UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

 

Form 10-K

 

 

Commission File No. 001-10362

 

 

 

 

MGM Resorts International

(Exact name of Registrant as specified in its charter)

 

 

3600 Las Vegas Boulevard South - Las Vegas, Nevada 89109
(Address of principal executive office) (Zip Code)

 

(702) 693-7120

(Registrant’s telephone number, including area code)

 

 

 

 

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

 

 

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

None

 

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

 

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

 

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

 

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes   X       No        

 

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

 

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

 

 

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act):

 Yes           No   X  

 

The aggregate market value of the Registrant’s Common Stock held by non-affiliates of the Registrant as of June 30, 2010 (based on the closing price on the New York Stock Exchange Composite Tape on June 30, 2010) was $3.0 billion. As of February 18, 2011, 488,528,607 shares of Registrant’s Common Stock, $0.01 par value, were outstanding.

 

Portions of the Registrant’s definitive Proxy Statement for its 2011 Annual Meeting of Stockholders are incorporated by reference into Part III of this Form 10-K.

 

PART I

 

 

MGM Resorts International is referred to as the “Company” or the “Registrant,” and together with our subsidiaries may also be referred to as “we,” “us” or “our.”

 

Overview

 

MGM Resorts International is one of the world’s leading and most respected companies with significant holdings in gaming, hospitality and entertainment. We believe the resorts we own, manage and invest in are among the world’s finest casino resorts. MGM Resorts International is a Delaware corporation that acts largely as a holding company; our operations are conducted through our wholly-owned subsidiaries.

 

Our strategy is to generate sustainable, profitable growth by creating and maintaining competitive advantages and through the execution of our business plan, which is focused on:

 

 

Resort Portfolio

 

We execute our strategy through a portfolio approach, seeking to ensure that we own, manage and invest in resorts that are superior to our competitors’ resorts in the markets in which our resorts are located, as well as across our customer base. Our customer base is discussed below under “Resort Operation.”

 

We selectively acquire, invest in and develop resorts in markets with a stable regulatory history and environment. As seen in the table below, this means that a large portion of our resorts are located in Nevada. We target markets with growth potential and we believe there is growth potential in investing in and managing both gaming and non-gaming resorts. Our growth strategies are discussed in greater detail below under “Sustainable Growth and Leveraging Our Brand and Management Assets.”

 

Our Operating Resorts

 

We have provided certain information below about our resorts as of December 31, 2010. Except as otherwise indicated, we wholly own and operate the resorts shown below.

 

 

 

 

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

 

Portfolio Strategy

 

We believe we operate the highest quality resorts in each of the markets in which we operate. Ensuring our resorts are the premier resorts in their respective markets requires capital investments that target our goal of creating the best possible experiences for our guests. We have historically made significant investments in our resorts through the addition of new restaurants, entertainment and nightlife offerings, and other new features and amenities. In addition, we have made regular capital investments to maintain the quality of our hotel rooms and public spaces. The quality of our resorts and amenities can be measured by our success in winning numerous awards, such as several Four and Five Diamond designations from the American Automobile Association and Four and Five Star designations from Mobil Travel.

 

We also actively manage our portfolio of land holdings. We own approximately 670 acres of land on the Las Vegas Strip, with a meaningful portion of those acres undeveloped acreage or acreage we consider to be under-developed.

 

Risks Associated with Our Portfolio Strategy

 

Certain principal risk factors relating to our current portfolio of resorts are:

 

 

See “Item 1A. Risk Factors” for a more detailed discussion of these and other risk factors.

Resort Operation

 

Our operating philosophy is to create resorts of memorable character, to treat our employees as valued and respected team members and to provide superior service for our guests. In addition, we also seek to develop competitive advantages in specific markets and among specific customer groups.

 

General

 

We primarily own and operate casino resorts that include gaming, hotel, dining, entertainment, retail and other resort amenities. Over half of our net revenue is derived from non-gaming activities, a higher percentage than many of our competitors, as we provide a complete resort experience for our guests, including high quality non-gaming amenities for which our guests are willing to pay a premium.

 

As a resort-based company, our operating results are highly dependent on the volume of customers at our resorts, which in turn affects the price we can charge for our hotel rooms and other amenities. Since we believe that the number of walk-in customers affects the success of our casino resorts, we design our facilities to maximize their attraction to guests of other hotels. We also generate a significant portion of our operating income from the high-end gaming segment, which can cause variability in our results.

 

Most of our revenue is essentially cash-based, through customers wagering with cash or paying for non-gaming services with cash or credit cards. Our resorts, like many in the industry, generate significant operating cash flow. Our industry is capital intensive and we rely heavily on the ability of our resorts to generate operating cash flow to repay debt financing, fund capital expenditures and provide excess cash for future development.

 

Our results of operations do not tend to be seasonal in nature, though a variety of factors can affect the results of any interim period, including the timing of major Las Vegas conventions, the amount and timing of marketing and special events for our high-end customers, and the level of play during major holidays, including New Year and Chinese New Year. Our significant convention and meeting facilities are utilized to maximize hotel occupancy and customer volumes during off-peak times, such as mid-week or traditionally slower leisure travel periods, which also leads to better labor utilization. Our results do not depend on key individual customers, although our success in marketing to customer groups, such as convention customers, or the financial health of customer segments, such as business travelers or high-end gaming customers from a particular country or region, can affect our results.

 

All of our casino resorts operate 24 hours a day, every day of the year, with the exception of Grand Victoria which operates 22 hours a day, every day of the year. At our wholly-owned resorts, our primary casino and hotel operations are owned and managed by us. Other resort amenities may be owned and operated by us, owned by us but managed by third parties for a fee, or leased to third parties. We generally have an operating philosophy that favors ownership and management of amenities, since guests have direct contact with staff in these areas and we prefer to control all aspects of the guest experience; however, we do lease space to retail and food and beverage operators, particularly for branding opportunities and when capital investment by us is not desirable or feasible. We also operate many “managed” outlets, utilizing third-party management for specific expertise in operations of restaurants and nightclubs, as well as for branding opportunities.

 

Customers and Competition

 

Our casino resorts generally operate in highly competitive environments. We compete against other gaming companies, as well as other hospitality and leisure and business travel companies. Our primary methods of successful competition include:

 

 

 

Our Las Vegas casino resorts compete for customers with a large number of other hotel casinos in the Las Vegas area, including major hotel casinos on or near the Las Vegas Strip, major hotel casinos in the downtown area, which is about five miles from the center of the Strip, and several major hotel casinos elsewhere in the Las Vegas area. Our Las Vegas Strip resorts also compete, in part, with each other. According to the Las Vegas Convention and Visitors Authority, there were approximately 149,000 guestrooms in Las Vegas at December 31, 2010 and December 31, 2009. At December 31, 2010, we operated approximately 28% of the guestrooms in Las Vegas. Las Vegas visitor volume was 37.3 million in 2010, a 3% increase from the 36.4 million reported for 2009.

 

The principal segments of the Las Vegas gaming market are leisure travel; premium gaming customers; conventions, including small meetings, trade associations, and corporate incentive programs; and tour and travel. Our luxury wholly-owned properties, including Bellagio, MGM Grand Las Vegas, Mandalay Bay, and The Mirage, appeal to the upper end of each market segment, balancing their business by using the convention and tour and travel segments to fill the mid-week and off-peak periods. Our marketing strategy for New York-New York, Luxor and Monte Carlo is aimed at attracting middle- to upper-middle-income customers, largely from the leisure travel and, to a lesser extent, the tour and travel segments. Excalibur and Circus Circus Las Vegas generally cater to the value-oriented and middle-income leisure travel and tour and travel segments.

 

Outside Las Vegas, our other wholly-owned Nevada operations compete with each other and with many other similarly sized and larger operations. Our Nevada resorts located outside of Las Vegas appeal primarily to the value-oriented leisure traveler and the value-oriented local customer. A significant number of our customers at these resorts come from California. We believe the expansion of Native American gaming in California has had a negative impact on all of our Nevada resorts not located on the Las Vegas Strip, and additional expansion in California could have a further adverse effect on these resorts.

 

Outside Nevada, our wholly-owned resorts primarily compete for customers in local and regional gaming markets, where location is a critical factor to success. For instance, in Tunica, Mississippi, one of our competitors is closer to Memphis, the area’s principal market. In addition, we compete with gaming operations in surrounding jurisdictions and other leisure destinations in each region. For example, in Detroit, Michigan we also compete with a casino in nearby Windsor, Canada and with Native American casinos in Michigan. In Biloxi, Mississippi we also compete with regional riverboat and land-based casinos in Louisiana, Native American casinos in central Mississippi and with casinos in Florida and the Bahamas.

 

Aria, which we manage and of which we own 50% through the CityCenter joint venture (“CityCenter”), appeals to the upper end of each segment in the Las Vegas market and competes with our wholly-owned luxury casino resorts. Our other unconsolidated affiliates mainly compete for customers against casino resorts in their respective markets. Much like our wholly-owned resorts, our unconsolidated affiliates compete through the quality of amenities, the value of the experience offered to guests, and the location of their resorts.

 

Our casino resorts also compete for customers with hotel casino operations located in other areas of the United States and other parts of the world, and for leisure and business travelers with non-gaming tourist destinations such as Hawaii, Florida and California. Our gaming operations compete to a lesser extent with state-sponsored lotteries, off-track wagering, card parlors, and other forms of legalized gaming in the United States.

