandemic. The amendment provides the Company a waiver of the financial maintenance covenants for the period beginning with the quarter ending June 30, 2020 through the earlier of (x) the date the Company delivers to the administrative agent a compliance certificate with respect to the quarter ending June 30, 2021 and (y) the date the Company delivers to the administrative agent an
irrevocable notice terminating the covenant relief period (such period, the “covenant relief period”). In connection with the amendment, the Company pledged the Operating Partnership units held by loan parties to the lenders as collateral. The Company also agreed to certain limitations including, among other things, further restricting its ability to incur debt and liens, make restricted payments, make investments and prepay subordinated debt. In addition, in connection with the amendment, the Company agreed to a liquidity test that requires the Company’s borrower group (as defined in the credit agreement) to maintain a minimum liquidity level of not less than $600 million (including unrestricted cash, cash equivalents and availability under the revolving credit facility), tested at the end of each month during the covenant relief period. In February 2021, the Company further amended its credit facility to extend the covenant relief period through (but excluding) the second quarter of 2022 and adjust the required leverage and interest coverage levels for the covenant when it is reimposed at the end of the waiver period. Pursuant to that amendment, the Company agreed to increase its total required minimum liquidity level to $1.0 billion.
The Company’s senior credit facility contains customary representations and warranties, events of default and positive and negative covenants. The Company was in compliance with its applicable covenants at December 31, 2020.
As of December 31, 2019, the senior credit facility was secured by (i) a mortgage on the real properties comprising the MGM Grand Las Vegas, (ii) a pledge of substantially all existing and future personal property of the subsidiaries of the Company that own the MGM Grand Las Vegas; and (iii) a pledge of the equity or limited liability company interests of the entities that own the MGM Grand Las Vegas and the Bellagio. In connection with the MGP BREIT Venture Transaction, on February 14, 2020, the Company entered into an unsecured credit agreement which provides that we will grant a security interest in our Operating Partnership units in the future to the extent our leverage ratio exceeds certain thresholds.
Operating Partnership senior credit facility and bridge facility. At December 31, 2020, the Operating Partnership’s senior secured credit facility consisted of a $1.35 billion revolving credit facility. The revolving facility bears interest of LIBOR plus 1.75% to 2.25% determined by reference to a total net leverage ratio pricing grid and will mature in June 2023. At December 31, 2020, $10 million was drawn on the revolving credit facility and the interest rate on the revolving credit facility was 1.90%.
In February 2020, in connection with the MGP BREIT Venture Transaction, the Operating Partnership amended its senior secured credit facility to, among other things, allow for the transaction to occur, permit the incurrence by the Operating Partnership of a nonrecourse guarantee relating to the debt of the MGP BREIT Venture (refer to Note 12 for description of such guarantee), and permit the incurrence of the bridge loan facility. As a result of the transaction and the amendment, the Operating Partnership repaid its $1.3 billion outstanding term loan B facility in full with the proceeds of a bridge facility, which was then assumed by the MGP BREIT Venture as partial consideration for the Operating Partnership’s contribution. Additionally, the Operating Partnership used the proceeds from the settlement of the forward equity issuances to pay off the outstanding balance of $399 million on its term loan A facility in full. As a result, the Operating Partnership incurred an $18 million loss on early retirement of debt recorded in “Other, net” in the consolidated statements of operations.
The Operating Partnership is party to interest rate swaps to mitigate the effects of interest rate volatility inherent in its variable rate debt as well as forecasted debt issuances. As of December 31, 2020, the Operating Partnership has currently effective interest rate swap agreements on which it pays a weighted average fixed rate of 1.821% on total notional amount of $1.9 billion. The Operating Partnership has an additional $900 million total notional amount of forward starting interest rate swaps that are not currently effective. The fair value of interest rate swaps designated as cash flow hedges was $41 million, with $1 million recorded as a current liability and $40 million recorded as a long-term liability as of December 31, 2020, and $7 million recorded as an asset and $28 million recorded as a long-term liability as of December 31, 2019. The fair value of interest rate swaps not designated as cash flow hedges was $78 million, with $31 million recorded as a current liability and $47 million recorded as a long-term liability as of December 31, 2020, and $3 million recorded as a long-term liability as of December 31, 2019, respectively. Interest rate swaps in an asset position are recorded within “Other long-term assets,” those in a current liability position are recorded within “Other accrued expenses,” and those in a long-term liability position are recorded within “Other long-term liabilities” on the consolidated balance sheets.
The Operating Partnership credit facility contains customary representations and warranties, events of default and positive and negative covenants, including that the Operating Partnership maintain compliance with a maximum senior secured net debt to adjusted total assets ratio, a maximum total net debt to adjusted assets ratio and a minimum interest coverage ratio. The Operating Partnership was in compliance with its credit facility covenants at December 31, 2020.
The Operating Partnership senior credit facility is guaranteed by each of the Operating Partnership’s existing and subsequently acquired direct and indirect wholly owned material domestic restricted subsidiaries, and secured by a first priority lien security interest on substantially all of the Operating Partnership’s and such restricted subsidiaries’ material assets, including mortgages on its real estate, excluding the real estate assets of MGM National Harbor and Empire City, and subject to other customary exclusions.
MGM China credit facility. At December 31, 2020, the MGM China credit facility consisted of a $1.25 billion unsecured revolving credit facility. The revolving credit facility bears interest at a fluctuating rate per annum based on Hong Kong Interbank Offered Rate (“HIBOR”) plus 1.625% to 2.75%, as determined by MGM China’s leverage ratio and will mature in May 2024. At December 31, 2020, $770 million was drawn on the MGM China credit facility and the weighted average interest rate was 2.98%.
The MGM China credit facility contains customary representations and warranties, events of default, and positive, negative and financial covenants, including that MGM China maintains compliance with a maximum leverage ratio and a minimum interest coverage ratio. Due to the impact of COVID-19, in April 2020, MGM China entered into an amendment of its credit agreement which provided for a waiver of its maximum leverage ratio extending through the second quarter of 2021, and a waiver of its minimum interest coverage ratio from the second quarter of 2020 through the second quarter of 2021. In October 2020, MGM China further amended its credit agreement to provide for a waiver of its maximum leverage ratio and its minimum interest coverage ratio through the fourth quarter of 2021. MGM China was in compliance with its applicable MGM China credit facility covenants at December 31, 2020. In February 2021, MGM China further amended its credit agreement to provide for a waiver of its maximum leverage ratio and its minimum interest coverage ratio through the fourth quarter of 2022.
MGM China second credit facility. In May 2020, MGM China entered into a second credit facility, which consisted of a $300 million unsecured revolving credit facility with an option to increase the amount of the facility up to $500 million, subject to certain conditions. In June 2020, MGM China increased the amount of the second revolving credit facility by $100 million to $400 million. The MGM China second credit facility 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. Draws will be subject to satisfaction of certain conditions precedent, including evidence that the MGM China credit facility has been fully drawn. At December 31, 2020, no amounts were drawn on the MGM China second credit facility.
The MGM China second credit facility contains customary representations and warranties, events of default, and positive, negative and financial covenants, including that MGM China maintains compliance with a maximum leverage ratio and a minimum interest coverage ratio beginning in the third quarter of 2021. Due to the impact of COVID-19, MGM China entered into an amendment of its second credit facility in October 2020 which provided for a waiver of its maximum leverage ratio and its minimum interest coverage ratio through the fourth quarter of 2021. MGM China was in compliance with its applicable MGM China second credit facility covenants at December 31, 2020. In February 2021, MGM China further amended its second credit facility agreement to provide for a waiver of its maximum leverage ratio and its minimum interest coverage ratio through the fourth quarter of 2022.
Bridge Facility. In connection with the Empire City transaction in January 2019, 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 October 2020, the Company issued $750 million in aggregate principal amount of 4.75% senior notes due 2028.
In May 2020, the Company issued $750 million in aggregate principal amount of 6.75% senior notes due 2025.
In March 2020, the Company completed cash tender offers for an aggregate amount of $750 million of its senior notes, comprised of $325 million principal amount of its outstanding 5.75% senior notes due 2025, $100 million principal amount of its outstanding 4.625% senior notes due 2026, and $325 million principal amount of its outstanding 5.5% senior notes due 2027. As a result, the Company incurred a $105 million loss on early retirement of debt recorded in “Other, net” in the consolidated statements of operations.
In December 2019, the Company used a portion of the net proceeds from the Bellagio transaction to redeem for cash all $267 million principal amount of its outstanding 5.250% senior notes due 2020, all $361 million principal amount of its outstanding 6.750% senior notes due 2020, and all $1.25 billion principal amount of its outstanding 6.625% senior notes due 2021. The Company incurred a $171 million loss on the early retirement of such notes recorded in “Other, net” in the consolidated statements of operations.
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% senior notes due 2019.
Operating Partnership senior notes. In November 2020, the Operating Partnership issued $750 million in aggregate principal amount of 3.875% senior notes due 2029.
In June 2020, the Operating Partnership issued $800 million in aggregate principal amount of 4.625% senior notes due 2025.
