Edgar Filing: MGM Resorts International

mgm-10q_20180630.htm

UNITED STATES

SECURITIES & EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2018

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

For the transition period from to

Commission File No. 001-10362

MGM Resorts International

(Exact name of registrant as specified in its charter)

Delaware	88-0215232
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

3600 Las Vegas Boulevard South, Las Vegas, Nevada 89109

(Address of principal executive offices)

(702) 693-7120

(Registrant’s telephone number, including area code)

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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files): Yes ☒ No ☐

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

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act: Yes ☐ No ☐

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

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

Class		Outstanding at August 1, 2018
Common Stock, $.01 par value		537,902,116 shares

MGM RESORTS INTERNATIONAL AND SUBSIDIARIES

FORM 10-Q

I N D E X


		Page
PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)	1
	Consolidated Balance Sheets at June 30, 2018 and December 31, 2017	1
	Consolidated Statements of Operations for the Three Months and Six Months Ended June 30, 2018 and June 30, 2017	2
	Consolidated Statements of Comprehensive Income for the Three Months and Six Months Ended June 30, 2018 and June 30, 2017	3
	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2018 and June 30, 2017	4
	Condensed Notes to Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	40
Item 4.	Controls and Procedures	40
PART II.	OTHER INFORMATION	41
Item 1.	Legal Proceedings	41
Item 1A.	Risk Factors	41
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	42
Item 6.	Exhibits	42
SIGNATURES		43

Part I. FINANCIAL INFORMATION

Item 1.

Financial Statements

MGM RESORTS INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)

	June 30,			December 31,
	2018			2017
ASSETS
Current assets
Cash and cash equivalents	$	1,272,872		$	1,499,995
Accounts receivable, net		497,350			542,273
Inventories		109,130			102,292
Income tax receivable		23,124			42,551
Prepaid expenses and other		180,640			189,244
Total current assets		2,083,116			2,376,355

Property and equipment, net		19,863,078			19,635,459

Other assets
Investments in and advances to unconsolidated affiliates		882,940			1,033,297
Goodwill		1,801,034			1,806,531
Other intangible assets, net		3,776,770			3,877,960
Other long-term assets, net		570,222			430,440
Total other assets		7,030,966			7,148,228
	$	28,977,160		$	29,160,042
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable	$	268,140		$	255,028
Construction payable		418,945			474,807
Current portion of long-term debt, net		—			158,042
Accrued interest on long-term debt		140,184			135,785
Other accrued liabilities		2,237,524			2,114,635
Total current liabilities		3,064,793			3,138,297

Deferred income taxes, net		1,226,397			1,295,375
Long-term debt, net		13,513,341			12,751,052
Other long-term obligations		245,720			284,416
Commitments and contingencies (Note 6)
Redeemable noncontrolling interests		86,968			79,778
Stockholders' equity
Common stock, $.01 par value: authorized 1,000,000,000 shares, issued and outstanding 537,866,780 and 566,275,789 shares		5,379			5,663
Capital in excess of par value		4,413,814			5,357,709
Retained earnings		2,431,186			2,217,299
Accumulated other comprehensive loss		(3,237	)		(3,610	)
Total MGM Resorts International stockholders' equity		6,847,142			7,577,061
Noncontrolling interests		3,992,799			4,034,063
Total stockholders' equity		10,839,941			11,611,124
	$	28,977,160		$	29,160,042

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)