 

Marketing

 

We advertise on the radio, television, internet and billboards and in newspapers and magazines in selected cities throughout the United States and overseas, as well as by direct mail and through the use of social media. We also advertise through our regional marketing offices located in major U.S. and foreign cities. A key element of marketing to premium gaming customers is personal contact by our marketing personnel. Direct marketing is also important in the convention segment. We maintain internet websites to inform customers about our resorts and allow our customers to reserve hotel rooms, make restaurant reservations and purchase show tickets. We actively utilize several social media sites to promote our brands, unique events, and special deals. We also operate call centers to allow customer contact by phone to make hotel and restaurant reservations and purchase show tickets.

We recently introduced a new players club loyalty program (“M life”). M life was introduced at our regional resorts in the third quarter of 2010, and to the remaining participating wholly-owned casino resorts and Aria on January 11, 2011. M life is our new player loyalty program that provides access to rewards, privileges, and members-only events. M life is a tiered system and allows customers to qualify for benefits across our participating resorts, regardless of where they play, encouraging customers to keep their total gaming spend within our casino resorts.

 

M life combines slots and table games play into one account and customers earn tiered rewards on both types of play. Customers earn “express comps,” which can be redeemed at restaurants, box offices, the M life players club, or kiosks at participating properties. Players can also redeem their express comps for M life “Moments,” which allow members to take advantage of unique and once-in-a-lifetime experiences such as picking the Bellagio Fountain songs for a day, being a trainer for a day with the dolphins at The Mirage and meet-and-greets with performers and celebrity chefs across our resort portfolio. Members of M life also continue to earn points redeemable for free play.

 

M life is currently a casino centered program but will expand to a broad-based program recognizing and rewarding customer spending across most channels focusing on wallet share capture, loyalty and frequency of visits. Advanced analytic techniques and new information technology will better identify customer preferences and predict future behavior allowing us to make customers more relevant offers, influence incremental visits and help build lasting customer relationships.

 

In addition to the loyalty program, we have re-branded our company magazine and developed an in-room M life television channel to highlight customers’ experiences and showcase “Moments” customers can earn through the accumulation of express comps. We believe that M life will enable us to more effectively market to our customers, as well as allow us to personalize customers’ experiences.

 

We also utilize our world-class golf courses in marketing programs at our Las Vegas Strip resorts. Our major Las Vegas resorts offer luxury suite packages that include golf privileges at Shadow Creek in North Las Vegas. In connection with our marketing activities, we also invite our premium gaming customers to play Shadow Creek on a complimentary basis. We also use Primm Valley Golf Club for marketing purposes at our Las Vegas Strip resorts. Additionally, marketing efforts at Beau Rivage benefit from Fallen Oak golf course 20 minutes north of Beau Rivage.

 

Employees and Management

 

We believe that knowledgeable, friendly and dedicated employees are a key success factor in the casino resort industry. Therefore, we invest heavily in recruiting, training and retaining exceptional highly motivated employees, as well as seeking to hire and promote the strongest management team possible. We have numerous programs, both at the corporate and business unit level, designed to achieve these objectives. For example, our diversity initiative extends throughout our company, and focuses on the unique strengths of our individuals combined with a culture of collaborative teamwork to achieve greater performance. Our diversity program has been widely recognized and has received numerous awards. We believe our internal development programs, such as the MGM Resorts University and various leadership and management training programs, are best in class among our industry peers.

 

Technology

 

We utilize various types of technology to maximize revenue and efficiency in our operations. We continue to move forward on standardizing the technology platforms for our hotel and point of sale systems, along with several other key operational systems. The standardization of these systems provides us with one consistent operating platform, allowing us efficiencies in training, reducing complexity in system integration and interfaces, standardizing processes across our casino resorts, and providing our customers with better information in connection with the implementation of M life.

 

Technology is also an important part of our strategy in non-gaming and administrative operations. Our hotel systems include yield management software programs at many of our resorts that help us maximize occupancy and room rates. Additionally, these systems capture charges made by our customers during their stay, including allowing customers of our resorts to charge meals and services at our other resorts to their hotel accounts.

Corporate Sustainability

 

We continue to gain recognition for our comprehensive company-wide environmental responsibility initiatives. During 2010, we were the first resorts in Nevada and Michigan to earn certification from Green Key, the largest international program evaluating sustainable hotel operations. We received certifications at 12 resorts, including “Five Green Key” (the highest possible) ratings at Aria, Vdara and Mandalay Bay. Many major travel service providers recognize the Green Key designation and identify our resorts for their continued commitment to sustainable hotel operations. We believe that our sustainability efforts are particularly beneficial in meeting and convention bookings, as corporations and associations seek to extend their environmentally responsible practices by doing business with like-minded, environmentally friendly companies.

 

In addition, we believe that incorporating the tenets of sustainability in our business decisions provides a platform for innovation. CityCenter is one of the world’s largest private green developments. Aria, Vdara, Crystals, Mandarin Oriental, Veer, and the Aria Convention Center all have received LEED^® Gold certification by the U.S. Green Building Council. This marks the highest LEED achievement for any hotel, retail district or residential development in Las Vegas. With this accomplishment, CityCenter created a new standard for combining luxury and environmental responsibility within the large-scale hospitality industry.

 

Internal Controls

 

We have a strong culture of compliance, driven by our history in the highly regulated gaming industry and our belief that compliance is a value-added activity. Our system of internal controls and procedures - including internal control over financial reporting – is designed to promote reliable and accurate financial records, transparent disclosures, compliance with laws and regulations, and protection of our assets. Our internal controls start at the source of business transactions, and we have rigorous enforcement at both the business unit and corporate level.

 

Our corporate management also reviews each of our businesses on a regular basis and we have a corporate internal audit function that performs regular reviews regarding gaming compliance, internal controls over financial reporting, and operations.

 

In addition, we maintain a compliance committee that administers our company-wide compliance plan. The compliance plan is in place to promote compliance with gaming and other laws applicable to our operations in all jurisdictions, including performing background investigations on our current and potential employees, directors and vendors as well as thorough review of proposed transactions and associations.

 

In connection with the supervision of gaming activities at our casinos, we maintain stringent controls on the recording of all receipts and disbursements and other activities, including cash transaction reporting which is essential in our industry. Our controls surrounding cash transactions include locked cash boxes on the casino floor, daily cash counts performed by employees who are independent of casino operations, constant observation and supervision of the gaming area, observation and recording of gaming and other areas by closed-circuit television, constant computer monitoring of our slot machines, and timely analysis of deviations from expected performance.

 

Marker play represents a significant portion of the table games volume at Aria, Bellagio, MGM Grand Las Vegas, Mandalay Bay and The Mirage. Our other facilities do not emphasize marker play to the same extent, although we offer markers to customers at certain of those casinos as well. We maintain strict controls over the issuance of markers and aggressively pursue collection from those customers who fail to timely pay their marker balances. These collection efforts are similar to those used by most large corporations when dealing with overdue customer accounts, including the mailing of statements and delinquency notices, direct personal contact and the use of outside collection agencies and civil litigation.

 

In our U.S. jurisdictions, amounts owed for markers which are not timely paid are enforceable under state laws and all other states are required to enforce a judgment for amounts owed, pursuant to the Full Faith and Credit Clause of the U.S. Constitution. Amounts owed for markers that are not timely paid are not legally enforceable in some foreign countries, but the U.S. assets of foreign customers may be reached to satisfy judgments entered in the United States.

Risks Associated With Our Operating Strategy

 

Certain principal risk factors relating to our operating strategy are:

 

 

See “Item 1A. Risk Factors” for a more detailed discussion of these and other risk factors.

 

Sustainable Growth and Leveraging Our Brand and Management Assets

 

In allocating resources, our financial strategy is focused on managing a proper mix of investing in existing resorts, spending on new resorts or initiatives and repaying long-term debt. We believe there are reasonable investments for us to make in new initiatives and at our current resorts that will provide profitable returns, although these decisions have been significantly affected by economic conditions over the past several years, as well as by the recent financial crisis, which limited our access to capital.

 

We regularly evaluate possible expansion and acquisition opportunities in both the domestic and international markets, but cannot at this time determine the likelihood of proceeding with specific development opportunities. Opportunities we evaluate may include the ownership, management and operation of gaming and other entertainment facilities in Nevada or in states other than Nevada or outside of the United States. We may undertake these opportunities either alone or in cooperation with one or more third parties.

 

We leverage our management expertise and well-recognized brands through strategic partnerships and international expansion opportunities. We feel that several of our brands, particularly the “MGM Grand,” “Bellagio,” and “Skylofts” brands, are well suited to new projects in both gaming and non-gaming developments. We formed MGM Hospitality, LLC (“MGM Hospitality”) to focus on strategic resort development and management opportunities, with an emphasis on international opportunities which we believe offer the greatest opportunity for future growth. We have hired senior personnel with established backgrounds in the development and management of international hospitality operations to maximize the profit potential of MGM Hospitality’s operations. MGM Hospitality currently has management agreements for hotels in the Middle East, North Africa, India and China.

 

MGM Grand Abu Dhabi

 

In November 2007, we announced plans to develop a multi-billion dollar, large-scale, mixed-use development that will serve as an incoming gateway to Abu Dhabi, a United Arab Emirate, located at a prominent downtown waterfront site on Abu Dhabi Island. The project will be owned entirely by Mubadala Development Company (“Mubadala”); we will not have a capital investment in this project. Mubadala has informed us that they do not intend to proceed with the project on the same time frame and scope as originally contemplated. As a result, we are currently engaged in discussions with Mubadala regarding the restructuring of the project.

 

China

 

We have formed a joint venture with the Diaoyutai State Guesthouse in Beijing, People’s Republic of China, to develop luxury non-gaming hotels and resorts in China, initially targeting prime locations, including Beijing, in the People’s Republic of China. Our first resort, under the “MGM Grand” brand, is currently scheduled to open in late

2011 in Sanya, China. We have signed multiple technical and management services agreements for resorts that are expected to open over the next four years. We have minimal capital investments in these projects.