In January 2019, the Operating Partnership issued $750 million in aggregate principal amount of 5.75% senior notes due 2027.
Each series of the Operating Partnership's senior notes are fully and unconditionally guaranteed, jointly and severally, on a senior basis by all of the Operating Partnership’s subsidiaries that guarantee the Operating Partnership’s credit facilities, other than MGP Finance Co-Issuer, Inc., which is a co-issuer of the senior notes. The Operating Partnership may redeem all or part of the senior notes at a redemption price equal to 100% of the principal amount of the senior notes plus, to the extent the Operating Partnership is redeeming senior notes prior to the date that is three months prior to their maturity date, an applicable make whole premium, plus, in each case, accrued and unpaid interest. The indentures governing the senior notes contain customary covenants and events of default. These covenants are subject to a number of important exceptions and qualifications set forth in the applicable indentures governing the senior notes, including, with respect to the restricted payments covenants, the ability to make unlimited restricted payments to maintain the REIT status of MGP.
MGM China senior notes. In June 2020, MGM China issued $500 million in aggregate principal amount of 5.25% senior notes due 2025.
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. MGM China incurred a $16 million loss on the debt retirement recorded in “Other, net” in the consolidated statements of operations.
Maturities of long-term debt. The maturities of the principal amount of the Company’s long-term debt as of December 31, 2020 are as follows:
| Years ending December 31, | (In thousands) | |||||
|---|---|---|---|---|---|---|
| 2021 | $ | — | ||||
| 2022 | 1,000,000 | |||||
| 2023 | 1,260,000 | |||||
| 2024 | 2,570,034 | |||||
| 2025 | 2,725,000 | |||||
| Thereafter | 4,925,552 | |||||
| $ | 12,480,586 | |||||
Fair value of long-term debt. The estimated fair value of the Company’s long-term debt was $13.2 billion and $12.1 billion at December 31, 2020 and 2019, respectively. Fair value was estimated using quoted market prices for the Company’s senior notes and credit facilities.
NOTE 10 — INCOME TAXES
The Company recognizes deferred income tax assets, net of applicable reserves, related to net operating losses, tax credit carryforwards and certain temporary differences. The Company recognizes future tax benefits to the extent that realization of such benefit is more likely than not. Otherwise, a valuation allowance is applied.
Income (loss) before income taxes for domestic and foreign operations consisted of the following:
| Year Ended December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2020 | 2019 | 2018 | ||||||||||
| (In thousands) | ||||||||||||
| Domestic operations | $ | (665,376 | ) | $ | 2,717,756 | $ | 660,832 | |||||
| Foreign operations | (846,103 | ) | 128,969 | (26,826 | ) | |||||||
| $ | (1,511,479 | ) | $ | 2,846,725 | $ | 634,006 |
The benefit (provision) for income taxes attributable to income (loss) before income taxes is as follows:
| Year Ended December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2020 | 2019 | 2018 | ||||||||||
| Federal: | (In thousands) | |||||||||||
| Current | $ | 207,544 | $ | (4,928 | ) | $ | 11,991 | |||||
| Deferred (excluding separate components) | 19,852 | (537,993 | ) | (143,468 | ) | |||||||
| Deferred – valuation allowance | (42,109 | ) | (20,175 | ) | (19,753 | ) | ||||||
| Other noncurrent | 4,922 | (5,745 | ) | 576 | ||||||||
| Benefit (provision) for federal income taxes | 190,209 | (568,841 | ) | (150,654 | ) | |||||||
| State: | ||||||||||||
| Current | (816 | ) | (22,685 | ) | (12,564 | ) | ||||||
| Deferred (excluding separate components) | (33,087 | ) | (32,793 | ) | (12,731 | ) | ||||||
| Deferred – operating loss carryforward | 47,728 | (5,241 | ) | (29,490 | ) | |||||||
| Deferred – valuation allowance | (3,375 | ) | (191 | ) | 41,068 | |||||||
| Other noncurrent | (946 | ) | (1,401 | ) | (1,334 | ) | ||||||
| Benefit (provision) for state income taxes | 9,504 | (62,311 | ) | (15,051 | ) | |||||||
| Foreign: | ||||||||||||
| Current | (828 | ) | (2,454 | ) | (2,037 | ) | ||||||
| Deferred (excluding separate components) | 4,206 | 44,374 | 63,827 | |||||||||
| Deferred – operating loss carryforward | 39,920 | 32,915 | 30,574 | |||||||||
| Deferred – valuation allowance | (51,439 | ) | (76,028 | ) | 23,229 | |||||||
| Benefit (provision) for foreign income taxes | (8,141 | ) | (1,193 | ) | 115,593 | |||||||
| $ | 191,572 | $ | (632,345 | ) | $ | (50,112 | ) |
A reconciliation of the federal income tax statutory rate and the Company’s effective tax rate is as follows:
| Year Ended December 31, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| 2020 | 2019 | 2018 | |||||||||
| Federal income tax statutory rate | 21.0 | % | 21.0 | % | 21.0 | % | |||||
| Net operating loss carryback rate differential | 5.5 | — | — | ||||||||
| Non-controlling interest | 1.6 | (0.8 | ) | (2.4 | ) | ||||||
| Foreign jurisdiction income/losses taxed at other than U.S. statutory rate | (12.5 | ) | (0.5 | ) | (9.5 | ) | |||||
| Federal valuation allowance | (2.8 | ) | 0.7 | 3.1 | |||||||
| Macau dividend tax | — | — | (6.4 | ) | |||||||
| State taxes, net | 0.5 | 1.7 | 1.9 | ||||||||
| General business credits | 0.3 | (0.5 | ) | (2.9 | ) | ||||||
| Stock-based compensation | — | (0.1 | ) | (1.2 | ) | ||||||
| Non-deductible employee dining facility costs | 0.2 | 0.2 | 1.4 | ||||||||
| Permanent and other items | (1.1 | ) | 0.5 | 2.9 | |||||||
| 12.7 | % | 22.2 | % | 7.9 | % |
The tax-effected components of the Company’s net deferred tax liability are as follows:
| December 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2020 | 2019 | |||||||
| Deferred tax assets – federal and state: | (In thousands) | |||||||
| Bad debt reserve | $ | 25,287 | $ | 25,085 | ||||
| Deferred compensation | 6,331 | 7,918 | ||||||
| Net operating loss carryforward | 57,419 | 19,265 | ||||||
| Accruals, reserves and other | 106,801 | 97,590 | ||||||
| Stock-based compensation | 18,227 | 18,882 | ||||||
| Lease liabilities | 1,972,343 | 1,020,171 | ||||||
| Long-term debt | 10,907 | 2,022 | ||||||
| Tax credits | 3,095,856 | 2,600,142 | ||||||
| 5,293,171 | 3,791,075 | |||||||
| Less: Valuation allowance | (2,720,008 | ) | (2,469,907 | ) | ||||
| 2,573,163 | 1,321,168 | |||||||
| Deferred tax assets – foreign: | ||||||||
| Bad debt reserve | 2,106 | 1,682 | ||||||
| Net operating loss carryforward | 180,143 | 140,223 | ||||||
| Accruals, reserves and other | 7,814 | 13,112 | ||||||
| Property and equipment | 17,890 | 10,125 | ||||||
| Stock-based compensation | 7,163 | 6,487 | ||||||
| Lease liabilities | 1,368 | 1,213 | ||||||
| 216,484 | 172,842 | |||||||
| Less: Valuation allowance | (155,587 | ) | (104,149 | ) | ||||
| 60,897 | 68,693 | |||||||
| Total deferred tax assets | $ | 2,634,060 | $ | 1,389,861 | ||||
| Deferred tax liabilities – federal and state: | ||||||||
| Property and equipment | $ | (1,349,355 | ) | $ | (1,599,948 | ) | ||
| Investments in unconsolidated affiliates | (1,158,342 | ) | (496,501 | ) | ||||
| ROU assets | (1,860,195 | ) | (977,870 | ) | ||||
| Intangibles | (108,728 | ) | (112,380 | ) | ||||
| (4,476,620 | ) | (3,186,699 | ) | |||||
| Deferred tax liabilities – foreign: | ||||||||
| Intangibles | (309,256 | ) | (307,728 | ) | ||||
| ROU Assets | (1,200 | ) | (1,940 | ) | ||||
| (310,456 | ) | (309,668 | ) | |||||
| Total deferred tax liability | $ | (4,787,076 | ) | $ | (3,496,367 | ) | ||
| Net deferred tax liability | $ | (2,153,016 | ) | $ | (2,106,506 | ) |
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law. The CARES Act contains certain income tax provisions that are beneficial to the Company; namely, the relaxation of the interest expense deduction limitation for the 2019 and 2020 tax years and the allowance of a five-year carryback of net operating losses (“NOLs”) incurred during tax years 2018 through 2020. The Company has recorded a federal income tax receivable of $206 million to reflect the carryback of its 2020 NOL, with a corresponding increase in benefit for income taxes during the year ended December 31, 2020. Furthermore, since the NOL was carried back to tax years when the federal income tax rate was 35%, compared to the 21% rate currently in effect, the Company realized $83 million more income tax benefit than if it would have only been able to carry the NOL forward.