(Unaudited)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2018			2017			2018			2017
Revenues
Casino	$	1,332,214		$	1,172,758		$	2,726,530		$	2,444,232
Rooms		563,871			541,755			1,103,351			1,100,567
Food and beverage		494,808			485,098			950,219			954,434
Entertainment, retail and other		363,242			353,230			692,992			670,959
Reimbursed costs		104,560			99,292			207,840			199,507
		2,858,695			2,652,133			5,680,932			5,369,699
Expenses
Casino		741,531			627,361			1,504,180			1,294,296
Rooms		202,968			187,116			392,026			375,785
Food and beverage		376,985			363,011			730,374			716,173
Entertainment, retail and other		243,370			243,836			470,204			467,225
Reimbursed costs		104,560			99,292			207,840			199,507
General and administrative		438,453			354,349			856,343			743,137
Corporate expense		103,438			79,448			202,947			152,580
Preopening and start-up expenses		19,077			21,093			85,994			36,159
Property transactions, net		16,970			13,243			22,868			14,939
NV Energy exit expense		—			(40,629	)		—			(40,629	)
Depreciation and amortization		296,208			244,754			565,030			494,523
		2,543,560			2,192,874			5,037,806			4,453,695
Income from unconsolidated affiliates		47,940			40,639			79,706			80,405
Operating income		363,075			499,898			722,832			996,409
Non-operating income (expense)
Interest expense, net of amounts capitalized		(181,493	)		(174,058	)		(349,402	)		(348,117	)
Non-operating items from unconsolidated affiliates		(11,068	)		(10,556	)		(20,078	)		(17,477	)
Other, net		(6,381	)		(751	)		(8,297	)		(1,568	)
		(198,942	)		(185,365	)		(377,777	)		(367,162	)
Income before income taxes		164,133			314,533			345,055			629,247
Benefit (provision) for income taxes		(23,710	)		(73,660	)		61,669			(135,800	)
Net income		140,423			240,873			406,724			493,447
Less: Net income attributable to noncontrolling interests		(16,646	)		(31,009	)		(59,503	)		(77,171	)
Net income attributable to MGM Resorts International	$	123,777		$	209,864		$	347,221		$	416,276
Net income per share of common stock attributable to MGM Resorts International
Basic	$	0.21		$	0.36		$	0.60		$	0.72
Diluted	$	0.21		$	0.36		$	0.60		$	0.72
Weighted average common shares outstanding
Basic		548,433			574,931			556,586			574,668
Diluted		554,339			582,056			563,108			581,112
Dividends declared per common share	$	0.12		$	0.11		$	0.24		$	0.22

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

MGM RESORTS INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2018			2017			2018			2017
Net income	$	140,423		$	240,873		$	406,724		$	493,447
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment		1,400			(25,376	)		(22,752	)		(38,309	)
Unrealized gain (loss) on cash flow hedges		5,335			(3,323	)		19,191			(3,957	)
Other comprehensive income (loss)		6,735			(28,699	)		(3,561	)		(42,266	)
Comprehensive income		147,158			212,174			403,163			451,181
Less: Comprehensive income attributable to noncontrolling interests		(19,138	)		(18,675	)		(55,569	)		(59,106	)
Comprehensive income attributable to MGM Resorts International	$	128,020		$	193,499		$	347,594		$	392,075

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

MGM RESORTS INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Six Months Ended
	June 30,
	2018			2017
Cash flows from operating activities
Net income	$	406,724		$	493,447
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		565,030			494,523
Amortization of debt discounts, premiums and issuance costs		19,956			17,717
Loss on retirement of long-term debt		2,636			798
Provision for doubtful accounts		17,324			10,361
Stock-based compensation		33,911			30,965
Property transactions, net		22,868			14,939
Income from unconsolidated affiliates		(56,307	)		(62,928	)
Distributions from unconsolidated affiliates		9,650			7,100
Deferred income taxes		(70,986	)		12,465
Change in operating assets and liabilities:
Accounts receivable		26,157			63,471
Inventories		(6,928	)		(5,469	)
Income taxes receivable and payable, net		19,428			(18,014	)
Prepaid expenses and other		5,415			(6,516	)
Prepaid Cotai land concession premium		3,440			(11,216	)
Accounts payable and accrued liabilities		116,060			(100,648	)
Other		(21,227	)		(1,869	)
Net cash provided by operating activities		1,093,151			939,126
Cash flows from investing activities
Capital expenditures, net of construction payable		(861,761	)		(872,610	)
Dispositions of property and equipment		440			293
Investments in unconsolidated affiliates		(2,503	)		(4,773	)
Distributions from unconsolidated affiliates in excess of cumulative earnings		200,000			300,000
Other		(15,609	)		(15,688	)
Net cash used in investing activities		(679,433	)		(592,778	)
Cash flows from financing activities
Net borrowings (repayments) under bank credit facilities – maturities of 90 days or less		(360,874	)		204,852
Issuance of long-term debt		1,000,000			—
Debt issuance costs		(64,777	)		(5,403	)
Dividends paid to common shareholders		(133,334	)		(126,429	)
Distributions to noncontrolling interest owners		(101,407	)		(89,872	)
Purchases of common stock		(957,264	)		—
Retirement of debentures		(2,265	)		—
Other		(18,230	)		(16,093	)
Net cash used in financing activities		(638,151	)		(32,945	)
Effect of exchange rate on cash		(2,690	)		(2,922	)
Cash and cash equivalents
Net increase (decrease) for the period		(227,123	)		310,481
Balance, beginning of period		1,499,995			1,446,581
Balance, end of period	$	1,272,872		$	1,757,062
Supplemental cash flow disclosures
Interest paid, net of amounts capitalized	$	324,779		$	341,990
Federal, state and foreign income taxes paid (received), net of refunds		(10,667	)		140,605