 

Vietnam

 

In November 2008, we and Asian Coast Development Ltd. announced plans to develop MGM Grand Ho Tram, which is expected to open in 2013. MGM Grand Ho Tram will anchor a multi-property complex on the Ho Tram Strip in the Ba Ria Vung Tau Province in southwest Vietnam. MGM Grand Ho Tram will be owned and financed by Asian Coast Development Ltd. and we will provide technical assistance and operate the luxury-integrated resort upon completion. We will have no capital investment in this project.

 

Mashantucket Pequot Tribal Nation

 

We have an agreement with the Mashantucket Pequot Tribal Nation (“MPTN”), which owns and operates Foxwoods Casino Resort in Mashantucket, Connecticut for the casino resort owned and operated by MPTN located adjacent to the Foxwoods Casino Resort to carry the “MGM Grand” brand name. We earn a fee for MPTN to use the “MGM Grand” name.

 

Risks Associated With Our Growth and Brand Management Strategies

 

Certain principal risk factors relating to our growth strategy are:

 

 

See “Item 1A. Risk Factors” for a more detailed discussion of these and other risk factors.

 

Intellectual Property

 

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

 

Employees and Labor Relations

 

As of December 31, 2010, we had approximately 45,000 full-time and 16,000 part-time employees of which 5,700 and 2,800, respectively, relate to CityCenter. At that date, we had collective bargaining contracts with unions

covering approximately 30,000 of our employees. We consider our employee relations to be good. The collective bargaining agreements covering most of our union employees are subject to renegotiation in 2012.

 

Regulation and Licensing

 

The gaming industry is highly regulated, and we must maintain our licenses and pay gaming taxes to continue our operations. Each of our casinos is subject to extensive regulation under the laws, rules and regulations of the jurisdiction in which it is located. These laws, rules and regulations generally concern the responsibility, financial stability and character of the owners, managers, and persons with financial interest in the gaming operations. Violations of laws in one jurisdiction could result in disciplinary action in other jurisdictions.

 

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

 

Our businesses are subject to various federal, state and local laws and regulations in addition to gaming regulations. These laws and regulations include, but are not limited to, restrictions and conditions concerning alcoholic beverages, environmental matters, employees, currency transactions, taxation, zoning and building codes, and marketing and advertising. Such laws and regulations could change or could be interpreted differently in the future, or new laws and regulations could be enacted. Material changes, new laws or regulations, or material differences in interpretations by courts or governmental authorities could adversely affect our operating results.

 

Cautionary Statement Concerning Forward-Looking Statements

 

This Form 10-K and our 2010 Annual Report to Stockholders contain “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as “anticipates,” “intends,” “plans,” “seeks,” “believes,” “estimates,” “expects,” “will,” “may” and similar references to future periods. Examples of forward-looking statements include, but are not limited to, statements we make regarding our ability to generate significant cash flow; and amounts that we expect to receive in federal tax refunds, amounts we will invest in capital expenditures, amounts we will pay under the CityCenter completion guarantee, and amounts we may receive from the sale of residential units at CityCenter. The foregoing is not a complete list of all forward-looking statements we make.

 

Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks, and changes in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated by the forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future performance. Therefore, we caution you against relying on any of these forward-looking statements. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, regional, national or global political, economic, business, competitive, market, and regulatory conditions and the following:

 

 

Any forward-looking statement made by us in this Form 10-K or our 2010 Annual Report speaks only as of the date on which it is made. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.

 

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

 

Executive Officers of the Registrant

 

The following table sets forth, as of February 28, 2011, the name, age and position of each of our executive officers. Executive officers are elected by and serve at the pleasure of the Board of Directors.

 

 

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

Mr. Baldwin has served as Chief Design and Construction Officer since August 2007. He served as Chief Executive Officer of Mirage Resorts from June 2000 to August 2007 and President and Chief Executive Officer of Bellagio, LLC from June 1996 to March 2005.

 

Mr. Hornbuckle has served as Chief Marketing Officer since August 2009. He served as President and Chief Operating Officer of Mandalay Bay Resort & Casino from April 2005 to August 2009. He served as President and Chief Operating Officer of MGM MIRAGE—Europe from July 2001 to April 2005. He served as President and Chief Operating Officer of MGM Grand Las Vegas from October 1998 to July 2001.

 

Mr. Sanders has served as Chief Operating Officer since September 2010. He served as Chief Operating Officer for the Company’s Core Brand and Regional Properties from August 2009 to September 2010, as Executive Vice President—Operations from August 2007 to August 2009, as Executive Vice President and Chief Financial Officer for MGM Grand Resorts from April 2005 to August 2007 and served as Executive Vice President and Chief Financial Officer for MGM Grand from August 1997 to April 2005.

 

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

 

Ms. James has served as Executive Vice President and Special Counsel—Litigation since July 2010. She served as Senior Vice President, Deputy General Counsel of the Company from March 2002 to July 2010. From 1994 to 2001 she served as Corporation (General) Counsel and Law Department Director for the City of Detroit. In that capacity she also served on various public and quasi-public boards and commissions on behalf of the City, including the Election Commission, the Detroit Building Authority and the Board of Ethics.

 

Mr. Manzini has served as Executive Vice President and Chief Administrative Officer since March 2007. Prior thereto, he served as Senior Vice President of Strategic Planning for the Walt Disney Company and in various senior management positions throughout his tenure from April 1990 to January 2007.

 

Mr. McManus has served as Executive Vice President, General Counsel and Secretary since July 2010. He served as Senior Vice President, Acting General Counsel and Secretary of the Company from December 2009 to July 2010. He served as Senior Vice President, Deputy General Counsel and Assistant Secretary from September 2009 to December 2009. He served as Senior Vice President, Assistant General Counsel and Assistant Secretary of the Company from July 2008 to September 2009. He served as Vice President and General Counsel for CityCenter’s residential and retail divisions from January 2006 to July 2008. Prior thereto, he served as General Counsel or Assistant General Counsel for various of the Company’s operating subsidiaries from May 2001 to January 2006.

 

Mr. Scott has served as Executive Vice President—Corporate Strategy and Special Counsel since July 2010. He served as Senior Vice President and Deputy General Counsel of the Company from August 2009 to July 2010. Previously, he was a partner in the Los Angeles office of Sheppard, Mullin, Richter & Hampton LLP, specializing in financing transactions, having joined that firm in 1986.

 

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

 

Mr. Arpin has served as Senior Vice President—Corporate Controller of the Company since August 2009. He served as Vice President of Financial Accounting of the Company from January 2007 to August 2009. He served as Assistant Vice President of Financial Reporting from January 2005 to January 2007, and as Director of Financial Reporting from May 2002 to January 2005.

 

Mr. Feldman has served as Senior Vice President—Public Affairs of the Company since September 2001. He served as Vice President—Public Affairs of the Company from June 2000 to September 2001.

 

Mr. Freeman has served as Senior Vice President—Capital Markets and Strategy since March 2010. Previously, he was the Senior Vice President and Chief Financial Officer of Fontainebleau Resorts, having joined that company in 2006. Prior thereto, he held various investment banking positions with Banc of America Securities from 1998 to 2006.

Mr. Sani has served as Senior Vice President—Taxes of the Company since July 2005. He served as Vice President—Taxes of the Company from June 2002 to July 2005.

 

Available Information

 

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

 

These filings are also available on the SEC’s website at www.sec.gov. In addition, the public may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549 and may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.

 

Reference in this document to our website address does not constitute incorporation by reference of the information contained on the website.

 

 

You should be aware that the occurrence of any of the events described in this section and elsewhere in this report or in any other of our filings with the SEC could have a material adverse effect on our business, financial position, results of operations and cash flows. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially and adversely affect our business, financial positions, results of operations or cash flows. In evaluating us, you should consider carefully, among other things, the risks described below.

 

Risks Related to our Substantial Indebtedness

 

 

 

Moreover, our businesses are capital intensive. For our owned and managed properties to remain attractive and competitive we must periodically invest significant capital to keep the properties well-maintained, modernized and refurbished, which requires an ongoing supply of cash and, to the extent that we cannot fund expenditures from cash generated by operations, funds must be borrowed or otherwise obtained. Similarly, future development projects and acquisitions could require significant capital commitments, the incurrence of additional debt, guarantees of third-party debt, or the incurrence of contingent liabilities, which could have an adverse effect on our business, financial condition and results of operations. Events over the past several years, including the failures and near failures of financial services companies and the decrease in liquidity and available capital, have negatively affected the capital markets.

 

 

We have a significant amount of indebtedness maturing in 2013 and 2014 and thereafter. Our ability to timely refinance and replace such indebtedness will depend upon the foregoing as well as on continued and sustained improvements in financial markets. If we are unable to refinance our indebtedness on a timely basis, we might

be forced to seek alternate forms of financing, dispose of certain assets or minimize capital expenditures and other investments. There is no assurance that any of these alternatives would be available to us, if at all, on satisfactory terms, on terms that would not be disadvantageous to note holders, or on terms that would not require us to breach the terms and conditions of our existing or future debt agreements.

 

 

 

Our ability to comply with these provisions may be affected by events beyond our control. The breach of any such covenants or obligations not otherwise waived or cured could result in a default under the applicable debt obligations and could trigger acceleration of those obligations, which in turn could trigger cross defaults under other agreements governing our long-term indebtedness. Any default under the senior credit facility or the indentures governing our other debt could adversely affect our growth, our financial condition, our results of operations and our ability to make payments on our debt, and could force us to seek protection under the bankruptcy laws.