The Company has recorded a valuation allowance of $2.7 billion on its foreign tax credit (“FTC”) carryover of $3.1 billion as of December 31, 2020, resulting in an FTC net deferred tax asset of $379 million. The FTCs are attributable to the Macau Special Gaming Tax, which is 35% of gross gaming revenue in Macau. Because MGM Grand Paradise is presently exempt from the Macau 12% complementary tax on gaming profits, the Company believes that payment of the Macau Special Gaming Tax qualifies as a tax paid in lieu of an income tax that is creditable against U.S. taxes. While the Company generally does not expect to generate new FTC carryovers after the year ended December 31, 2017, it will be able to utilize its existing FTC carryovers to the extent that it has active foreign source income during the 10-year FTC carryforward period. Such foreign source income includes the recapture, to the extent of U.S. taxable income, of overall domestic losses that totaled $1.5 billion at December 31, 2020. The Company relies on future U.S. source operating income in assessing utilization of the overall domestic losses and, by extension, future FTC realization during the 10-year FTC carryover period. The FTC carryovers will expire if not utilized as follows: $340 million in 2022; $976 million in 2023; $769 million in 2024; $674 million in 2025; $134 million in 2026; and $200 million in 2027.
The Company’s assessment of the realization of its FTC deferred tax asset is based on available evidence, including assumptions concerning future U.S. operating profits and foreign source income. As a result, significant judgment is required in assessing the possible need for a valuation allowance and changes to such assumptions could result in a material change in the valuation allowance with a corresponding impact on the provision for income taxes in the period including such change.
On March 30, 2020, MGM Grand Paradise was granted an extension of its exemption from the Macau 12% complementary tax on gaming profits through June 26, 2022, concurrent with the end of the term of its gaming subconcession. The prior exemption was set to expire on March 31, 2020. The Company previously re-measured its net deferred tax liability for MGM Grand Paradise during 2019 assuming it would receive the complementary tax exemption extension through June 26, 2022 as a result of required non-discriminatory treatment among gaming concessionaires and subconcessionaires under Macanese law. As a result, no additional remeasurement is required for the year ended December 31, 2020. The Company continues to assume that MGM Grand Paradise will pay the Macau 12% complementary tax on gaming profits for all periods beyond June 26, 2022 and has factored that assumption into the measurement of Macau deferred tax assets and liabilities.
Absent the exemption from complementary tax on gaming profits, “Net income attributable to MGM Resorts International” would have increased by $4 million and decreased by $54 million in 2020 and 2019, respectively, and diluted earnings per share would have increased by $0.01 and decreased $0.10 in 2020 and 2019, respectively.
Non-gaming operations remain subject to the Macau complementary tax. MGM Grand Paradise had at December 31, 2020 a complementary tax NOL carryforward of $1.5 billion resulting from non-gaming operations that will expire if not utilized in years 2021 through 2023.
MGM Grand Paradise’s exemption from the 12% complementary tax on gaming profits does not apply to dividend distributions of such profits to MGM China. MGM Grand Paradise has had an agreement with the Macau government to settle the 12% complementary tax that would otherwise be due by its shareholder, MGM China, on distributions of its gaming profits by paying a flat annual payment (“annual fee arrangement”) regardless of the amount of distributable dividends. Such annual fee arrangement covers the distributions of gaming profits earned for the period of January 1, 2017 through March 31, 2020. Payments of approximately $1 million were made for 2017 through 2019 and a payment of approximately $0.3 million was made for the first quarter 2020. MGM Grand Paradise has applied for an extension of the annual fee arrangement to cover distributions of gaming profits to be earned through June 26, 2022. Until the extension is granted, the 12% complementary tax will accrue on distributions of gaming profits earned after March 31, 2020; however, no amounts are accrued for the year ended December 31, 2020 since MGM Grand Paradise generated losses due to the impact of COVID-19.
The Company has NOLs in certain of the states in which it operates that total $885 million as of December 31, 2020, which equates to deferred tax assets of $57 million after federal tax effect and before valuation allowance. The majority of these NOL carryforwards will expire if not utilized by 2025 through 2040 with the remaining being carried forward indefinitely. The Company has provided a valuation allowance of $6 million on certain of its state deferred tax assets, including a portion of NOLs described above.
In addition, there is a valuation allowance of $153 million on certain Macau deferred tax assets, and a valuation allowance of $3 million on Hong Kong NOLs because the Company believes these assets do not meet the “more likely than not” criteria for recognition.
A reconciliation of the beginning and ending amounts of gross unrecognized tax benefits is as follows:
| Year Ended December 31, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| 2020 | 2019 | 2018 | |||||||||
| (In thousands) | |||||||||||
| Gross unrecognized tax benefits at January 1 | $ | 33,298 | $ | 24,464 | $ | 18,588 | |||||
| Gross increases - prior period tax positions | 3,717 | 8,960 | 5,345 | ||||||||
| Gross decreases - prior period tax positions | (1,398 | ) | (1,006 | ) | (957 | ) | |||||
| Gross increases - current period tax positions | — | 880 | 1,488 | ||||||||
| Gross unrecognized tax benefits at December 31 | $ | 35,617 | $ | 33,298 | $ | 24,464 |
The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $9 million at both December 31, 2020 and 2019.
The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense, which were not material as of December 31, 2020, 2019 or 2018.
The Company files income tax returns in the U.S. federal jurisdiction, various state and local jurisdictions, and foreign jurisdictions, although the income taxes paid in foreign jurisdictions are not material. As of December 31, 2020, the IRS can no longer assess tax with respect to years ended prior to 2014; however, the IRS may adjust NOLs generated in such years that were utilized in 2014. The IRS examination of the Company’s 2014 U.S. consolidated federal income tax return has been closed and the case has been submitted to the IRS Appeals Office for resolution. At issue are deductions the Company claimed as repairs expense when it implemented new tangible property regulations in such year. The Company has reached a tentative settlement with the IRS Appeals Office on these matters and anticipates signing a closing agreement during the first quarter of 2021. The Company does not anticipate any cash tax payments resulting from the settlement.
As of December 31, 2020, other than adjustments resulting from the federal and state income tax audits discussed herein, the various state and local tax jurisdictions in which the Company files tax returns can no longer assess tax with respect to years ended prior to 2016. However, such jurisdictions may adjust NOLs generated in such years that are utilized in subsequent years. The Company has received a preliminary audit determination with respect to the examination of income tax returns filed in the state of Michigan for tax years 2014 through 2018 and has requested an informal conference with the Michigan Department of Treasury Hearings Division to contest the findings of the audit. The Company does not anticipate any material adjustments upon resolution of this audit. In addition, one of the Company’s subsidiaries, Marina District Development Company, LLC, had income tax returns under examination in the state of New Jersey for tax years 2015 through 2018 which were closed during the first quarter of 2021 with no change.
The Company believes that it is reasonably possible that the total amounts of unrecognized tax benefits at December 31, 2020 may decrease by up to $30 million within the next twelve months on the expectation during such period of settlements of the IRS and New Jersey examinations described above.
NOTE 11 – 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 master lease agreement with MGP is eliminated in consolidation and, accordingly is not included within the disclosures below; refer to Note 18 for further discussion of the master lease with MGP.
Land. The Company is a lessee of land underlying MGM National Harbor and a portion of the land underlying Borgata and Beau Rivage. The Company is obligated to make lease payments through the non-cancelable term of the ground leases, which is through 2066 for Beau Rivage, through 2070 for Borgata, and through 2082 for MGM National Harbor. Additionally, the Company has MGM Macau and MGM Cotai land concession contracts, each with an initial 25-year contract term ending in April 2031 and January 2038, respectively. The Company’s land leases are classified as operating leases.
Bellagio real estate assets. Pursuant to a lease agreement between a subsidiary of the Company and the Bellagio BREIT Venture, the Company leases the real estate assets of Bellagio from the Bellagio BREIT venture. The Bellagio lease has an initial term of 30 years with two subsequent ten-year renewal periods, exercisable at the Company’s option. The lease provides for an initial annual rent for the lease year beginning November 15, 2019 and ending November 30, 2020 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. Annual cash rent payments for the second lease year that commenced on
December 1, 2020 increased to $250 million. The Company does not consider the renewal options reasonably certain of being exercised and, accordingly, has determined the lease term to be 30 years. In consideration of such, the Company determined that the expected lease term of 30 years to be less than 75% of the economic useful live of the real estate assets of Bellagio. Further, the Bellagio BREIT Venture provided its implicit rate to the Company, with which the Company determined that the present value of the future lease payments is less than 90% of the fair market value of the Bellagio real estate assets. Accordingly, in consideration of these lease classification tests as well as that the lease does not transfer ownership of the assets back to the Company at the end of the lease term or grant the Company a purchase option and the real estate assets have alternative uses at the end of the lease term, the Company classified Bellagio lease as an operating lease.