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

MGM RESORTS INTERNATIONAL AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

NOTE 1 — ORGANIZATION

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

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

MGM Growth Properties LLC (“MGP”), a consolidated subsidiary of the Company, is organized as an umbrella partnership REIT (commonly referred to as an UPREIT) structure in which all of its assets are owned by and all of its businesses are conducted through MGM Growth Properties Operating Partnership LP (the “Operating Partnership”), its subsidiary. 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 June 30, 2018, the Company owned 73.3% of the Operating Partnership units and MGP held the remaining 26.7% of the Operating Partnership units.

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

On April 4, 2018, MGP entered into an agreement with Milstein Entertainment LLC to acquire the membership interests of Northfield Park Associates, LLC, an Ohio limited liability company that owns the real estate assets and operations of the Hard Rock Rocksino Northfield Park (“Rocksino”) for approximately $1.06 billion, and on July 6, 2018, MGP completed the acquisition of the Rocksino. MGP funded the acquisition through a $200 million draw on the Operating Partnership’s delayed draw Term Loan A, a $655 million draw under the Operating Partnership’s revolving credit facility with the remainder of the purchase price paid with cash on hand. Simultaneously with the close, MGP entered into a new agreement with Hard Rock to continue to serve as the manager of the property.

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

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. In addition, CityCenter features residential units in the Residences at Veer. In March 2018, a subsidiary of CityCenter entered into an agreement for the sale of the Mandarin Oriental Las Vegas. See Note 3 for additional information related to CityCenter.

The Company and a subsidiary of Anschutz Entertainment Group, Inc. (“AEG”) each own 42.5% of the Las Vegas Arena Company, LLC (“Las Vegas Arena Company”), the entity which owns the T-Mobile Arena, and Athena Arena, LLC owns the remaining 15%. The Company manages the T-Mobile Arena, which is located on a parcel of the Company’s land between Frank Sinatra Drive and New York-New York, adjacent to the Las Vegas Strip. The T-Mobile Arena is a 20,000 seat venue designed to host world-class events – from mixed martial arts, boxing, basketball and bull riding, to high profile awards shows and top-name concerts, and is the home of the Vegas Golden Knights of the National Hockey League. Additionally, the Company leases the MGM Grand Garden Arena, located adjacent to the MGM Grand Las Vegas, to the Las Vegas Arena Company. See Note 3 for additional information regarding the Company’s investment in the Las Vegas Arena Company.

The Company also has a 50% interest in Grand Victoria. Grand Victoria is a riverboat casino in Elgin, Illinois; an affiliate of Hyatt Gaming owns the other 50% of Grand Victoria and also operates the resort. In April 2018, the Company, along with its venture partner, entered into a definitive agreement to sell the Grand Victoria Casino. See Note 3 for additional information regarding the Company’s investment in Grand Victoria.

A subsidiary of the Company was awarded a casino license to build and operate MGM Springfield in Springfield, Massachusetts. MGM Springfield is in the process of being developed on approximately 14 acres of land in downtown Springfield. The Company’s plans for the resort currently include a casino with approximately 2,500 slots and 120 table games including poker; a 250-room hotel; 110,000 square feet of retail and restaurant space; 46,000 square feet of meeting and event space; and a 3,500 space parking garage, with an expected development and construction cost of approximately $960 million, excluding capitalized interest and land-related costs. MGM Springfield is expected to open on August 24, 2018.