 

Risks Related to our Business

 

 

Further, our directors, officers, key employees and joint venture partners must meet approval standards of certain state regulatory authorities. If state regulatory authorities were to find a person occupying any such position or a joint venture partner unsuitable, we would be required to sever our relationship with that person or the joint venture partner may be required to dispose of their interest in the joint venture. State regulatory agencies may conduct investigations into the conduct or associations of our directors, officers, key employees or joint venture partners to ensure compliance with applicable standards. For example, as a result of the New Jersey Division of Gaming Enforcement (the “DGE”) investigation of our relationship with our joint venture partner in Macau we entered into a settlement agreement with the DGE under which we were required to sell our 50% ownership interest in Borgata and related leased land in Atlantic City.

 

Certain public and private issuances of securities and other transactions that we are party to also require the approval of some state regulatory authorities.

 

In addition to gaming regulations, we are also subject to various federal, state and local laws and regulations affecting businesses in general. These laws and regulations include, but are not limited to, restrictions and conditions concerning alcoholic beverages, environmental matters, smoking, employees, currency transactions, taxation, zoning and building codes, and marketing and advertising. Such laws and regulations could change or could be interpreted differently in the future, or new laws and regulations could be enacted. For example, Illinois has enacted a ban on smoking in nearly all public places, including bars, restaurants, work places, schools and casinos. The likelihood or outcome of similar legislation in other jurisdictions and referendums in the future cannot be predicted, though any smoking ban would be expected to negatively impact our financial performance.

 

 

 

For instance, CityCenter, which is 50% owned and managed by us, has a significant amount of indebtedness, which could adversely affect its business and its ability to meet its obligations. If CityCenter is unable to meet its financial commitments and we and our partners are unable to support future funding requirements, as necessary, such event could have adverse financial consequences to us. In addition, the agreements governing the indebtedness subject CityCenter and its subsidiaries to significant financial and other restrictive covenants, including restrictions on its ability to incur additional indebtedness, place liens upon assets, make distributions to us, make certain investments, consummate certain asset sales, enter into transactions with affiliates (including us) and merge or consolidate with any other person or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its assets. The CityCenter amended and restated credit facility also requires CityCenter to meet an interest coverage ratio test commencing on September 30, 2012. We cannot be sure that CityCenter will be able to meet this test or that the lenders will waive any failure to meet the test.

 

In addition, in accordance with our joint venture agreement and the CityCenter credit facility, we provided a cost overrun guarantee which is secured by our interests in the assets of Circus Circus Las Vegas and certain adjacent undeveloped land.

 

Also, the operation of MGM Macau, which is 50% owned by us, is subject to unique risks, including risks related to: (a) our ability to adapt to the different regulatory and gaming environment in Macau while remaining in compliance with the requirements of the gaming regulatory authorities in the jurisdictions in which we currently operate, as well as other applicable federal, state, or local laws in the United States and Macau; (b) potential political or economic instability; and (c) the extreme weather conditions in the region.

 

 

 

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

 

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

 

 

In addition, Tracinda may be able to exercise significant influence over us as a result of its significant ownership of our outstanding common stock. As a result, actions requiring stockholder approval that may be supported by other stockholders could be effectively blocked by Tracinda.

 

 

 

These risks, individually or in the aggregate, could have an adverse effect on our results of operations and financial condition. For example, we are subject to compliance with the United States Foreign Corrupt Practices Act and similar anti-bribery laws, which generally prohibit companies and their intermediaries from making improper payments to foreign government officials for the purpose of obtaining or retaining business. While our employees and agents are required to comply with these laws, we cannot be sure that our internal policies and procedures will always protect us from violations of these laws, despite our commitment to legal compliance and corporate ethics. We also deal with significant amounts of cash in our operations and are subject to various reporting and anti-money laundering regulations. Any violation of anti-money laundering laws or regulations by any of our properties could have an adverse effect on our financial condition, results of operations or cash flows. The occurrence or allegation of these types of risks may adversely affect our business, performance, prospects, value, financial condition, and results of operations.

 

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

 

 

None.

 

 

Our principal executive offices are located at Bellagio. The following table lists our significant land holdings; unless otherwise indicated, all properties are wholly-owned. We also own or lease various other improved and unimproved property in Las Vegas and other locations in the United States and certain foreign countries.

 

 

The land underlying New York-New York, along with substantially all of the assets of that resort, serves as collateral for our 13% senior secured notes due 2013 issued in 2008.

The land underlying Bellagio and The Mirage, along with substantially all of the assets of those resorts, serves as collateral for our 10.375% senior secured notes due 2014 and our 11.125% senior secured notes due 2017 issued in 2009. Upon the issuance of such notes, the holders of our 13% senior secured notes due 2013 obtained an equal and ratable lien in all collateral securing these notes.

 

The land underlying MGM Grand, along with substantially all of the assets of that resort, serves as collateral for our 9.00% senior secured notes due 2020 issued in 2010. Upon the issuance of such notes, the holders of our 13% senior secured notes due 2013 obtained an equal and ratable lien in all collateral securing these notes.

 

The land underlying Circus Circus Las Vegas, along with substantially all of the assets of that resort, as well as certain undeveloped land adjacent to the property, secures our completion guarantee related to CityCenter.

 

The land underlying MGM Grand Detroit, along with substantially all of the assets of that resort, serves as collateral to secure its $450 million obligation outstanding as a co-borrower under our senior credit facility.

 

The land underlying Gold Strike Tunica, along with substantially all of the assets of that resort and the 15 acres across from the Luxor, serve as collateral to secure up to $300 million of obligations outstanding under our senior credit facility.

 

Joint Ventures

 

MGM Macau occupies an approximately 10 acre site which it possesses under a 25 year land use right agreement with the Macau government. MGM Grand Paradise Limited’s interest in the land use right agreement is used as collateral for MGM Grand Paradise Limited’s bank credit facility. As of December 31, 2010, approximately $743 million was outstanding under the bank credit facility.

 

Silver Legacy occupies approximately five acres in Reno, Nevada, adjacent to Circus Circus Reno. The land, along with substantially all of the assets of that resort, is used as collateral for Silver Legacy’s 10.125% mortgage notes. As of December 31, 2010, $143 million of principal of the 10.125% mortgage notes were outstanding.

 

CityCenter occupies approximately 67 acres of land between Bellagio and Monte Carlo. The site along with substantially all of the assets of that resort, serves as collateral for CityCenter’s bank credit facility. As of December 31, 2010, there was $1.8 billion outstanding under the bank credit facility. In January 2011, CityCenter completed a series of debt restructuring transactions. See “Management’s Discussion and Analysis – Other Factors Affecting Liquidity” for additional information about these transactions.

 

All of the borrowings by our unconsolidated affiliates described above are non-recourse to MGM Resorts International. Other than as described above, none of our other assets serve as collateral.

 

 

 

CityCenter construction litigation. In March 2010, Perini Building Company, Inc., general contractor for the CityCenter development project (the “Project”), filed a lawsuit in the Eighth Judicial District Court for Clark County, State of Nevada, against MGM MIRAGE Design Group (a wholly-owned subsidiary of the Company which was the original party to the Perini construction agreement) and certain direct or indirect subsidiaries of CityCenter Holdings, LLC (the “CityCenter Owners”). Perini asserts that the Project was substantially completed, but the defendants failed to pay Perini approximately $490 million allegedly due and owing under the construction agreement for labor, equipment and materials expended on the Project. The complaint further charges the defendants with failure to provide timely and complete design documents, late delivery to Perini of design changes, mismanagement of the change order process, obstruction of Perini’s ability to complete the Harmon Hotel & Spa component, and fraudulent inducement of Perini to compromise significantly amounts due for its general conditions. The complaint advances claims for breach of contract, breach of the implied covenant of good faith and fair dealing, tortious breach of the implied covenant of good faith and fair dealing, unjust enrichment and promissory estoppel, and fraud and intentional misrepresentation. Perini seeks compensatory damages, punitive damages, attorneys’ fees and costs.

In April 2010, Perini served an amended complaint in this case which joins as defendants many owners of CityCenter residential condominium units (the “Condo Owner Defendants”), adds a count for foreclosure of Perini’s recorded master mechanic’s lien against the CityCenter property in the amount of approximately $491 million, and asserts the priority of this mechanic’s lien over the interests of the CityCenter Owners, the Condo Owner Defendants and the Project lenders in the CityCenter property.

 

The CityCenter Owners and the other defendants dispute Perini’s allegations, and contend that the defendants are entitled to substantial amounts from Perini, including offsets against amounts claimed to be owed to Perini and its subcontractors and damages based on breach of their contractual and other duties to CityCenter, duplicative payment requests, non-conforming work, lack of proof of alleged work performance, defective work related to the Harmon Hotel & Spa component, property damage and Perini’s failure to perform its obligations to pay Project subcontractors and to prevent filing of liens against the Project. Parallel to the court litigation CityCenter management conducted an extra-judicial program for settlement of Project subcontractor claims. CityCenter has resolved the claims of the majority of the 223 first-tier subcontractors, with only several remaining for further proceedings along with trial of Perini’s claims and CityCenter’s Harmon-related counterclaim and other claims by CityCenter against Perini and its parent guarantor, Tutor Perini. In December 2010, Perini recorded an amended notice of lien reducing its lien to approximately $313 million.

 

The CityCenter Owners and the other defendants will continue to vigorously assert and protect their interests in the lawsuit. The range of loss beyond the claims asserted to date by Perini or any gain the joint venture may realize related to the defendants’ counterclaims cannot be reasonably estimated at this time.