In addition, the lease obligates the Company to spend a specified percentage of net revenues at the property on capital expenditures and that the Company comply with certain financial covenants, which, if not met, would require the Company to maintain cash security or provide one or more letters of credit in favor of the landlord in an amount equal to rent for the succeeding two-year period. The Company was in compliance with its applicable covenants as of December 31, 2020.
Mandalay Bay and MGM Grand Las Vegas real estate assets. Pursuant to a lease agreement between a subsidiary of the Company and MGP BREIT Venture, the Company leases the real estate assets of Mandalay Bay and MGM Grand Las Vegas from the MGP BREIT Venture. The Mandalay Bay and MGM Grand Las Vegas lease has an initial term of 30 years with two subsequent ten-year renewal periods, exercisable at the Company’s option. The lease provides for an initial annual rent for the lease year beginning February 14, 2020 and ending February 28, 2021 of $292 million with a fixed 2% escalator for the first fifteen 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%. The Company does not consider the renewal options reasonably certain of being exercised and, accordingly, has determined the lease term to be 30 years. In consideration of such, the Company determined the expected lease term of 30 years to be less than 75% of the economic useful life of the real estate assets of Mandalay Bay and MGM Grand Las Vegas. Further, the MGP BREIT Venture provided its implicit rate to the Company, with which the Company determined that the present value of the future lease payments is less than 90% of the fair market value of the Mandalay Bay and MGM Grand Las Vegas real estate assets. Accordingly, in consideration of these lease classification tests, as well as the fact that the lease does not transfer ownership of the assets back to the Company at the end of the lease term or grant the Company a purchase option and the real estate assets have alternative uses at the end of the lease term, the Company classified the Mandalay Bay and MGM Grand Las Vegas lease as an operating lease.
In addition, the lease obligates the Company to spend a specified percentage of net revenues at the properties on capital expenditures and that the Company comply with certain financial covenants, which, if not met, will require the Company to maintain cash security or provide one or more letters of credit in favor of the landlord in an amount equal to the rent for the succeeding one-year period. The Company was in compliance with its applicable covenants as of December 31, 2020.
Other information. Components of lease costs and other information related to the Company’s leases was as follows:
| Year Ended December 31, | |||||||
|---|---|---|---|---|---|---|---|
| 2020 | 2019 | ||||||
| (In thousands) | |||||||
| Operating lease cost, primarily classified within "General and administrative"(1) | $ | 751,002 | $ | 143,954 | |||
| Finance lease costs | |||||||
| Interest expense(2) | $ | (21,320 | ) | $ | 1,164 | ||
| Amortization expense | 70,476 | 13,341 | |||||
| Total finance lease costs | $ | 49,156 | $ | 14,505 |
| (1) | During the years ended December 31, 2020 and 2019, operating lease cost includes $331 million and $42 million related to the Bellagio lease, respectively, and $347 million and $0 million related to the Mandalay Bay and MGM Grand Las Vegas lease, respectively. |
|---|
| (2) | For the year ended December 31, 2020 interest expense includes the effect of COVID-19 related rent concessions received on certain finance leases, for which such effect was recognized as negative variable rent expense. |
|---|
| December 31, | |||||||
|---|---|---|---|---|---|---|---|
| 2020 | 2019 | ||||||
| Supplemental balance sheet information | (In thousands) | ||||||
| Operating leases | |||||||
| Operating lease right-of-use assets, net(1) | $ | 8,286,694 | $ | 4,392,481 | |||
| Operating lease liabilities - current, classified within "Other accrued liabilities" | $ | 31,843 | $ | 67,473 | |||
| Operating lease liabilities - long-term(2) | 8,390,117 | 4,277,970 | |||||
| Total operating lease liabilities | $ | 8,421,960 | $ | 4,345,443 | |||
| Finance leases | |||||||
| Finance lease right-of-use assets, net, classified within "Property and equipment, net" | $ | 200,980 | $ | 93,437 | |||
| Finance lease liabilities - current, classified within "Other accrued liabilities" | $ | 80,193 | $ | 27,975 | |||
| Finance lease liabilities - long-term, classified within "Other long-term obligations" | 134,287 | 67,182 | |||||
| Total finance lease liabilities | $ | 214,480 | $ | 95,157 | |||
| Weighted average remaining lease term (years) | |||||||
| Operating leases | 30 | 31 | |||||
| Finance leases | 3 | 4 | |||||
| Weighted average discount rate (%) | |||||||
| Operating leases | 8 | 7 | |||||
| Finance leases | 3 | 3 |
| (1) | As of December 31, 2020 and 2019, operating lease right-of-use assets, net included $3.7 billion and $3.7 billion related to the Bellagio lease, respectively and $4.0 billion and $0 related to the Mandalay Bay and MGM Grand lease, respectively. |
|---|
| (2) | As of December 31, 2020 and 2019, operating lease liabilities – long-term included $3.8 billion and $3.7 billion related to the Bellagio lease, respectively and $4.1 billion and $0 related to the Mandalay Bay and MGM Grand lease, respectively. |
|---|
| Year Ended December 31, | |||||||
|---|---|---|---|---|---|---|---|
| 2020 | 2019 | ||||||
| Cash paid for amounts included in the measurement of lease liabilities | (In thousands) | ||||||
| Operating cash outflows from operating leases | $ | 572,186 | $ | 117,072 | |||
| Operating cash outflows from finance leases | 2,956 | 1,164 | |||||
| Financing cash outflows from finance leases(1) | 34,494 | 10,311 | |||||
| ROU assets obtained in exchange for new lease liabilities | |||||||
| Operating leases | $ | 4,120,955 | $ | 3,814,115 | |||
| Finance leases | 177,085 | 84,934 |
| (1) | Included within “Other” within the “Cash flows from financing activities” on the accompanying consolidated statements of cash flows. |
|---|
Maturities of lease liabilities were as follows:
| Operating Leases | Finance Leases | ||||||
|---|---|---|---|---|---|---|---|
| Year ending December 31, | (In thousands) | ||||||
| 2021 | $ | 612,823 | $ | 84,853 | |||
| 2022 | 616,235 | 72,524 | |||||
| 2023 | 625,365 | 63,717 | |||||
| 2024 | 635,755 | 1,033 | |||||
| 2025 | 644,804 | 517 | |||||
| Thereafter | 19,801,073 | — | |||||
| Total future minimum lease payments | 22,936,055 | 222,644 | |||||
| Less: Amount of lease payments representing interest | (14,514,095 | ) | (8,164 | ) | |||
| Present value of future minimum lease payments | 8,421,960 | 214,480 | |||||
| Less: Current portion | (31,843 | ) | (80,193 | ) | |||
| Long-term portion of lease liabilities | $ | 8,390,117 | $ | 134,287 |
NOTE 12 – 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.
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”) entered into a settlement agreement (the “Settlement Agreement”) whereby the Company and its insurance carriers deposited funds into a settlement fund covering participating claimants. Claimants had to elect whether to participate in the settlement. Substantially all claimants did elect to participate in the settlement, and that election is final. The Nevada court issued an order of good faith settlement determination with respect to the Settlement Agreement on September 30, 2020. The deadline for appeals to that decision was October 30, 2020. No such appeals were filed. That determination was the last step, prior to funding, in the settlement process. As a result, the Company and its insurance carriers deposited $800 million during November 2020 into a settlement fund covering the participating claimants, which the Company had accrued, and of which $751 million was funded by the Company’s insurers, which had been recorded as an insurance receivable, and $49 million was funded by the Company, reflected within “Corporate expense” on the consolidated statements of operations for the year ended December 31, 2020. As a result of the foregoing, the Participating Claimants lawsuits were dismissed with prejudice.
While the Company intends for substantially all claimants to be covered by the Settlement Agreement, certain lawsuits were not resolved by the settlement. Following the mediation, a few additional lawsuits related to non-physical injury claims were filed against the Company and/or certain of its subsidiaries which are not included in the Settlement Agreement. The Company will continue to investigate the factual and legal defenses to any remaining claims, and evaluate these matters based on subsequent events, new information and future circumstances but the Company does not believe any remaining claims would be considered material. The Company intends to defend against any such lawsuits and believes it ultimately should prevail, but litigation of this type is inherently unpredictable. 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. 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 $850 million. At December 31, 2020, $26 million in letters of credit were outstanding
under the Company’s senior credit facility. The Operating Partnership’s senior credit facility limits the amount of letters of credit that can be issued to $75 million. No letters of credit were outstanding under the Operating Partnership’s senior credit facility at December 31, 2020. The amount of available borrowings under each of the credit facilities is reduced by any outstanding letters of credit.
MGM China bank guarantee. In connection with the extension of the expiration of the gaming subconcession to June 2022, MGM Grand Paradise provided a bank guarantee in an amount of approximately $103 million (when giving effect to foreign currency exchange rate fluctuations) to the government of Macau in May 2019 to warrant the fulfillment of an existing commitment of labor liabilities upon the expiration of the gaming subconcession in June 2022.