On May 28, 2018, the Company entered into an agreement to acquire the real property and operations associated with the Empire City Casino's race track and casino ("Empire City") for total consideration of $850 million, subject to customary working capital and other adjustments, including the assumption of approximately $245 million of debt, the issuance of approximately $260 million of the Company’s common stock, and the remaining balance in cash. If Empire City is awarded a license for live table games on or prior to December 31, 2022 and the Company accepts such license by December 31, 2024, the Company will pay additional consideration of $50 million.

The Company and MGP have also entered into a definitive agreement whereby MGP will acquire the developed real property associated with Empire City from the Company for total consideration of approximately $625 million, which will include the assumption of approximately $245 million of debt by MGP, with the balance through the issuance of operating partnership units to the Company. Empire City will be added to the existing Master Lease between the Company and MGP through which MGP will lease the real property back to a subsidiary of the Company, after which a subsidiary of the Company will operate the property. In addition, pursuant to the Master Lease, the Company has agreed to give MGP a right of first offer with respect to certain undeveloped land adjacent to the property to the extent that the Company develops additional gaming facilities and chooses to sell or transfer the property in the future. The transactions are expected to close in the first quarter of 2019, subject to regulatory approvals and other customary closing conditions.

The Company has two reportable segments: domestic resorts and MGM China. See Note 9 for additional information about the Company’s segments.

NOTE 2 — BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation. As permitted by the rules and regulations of the Securities and Exchange Commission, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) have been condensed or omitted. These consolidated financial statements should be read in conjunction with the Company’s 2017 annual consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.

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

Principles of consolidation. Management has determined that MGP is a variable interest entity (“VIE”) because the Class A equity investors as a group lack the power through voting or similar rights to direct the activities of such entity that most significantly impact such entity’s economic performance. The Company has determined that it is the primary beneficiary of MGP and consolidates MGP because (i) its ownership of MGP’s single Class B share entitles it to a majority of the total voting power of MGP’s shares, and (ii) the exchangeable nature of the Operating Partnership units owned provide the Company the right to receive benefits from MGP that could potentially be significant to MGP. The Company has recorded MGP’s ownership interest in the Operating Partnership of 26.7% as of June 30, 2018 as noncontrolling interest in the Company’s consolidated financial statements. As of June 30, 2018 and December 31, 2017, on a consolidated basis, MGP had total assets of $10.3 billion and $10.4 billion, respectively, primarily related to its real estate investments, and total liabilities of $4.3 billion as of both dates, primarily related to its indebtedness.

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 and losses on dispositions of property and equipment are included in the determination of income or loss. Maintenance costs are expensed as incurred. As of June 30, 2018 and December 31, 2017, the Company had accrued $60 million and $28 million, respectively, for property and equipment within accounts payable, and $1 million and $34 million, respectively, related to construction retention within other long-term liabilities.

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

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 complimentary goods and services provided by the Company to gaming patrons on a discretionary basis to incentivize gaming, the Company allocates revenue to the good or service delivered based upon stand-alone selling price (“SSP”). Discretionary complimentaries provided by the Company and supplied by third parties are recognized as an operating expense. The Company accounts for complimentaries on a portfolio basis given the similar characteristics of the incentives by recognizing redemption per gaming day.

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. During the three and six months ended June 30, 2018, commissions, complimentaries, and other incentives provided to gaming customers were $520 million and $1.1 billion, respectively. During the three and six months ended June 30, 2017, commissions, complimentaries, and other incentives provided to gaming customers were $473 million and $958 million, 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 good and services. The transaction price for such contracts is recorded as revenue when the good or service is transferred to the customer over their stay at the hotel or when the delivery is made for the food & beverage and retail & other contracts. Sales and usage-based taxes are excluded from revenues. For some arrangements, the Company acts as an agent in that it arranges for another party to transfer goods and services, which primarily include certain of the Company’s entertainment shows as well as customer rooms arranged by online travel agents.