 

Securities and derivative litigation. In 2009 various shareholders filed six lawsuits in Nevada federal and state court against the Company and various of its former and current directors and officers alleging federal securities laws violations and/or related breaches of fiduciary duties in connection with statements allegedly made by the defendants during the period August 2007 through the date of such lawsuit filings. In general, the lawsuits assert the same or similar allegations, including that during the relevant period defendants artificially inflated the Company’s common stock price by knowingly making materially false and misleading statements and omissions to the investing public about the Company’s financial statements and condition, operations, CityCenter, and the intrinsic value of the Company’s common stock; that these alleged misstatements and omissions thereby enabled certain Company insiders to derive personal profit from the sale of Company common stock to the public; that defendants caused plaintiffs and other shareholders to purchase Company common stock at artificially inflated prices; and that defendants imprudently implemented a share repurchase program to the detriment of the Company. The lawsuits seek unspecified compensatory damages, restitution and disgorgement of alleged profits, injunctive relief related to corporate governance and/or attorneys’ fees and costs.

 

The lawsuits are:

 

In re MGM MIRAGE Securities Litigation, Case No. 2:09-cv-01558-GMN-LRL. In November 2009, the U.S. District Court for Nevada consolidated the Robert Lowinger v. MGM MIRAGE, et al. (Case No. 2:09-cv-01558-RCL-LRL, filed August 19, 2009) and Khachatur Hovhannisyan v. MGM MIRAGE, et al. (Case No. 2:09-cv-02011-LRH-RJJ, filed October 19, 2009) putative class actions under the caption “In re MGM MIRAGE Securities Litigation.” The cases name the Company and certain former and current directors and officers as defendants and allege violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. These cases were transferred in July 2010 to the Honorable Gloria M. Navarro. In October 2010 the court appointed several employee retirement benefits funds as co-lead plaintiffs and their counsel as co-lead and co-liaison counsel. In January 2011, lead plaintiffs filed a consolidated amended complaint, alleging that between August 2, 2007 and March 5, 2009, the Company, its directors and certain of its officers artificially inflated the market price of the Company’s securities by knowingly making materially false and misleading public statements and omissions concerning the Company’s financial condition, its liquidity, its access to credit, and the costs and progress of construction of the CityCenter development. The consolidated amended complaint asserts violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. These cases remain pending before the court. The Company and the other defendants have yet to answer and plan to file motions to dismiss the cases.

Mario Guerrero v. James J. Murren, et al. (Case No. 2:09-cv-01815-KJD-RJJ, filed September 14, 2009, U.S. District Court for the District of Nevada). This purported shareholder derivative action against certain of the Company’s former and current directors and officers alleges, among other things, breach of fiduciary duty by defendants’ asserted improper financial reporting, insider selling and misappropriation of information; and unjust enrichment. The Company is named as a nominal defendant. Plaintiff’s joint motion with the Shamberger plaintiff (see below), filed in October 2009 and renewed in June 2010, to consolidate this case with the Shamberger case and to appoint lead plaintiffs and lead counsel remains pending. This case otherwise remains pending before the court.

 

Regina Shamberger v. J. Terrence Lanni, et al. (Case No. 2:09-cv-01817-PMP-GWF, filed September 14, 2009, U.S. District Court for the District of Nevada). This purported shareholder derivative action against certain of the Company’s former and current directors and officers alleges, among other things, breach of fiduciary duty by defendants’ asserted insider selling and misappropriation of information; waste of corporate assets; and unjust enrichment. The Company is named as a nominal defendant. See Guerrero immediately above. This case otherwise remains pending before the court.

 

Charles Kim v. James J. Murren, et al. (Case No. A-09-599937-C, filed September 23, 2009, Eighth Judicial District Court, Clark County, Nevada). This purported shareholder derivative action against certain of the Company’s former and current directors and officers alleges, among other things, breach of fiduciary duty by defendants’ asserted dissemination of false and misleading statements to the public, failure to maintain internal controls, and failure to properly oversee and manage the Company; unjust enrichment; abuse of control; gross mismanagement; and waste of corporate assets. The Company is named as a nominal defendant. This case remains pending before the court. See below.

 

Sanjay Israni v. Robert H. Baldwin, et al. (Case No. CV-09-02914, filed September 25, 2009, Second Judicial District Court, Washoe County, Nevada). This purported shareholder derivative action against certain of the Company’s former and current directors and a Company officer alleges, among other things, breach of fiduciary duty by defendants’ asserted insider selling and misappropriation of information; abuse of control; gross mismanagement; waste of corporate assets; unjust enrichment; and contribution and indemnification. The Company is named as a nominal defendant. In May 2010, plaintiffs amended the complaint to, among other things, allege as additional bases for their claims defendants’ approval of the Company’s joint venture with Pansy Ho at MGM Macau. In May 2010 the Second Judicial District Court in Washoe County transferred this case to the Eighth Judicial District Court in Clark County, Nevada (Case No. A-10-619411-C), and in September 2010 the latter court consolidated this action with the Charles Kim v. James J. Murren, et al. shareholder derivative action, Case No. A-09-599937-C. In December 2010 and January 2011 the Company and its directors filed motions with the court to dismiss the derivative complaints in the Israni and Kim cases. The motion is scheduled for hearing in April 2011.

 

The Company will continue to vigorously defend itself against these claims.

 

Other

 

We and our subsidiaries are also defendants in various other lawsuits, most of which relate to routine matters incidental to our business. We do not believe that the outcome of such pending litigation, considered in the aggregate, will have a material adverse effect on the Company.

 

 

PART II

 

 

Common Stock Information

 

Our common stock is traded on the New York Stock Exchange under the symbol “MGM.” The following table sets forth, for the calendar quarters indicated, the high and low sale prices of our common stock on the New York Stock Exchange Composite Tape.

 

 

There were approximately 4,436 record holders of our common stock as of February 18, 2011.

 

We have not paid dividends on our common stock in the last two fiscal years. As a holding company with no independent operations, our ability to pay dividends will depend upon the receipt of dividends and other payments from our subsidiaries. Furthermore, our senior credit facility contains financial covenants that could restrict our ability to pay dividends and our senior credit facility and secured notes indentures contain restrictive covenants that limit our ability to pay dividends, subject to certain exceptions. Our Board of Directors periodically reviews our policy with respect to dividends, and any determination to pay dividends in the future will depend on our financial position, future capital requirements and financial debt covenants and any other factors deemed necessary by the Board of Directors. Moreover, should we pay any dividends in the future, there can be no assurance that we will continue to pay such dividends.

 

Share Repurchases

 

Our share repurchases are only conducted under repurchase programs approved by our Board of Directors and publicly announced. We did not repurchase shares of our common stock during the quarter and year ended December 31, 2010. The maximum number of shares available for repurchase under our May 2008 repurchase program was 20 million as of December 31, 2010.

 

 

 

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

 

Acquisitions and Dispositions

 

The results of the Primm Valley Resorts and the Laughlin Properties are classified as discontinued operations for all applicable periods presented, including the gain on sales of such assets. The results of TI are not recorded as discontinued operations, as we believe significant customer migration occurred between TI and our other Las Vegas Strip resorts.

 

Other

 

 

The following narrative provides information about our liquidity, financial position, results of operations and other factors affecting our current and future operating results.

 

Executive Overview

 

Current Operations

 

At December 31, 2010, our operations primarily consisted of 15 wholly-owned casino resorts and 50% investments in four other casino resorts.

 

	Las Vegas, Nevada:			CityCenter (50% owned and managed by us), Bellagio, MGM Grand Las Vegas (including The Signature), Mandalay Bay, The Mirage, Luxor, New York-New York, Excalibur, Monte Carlo and Circus Circus Las Vegas.
	Other:			Circus Circus Reno and Silver Legacy (50% owned) in Reno, Nevada; Gold Strike in Jean, Nevada; Railroad Pass in Henderson, Nevada; MGM Grand Detroit in Detroit, Michigan; Beau Rivage in Biloxi, Mississippi and Gold Strike Tunica in Tunica, Mississippi; Grand Victoria (50% owned) in Elgin, Illinois; and MGM Macau (50% owned).

 

Other operations include the Shadow Creek golf course in North Las Vegas and Fallen Oak golf course in Saucier, Mississippi. We also own the Primm Valley Golf Club at the California state line, which is currently operated by a third party under a lease agreement.

 

The other 50% of CityCenter is owned by Infinity World Development Corp (“Infinity World”), a wholly-owned subsidiary of Dubai World, a Dubai, United Arab Emirates government decree entity. CityCenter consists of Aria, a 4,004-room casino resort; Mandarin Oriental Las Vegas, a 392-room non-gaming boutique hotel; Crystals, a retail district with 334,000 of currently leaseable square feet; and Vdara, a 1,495-room luxury condominium-hotel. In addition, CityCenter features residential units in the Residences at Mandarin Oriental – 225 units and Veer – 669 units. Aria, Vdara, Mandarin Oriental and Crystals all opened in December 2009 and the sales of residential units within CityCenter began closing in early 2010. We receive a management fee of 2% of revenues for the management of Aria and Vdara, and 5% of EBITDA (as defined in the agreements governing our management of Aria and Vdara). In addition, we receive an annual fee of $3 million for the management of Crystals.

 

Liquidity and Financial Position

 

We completed a series of capital markets transactions during 2010 and extended our senior credit facility. As a result of these transactions, we believe we will have sufficient liquidity from expected future cash flows and availability under our senior credit facility to meet our financial obligations through 2012. We have significant indebtedness and continue to evaluate opportunities to improve our financial condition, but we can provide no assurance that we will be able to repay or effectively refinance our indebtedness in future periods.