Bellagio BREIT Venture shortfall guarantee. The Company provides a shortfall guarantee of the $3.01 billion principal amount of indebtedness (and any interest accrued and unpaid thereon) of Bellagio BREIT Venture, which matures in 2029. The terms of the shortfall guarantee provide that after the lenders have exhausted certain remedies to collect on the obligations under the indebtedness, the Company would then be responsible for any shortfall between the value of the collateral, which is the real estate assets of Bellagio owned by Bellagio BREIT Venture, and the debt obligation. This guarantee is accounted for under ASC 460 at fair value; such value is immaterial.
MGP BREIT Venture shortfall guarantee. The Company provides a shortfall guarantee of the $3.0 billion principal amount of indebtedness (and any interest accrued and unpaid thereon) of MGP BREIT Venture, which has an initial term of twelve years, maturing in 2032, with an anticipated repayment date of March 2030. The terms of the shortfall guarantee provide that after the lenders have exhausted certain remedies to collect on the obligations under the indebtedness, the Company would then be responsible for any shortfall between the value of the collateral, which is the real estate assets of Mandalay Bay and MGM Grand Las Vegas, owned by MGP BREIT Venture, and the debt obligation. This guarantee is accounted for under ASC 460 at fair value; such value is immaterial.
MGP BREIT Venture bad acts guarantee. The Operating Partnership provides a guarantee for the losses incurred by the lenders of the indebtedness of the MGP BREIT Venture arising out of certain bad acts by the Operating Partnership, its venture partner, or the venture, such as fraud or willful misconduct, based on the party’s percentage ownership of the MGP BREIT Venture. This guarantee is capped at 10% of the principal amount outstanding at the time of the loss. The Operating Partnership and its venture partner have separately indemnified each other for the other party’s share of the overall liability exposure, if at fault. The guarantee is accounted for under ASC 460 at fair value; such value is immaterial.
NOTE 13 — STOCKHOLDERS’ EQUITY
Accumulated Other Comprehensive Loss
Changes in accumulated other comprehensive loss attributable to MGM Resorts International are as follows:
| Currency Translation Adjustments | Cash Flow Hedges | Other | Total | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (In thousands) | ||||||||||||||||
| Balances, January 1, 2018 | $ | (11,450 | ) | $ | 6,668 | $ | 1,172 | $ | (3,610 | ) | ||||||
| Other comprehensive income (loss) before reclassifications | (13,022 | ) | 4,706 | — | (8,316 | ) | ||||||||||
| Amounts reclassified from accumulated other comprehensive loss to interest expense | — | (1,130 | ) | — | (1,130 | ) | ||||||||||
| Other comprehensive income (loss), net of tax | (13,022 | ) | 3,576 | — | (9,446 | ) | ||||||||||
| Other comprehensive (income) loss attributable to noncontrolling interest | 5,600 | (1,100 | ) | — | 4,500 | |||||||||||
| Balances, December 31, 2018 | (18,872 | ) | 9,144 | 1,172 | (8,556 | ) | ||||||||||
| Other comprehensive income (loss) before reclassifications | 28,870 | (28,783 | ) | — | 87 | |||||||||||
| Amounts reclassified from accumulated other comprehensive loss to interest expense | — | (5,599 | ) | — | (5,599 | ) | ||||||||||
| Amounts reclassified from accumulated other comprehensive loss related to de-designation of interest rate swaps to "Other, net" | — | 4,877 | — | 4,877 | ||||||||||||
| Other comprehensive income (loss), net of tax | 28,870 | (29,505 | ) | — | (635 | ) | ||||||||||
| Other changes in accumulated other comprehensive loss: | ||||||||||||||||
| Empire City MGP transaction | — | — | 195 | 195 | ||||||||||||
| MGP Class A share issuances | — | — | 1,512 | 1,512 | ||||||||||||
| Park MGM Transaction | — | — | 16 | 16 | ||||||||||||
| Northfield OpCo transaction | — | — | (2 | ) | (2 | ) | ||||||||||
| Other | — | — | 481 | 481 | ||||||||||||
| Changes in accumulated other comprehensive loss | 28,870 | (29,505 | ) | 2,202 | 1,567 | |||||||||||
| Other comprehensive (income) loss attributable to noncontrolling interest | (12,745 | ) | 9,532 | — | (3,213 | ) | ||||||||||
| Balances, December 31, 2019 | (2,747 | ) | (10,829 | ) | 3,374 | (10,202 | ) | |||||||||
| Other comprehensive income (loss) before reclassifications | 27,762 | (94,740 | ) | — | (66,978 | ) | ||||||||||
| Amounts reclassified from accumulated other comprehensive loss to interest expense | — | 17,922 | — | 17,922 | ||||||||||||
| Amounts reclassified from accumulated other comprehensive loss to "Other, net" | — | (2,547 | ) | — | (2,547 | ) | ||||||||||
| Other comprehensive income (loss), net of tax | 27,762 | (79,365 | ) | — | (51,603 | ) | ||||||||||
| Other changes in accumulated other comprehensive loss | ||||||||||||||||
| MGP Class A share issuances | — | — | 646 | 646 | ||||||||||||
| MGP BREIT Venture Transaction | — | — | (59 | ) | (59 | ) | ||||||||||
| Redemption of Operating Partnership units | — | — | 8,773 | 8,773 | ||||||||||||
| Other | — | — | (1,018 | ) | (1,018 | ) | ||||||||||
| Changes in accumulated other comprehensive loss | 27,762 | (79,365 | ) | 8,342 | (43,261 | ) | ||||||||||
| Other comprehensive (income) loss attributable to noncontrolling interest | (12,051 | ) | 34,837 | — | 22,786 | |||||||||||
| Balances, December 31, 2020 | $ | 12,964 | $ | (55,357 | ) | $ | 11,716 | $ | (30,677 | ) |
At December 31, 2020, the estimated amount currently recorded in accumulated other comprehensive loss that will be recognized in earnings over the next 12 months is not material.
Noncontrolling interest
The following is a summary of net income attributable to MGM Resorts International and transfers to noncontrolling interest, which shows the effects of changes in the Company’s ownership interest in a subsidiary on the equity attributable to the Company:
| For the Years Ended December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2020 | 2019 | 2018 | ||||||||||
| (In thousands) | ||||||||||||
| Net income (loss) attributable to MGM Resorts International | $ | (1,032,724 | ) | $ | 2,049,146 | $ | 466,772 | |||||
| Transfers from/(to) noncontrolling interest: | ||||||||||||
| MGP Class A share issuances | 64,834 | 151,976 | — | |||||||||
| MGP BREIT Venture Transaction | (6,562 | ) | — | — | ||||||||
| Redemption of Operating Partnership units | 92,632 | — | — | |||||||||
| Empire City MGP transaction | — | (18,718 | ) | — | ||||||||
| Park MGM Transaction | — | (1,968 | ) | — | ||||||||
| Northfield OpCo transaction | — | 21,679 | — | |||||||||
| Other | (1,759 | ) | (935 | ) | (5,667 | ) | ||||||
| Net transfers from/(to) noncontrolling interest | 149,145 | 152,034 | (5,667 | ) | ||||||||
| Change from net income attributable to MGM Resorts International and transfers to noncontrolling interest | $ | (883,579 | ) | $ | 2,201,180 | $ | 461,105 |
Noncontrolling interest ownership transactions
Empire City MGP transaction. As further discussed in Note 18, on January 29, 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 MGP transaction, the Company indirectly owned 74.6% of the partnership units in the Operating Partnership.
MGP Class A share issuance – January 2019. On January 31, 2019, MGP completed an offering of approximately 20 million of its Class A shares. In connection with the offering, the Operating Partnership issued approximately 20 million Operating Partnership units to MGP. The Company 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 the issuance, the Company indirectly owned 69.7% of the partnership units in the Operating Partnership.
Park MGM Transaction. As further discussed in Note 18, on March 7, 2019, the Company entered into an amendment to the MGP master lease with respect to improvements made by the Company related to the rebranding of the Park MGM and NoMad Las Vegas property (the “Park MGM Transaction”) for which consideration included the issuance of approximately 1 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 issuance, the Company indirectly owned 69.8% of the partnership units in the Operating Partnership.
Northfield OpCo transaction. As further discussed in Note 18, in April 2019, the Company acquired the membership interests of Northfield Park Associates, LLC (“Northfield OpCo”) 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 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 transaction, the Company indirectly owned 68.8% of the partnership units in the Operating Partnership.
MGP Class A share issuances – At-the-Market (“ATM”) program. During the year ended December 31, 2019, MGP issued approximately 5 million Class A shares under its ATM program. In connection with the issuances, the Operating Partnership issued 5 million Operating Partnership units to MGP during the year ended December 31, 2019. 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 collective issuances, the Company indirectly owned 67.6% of the partnership units in the Operating Partnership.
MGP Class A share issuance – November 2019. On November 22, 2019, MGP completed an offering of 30 million of its Class A shares. The offering consisted of 18 million shares sold directly to the underwriters at closing and 12 million shares sold to forward purchasers under forward sale agreements. In connection with the offering, the Operating Partnership issued 18 million Operating Partnership units to MGP. The Company 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 the issuance, the Company indirectly owned 63.7% of the partnership units in the Operating Partnership.