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

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

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

	Outstanding Chip Liability				Loyalty Program					Customer Advances and Other
	2018		2017		2018		2017			2018			2017
	(in thousands)
Balance at January 1	$	597,753	$	227,538	$	91,119	$	88,379		$	539,626		$	437,287
Balance at June 30		759,049		319,878		98,308		88,195			510,750			425,197
Increase / (decrease)	$	161,296	$	92,340	$	7,189	$	(184	)	$	(28,876	)	$	(12,090	)

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

Revenue by source. The Company presents the revenue earned disaggregated by the type or nature of the good or service (casino, room, food and beverage, and entertainment, retail and other) and by relevant geographic region within Note 9. 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. During the three and six months ended June 30, 2018, lease revenues include $12 million and $25 million recorded within food and beverage revenue, respectively, and $22 million and $43 million recorded within entertainment, retail, and other revenue for the same such periods, respectively. During the three and six months ended June 30, 2017, lease revenues include $14 million and $26 million recorded within food and beverage revenue, respectively, and $19 million and $39 million recorded within entertainment, retail, and other revenue for the same such periods, respectively.

Recently issued accounting standards. In May 2014, the FASB issued the ASC 606, “Revenue from Contracts with Customers (Topic 606)” which outlines a new, single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. Under the standard, revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration the entity expects to receive in exchange for those goods and services.

The Company adopted ASC 606 on a full retrospective basis effective January 1, 2018. The most significant impacts of adoption of the new accounting pronouncement were as follows:

•

Promotional Allowances: The Company no longer recognizes revenues for goods and services provided to customers for free as an inducement to gamble as gross revenue with a corresponding offset to promotional allowances to arrive at net revenues, and accordingly the promotional allowances line item has been removed. The majority of such amounts previously included in promotional allowances now offset casino revenues based on an allocation of revenues to performance obligations using stand-alone selling price. This change resulted in a reclassification of revenue between revenue line items;

•

Loyalty Accounting: As discussed within Revenue Recognition above, the outstanding performance obligations of the loyalty program liability are now recognized at retail value of such benefits owed to the customer (less estimated breakage). This change resulted in a decrease to retained earnings as of January 1, 2015 of $29 million, net of tax of $15 million, with a corresponding increase primarily to other accrued liabilities, as a result of the initial application of the standard and did not have a significant impact to other balance sheet accounts or earnings;

•

Gaming Promoter Commission: Commissions paid to gaming promoters under MGM China’s incentive program are now fully reflected as a reduction in casino revenue. This change resulted in a decrease in casino expense and a corresponding decrease in casino revenue;

•

Gross versus Net Presentation: Mandatory service charges on food and beverage and wide area progressive operator fees are recorded gross, that is, the amount received from the customer has been recorded as revenue with the corresponding amount paid as an expense. These changes resulted in an increase in revenue with a corresponding increase in expense;

•

Estimated Cost of Promotional Allowances: The Company no longer reclassifies the estimated cost of complimentaries provided to the gaming patron from other expense line items to the casino expense line item. This change resulted in a reclassification between expense line items.

These changes, and other less significant adjustments that were required upon adoption, did not have an aggregate material impact on operating income, net income, or cash flows. The following tables show the increase/(decrease) to our 2017 quarters and full-year 2017, 2016, and 2015 income statement line items as follows:

	Three Months Ended												Twelve Months Ended
	Dec 31, 2017			Sep 30, 2017			June 30, 2017			Mar 31, 2017			Dec 31, 2017			Dec 31, 2016			Dec 31, 2015
(in thousands)	Increase/(decrease)
Revenues
Casino	$	(241,045	)	$	(260,644	)	$	(232,305	)	$	(233,915	)	$	(967,909	)	$	(828,364	)	$	(782,222	)
Rooms		(2,987	)		8,518			(715	)		(3,455	)		1,361			(20,814	)		(42,152	)
Food and beverage		16,296			21,967			18,552			24,867			81,682			87,895			72,990
Entertainment, retail, and other		(1,204	)		(2,867	)		(3,328	)		(1,169	)		(8,568	)		(9,142	)		(10,867	)
		(228,940	)		(233,026	)		(217,796	)		(213,672	)		(893,434	)		(770,425	)		(762,251	)
Promotional allowances		229,297			236,460			228,193			223,059			917,009			793,571			751,773
		357			3,434			10,397			9,387			23,575			23,146			(10,478	)
Expenses
Casino		(147,081	)		(147,144	)		(135,898	)		(137,660	)		(567,783	)		(504,561	)		(519,569	)
Rooms		37,260			35,370			34,381			33,833			140,844			121,551			113,560
Food and beverage		100,043			104,786			101,516			103,317			409,662			367,166			353,364
Entertainment, retail, and other		10,220			11,779			11,676			10,718			44,393			41,401			39,306
General and administrative		(68	)		(111	)		(114	)		(47	)		(340	)		(83	)		9
Corporate expense		(2	)		—			40			(41	)		(3	)		(69	)		(71	)
		372			4,680			11,601			10,120			26,773			25,405			(13,401	)
Income from unconsolidated affiliates		25			89			56			63			233			671			471
Operating income (loss)		10			(1,157	)		(1,148	)		(670	)		(2,965	)		(1,588	)		3,394

Income (loss) before income taxes		10			(1,157	)		(1,148	)		(670	)		(2,965	)		(1,588	)		3,394
Benefit (provision) for income taxes		(6,310	)		405			401			235			(5,269	)		556			(1,189	)
Net income (loss)		(6,300	)		(752	)		(747	)		(435	)		(8,234	)		(1,032	)		2,205
Net income (loss) attributable to MGM Resorts International	$	(6,300	)	$	(752	)	$	(747	)	$	(435	)	$	(8,234	)	$	(1,032	)	$	2,205
Net income (loss) per share of common stock attributable to MGM Resorts International
Basic	$	(0.01	)	$	—		$	(0.01	)	$	—		$	(0.01	)	$	—		$	—
Diluted	$	(0.01	)	$	—		$	—		$	—		$	(0.01	)	$	—		$	—

In February 2016, the FASB issued ASC 842 “Leases (Topic 842),” which replaces the existing guidance in ASC 840, “Leases.” ASC 842 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. ASC 842 requires a dual approach for lessee accounting under which a lessee would account for leases as finance leases or operating leases. Both finance leases and operating leases will result in the lessee recognizing a right-of-use (“ROU”) asset and a corresponding lease liability. For finance leases, the lessee would recognize interest expense and amortization of the ROU asset and for operating leases the lessee would recognize a straight-line total lease expense. The Company is currently assessing the impact the adoption of ASC 842 will have on its consolidated financial statements and footnote disclosures.

In January 2018, the Company adopted ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force),” (“ASU 2016-15”). ASU 2016-15 amends the guidance of ASC 230 on the classification of certain cash receipts and payments in the statement of cash flows. The primary purpose of ASU 2016-15 is to reduce the diversity in practice that has resulted from the lack of consistent principles, specifically clarifying the guidance on eight cash flow issues. The adoption of ASU 2016-15 did not have a material effect on the Company’s consolidated financial statements and footnote disclosures.

In March 2018, the FASB issued ASU No. 2018-05, “Income Taxes (Topic 740) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118,” ("ASU 2018-05"). ASU 2018-05 provides guidance on accounting for the tax effects of the U.S. Tax Cuts and Jobs Act (the “Tax Act”) pursuant to the Staff Accounting Bulletin No. 118, which allows companies to complete the accounting under ASC 740 within a one-year measurement period from the Tax Act enactment date, which occurred in the financial statements for the year ended December 31, 2017. The Company continues to evaluate the tax effects of the Tax Act (see Note 5) and expects to finalize its provisional amounts by the fourth quarter of 2018.

NOTE 3 — INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES

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

	June 30,		December 31,
	2018		2017
	(In thousands)
CityCenter Holdings, LLC – CityCenter (50%)	$	663,785	$	808,220
Elgin Riverboat Resort–Riverboat Casino – Grand Victoria (50%)		121,978		124,342
Las Vegas Arena Company, LLC (42.5%)		76,356		76,619
Other		20,821