 

Capital Markets Transactions. We completed the following transactions during 2010:

 

 

Senior Credit Facility. Our senior credit facility was amended and restated in March 2010, and consisted of approximately $2.7 billion in term loans (of which approximately $874 million was required to be repaid by October 3, 2011) and a $2.0 billion revolving loan (of which approximately $302 million was required to be repaid by October 3, 2011). As discussed below, in November 2010 we repaid the outstanding balance of the loans maturing in 2011. As of December 31, 2010, our senior credit facility consisted of approximately $1.8 billion in term loans and $1.7 billion in revolving loans, and had approximately $1.2 billion of available revolving borrowing capacity.

 

We accounted for the modification related to extending the term loans as an extinguishment of debt because the applicable cash flows under the extended term loans are more than 10% different from the applicable cash flows under the previous loans. Therefore, the extended term loans were recorded at fair value resulting in a $181 million gain and a discount of $181 million to be amortized to interest expense over the term of the extended term loans. For the twelve months ended December 31, 2010, we recorded $31 million of interest related to the amortization of this discount. Fair value of the estimated term loans was based on trading prices immediately after the transaction. In addition, we wrote off $15 million of existing debt issuance costs related to the previous term loans and had expense of $22 million for new debt issuance costs incurred related to amounts paid to extending term loan lenders in connection with the modification. We also wrote off $2 million of existing debt issuance costs related to the reduction in capacity under the non-extending revolving portion of the senior credit facility. In total, we recognized a net pre-tax gain on extinguishment of debt of $142 million in “Other, net” non-operating income in the first quarter of 2010.

 

Because net proceeds from our October 2010 common stock offering were in excess of $500 million, we were required to ratably repay indebtedness under the senior credit facility of $6 million, which equaled 50% of such excess. We used the net proceeds from our October 2010 senior notes offering discussed above and a portion of the net proceeds from our October 2010 common stock offering to repay the remaining amounts owed to non-extending lenders under our senior credit facility. Loans and revolving commitments aggregating approximately $3.6 billion were extended to February 21, 2014. In November 2010, the underwriters of our common stock offering exercised their overallotment option and purchased an additional 6.1 million shares for net proceeds to us of $76 million, 50% of which was used to ratably repay indebtedness under the senior credit facility. As a result of these transactions we recorded a pre-tax loss on retirement of debt related to unamortized debt issuance costs and discounts of $9 million recorded in “Other, net” non-operating income in the fourth quarter of 2010.

 

The restated senior credit facility allows us to refinance indebtedness maturing prior to February 21, 2014, but limits our ability to prepay later maturing indebtedness until the extended facilities are paid in full. We may issue unsecured debt, equity-linked and equity securities to refinance our outstanding indebtedness; however, we are required to use net proceeds (a) from indebtedness issued in amounts in excess of $250 million over amounts used to refinance indebtedness and (b) from equity issued, other than in exchange for our indebtedness, in amounts in excess of $500 million (which limit we reached with our October 2010 stock offering) to ratably prepay the credit facilities, in each case, in an amount equal to 50% of the net cash proceeds of such excess.

 

Borgata

 

In its June 2005 report to the New Jersey Casino Control Commission (the “CCC”), on the application of Borgata for renewal of its casino license, the New Jersey Division of Gaming Enforcement (the “DGE”) stated that it was conducting an investigation of our relationship with our joint venture partner in Macau and that the DGE would report to the CCC any material information it deemed appropriate.

 

On May 18, 2009, the DGE issued a report to the CCC on its investigation. In the report, the DGE recommended, among other things, that: (i) our Macau joint venture partner be found to be unsuitable; (ii) we be directed to disengage ourselves from any business association with our Macau joint venture partner; (iii) our due diligence/compliance efforts were found to be deficient; and (iv) the CCC hold a hearing to address the report. In March 2010, the CCC approved our settlement agreement with the DGE pursuant to which we placed our 50% ownership interest in the Borgata Hotel Casino & Spa (“Borgata”) and related leased land in Atlantic City into a divestiture trust. Following the transfer of these interests into trust, we ceased to be regulated by the CCC or the DGE, except as otherwise provided by the trust agreement and the settlement agreement. Boyd Gaming Corporation (“Boyd”), who owns the other 50% interest, is not affected by the settlement.

The terms of the settlement mandate the sale of the trust property within a 30-month period ending in September 2012. During the 18 months ending in September 2011, we have the right to direct the trustee to sell the trust property, subject to approval of the CCC. If a sale is not concluded by that time, the trustee is responsible for selling the trust property during the following 12-month period. Prior to the consummation of the sale, the divestiture trust will retain any cash flows received in respect of the trust property, but will pay property taxes and other costs attributable to the trust property. We are the sole economic beneficiary of the trust and will be permitted to reapply for a New Jersey gaming license beginning 30 months after the completion of the sale of the trust assets. As of December 31, 2010, the trust has $188 million of cash and investments of which $150 million is held in treasury securities with maturities greater than 90 days and is recorded within “Prepaid expenses and other.”

 

As a result of our ownership interest in Borgata being placed into a trust we no longer have significant influence over Borgata; therefore, we discontinued the equity method of accounting for Borgata at the point the assets were placed in the trust, and account for our rights under the trust agreement under the cost method of accounting. We also reclassified the carrying value of our investment related to Borgata to “Other long-term assets, net.” Earnings and losses that relate to the investment that were previously accrued remain as a part of the carrying amount of the investment. Distributions received by the trust that do not exceed our share of earnings are recognized currently in earnings. However, distributions to the trust that exceed our share of earnings for such periods are applied to reduce the carrying amount of our investment. The trust received net distributions from the joint venture of $113 million for the year ended December 31, 2010. We recorded $94 million as a reduction of the carrying value and $19 million was recorded as “Other, net” non-operating income for the year ended December 31, 2010.

 

In connection with the settlement agreement discussed above, we entered into an amendment to our joint venture agreement with Boyd to permit the transfer of our 50% ownership interest into trust in connection with our settlement agreement with the DGE. In accordance with such agreement, Boyd received a priority partnership distribution of approximately $31 million (equal to the excess prior capital contributions by Boyd) upon successful refinancing of the Borgata credit facility in August 2010.

 

In July 2010, we entered into an agreement to sell four long-term ground leases and their respective underlying real property parcels, approximately 11 acres, underlying the Borgata. The transaction closed in November 2010; the trust received net proceeds of $71 million and we recorded a gain of $3 million related to the sale in “Property transactions, net.”

 

In October 2010, we received an offer for our 50% economic interest in the Borgata based on an enterprise value of $1.35 billion for the entire asset and in October, 2010, our Board of Directors authorized submission of this offer to Boyd in accordance with the right of first refusal provisions included in the joint venture agreement. Subsequently, Boyd announced that it does not intend to exercise its right of refusal in connection with such offer. Based on Borgata’s September debt balances, the offer equated to approximately $250 million for our 50% interest. This was less than the carrying value of our investment in Borgata; therefore, we recorded an impairment charge of approximately $128 million at September 30, 2010, recorded in “Property transactions, net.” Since October 2010, we have continued to negotiate with the prospective purchaser as well as other parties that have expressed interest in the asset. There can be no assurance that the transaction will be completed as proposed or at all, and the final terms of any sale may differ materially from the ones disclosed above.

 

Effect of Economic Factors on Results of Operations

 

The state of the U.S. economy has negatively affected our results of operations over the past several years, and we expect to continue to be sensitive to certain aspects of the current economic conditions, including, for example, high unemployment and the weak housing market. The decrease in liquidity in the credit markets which began in late 2007 and accelerated in late 2008 also significantly affected our results of operations and financial condition.

 

Uncertain economic conditions continue to affect our operating results, as businesses and consumers have altered their spending patterns which led to decreases in visitor volumes and customer spending. Businesses responded to the difficult economic conditions by reducing travel budgets. This factor, along with negative perceptions surrounding certain types of business travel, caused decreases in convention attendance in Las Vegas in 2009 and 2010. Convention and catering customers cancelled or postponed a significant number of events occurring

during 2009. Other conditions currently or recently present in the economic environment which tend to negatively affect our operating results include:

 

 

Because of these economic conditions, we have increasingly focused on managing costs and continue to review all areas of operations for efficiencies. We continually manage staffing levels across all our resorts and have reduced our salaried management positions. We suspended company contributions to our 401(k) plan and our nonqualified deferred compensation plans in 2009, which remained suspended in 2009 and 2010. We reinstated a more limited 401(k) company contribution in 2011 and will continue to monitor the plan contributions as the economy changes.

 

Our results of operations are also affected by decisions we make related to our capital allocation, our access to capital, and our cost of capital – all of which are affected by the uncertain state of the global economy and the continued instability in the capital markets. For example, we will incur higher interest costs in connection with the amendments to our senior credit facility in 2009 and 2010. Also, our general cost of debt has increased over the past few years. These factors may affect our ability to access future capital and cause future borrowings to carry higher interest rates.

 

Impairment Charges

 

Investment in Borgata. As previously noted, in October 2010 we received an offer equating to approximately $250 million for our 50% interest in the Borgata and our Board of Directors authorized submission of this offer to Boyd Gaming Corporation, who subsequently announced it did not intend to exercise its right of refusal. The proposed offer submitted was less than the carrying value of our investment in Borgata; therefore, we recorded an impairment charge of approximately $128 million in the third quarter of 2010 included in “Property transactions, net.”