MGP Class A share issuance – Forward settlements. On February 11, 2020 through February 13, 2020, MGP settled approximately 13 million Class A shares issued under forward sales agreements. In connection with the settlements, the Operating Partnership issued approximately 13 million Operating Partnership units to MGP. 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 settlements, the Company indirectly owned 61.2% of the partnership units in the Operating Partnership.
MGP Class A share issuance – BREIT. On February 14, 2020, in connection with MGP’s registered sale of approximately 5 million Class A shares to BREIT, the Operating Partnership issued approximately 5 million Operating Partnership units to MGP. 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 issuance, the Company indirectly owned 60.3% of the partnership units in the Operating Partnership.
MGP Class A share issuance – MGP BREIT Venture Transaction. In February 2020, in connection with the MGP BREIT Venture Transaction, the Operating Partnership issued approximately 3 million Operating Partnership units to the Company as discussed in Note 1. 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 issuance, the Company indirectly owned 60.6% of the partnership units in the Operating Partnership.
Redemption of Operating Partnership units. On May 18, 2020, the Operating Partnership redeemed approximately 30 million Operating Partnership units from the Company for $700 million pursuant to the waiver agreement discussed in Note 1. 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 redemption, the Company indirectly owned 56.7% of the partnership units in the Operating Partnership. Further, on December 2, 2020, the Operating Partnership redeemed approximately 24 million Operating Partnership units from the Company for $700 million pursuant to the waiver agreement discussed in Note 1. 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 redemption and as of December 31, 2020, the Company indirectly owned 53.0% of the partnership units in the Operating Partnership.
Other equity activity
MGM Resorts International dividends. On February 10, 2021 the Company’s Board of Directors approved a quarterly dividend of $0.0025 per share that will be payable on March 15, 2021 to holders of record on March 10, 2021.
MGM Resorts International stock repurchase program. In February 2020, upon substantial completion of the $2.0 billion stock repurchase program, the Company’s Board of Directors authorized a $3.0 billion stock repurchase program. Under each stock repurchase program, the Company may repurchase shares from time to time in the open market or in privately negotiated agreements. Repurchases of common stock may also be made under a Rule 10b5-1 plan, which would permit common stock to be repurchased when the Company might otherwise be precluded from doing so under insider trading laws. The timing, volume and nature of stock repurchases will be at the sole discretion of management, dependent on market conditions, applicable securities laws, and other factors, and may be suspended or discontinued at any time.
During the year ended December 31, 2020, the Company repurchased approximately 11 million shares of its common stock at an average price of $32.57 per share for an aggregate amount of $354 million. Repurchased shares were retired. The remaining availability under the $2.0 billion stock repurchase program was approximately $4 million as of December 31, 2020 and the remaining availability under the $3.0 billion stock repurchase program was $3.0 billion as of December 31, 2020.
During the year ended December 31, 2019, the Company repurchased approximately 36 million shares of its common stock at an average purchase price of $28.77 per share for an aggregate amount of $1.0 billion. Repurchased shares were retired.
NOTE 14 — STOCK-BASED COMPENSATION
MGM Resorts 2005 Omnibus Incentive Plan. The Company’s omnibus incentive plan, as amended (the “Omnibus Plan”), allows it to grant up to 45 million shares or share-based awards, such as stock options, stock appreciation rights (“SARs”), restricted stock units (“RSUs”), performance share units (“PSUs”) and other stock-based awards to eligible directors, officers and employees of the Company and its subsidiaries.
As of December 31, 2020, the Company had an aggregate of approximately 20 million shares of common stock available for grant as share-based awards under the Omnibus Plan. Additionally, as of December 31, 2020, the Company had approximately 3 million aggregate SARs outstanding and approximately 7 million aggregate RSUs and PSUs outstanding, including deferred share units and dividend equivalent units related to RSUs and PSUs.
As of December 31, 2020, there was a total of $76 million of unamortized compensation related to SARs, RSUs, and PSUs, which is expected to be recognized over a weighted average period of 1.6 years.
MGM Growth Properties 2016 Omnibus Incentive Plan and MGM China Share Option Plan. The Company’s subsidiaries, MGP and MGM China, each adopted their own equity award plans for the issuance of share-based awards to each subsidiary’s eligible recipients.
Recognition of compensation cost. Compensation cost was recognized as follows:
| Year Ended December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2020 | 2019 | 2018 | ||||||||||
| Compensation cost: | (In thousands) | |||||||||||
| Omnibus Plan | $ | 93,096 | $ | 76,995 | $ | 57,735 | ||||||
| MGM Growth Properties Omnibus Incentive Plan | 2,854 | 2,277 | 2,092 | |||||||||
| MGM China Share Option Plan | 11,006 | 9,566 | 10,369 | |||||||||
| Total compensation cost | 106,956 | 88,838 | 70,196 | |||||||||
| Less: Reimbursed costs and capitalized cost | (2,118 | ) | (3,487 | ) | (1,710 | ) | ||||||
| Compensation cost after reimbursed costs and capitalized cost | 104,838 | 85,351 | 68,486 | |||||||||
| Less: Related tax benefit | (20,605 | ) | (16,752 | ) | (13,218 | ) | ||||||
| Compensation cost, net of tax benefit | $ | 84,233 | $ | 68,599 | $ | 55,268 |
NOTE 15 — EMPLOYEE BENEFIT PLANS
Multiemployer benefit plans. The Company currently participates in multiemployer pension plans in which the risks of participating differs from single-employer plans in the following aspects:
| a) | Assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other participating employers; |
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| b) | If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers; |
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| c) | If an entity chooses to stop participating in some of its multiemployer plans, the entity may be required to pay those plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability; and |
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| d) | If the plan is terminated by withdrawal of all employers and if the value of the nonforfeitable benefits exceeds plan assets and withdrawal liability payments, employers are required by law to make up the insufficient difference. |
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The Company’s participation in these plans is presented below.
| EIN/Pension | Pension Protection Act Zone Status (2) | FIP/RP | Contributions by the Company (in thousands)(4) | Surcharge | Expiration Dates of Collective Bargaining | |||||||||||||||||||
| Pension Fund(1) | Plan Number | 2019 | 2018 | Status (3) | 2020 | 2019 | 2018 | Imposed | Agreements | |||||||||||||||
| Southern Nevada Culinary and Bartenders Pension Plan | 88-6016617/001 | Green | Green | No | $ | 24,610 | $ | 52,218 | $ | 47,825 | No | 3/31/2021(5); 5/31/2023(5); 5/31/2024(5) | ||||||||||||
| The Legacy Plan of the UNITE HERE Retirement Fund (UHF)(6) | 82-0994119/001 | Red | Red | Yes | $ | 5,151 | $ | 10,151 | $ | 9,794 | Yes | 5/31/2022 | ||||||||||||
| (1) | The Company was listed in the plan's Form 5500 as providing more than 5% of the total contributions for the plan years 2019 and 2018 for both the Southern Nevada Culinary and Bartenders Pension Plan and UHF. At the date the financial statements were issued, Form 5500 was not available for the plan year 2020. |
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| (2) | The zone status is based on information that the Company received from the plan and is certified by the plan's actuary. Plans in the red zone are generally less than 65% funded (critical status) and plans in the green zone are at least 80% funded. |
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| (3) | Indicates plans for which a Financial Improvement Plan (FIP) or a Rehabilitation Plan (RP) is either pending or has been implemented. |
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| (4) | There have been no significant changes that affect the comparability of contributions. |
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| (5) | The Company is party to twelve collective bargaining agreements (CBA) that require contributions with the Local Joint Executive Board of Las Vegas, which is made up of the Culinary Workers Union and Bartenders Union. The agreements between Aria, Bellagio, Mandalay Bay, and MGM Grand Las Vegas are the most significant because more than half of the Company’s employee participants in this plan are covered by those four agreements. |
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| (6) | Effective January 1, 2018, the Pension Benefit Guaranty Corporation approved the spin-off of the UNITE HERE portion of the Legacy Plan of the National Retirement Fund (NRF) to the newly formed UHF. As a result of the spin-off, the pension liabilities as well as certain assets of the plan were transferred to the new plan. The terms of the UHF plan are identical to the NRF plan. |
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Multiemployer benefit plans other than pensions. Pursuant to its collective bargaining agreements referenced above, the Company also contributes to UNITE HERE Health (the “Health Fund”), which provides healthcare benefits to its active and retired members. The Company contributed $138 million, $206 million, and $191 million to the Health Fund in the years ended December 31, 2020, 2019, and 2018, respectively.