 

Investment in CityCenter. At September 30, 2009, we reviewed our CityCenter investment for impairment using revised operating forecasts developed by CityCenter management late in the third quarter. In addition, the impairment charge related to CityCenter’s residential real estate under development discussed below further indicated that our investment may have experienced an “other-than-temporary” decline in value. Our discounted cash flow analysis for CityCenter included estimated future cash outflows for construction and maintenance expenditures and future cash inflows from operations, including residential sales. Based on our analysis, we determined the carrying value of our investment exceeded its fair value and we determined that the impairment was “other-than-temporary.” As a result, we recorded an impairment charge of $956 million included in “Property transactions, net.”

 

At June 30, 2010, we reviewed our CityCenter investment for impairment using revised operating forecasts developed by CityCenter management. Based on current and forecasted market conditions and because CityCenter’s results of operations through June 30, 2010 were below previous forecasts, and the revised operating forecasts were lower than previous forecasts, we concluded that we should review the carrying value of our investment. We determined that the carrying value of our investment exceeded our fair value determined using a discounted cash flow analysis and therefore an impairment was indicated. We intend to and believe we will be able to retain our investment in CityCenter; however, due to the extent of the shortfall and our assessment of the uncertainty of fully recovering our investment, we determined that the impairment was “other-than-temporary” and recorded an impairment charge of $1.12 billion included in “Property transactions, net.”

 

At September 30, 2010, we recognized an increase of $232 million in our total net obligation under our CityCenter completion guarantee, and a corresponding increase in our investment in CityCenter. The increase primarily reflected a revision to prior estimates based on our assessment of the most current information derived from our close-out and litigation processes and does not reflect certain potential recoveries that CityCenter is pursuing as part of the litigation process. We completed an impairment review as of September 30, 2010 and as a

result recorded an additional impairment of $191 million in the third quarter of 2010 included in “Property transactions, net.”

 

The discounted cash flow analyses for our investment in CityCenter included estimated future cash inflows from operations, including residential sales, and estimated future cash outflows for capital expenditures. The June 2010 and September 2010 analyses used an 11% discount rate and a long term growth rate of 4% related to forecasted cash flows for CityCenter’s operating assets.

 

CityCenter Residential Inventory. Included in loss from unconsolidated affiliates for the year ended December 31, 2009 is our share of an impairment charge relating to CityCenter residential real estate under development (“REUD”). CityCenter was required to review its REUD for impairment as of September 30, 2009, mainly due to CityCenter’s September 2009 decision to discount the prices of its residential inventory by 30%. This decision and related market conditions led to CityCenter management’s conclusion that the carrying value of the REUD was not recoverable based on estimates of undiscounted cash flows. As a result, CityCenter was required to compare the fair value of its REUD to its carrying value and record an impairment charge for the shortfall. Fair value of the REUD was determined using a discounted cash flow analysis based on management’s expectations of future cash flows. The key inputs in the discounted cash flow analysis included estimated sales prices of units currently under contract and new unit sales, the absorption rate over the estimated sell-out period, and the discount rate. This analysis resulted in an impairment charge of approximately $348 million of the REUD. We recognized our 50% share of such impairment charge, adjusted by certain basis differences, resulting in a pre-tax charge of $203 million.

 

Due to the completion of construction of the Mandarin Oriental residential inventory in the first quarter of 2010 and completion of the Veer residential inventory in the second quarter of 2010, CityCenter is required to carry its residential inventory at the lower of its carrying value or fair value less costs to sell. CityCenter determines fair value of its residential inventory using a discounted cash flow analysis based on management’s current expectations of future cash flows. The key inputs in the discounted cash flow analysis include estimated sales prices of units currently under contract and new unit sales, the absorption rate over the sell-out period, and the discount rate. These estimates are subject to management’s judgment and are highly sensitive to changes in the market and economic conditions, including the estimated absorption period. In the event current sales forecasts are not met, additional impairment charges may be recognized in future periods.

 

As a result of its impairment analyses of its residential inventory, CityCenter recorded impairment charges for the Mandarin Oriental residential inventory of $171 million and $20 million in the first and third quarter of 2010 and impairment charges for the Veer residential inventory of $57 million, $55 million and $27 million, in the second, third and fourth quarters of 2010, respectively. Impairment charges in the third quarter primarily related to an increase in final cost estimates for the residential inventory. We recognized our 50% share of such impairment charges, resulting in pre-tax charges of $166 million for the year ended December 31, 2010, respectively, included in “Income (loss) from unconsolidated affiliates.”

 

CityCenter Harmon Impairment. The Harmon Hotel & Spa (“Harmon”) was originally planned to include over 200 residential units and a 400-room non-gaming lifestyle hotel. In 2009, we announced that the opening of the Harmon hotel component would be delayed until we and our joint venture partner, Infinity World, mutually agreed to its completion, and that the residential component had been canceled.

 

During the third quarter of 2010, CityCenter management determined that it is unlikely that the Harmon will be completed using the building as it now stands. As a result, CityCenter recorded an impairment charge of $279 million in the third quarter of 2010 related to construction in progress assets. The impairment of Harmon did not affect our loss from unconsolidated affiliates, because we had previously recognized our 50% share of the impairment charge in connection with prior impairments of our investment balance.

 

M Resort Note. At June 30, 2009, we reviewed our M Resort Note for impairment. Based on our review of the operating results of M Resort, as well as the M Resort’s management’s revised cash flow projections post-opening, which were significantly lower than original predictions due to market and general economic conditions, we determined that the fair value of the M Resort Note was $0, that the decline in value was “other-than-temporary,” and that the entire amount of the indicated impairment related to a credit loss. Based on these conclusions, we

recorded a pre-tax impairment of $176 million in the second quarter of 2009 within “Other, net.” Of that amount, $82 million was reclassified from accumulated other comprehensive loss, which amount was $54 million net of tax. We stopped recording accrued “paid-in-kind” interest as of May 31, 2009, and no longer hold this note.

 

 

Atlantic City Renaissance Pointe Land. We reviewed the carrying value of our Renaissance Pointe land holdings for impairment at December 31, 2009 as we did not intend to pursue development of our MGM Grand Atlantic City project for the foreseeable future. Our Board of Directors subsequently terminated this project. Our Renaissance Pointe land holdings included a 72-acre development site and included 11 acres of land subject to a long-term lease with the Borgata joint venture. The fair value of the development land was determined based on a market approach, and the fair value of land subject to the long-term lease with Borgata was determined using a discounted cash flow analysis using expected contractual cash flows under the lease discounted at a market capitalization rate. As a result of our review, we recorded a non-cash impairment charge of $548 million in the 2009 fourth quarter, which was included in “Property transactions, net” related to our land holdings on Renaissance Pointe and capitalized development costs.

 

 

Goodwill and Intangible Assets Impairment. We perform our annual impairment test related to goodwill and indefinite-lived intangible assets during the fourth quarter of each year. As a result of our 2008 analysis, we recognized a non-cash impairment charge of $1.2 billion. The impairment charge related solely to the goodwill and other indefinite-lived intangible assets recognized in the 2005 acquisition of Mandalay Resort Group, and represented substantially all of the goodwill recognized at the time of the Mandalay acquisition and a minor portion of the value of trade names related to the Mandalay resorts. The impairment charge resulted from factors affected by economic conditions at the time, including: 1) lower market valuation multiples for gaming assets; 2) higher discount rates resulting from turmoil in the credit and equity markets; and 3) cash flow forecasts for the Mandalay resorts. No impairment charges were required as a result of our 2010 and 2009 analyses.

 

Monte Carlo Fire

 

 

We maintain insurance for both property damage and business interruption relating to catastrophic events, such as the rooftop fire at Monte Carlo in January 2008. Business interruption coverage covers lost profits and other costs incurred during the closure period and up to six months following re-opening.

 

 

We reached final settlement agreements for the Monte Carlo Fire in early 2009. In total, we received $74 million of proceeds from our insurance carriers. We recognized the $41 million of excess insurance recoveries in income in 2009 and 2008, with recoveries offsetting a write-down of $4 million related to the net book value of damaged assets, demolition costs of $7 million, and operating costs of $21 million. In 2009, $15 million and $7 million of such excess insurance recoveries were recognized as offsets to “General and administrative” expense and “Property transactions, net,” respectively. In 2008, $9 million and $10 million of such excess insurance recoveries were recognized as offsets to “General and administrative” expense and “Property transactions, net,” respectively.

 

Key Performance Indicators

 

 

Our primary business is the ownership and operation of casino resorts, which includes offering gaming, hotel, dining, entertainment, retail and other resort amenities. Over half of our net revenue is derived from non-gaming activities as our operating philosophy is to provide a complete resort experience for our guests, including non-gaming amenities for which our guests are willing to pay a premium. Our significant convention and meeting facilities allow us to maximize hotel occupancy and customer volumes during off-peak times such as mid-week or during traditionally slower leisure travel periods, which also leads to better labor utilization. We believe that we own several of the premier casino resorts in the world and have continually reinvested in our resorts to maintain our competitive advantage.

 

 

As a resort-based company, our operating results are highly dependent on the volume of customers at our resorts, which in turn affects the price we can charge for our hotel rooms and other amenities. We also generate a significant portion of our operating income from the high-end gaming segment, which can be a cause for variability in our results. Key performance indicators related to revenue are:

 

 

Most of our revenue is essentially cash-based, through customers wagering with cash or paying for non-gaming services with cash or credit cards. Our resorts, like many in the industry, generate significant operating cash flow. Our industry is capital intensive and we rely heavily on the ability of our resorts to generate operating cash flow to repay debt financing, fund maintenance capital expenditures and provide excess cash for future development.

 

We generate a majority of our net revenues and operating income from our resorts in Las Vegas, Nevada, which exposes us to certain risks, such as increased competition from new or expanded Las Vegas resorts, and from the expansion of gaming in California. We are also exposed to risks related to tourism and the general economy, including national and global economic conditions and terrorist attacks or other global events.

 

Our results of operations do not tend to be seasonal in nature, though a variety of factors may affect the results of any interim period, including the timing of major Las Vegas conventions, the amount and timing of marketing and special events for our high-end customers, and the level of play during major holidays, including New Year and Chinese New Year. We market to different customer segments to manage our hotel occupancy, such as targeting large conventions to increase mid-week occupancy. Our results do not depend on key individual customers, although our success in marketing to customer groups, such as convention customers, or the financial health of customer segments, such as business travelers or high-end gaming customers from a particular country or region, can affect our results.

 

Results of Operations

 

The following discussion is based on our consolidated financial statements for the years ended December 31, 2010, 2009 and 2008. Certain results in this section are discussed on a “same store” basis excluding the results of TI, which was sold in March 2009.

 

The following table summarizes our financial results:

 

 

Net revenues including reimbursed costs increased 1% from 2009. Excluding reimbursed costs, net revenues decreased 3% in 2010 and 18% in 2009 largely due to the economic factors discussed in “Effect of Economic Factors on Results of Operations.” As discussed further in “Operating Results – Detailed Revenue Information,”

revenues have decreased across most lines of business. In response to this decrease in revenues, we have implemented cost savings efforts to reduce departmental operating expenses, but due to our leveraged business model a significant portion of the decline in revenue affected operating results.

 

Corporate expense decreased 14% in 2010 primarily as a result of higher legal and advisory costs associated with our activities to improve our financial position in 2009. Corporate expense in 2009 increased 32% compared to 2008 due to the legal and advisory costs as well as the accrual of bonus expense in 2009; there was no bonus accrual in 2008 due to not meeting internal profit targets.

 

Depreciation and amortization expense in 2010 decreased 8% due to certain assets being fully depreciated. Depreciation and amortization expense decreased in 2009 due to certain assets becoming fully depreciated and the sale of TI. In addition, other transactions, events, and impairment charges had a significant impact on our earnings performance, the most significant of which are discussed in the “Executive Overview” section above.

 

Operating Results – Detailed Revenue Information

 

The following table presents detail of our net revenues:

 

 

Table games revenue in 2010 decreased 13% in 2010 on a same store basis, mainly as a result of lower overall table games volumes which decreased 6%, and lower hold percentage. Table games revenue in 2009 decreased 11%, or 9% on a same store basis, due to a decrease in overall table games volume, despite an increase of 33% for baccarat volume. Table games hold percentage was below the mid-point of our normal range in 2010 and near the mid-point for 2009 and 2008.

 

Slots revenue decreased 2% in 2010, or 1% on a same store basis, as a result of a decrease in volume at our Las Vegas Strip resorts. Decreases at our Las Vegas Strip resorts were partially offset by a 5% increase in revenue at MGM Grand Detroit and a 3% increase in revenue at Gold Strike Tunica. Slots revenue decreased 12% in 2009, or 9% on a same store basis, driven by a decrease in volume at our Las Vegas Strip resorts. In 2009, most of our Las Vegas Strip resorts experienced decreases in the high single digits, while MGM Grand Detroit and Gold Strike Tunica experienced decreases in the low single digits.

Rooms revenue decreased 4% on a same store basis in 2010 and 24% on a same store basis in 2009 as a result of a decrease in occupancy and lower average room rates. The following table shows key hotel statistics for our Las Vegas Strip resorts:

 

 

Food and beverage, entertainment, and retail revenues in 2010 and 2009 were negatively affected by lower customer spending and decreased occupancy at our resorts. In 2009, entertainment revenues benefited from the addition of Terry Fator at The Mirage and The Lion King at Mandalay Bay.

 

Reimbursed costs revenue represents reimbursement of costs, primarily payroll-related, incurred by us in connection with the provision of management services. We recognize costs reimbursed pursuant to management services as revenue in the period we incur the costs. Reimbursed costs, which are related mainly to our management of CityCenter, were $359 million, $99 million and $47 million for 2010, 2009, and 2008, respectively.

 

Operating Results – Details of Certain Charges

 

Stock compensation expense is recorded within the department of the recipient of the stock compensation award. The following table shows the amount of compensation expense related to employee stock-based awards:

 

 

Preopening and start-up expenses consisted of the following:

 

Property transactions, net consisted of the following:

 

 

See discussion of our impairment charges under “Executive Overview.” Other property transactions during 2010 related primarily to write-downs of various discontinued capital projects. Other property transactions in 2009 primarily related to write-downs of various discontinued capital projects and offset by $7 million in insurance recoveries related to the Monte Carlo fire. Other property transactions in 2008 included $30 million related to the write-down of land and building assets of Primm Valley Golf Club. The 2008 period also included approximately $9 million of demolition costs associated with various room remodel projects as well as the write-down of approximately $27 million of various discontinued capital projects. These amounts were offset by a gain on the sale of an aircraft of $25 million and $10 million of insurance recoveries related to the Monte Carlo fire.

 

Operating Results – Income (Loss) from Unconsolidated Affiliates

 

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

 

 

Operating results for CityCenter included $166 million and $203 million of residential real estate impairments in 2010 and 2009, respectively. As a result of the transfer of Borgata assets into trust in 2010, we no longer record Borgata income in income from unconsolidated affiliates. The 2009 results also included a $12 million charge related to development costs for our postponed joint venture project on the North Las Vegas Strip and $14 million related to insurance proceeds recognized at Borgata.

Non-operating Results

 

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

 

 

In 2010, gross interest costs increased due to higher interest rates on our senior credit facility and newly issued fixed rate borrowings. Included in interest expense in 2010 is $31 million of amortization of debt discount associated with the amendment of our senior credit facility during 2010. In 2009, gross interest costs increased compared to 2008 mainly due to higher average debt balances during 2009, higher interest rates for borrowings under our senior credit facility in 2009, higher interest rates for newly issued fixed rate borrowings, as well as breakage fees for voluntary repayments of our revolving credit facility.

 

We did not have any capitalized interest in 2010, as we ceased capitalization of interest related to CityCenter in December 2009 and we have no other qualifying capital projects ongoing. Capitalized interest increased in 2009 compared to 2008 due to higher CityCenter investment balances and higher weighted average cost of debt. The amounts presented above exclude non-cash gross interest and corresponding capitalized interest for 2008 and 2009 related to our CityCenter delayed equity contribution.

 

The following table summarizes information related to our income taxes:

 

 

The income tax benefit on pre-tax loss in 2010 was provided essentially at the federal statutory rate of 35%. The income tax benefit provided on pre-tax loss in 2009 was greater than 35% primarily as a result of state tax benefit provided on the write-down of land in Atlantic City. The write-down of goodwill in 2008, which was treated as a permanently non-deductible item in our federal income tax provision, caused us to incur a provision for income tax expense in 2008 even though our pre-tax result was a loss for that year. Excluding the effect of the goodwill write-down, the effective tax rate from continuing operations for 2008 was 37.3%.

 

The net refund of cash taxes in 2010 was due primarily to the carryback to prior years of U.S. federal income tax net operating losses incurred in 2009. The net refund of cash taxes in 2009 was due primarily to refunds of taxes that were paid in 2008. Cash taxes were paid in 2008 despite the pre-tax operating loss due to the non-deductible goodwill write-down and cash taxes paid on the gain from the CityCenter joint venture transaction that occurred in 2007. Since the CityCenter gain was realized in the fourth quarter of 2007, the associated income taxes were paid in 2008.

 

Non-GAAP Measures

 

“Adjusted EBITDA” is earnings before interest and other non-operating income (expense), taxes, depreciation and amortization, preopening and start-up expenses, and property transactions, net. “Adjusted Property EBITDA” is Adjusted EBITDA before corporate expense and stock compensation expense. Adjusted EBITDA and Adjusted

Property EBITDA information is presented solely as a supplemental disclosure to reported GAAP measures because we believe that these measures are: 1) widely used measures of operating performance in the gaming industry, and 2) a principal basis for valuation of gaming companies.

 

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

 

Adjusted EBITDA or Adjusted Property EBITDA should not be construed as an alternative to operating income or net income, as an indicator of our performance; or as an alternative to cash flows from operating activities, as a measure of liquidity; or as any other measure determined in accordance with generally accepted accounting principles. We have significant uses of cash flows, including capital expenditures, interest payments, taxes and debt principal repayments, which are not reflected in Adjusted EBITDA. Also, other companies in the gaming and hospitality industries that report Adjusted EBITDA information may calculate Adjusted EBITDA in a different manner.

 

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

 

 

On a same store basis, Adjusted EBITDA decreased 15% in 2010. Excluding the $166 million impact from the residential real estate impairment charges at CityCenter and $58 million of forfeited residential deposits at CityCenter in 2010, and a $203 million impairment charge related to CityCenter real estate under development, $15 million of Monte Carlo insurance recoveries and $12 million of impairment related to our proposed North Las Vegas Strip joint venture project in 2009, Adjusted EBITDA decreased 20%. Adjusted EBITDA on a same store basis decreased 38% in 2009, mainly as a result of the factors previously discussed in “Operating Results – Detailed Revenue Information.” Excluding the real estate under development impairment, North Las Vegas Strip impairment and Monte Carlo insurance recoveries, Adjusted EBITDA decreased 27% in 2009.

On a same store basis, Adjusted Property EBITDA from wholly-owned operations decreased to $1.2 billion in 2010 from $1.3 billion in 2009 as a result of previously discussed operating trends. Adjusted Property EBITDA from wholly-owned operations decreased 26% in 2009 compared to 2008.

 

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