NOTE 16 — PROPERTY TRANSACTIONS, NET
Property transactions, net consisted of the following:
| Year Ended December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2020 | 2019 | 2018 | ||||||||||
| (In thousands) | ||||||||||||
| Loss related to sale of Circus Circus Las Vegas and adjacent land | $ | — | $ | 220,294 | $ | — | ||||||
| Gain on sale of Grand Victoria | — | — | (44,703 | ) | ||||||||
| Other property transactions, net | 93,567 | 55,508 | 53,850 | |||||||||
| $ | 93,567 | $ | 275,802 | $ | 9,147 |
Circus Circus Las Vegas and adjacent land. In December 2019, the Company completed the previously announced sale of Circus Circus Las Vegas and the adjacent land for $825 million, which consisted 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 $133.7 million. The note has a stated interest rate of 3% for the first two years, 4% for following two years, and 4.5% for the fifth year and is secured by the borrower with the land adjacent to Circus Circus Las Vegas as collateral with an effective interest rate of 7.31%. The interest on the note, which is comprised of the stated interest and the discount on the note, will amortize into interest income using the effective interest method over the length of the agreement. The carrying value of the note receivable was $144 million and $134 million as of December 31, 2020 and 2019, respectively, and was recorded within “Other assets, net” in the consolidated balance sheets.
During the third quarter of 2019, the Company recorded a non-cash impairment charge of $219 million, which reflects the amount by which the assets’ carrying value exceeds the assets’ fair value (expected selling price). We further recognized a loss of $2 million during the fourth quarter of 2019 primarily relating to selling costs. The assets and liabilities of Circus Circus Las Vegas and the adjacent land sold of $810 million and $14 million, respectively, primarily consisted of property and equipment, net of $785 million. Circus Circus Las Vegas is not classified as discontinued operations for the year ended December 31, 2019 because the Company concluded that the sale is not a strategic shift that has a major effect on the Company’s operations or its financial results and it does not represent a major geographic segment or product line.
Grand Victoria investment sale. See Note 6 for additional information related to the sale of Grand Victoria investment in 2018.
Other. Other property transactions, net in 2020 includes other-than-temporary impairment charges of $64 million related to an investment in an unconsolidated affiliate, as discussed in Note 6, as well as miscellaneous asset disposals and write-downs, including a loss of $17 million related to production show costs. Other property transactions, net for 2019 and 2018 includes miscellaneous asset disposals and demolition costs in the periods presented in the above table, including, a loss of $24 million related to MGM Cotai production show costs and a loss of $20 million related to the rebranding of the Monte Carlo Resort and Casino to Park MGM and NoMad Las Vegas in 2018.
NOTE 17 — 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 (until the sale of such property in December 2019).
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; Empire City in Yonkers, New York (upon acquisition in January 2019); and MGM Northfield Park in Northfield Park, Ohio (upon MGM’s 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.
Adjusted Property EBITDAR is the Company’s reportable segment GAAP measure, which management utilizes as the primary profit measure for its reportable segments and underlying operating segments. Adjusted Property EBITDAR is a measure defined as earnings before interest and other non-operating income (expense), taxes, depreciation and amortization, preopening and start-up expenses, gain on REIT transactions, net, 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), rent expense associated with triple-net operating and ground leases, income from unconsolidated affiliates related to investments in real estate ventures, and property transactions, net, and also excludes corporate expense and stock compensation expense, which are not allocated to each operating segment, and rent expense related to the master lease with MGP that eliminates in consolidation.
The following tables present the Company’s segment information:
| Year Ended December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2020 | 2019 | 2018 | ||||||||||
| (In thousands) | ||||||||||||
| Net revenue | ||||||||||||
| Las Vegas Strip Resorts | ||||||||||||
| Casino | $ | 728,254 | $ | 1,296,170 | $ | 1,407,733 | ||||||
| Rooms | 662,813 | 1,863,521 | 1,776,029 | |||||||||
| Food and beverage | 471,529 | 1,517,745 | 1,402,378 | |||||||||
| Entertainment, retail and other | 383,189 | 1,153,615 | 1,130,532 | |||||||||
| 2,245,785 | 5,831,051 | 5,716,672 | ||||||||||
| Regional Operations | ||||||||||||
| Casino | 1,569,193 | 2,537,780 | 2,026,925 | |||||||||
| Rooms | 130,945 | 316,753 | 318,017 | |||||||||
| Food and beverage | 184,153 | 494,243 | 428,934 | |||||||||
| Entertainment, retail and other | 82,880 | 201,008 | 160,645 | |||||||||
| 1,967,171 | 3,549,784 | 2,934,521 | ||||||||||
| MGM China | ||||||||||||
| Casino | 565,671 | 2,609,806 | 2,195,144 | |||||||||
| Rooms | 36,624 | 142,306 | 118,527 | |||||||||
| Food and beverage | 40,284 | 127,152 | 114,862 | |||||||||
| Entertainment, retail and other | 14,124 | 26,158 | 21,424 | |||||||||
| 656,703 | 2,905,422 | 2,449,957 | ||||||||||
| Reportable segment net revenues | 4,869,659 | 12,286,257 | 11,101,150 | |||||||||
| Corporate and other | 292,423 | 613,415 | 661,946 | |||||||||
| $ | 5,162,082 | $ | 12,899,672 | $ | 11,763,096 | |||||||
| Adjusted Property EBITDAR | ||||||||||||
| Las Vegas Strip Resorts | $ | 232,188 | $ | 1,643,122 | $ | 1,706,315 | ||||||
| Regional Operations | 343,990 | 969,866 | 781,854 | |||||||||
| MGM China | (193,832 | ) | 734,729 | 574,333 | ||||||||
| Reportable segment Adjusted Property EBITDAR | 382,346 | 3,347,717 | 3,062,502 | |||||||||
| Other operating income (expense) | ||||||||||||
| Corporate and other, net | (530,843 | ) | (331,621 | ) | (224,800 | ) | ||||||
| Preopening and start-up expenses | (84 | ) | (7,175 | ) | (151,392 | ) | ||||||
| Property transactions, net | (93,567 | ) | (275,802 | ) | (9,147 | ) | ||||||
| Gain on REIT transactions, net | 1,491,945 | 2,677,996 | — | |||||||||
| Depreciation and amortization | (1,210,556 | ) | (1,304,649 | ) | (1,178,044 | ) | ||||||
| CEO transition expense | (44,401 | ) | — | — | ||||||||
| October 1 litigation settlement | (49,000 | ) | — | — | ||||||||
| Restructuring | (26,025 | ) | (92,139 | ) | — | |||||||
| Triple-net operating lease and ground lease rent expense | (710,683 | ) | (74,656 | ) | (29,633 | ) | ||||||
| Income from unconsolidated affiliates related to real estate ventures | 148,434 | 544 | — | |||||||||
| Operating income (loss) | (642,434 | ) | 3,940,215 | 1,469,486 | ||||||||
| Non-operating income (expense) | ||||||||||||
| Interest expense, net of amounts capitalized | (676,380 | ) | (847,932 | ) | (769,513 | ) | ||||||
| Non-operating items from unconsolidated affiliates | (103,304 | ) | (62,296 | ) | (47,827 | ) | ||||||
| Other, net | (89,361 | ) | (183,262 | ) | (18,140 | ) | ||||||
| (869,045 | ) | (1,093,490 | ) | (835,480 | ) | |||||||
| Income (loss) before income taxes | (1,511,479 | ) | 2,846,725 | 634,006 | ||||||||
| Benefit (provision) for income taxes | 191,572 | (632,345 | ) | (50,112 | ) | |||||||
| Net income (loss) | (1,319,907 | ) | 2,214,380 | 583,894 | ||||||||
| Less: Net (income) loss attributable to noncontrolling interests | 287,183 | (165,234 | ) | (117,122 | ) | |||||||
| Net income (loss) attributable to MGM Resorts International | $ | (1,032,724 | ) | $ | 2,049,146 | $ | 466,772 |
| Year Ended December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2020 | 2019 | 2018 | ||||||||||
| Capital expenditures: | (In thousands) | |||||||||||
| Las Vegas Strip Resorts | $ | 87,511 | $ | 285,863 | $ | 501,044 | ||||||
| Regional Operations | 41,456 | 187,489 | 72,865 | |||||||||
| MGM China | 108,352 | 145,634 | 390,212 | |||||||||
| Reportable segment capital expenditures | 237,319 | 618,986 | 964,121 | |||||||||
| Corporate and other | 33,260 | 120,020 | 537,347 | |||||||||
| Eliminated in consolidation | — | — | (14,625 | ) | ||||||||
| $ | 270,579 | $ | 739,006 | $ | 1,486,843 |
Total assets are not allocated to segments for internal reporting presentations or when determining the allocation of resources and, accordingly, are not presented.
Long-lived assets, which includes property and equipment, net, operating and finance lease right-of-use assets, net, goodwill, and other intangible assets, net, presented by geographic region in which the Company holds assets are presented below:
| December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2020 | 2019 | 2018 | ||||||||||
| Long-lived assets: | (In thousands) | |||||||||||
| United States | $ | 21,035,992 | $ | 20,582,055 | $ | 18,228,939 | ||||||
| China and all other foreign countries | 7,617,819 | 8,007,449 | 8,266,804 | |||||||||
| $ | 28,653,811 | $ | 28,589,504 | $ | 26,495,743 |
NOTE 18 — RELATED PARTY TRANSACTIONS
CityCenter
Management agreements. The Company and CityCenter have entered into agreements whereby the Company is responsible for management of the operations of CityCenter for a fee of 2% of revenue and 5% of EBITDA (as defined) for Aria and Vdara. The Company earned fees of $16 million, $48 million and $47 million for the years ended December 31, 2020, 2019 and 2018, respectively. The Company is being reimbursed for certain costs in performing its development and management services. During the years ended December 31, 2020, 2019 and 2018, the Company incurred $212 million, $420 million and $409 million, respectively, of costs reimbursable by CityCenter, primarily for employee compensation and certain allocated costs. As of December 31, 2020 and 2019, CityCenter owed the Company $39 million and $66 million, respectively, for management services and reimbursable costs recorded in “Accounts receivable, net” in the accompanying consolidated balance sheets.
MGM China
Ms. Ho, Pansy Catilina Chiu King (“Ms. Ho”) is the Co-Chairperson of the Board of Directors of, and holds a minority ownership interest in, MGM China. Ms. Ho is also the managing director of Shun Tak Holdings Limited (together with its subsidiaries “Shun Tak”), a leading conglomerate in Hong Kong with core businesses in transportation, property, hospitality and investments. Shun Tak provides various services and products, including ferry tickets, travel products, rental of hotel rooms, laundry services and property cleaning services to MGM China. In addition, MGM China leases transportation equipment and office space from Shun Tak. MGM China incurred expenses relating to Shun Tak of $7 million, $16 million and $17 million for the years ended December 31, 2020, 2019 and 2018, respectively. In addition, Ms. Ho holds managing director positions with other companies that provide advertising services to MGM China, which totaled $1 million and $6 million for the years ended December 31, 2020 and 2019.
Grand Paradise Macau deferred cash payment. On September 1, 2016, the Company purchased 188.1 million common shares of its MGM China subsidiary from Grand Paradise Macau (“GPM”), an entity controlled by Ms. Ho. As part of the consideration for the purchase, the Company agreed to pay GPM or its nominee a deferred cash payment of $50 million, which will be paid in amounts equal to the ordinary dividends received on such shares, with a final lump sum payment due on the fifth anniversary of the closing date of the transaction if any portion of the deferred cash payment remains unpaid at that time. Such amount was paid to Expert Angles Limited, an entity controlled by Ms. Ho through November 2018 and subsequently controlled by an immediate family member of Ms. Ho. As of December 31, 2020 and 2019, the Company recorded a remaining liability on a discounted basis of $33 million in “Other accrued liabilities” and $34 million in “Other long-term obligations,” respectively, in the accompanying consolidated balance sheets.
MGM Branding and Development Holdings, Ltd. (together with its subsidiary MGM Development Services, Ltd., “MGM Branding and Development”), an entity included in the Company’s consolidated financial statements in which Ms. Ho indirectly holds a noncontrolling interest, is party to a brand license agreement and a development services agreement with MGM China, for which the related amounts are eliminated in consolidation. An entity owned by Ms. Ho received distributions of $5 million, $20 million and $22 million for the years ended December 31, 2020, 2019 and 2018, respectively, in connection with the ownership of a noncontrolling interest in MGM Branding and Development Holdings, Ltd.
MGP
As further described in Note 1, pursuant to the master lease with MGP, the Company leases the real estate assets of The Mirage, 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 MGP.
MGP master lease. The MGP master lease has an initial lease term of ten years that began on April 25, 2016 (other than with respect to MGM National Harbor, as described below) with the potential to extend the term for four additional five-year terms thereafter at the option of the Company. The MGP master lease provides that any extension of its term must apply to all of the real estate under the master lease at the time of the extension. The MGP master lease provides that the initial term with respect to MGM National Harbor ends on April 31, 2024. Thereafter, the initial term of the MGP master lease with respect to MGM National Harbor may be renewed at the option of the Company for an initial renewal period lasting until the earlier of the end of the then-current term of the master lease or the next renewal term (depending on whether the Company elects to renew the other properties under the master lease in connection with the expiration of the initial ten-year term). If, however, the Company chooses not to renew the lease with respect to MGM National Harbor after the initial MGM National Harbor term under the master lease, the Company would also lose the right to renew the MGP master lease with respect to the rest of the properties when the initial ten-year lease term ends related to the rest of the properties in 2026. The MGP master lease has a triple-net structure, which requires the Company to pay substantially all costs associated with the lease, including real estate taxes, insurance, utilities and routine maintenance, in addition to the base rent. Additionally, the master lease provides MGP with a right of first offer with respect to MGM Springfield and with respect to any further gaming development by the Company on the undeveloped land adjacent to Empire City, which MGP may exercise should the Company elect to sell either property in the future.
Rent under the MGP master lease consists of a “base rent” component and a “percentage rent” component. As of December 31, 2020, the base rent represents approximately 91% of the rent payments due and the percentage rent represents approximately 9% of the rent payments due under the MGP master lease. The MGP master lease also provides for fixed annual escalators of 2% on the base rent through the sixth lease year and the possibility for additional 2% increases thereafter subject to the Company meeting an adjusted net revenue to rent ratio, as well as potential increases in percentage rent in year six and every five years thereafter based on a percentage of average actual annual net revenue during the preceding five year period calculated in accordance with the terms under the master lease. The MGP master lease also contains customary events of default and financial covenants; provided that the tenant will not be in default of the financial covenants in the event there is an unavoidable delay (as such term is defined in the lease). The Company was in compliance with all applicable covenants as of December 31, 2020.
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 remainder in issuance of Operating Partnership units. The real estate assets of Empire City were then leased to the Company pursuant to an amendment to the MGP master lease, increasing the annual rent payment to MGP by $50 million, prorated for the remainder of the lease year. Consistent with the MGP master lease terms, 90% of this rent will be fixed and contractually grow at 2% per year until 2022. As disclosed above, the master lease provides MGP 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 MGP may exercise should the Company elect to sell this property in the future.
On March 7, 2019, the Company entered into an amendment to the existing MGP master lease with respect to the Park MGM Transaction. In connection with the transaction, the Company received consideration of $638 million, of which approximately $606 million was paid in cash and the remainder in 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 MGP master lease with MGP, 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 annual rent payments under the MGP master lease for the fourth lease year, which commenced on April 1, 2019, increased to $946 million from $770 million at the start of the third lease year. The increase was a result of the $50 million in additional rent for each of the Park MGM Transaction and the addition of Empire City in the beginning of 2019, the $60 million of additional rent for MGM Northfield Park, which entered the Master Lease on April 1, 2019, as well as the third 2.0% fixed annual rent escalator that went into effect on April 1, 2019.
On February 14, 2020, the Company amended the MGP master lease to remove Mandalay Bay from such master lease and the annual rent under the MGP master lease was reduced by $133 million to $813 million.
The annual cash rent payments under the MGP master lease for the fifth lease year, which commenced on April 1, 2020, increased to $828 million from $813 million, as a result of the fourth 2.0% fixed annual rent escalator that went into effect on April 1, 2020.
Additionally, refer to Note 1 for discussion relating to the waiver agreement with MGP and the Operating Partnership units redeemed thereunder.
All intercompany transactions, including transactions under the MGP master lease, have been eliminated in the Company’s consolidation of MGP. The public ownership of MGP’s Class A shares is recognized as noncontrolling interests in the Company’s consolidated financial statements.
Bellagio BREIT Venture
The Company has a 5% ownership interest in the Bellagio BREIT Venture, which owns the real estate assets of Bellagio and leases such assets to a subsidiary of the Company pursuant to a lease agreement. Refer to Note 11 for further information related to the Bellagio lease.
MGP BREIT Venture
MGP has a 50.1% ownership interest in the MGP BREIT Venture, which owns the real estate assets of Mandalay Bay and MGM Grand Las Vegas and leases such assets to a subsidiary of the Company pursuant to a lease agreement. Refer to Note 11 for further information related to the Mandalay Bay and MGM Grand Las Vegas lease.
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
| Balance at | Expected | Write-offs, | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Beginning of | Credit | Net of | Balance at | |||||||||||||
| Period | Losses | Recoveries | End of Period | |||||||||||||
| Loss reserve: | ||||||||||||||||
| Year Ended December 31, 2020 | $ | 94,561 | $ | 71,422 | $ | (39,394 | ) | $ | 126,589 | |||||||
| Year Ended December 31, 2019 | 90,775 | 39,270 | (35,484 | ) | 94,561 | |||||||||||
| Year Ended December 31, 2018 | 92,571 | 39,762 | (41,558 | ) | 90,775 |
| Balance at | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Beginning of | Balance at | |||||||||||||||
| Period | Increase | Decrease | End of Period | |||||||||||||
| Deferred income tax valuation allowance: | ||||||||||||||||
| Year Ended December 31, 2020 | $ | 2,574,056 | $ | 301,539 | $ | — | $ | 2,875,595 | ||||||||
| Year Ended December 31, 2019 | 2,477,703 | 96,353 | — | 2,574,056 | ||||||||||||
| Year Ended December 31, 2018 | 2,513,738 | — | (36,035 | ) | 2,477,703 |
Previous: Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK · Next: Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE