mgm-ex993_954.htm

We have audited the accompanying consolidated financial statements of CityCenter Holdings, LLC and its subsidiaries (the “Company”), which comprise the consolidated balance sheets as of December 31, 2017 and 2016, and the related consolidated statements of operations, members’ equity, and cash flows for each of the three years in the period ended December 31, 2017, and the related notes to the consolidated financial statements.

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of CityCenter Holdings, LLC and its subsidiaries as of December 31, 2017 and 2016, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2017, in accordance with accounting principles generally accepted in the United States of America.

	December 31,
	2017		2016

ASSETS
Current assets
Cash and cash equivalents	$	208,364	$	248,474
Accounts receivable, net		118,264		106,029
Inventories		18,547		16,786
Prepaid expenses and other current assets		26,659		22,994
Total current assets		371,834		394,283

Property and equipment, net		6,574,703		6,657,660

Other assets
Intangible assets, net		18,681		19,881
Deposits and other assets, net		24,165		26,944
Total other assets		42,846		46,825
	$	6,989,383	$	7,098,768
LIABILITIES AND MEMBERS' EQUITY
Current liabilities
Accounts payable	$	25,482	$	23,973
Construction payable		36,327		6,743
Accrued interest on long-term debt		516		13,662
Current portion of long-term debt		16,000		–
Due to MGM Resorts International		75,275		63,939
Other accrued liabilities		192,904		187,505
Total current liabilities		346,504		295,822

Long-term debt, net		1,545,797		1,227,509
Other long-term obligations		11,836		21,407
Commitments and contingencies (Note 11)
Members' equity		5,085,246		5,554,030
	$	6,989,383	$	7,098,768

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

	Year Ended December 31,
	2017			2016			2015
Revenues
Casino	$	477,719		$	440,832		$	450,166
Rooms		476,852			458,015			429,488
Food and beverage		350,360			327,339			285,883
Entertainment		8,145			19,723			54,273
Retail		21,349			22,160			21,937
Residential		–			2,646			33,358
Other		69,197			58,247			51,948
		1,403,622			1,328,962			1,327,053
Less: Promotional allowances		(136,069	)		(128,897	)		(130,673	)
		1,267,553			1,200,065			1,196,380
Expenses
Casino		211,577			212,592			230,227
Rooms		142,662			137,985			133,507
Food and beverage		211,650			205,769			174,624
Entertainment		2,332			14,018			36,904
Retail		13,420			14,525			14,629
Residential		20			1,880			23,994
Other		32,815			32,616			31,197
General and administrative		233,329			230,734			242,576
Property transactions, net		9,541			4,529			(154,788	)
NV energy exit expense		(8,250	)		26,089			–
Depreciation and amortization		224,358			313,787			251,847
		1,073,454			1,194,524			984,717
Operating income		194,099			5,541			211,663
Non-operating income (expense)
Interest income		1,357			885			471
Interest expense, net		(60,094	)		(61,032	)		(72,791	)
Loss on retirement of debt		(4,554	)		(4,102	)		–
Other, net		408			(106	)		(191	)
Net income (loss) from continuing operations		131,216			(58,814	)		139,152
Income from discontinued operations		–			407,187			22,681
Net income	$	131,216		$	348,373		$	161,833

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

	Year Ended December 31,
	2017			2016			2015
Cash flows from operating activities
Net income	$	131,216		$	348,373		$	161,833
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		224,358			318,122			272,330
Amortization of debt discounts and issuance costs		4,657			3,960			4,486
Loss on retirement of long-term debt		4,554			4,102			–
Gain on the sale of Crystals		–			(400,082	)		–
Property transactions, net		9,541			4,529			(154,733	)
Provision for doubtful accounts		(2,407	)		12,551			22,420
Changes in current assets and liabilities:
Accounts receivable		(9,828	)		(11,401	)		(22,622	)
Inventories		(1,761	)		2,000			1,751
Prepaid expenses and other		(831	)		8,461			(11,612	)
Accounts payable and accrued liabilities		(6,185	)		(4,807	)		(74,248	)
Change in residential real estate		–			1,771			6,609
Other		(12,521	)		10,100			(7,754	)
Net cash provided by operating activities		340,793			297,679			198,460
Cash flows from investing activities
Capital expenditures, net of construction payable		(107,166	)		(70,454	)		(133,966	)
Litigation settlements and insurance proceeds		–			–			87,617
Proceeds from the sale of Crystals		–			1,078,889			–
Decrease in restricted cash		–			–			143,170
Proceeds of property and equipment		2,177			–			–
Other		–			657			(49	)
Net cash provided by (used in) investing activities		(104,989	)		1,009,092			96,772
Cash flows from financing activities
Net borrowings (repayments) under senior credit facilities – maturities of ninety days or less		350,250			–			(38,000	)
Repayments under senior credit facilities - maturities longer than ninety days		–			(266,000	)		–
Dividends and distributions paid		(600,000	)		(1,080,000	)		(400,000	)
Cash contributions from Members		–			–			141,390
Cash distributions to Members		–			(2,098	)		–
Due to MGM Resorts International		(441	)		20,244			4,524
Debt issuance costs		(25,723	)		–			–
Net cash used in financing activities		(275,914	)		(1,327,854	)		(292,086	)

Cash and cash equivalents
Net increase (decrease) for the period		(40,110	)		(21,083	)		3,146
Balance, beginning of period		248,474			269,557			266,411
Balance, end of period	$	208,364		$	248,474		$	269,557

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

Balance as of January 1, 2015	$	6,384,532

Cash contributions from Members		141,390
Dividends paid		(400,000	)
Income from discontinued operations		22,681

Net income from continuing operations		139,152

Balance as of December 31, 2015		6,287,755

Cash distributions to Members		(2,098	)
Dividends and distributions paid		(1,080,000	)
Income from discontinued operations		407,187

Net loss from continuing operations		(58,814	)

Balance as of December 31, 2016		5,554,030

Dividends and distributions paid		(600,000	)

Net income		131,216

Balance as of December 31, 2017	$	5,085,246

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

Organization. CityCenter Holdings, LLC (the “Company”) is a Delaware limited liability company formed on November 2, 2007. The Company was formed to acquire, own, develop and operate the CityCenter development (“CityCenter”) in Las Vegas, Nevada. The Company is a joint venture which is 50%-owned by a wholly owned subsidiary of MGM Resorts International (together with its subsidiaries, “MGM Resorts”), a Delaware corporation, and 50%-owned by Infinity World Development Corp (“Infinity World”), which is wholly owned by Dubai World, a Dubai United Arab Emirates government decree entity (each, a “Member”). The governing document for the Company is the Third Amended and Restated Limited Liability Company Agreement dated December 22, 2015 (the “LLC Agreement”).

Under the LLC Agreement, the Board of Directors of the Company is composed of six representatives (subject to intermittent vacancies) – three selected by each Member – and has exclusive power and authority for the overall management of the Company. Compensation for Board of Directors’ duties is borne by the Members. The Company has no employees and has entered into several agreements with MGM Resorts to provide day-to-day management of CityCenter and the Company. See Note 14 for further discussion of such agreements.

Nature of Business. CityCenter is a mixed-use development on the Las Vegas Strip located between the Bellagio and Monte Carlo resorts, both owned by MGM Resorts. CityCenter consists of the following components:

In April 2016, the Company closed the sale of The Shops at Crystals (“Crystals”). See Note 3 for additional information related to the sale.

Substantially all of the operations of CityCenter commenced in December 2009. See Note 11 for discussion of the demolition of the Harmon Hotel & Spa (“Harmon”).

Basis of presentation. The consolidated financial statements include the accounts of the Company and its subsidiaries. The Company does not have a variable interest in any variable interest entities. All intercompany balances and transactions have been eliminated in consolidation. The results of operations are not necessarily indicative of the results to be expected in the future.

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

Fair value measurements. Fair value measurements affect the Company’s accounting for and impairment assessments of its long-lived assets and intangible assets. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and is measured according to a hierarchy consisting of: Level 1 inputs, such as quoted prices in an active market; Level 2 inputs, which are observable inputs for similar assets; or Level 3 inputs, which are unobservable inputs.

Cash and cash equivalents. Cash and cash equivalents include investments and interest bearing instruments with maturities of ninety days or less at the date of acquisition. Such investments are carried at cost, which approximates fair value.

Accounts receivable and credit risk. The Company issues markers to approved casino customers following investigations of creditworthiness. As of December 31, 2017, approximately 65% of the Company’s casino receivables were due from customers from foreign countries. Enforceability issues, business or economic conditions or other significant events in these countries could affect the collectability of such receivables.

Trade receivables, including casino and hotel receivables, are typically non-interest bearing and are initially recorded at cost. Accounts are written off when management deems the account to be uncollectible. Recoveries of accounts previously written off are recorded when received. An allowance for doubtful accounts is maintained to reduce the Company’s receivables to their estimated realizable amount, which approximates fair value. The allowance is estimated based on a specific review of customer accounts as well as historical collection experience and current economic and business conditions. Management believes that as of December 31, 2017, no significant concentrations of credit risk existed.

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

Residential real estate. As of December 31, 2017, all residential units were sold. In prior periods, residential real estate represented capitalized costs of residential inventory, which consisted of completed condominium units available for sale less impairments previously recognized. Costs included land, direct and indirect construction and development costs, and capitalized property taxes and interest.

Property and equipment. Property and equipment are stated at cost including capitalized interest. Gains or losses on dispositions of property and equipment are included in the determination of income or loss. Maintenance and repairs that neither materially add to the value of the property nor appreciably prolong its life are charged to expense as incurred. Property and equipment are depreciated over the following estimated useful lives on a straight-line basis:

Project costs are stated at cost and recorded as property and equipment (which includes adjustments made upon the initial contribution by MGM Resorts to the extent such property or equipment is contributed by MGM Resorts) unless determined to be impaired, in which case the carrying value is reduced to estimated fair value.

In December 2015, the Company decided to close the Zarkana show at the Aria Resort & Casino as part of a plan to expand its conference and convention space. As a result, the Company shortened the useful lives of the assets related to the Zarkana theatre and recognized accelerated depreciation expense of $82 million and $20 million during the years ended December 31, 2016 and 2015, respectively. The fully depreciated assets related to the Zarkana theatre were disposed in April 2016 and construction of the conference and expansion space began in May 2016, which opened during the first quarter of 2018.

Capitalized interest. The interest costs associated with development and construction projects are capitalized and included in the cost of the project. Capitalization of interest ceases when the project is substantially complete or development activity is suspended for more than a brief period.

Impairment of long-lived assets. The Company evaluates its property and equipment for impairment as held and used. The Company reviews assets to be held and used for impairment whenever indicators of impairment exist. It then compares the estimated future cash flows of the asset, on an undiscounted basis, to the carrying amount of the asset. If the undiscounted cash flows exceed the carrying value, no impairment is indicated. If the undiscounted cash flows do not exceed the carrying amount, then impairment is recorded based on the fair value of the asset, typically measured using a discounted cash flow model. Any recognized impairment losses would be recorded as operating expense.

Intangible assets. Indefinite-lived intangible assets are reviewed for impairment at least annually and between annual test dates in certain circumstances. The Company performs its annual impairment test for indefinite-lived intangible assets in the fourth quarter of each fiscal year. See Note 6 for further discussion. No impairments were indicated or recorded as a result of the annual impairment review.

Debt issuance costs. The Company capitalizes debt issuance costs, which include legal and other direct costs related to the issuance of debt. The capitalized costs are amortized straight-line to interest expense over the contractual term of the debt.

Revenue recognition and promotional allowances. Casino revenue is the aggregate net difference between gaming wins and losses, with liabilities recognized for funds deposited by customers before gaming play occurs (“casino front money”) and for chips in the customers’ possession (“casino outstanding chip liability”). Hotel, food and beverage, entertainment, retail and other operating revenues are recognized as services are performed and goods are provided. Advance deposits on rooms and advance ticket sales are recorded as accrued liabilities until services are provided to the customer.

Gaming revenues are recognized net of certain sales incentives, including discounts and points earned in point-loyalty programs. The retail value of accommodations, food and beverage, and other services furnished to guests without charge is included in gross revenue and then deducted as promotional allowances. The estimated cost of providing such promotional allowances is primarily included in casino expenses as follows:

Real estate sales. Revenue for residential sales is deferred until closing occurs, which is when title, possession and other attributes of ownership have been transferred to the buyer and the Company is not obligated to perform activities after the sale. Additionally, the buyer’s initial and continuing investment must be adequate to demonstrate a commitment to pay and the buyer’s receivable cannot be subject to future subordination.

Residential operating expenses include cost of real estate sold, holding costs, selling costs, indirect selling costs and valuation allowances for residential mortgage notes receivable. Costs associated with residential sales were deferred during construction, except for indirect selling costs and general and administrative expense, which were expensed as incurred.

Loyalty programs. Aria participates in the MGM Resorts’ “M life Rewards” loyalty program. Customers may earn points and/or Express Comps for their gaming play which can be redeemed at restaurants, box offices or the M life Rewards front desk at participating properties. Points may also be redeemed for free slot play on participating machines. The Company records a liability based on the points earned multiplied by the redemption value, less an estimate for points not expected to be redeemed, and records a corresponding reduction in casino revenue. Customers also earn Express Comps based on their gaming play which can be redeemed for complimentary goods and services, including hotel rooms, food and beverage, and entertainment. The Company records a liability for the estimated costs of providing goods and services for Express Comps based on the Express Comps earned multiplied by a cost margin, less an estimate for Express Comps not expected to be redeemed and records a corresponding expense in the casino department.

Advertising. The Company expenses advertising costs the first time the advertising takes place. Advertising expense is included in preopening and start-up expenses when related to the preopening and start-up period and in general and administrative expense when related to ongoing operations. Advertising expense was $14 million, $15 million and $20 million for the years ended December 31, 2017, 2016 and 2015, respectively.

Property transactions, net. The Company classifies transactions related to long-lived assets – such as write-downs and impairments, demolition costs, and gains and losses on the sale of fixed assets – within “Property transactions, net” in the accompanying consolidated statements of operations. See Note 9 for details.

Income taxes. The Company is treated as a partnership for federal income tax purposes. Therefore, federal income taxes are the responsibility of the Members. As a result, no provision for income taxes is reflected in the accompanying consolidated financial statements.

Comprehensive income. Net income equals comprehensive income for all periods presented.

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

The Company adopted ASC 606 on a full retrospective basis effective January 1, 2018, which will be reflected in future financial statements. The most significant impacts of the adoption of the new accounting pronouncement are as follows:

These changes, and other less significant adjustments that were required upon adoption, will not have an aggregate material impact on operating income, net income, the statements of cash flows, or the statements of members’ equity.

In February 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-02, “Leases (Topic 842),” (“ASU 2016-02”), which replaces the existing guidance in ASC 840, “Leases.” ASU 2016-02 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. ASU 2016-02 requires a dual approach for lessee accounting under which a lessee would account for leases as finance leases or operating leases. Both finance leases and operating leases will result in the lessee recognizing a right-of-use (“ROU”) asset and a corresponding lease liability. For finance leases, the lessee would recognize interest expense and amortization of the ROU asset and for operating leases the lessee would recognize a straight-line total lease expense. The Company is currently assessing the impact the adoption of ASU 2016-02 will have on its consolidated financial statements and footnote disclosures.

In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force),” (“ASU 2016-15”), effective for fiscal years beginning after December 15, 2017. ASU 2016-15 amends the guidance of ASC 230 on the classification of certain cash receipts and payments in the statement of cash flows. The primary purpose of ASU 2016-15 is to reduce the diversity in practice that has resulted from the lack of consistent principles, specifically clarifying the guidance on eight cash flow issues. The adoption of ASU 2016-15 did not have a material effect on the Company’s consolidated financial statements.

Subsequent events. Management has evaluated subsequent events through February 19, 2018, the date these consolidated financial statements were issued.

In April 2016, the Company closed the sale of Crystals, a retail, dining and entertainment district, to a venture led by Invesco Real Estate and Simon Property Group for approximately $1.1 billion. The Company recognized a gain of $400 million on the sale of Crystals, which is included within “Income from discontinued operations,” for the year ended December 31, 2016. The results of Crystals are classified as discontinued operations in the accompanying consolidated statements of operations for the years ended December 31, 2016 and 2015 as the sale of Crystals was a strategic shift in business. The cash flows of discontinued operations are included with the cash flows of continuing operations in the accompanying consolidated statements of cash flows. The 2015 consolidated statements of cash flows have not been adjusted to reflect discontinued operations.

The following table summarizes the net revenues, depreciation, amortization and capital expenditures of Crystals.

The majority of the Company’s intangible assets are assets that were contributed by MGM Resorts upon formation of the Company. Intellectual property represents trademarks, domain names, and other intellectual property including the CityCenter, Aria and Vdara tradenames and Aria.com domain. There is no contractual or market-based limit to the use of these intangible assets and therefore they have been classified as indefinite-lived.

The Company performs an annual review of its indefinite-lived intangible assets for impairment in the fourth quarter each year. The asset’s fair value is compared to its carrying value, and an impairment charge is recorded for any short-fall. Fair value is estimated using the relief-from-royalty method which discounts cash flows that would be required to obtain the use of the related intangible asset. Key inputs in the relief-from-royalty analysis include forecasted revenues related to the intangible asset, market royalty rates, discount rates and terminal year growth rates.

The aircraft time sharing agreement intangible asset relates to an agreement between MGM Resorts and the Company whereby MGM Resorts provides the Company the use of MGM Resorts’ aircraft in its operations. The Company is charged a rate that is based on Federal Aviation Administration regulations, which provides for reimbursement for specific costs incurred by MGM Resorts without any profit or mark-up. Accordingly, the fair value of this agreement was recognized as an intangible asset, and is being amortized on a straight-line basis over 20 years, and will be fully amortized in 2029.

Senior credit facility. In April 2017, the Company completed a refinancing of its previous senior credit facility and entered into a $1.725 billion senior credit facility. The new senior credit facility consists of a $125 million revolving credit facility maturing in April 2022, and a $1.6 billion term loan B facility maturing in April 2024. The term loan B facility requires the Company to make amortization payments of 0.25% of the original principal balance at each quarter end. The term loan B facility was issued at 99.5%, and bears interest at LIBOR plus 2.50% with a LIBOR floor of 0.75%, and in the case of base rate loans, at the base rate plus 1.50%. As of December 31, 2017, the interest rate on the term loan B was 4.07%. Loans under the revolving facility bear interest at LIBOR plus 2.00%, and in the case of base rate loans, the base rate plus 1.00%. As of December 31, 2017 the Company had not drawn on the revolving facility. The Company pays an applicable fee of 0.375%, for the unused portion of the revolving facility. The Company had $116 million of available borrowing capacity under its senior credit facility at December 31, 2017. In connection with the closing of the new senior credit facility, the Company refinanced the outstanding amount under its existing term loan. As a result of the transaction, the Company recorded a loss on retirement of long-term debt of $4.6 million, primarily consisting of the write-off of a portion of previously unamortized debt issuance costs.

The senior credit facility is a general senior obligation of the Company and ranks equally with the Company’s other existing and future senior obligations, is fully and unconditionally guaranteed on a senior secured basis by the restricted subsidiaries of the Company, and is secured by a first-priority perfected lien on substantially all of the Company’s assets and the assets of its subsidiaries.

The senior credit facility contains customary positive, negative and financial covenants, including a requirement that the Company maintains a quarterly minimum interest coverage ratio of 2.5:1.0 and a maximum quarterly leverage ratio for the trailing four quarters of: 5.50:1.00 for September 30, 2017 through September 30, 2018; and 5.00:1.00 for December 31, 2018 and thereafter. The Company was in compliance with all applicable covenants as of December 31, 2017.

Pursuant to the senior credit facility, the Company is required to make permanent repayments of principal based on an annual calculation of excess cash flow, as defined in the agreements. The percentage of excess cash flow required to be repaid is based on the Company’s leverage ratio as of the end of the fiscal year, with 50% required to be repaid if the leverage ratio is greater than 5.0:1.0 as of the measurement date, 25% if the leverage ratio is less than or equal to 5.0:1.0 and greater than 4.0:1.0, and no payment of excess cash flow is required if the leverage ratio is less than or equal to 4.0:1.0. During 2017 and as of December 31, 2017, the Company did not have excess cash flow required to be paid in accordance with the senior credit agreement for 2017. During 2016 and as of December 31, 2016, the Company did not have excess cash flow required to be paid in accordance with the senior credit agreement for 2016.

Fair value of long-term debt. The estimated fair value of the Company’s long-term debt as of December 31, 2017 and 2016 was approximately $1.58 billion and $1.26 billion, respectively, and was determined using estimates based on trading prices of similar liabilities, a Level 2 input.

Maturities of long-term debt. As of December 31, 2017, maturities of the Company’s long-term debt were as follows:

In 2015, the Company recorded a $160 million gain associated with the settlement of the Perini litigation. See Note 11 for details.

Other property transactions, net for the years ended December 31, 2017, 2016 and 2015 also includes normal recurring disposals, gains and losses on sales of assets, which may not be comparable period over period.

The Company determines its segments based on the nature of the products and services provided. As of December 31, 2017, the Company has the following reportable segments: Aria, Vdara and Mandarin Oriental. In prior periods, the Company has aggregated residential operations from Mandarin Oriental and Veer into one reportable segment “Residential” given the similar economic characteristics and business of selling and leasing high-rise condominiums. All other operating segments are reported separately. The Company’s operating segments do not include certain corporate administrative costs. During 2016 the Company sold Crystals which was previously a reportable segment.

The Company analyzes the results of its operating segments’ operations based on Adjusted EBITDA, which it defines as earnings before interest and other non-operating income (expense), taxes, depreciation and amortization, preopening and start-up expenses, NV Energy exit expense, and property transactions, net. The Company believes Adjusted EBITDA is 1) a widely used measure of operating performance in the gaming industry, and 2) a principal basis for valuation of gaming companies.

While items excluded from Adjusted EBITDA may be recurring in nature and should not be disregarded in evaluating the Company’s or its segments’ 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, the Company believes excluded items may not relate specifically to current operating trends or be indicative of future results. For example, write-downs and impairments includes normal recurring disposals and gains and losses on sales of assets related to specific assets within CityCenter, but also includes impairment charges which may not be comparable period over period.

	Year Ended December 31,
	2017		2016		2015

	(In thousands)
Net revenues
Aria	$	1,076,102	$	1,012,259	$	990,475
Vdara		123,907		119,367		111,006
Mandarin Oriental		67,544		65,763		61,541
Residential		–		2,676		33,358
Net revenues	$	1,267,553	$	1,200,065	$	1,196,380

	Year Ended December 31,
	2017			2016			2015

	(In thousands)
Net income	$	131,216		$	348,373		$	161,833
Less: Income from discontinued operations		–			(407,187	)		(22,681	)
Income (loss) from continuing operations		131,216			(58,814	)		139,152

Non-operating (income) expense
Interest income		(1,357	)		(885	)		(471	)
Interest expense, net		60,094			61,032			72,791
Loss on retirement of debt		4,554			4,102			–
Other, net		(408	)		106			191
		62,883			64,355			72,511

Operating income		194,099			5,541			211,663
NV Energy exit expense		(8,250	)		26,089			–
Property transactions, net		9,541			4,529			(154,788	)
Depreciation and amortization		224,358			313,787			251,847
Adjusted EBITDA	$	419,748		$	349,946		$	308,722


	Year Ended December 31,
	2017			2016			2015
	(In thousands)
Adjusted EBITDA
Aria	$	377,252		$	310,698		$	269,454
Vdara		39,701			35,956			29,666
Mandarin Oriental		6,918			6,460			5,685
Other		(4,123	)		(3,168	)		3,917
Adjusted EBITDA	$	419,748		$	349,946		$	308,722

	Year Ended December 31,
	2017		2016			2015
	(In thousands)
Capital expenditures
Aria	$	104,180	$	67,262		$	47,807
Vdara		2,078		2,116			1,121
Mandarin Oriental		908		1,559			1,050
Resort operations capital expenditures		107,166		70,937			49,978
Development and corporate administration, net of change in construction payable and due to MGM Resorts International, and other operations		–		(483	)		83,988
Capital expenditures, net of change in construction payable	$	107,166	$	70,454		$	133,966

Capital expenditures related to the original construction costs are included in “development and corporate administration, net of change in construction payable and due to MGM Resorts International.” See Note 2 for discussion of project costs and allocation methodologies. Ongoing capital expenditures not related to the project budget are included within the relevant segments.

NV Energy. In July 2016, MGM Resorts, including the Company filed its notice to exit the fully bundled sales system of NV Energy and will purchase energy, capacity, and/or ancillary services from a provider other than NV Energy. In September 2016, the Company paid an upfront impact payment of $14 million, of which $2 million was billed to third party entities and represented a reduction in the overall impact fee expense. Of this $2 million receivable for amounts billed to third party entities, $1 million is included in Accounts receivable, net as of both December 31, 2017 and December 31, 2016. Additionally, the Company is required to make ongoing payments to NV Energy for non-bypassable rate charges which primarily relate to its share of NV Energy’s portfolio of renewable energy contracts which extend through 2040 and each entity’s share of the costs of decommissioning and remediation of coal-fired power plants in Nevada. During 2017, the terms of the ongoing impact fee obligations were modified. Such modifications included a credit to be applied against future non-bypassable rate charges and substantially shortened the period over which MGM Resorts, including the Company, is responsible for such charges, with an end date in 2022. As such, the Company recognized a reduction in its liability for future charges of $8 million with a corresponding credit to “NV Energy exit expense.” As of December 31, 2017, and 2016, the Company recorded an estimate of such liability on a discounted basis of $2 million and $2 million, respectively, in “Due to MGM Resorts International” and $4 million and $13 million, respectively, in “Other long-term obligations.”

Construction litigation. In March 2010, Perini, general contractor for CityCenter, 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 MGM Resorts which was the original party to the Perini construction agreement) and certain direct or indirect subsidiaries of the Company. Perini asserted, among other things, that CityCenter 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 CityCenter.

In April 2010, Perini served an amended complaint in this case which joined as defendants many owners of CityCenter residential condominium units (the “Condo Owner Defendants”), added a count for foreclosure of Perini's recorded master mechanic’s lien against the CityCenter property in the amount of approximately $491 million, and asserted the priority of this mechanic’s lien over the interests of the Company, the Condo Owner Defendants and the Company’s lenders in the CityCenter property. In November 2012, Perini filed a second amended complaint which, among other things, added claims against the CityCenter defendants of breach of contract (alleging that CityCenter’s Owner Controlled Insurance Program (“OCIP”) failed to provide adequate project insurance for Perini with broad coverages and high limits), and tortious breach of the implied covenant of good faith and fair dealing (alleging improper administration by the Company of the OCIP and Builders Risk insurance programs). Prior to the Final Settlement, as defined below, the Company settled the claims of 219 first-tier Perini subcontractors (including the claims of any lower-tier subcontractors that might have claims through those first-tier subcontractors). As a result of these settlement agreements and the prior settlement agreements between Perini and the Company, most but not all of the components of Perini’s non-Harmon-related lien claim against the Company were resolved. On February 24, 2014, Perini filed a revised lien for $174 million as the amount claimed by Perini and the remaining Harmon-related subcontractors.

In December 2014, the Perini matter was concluded through a global settlement among the Company, MGM Resorts, Perini, the remaining subcontractors, including those implicated in the Harmon work (and their affiliates), and relevant insurers, which followed the previously disclosed settlement agreements and an extra-judicial program for settlement of certain project subcontractor claims. This global settlement concluded all outstanding claims in the case (the “Final Settlement”). The effectiveness of the global settlement was made contingent upon the Company’s execution of certain indemnity and release agreements (which were executed in

January 2015) and the Company’s procurement of replacement general liability insurance covering construction of the CityCenter development (which was obtained in January 2015).

The Final Settlement, together with previous settlement agreements relating to the non-Harmon related lien claims, resolved all of Perini’s and the remaining subcontractors’ lien claims against the Company and MGM Resorts, certain direct and indirect subsidiaries, MGM Resorts International Design (formerly known as MGM MIRAGE Design Group), and the Condo Owner Defendants. However, the Company expressly reserved any claims for latent or hidden defects as to any portion of CityCenter’s original construction (other than the Harmon) not known to the Company at the time of the agreement. The Company and MGM Resorts entered into the Final Settlement solely as a compromise and settlement and not in any way as an admission of liability or fault.

With respect to its non-Harmon lien claims, Perini waived a specific portion of its lien claim against the Company, which combined with the prior non-Harmon agreement and accrued interest resulted in a total payment to Perini of $153 million. The total payment to Perini was funded by MGM Resorts under their completion guarantee and included the application of approximately $58 million of condominium proceeds that were previously held in escrow by the Company to fund construction lien claims upon final resolution of the Perini litigation.

The Company’s recovery for its Harmon construction defect claims, when added to the Harmon-related proceeds from prior insurance settlements of $85 million, resulted in gross cash settlement proceeds to the Company of approximately $191 million (of which approximately $18 million was paid by MGM Resorts to CityCenter under the completion guarantee in February 2015).

In conjunction with the Final Settlement, MGM Resorts and an insurer participating in the OCIP resolved their arbitration dispute concerning such insurers claim for payments it made under the OCIP general liability coverage for contractor costs incurred in the Harmon litigation, premium adjustments and certain other costs and expenses. MGM Resorts settled this dispute for $38 million, and funded the majority of such amounts under the completion guarantee in January 2015.

Harmon. As discussed above, a global settlement was reached in the Perini litigation in December 2014, which finally resolved all outstanding liens, claims and counterclaims between the Company and MGM Resorts on one hand, and Perini, the remaining subcontractors and remaining insurers on the other hand. Among the matters resolved were the Company’s claims against Perini and other contractors and subcontractors with respect to construction at the Harmon. Pursuant to leave of court in 2014, the Company commenced demolition of the building. The Company has completed a partial demolition of the building and is currently evaluating options for further demolition and plans for the future use of the remaining structure.

Other litigation. The Company is a party to various legal proceedings that relate to construction and operational matters incidental to its business. Management does not believe that the outcome of such proceedings will have a material adverse effect on the Company’s consolidated financial statements. The Company maintained an OCIP during the construction and development process. Under the OCIP, certain insurance coverages may cover a portion of the Company’s general liability, workers compensation, and other potential liabilities.

Other guarantees. The Company is party to various guarantee contracts in the normal course of business, which are generally supported by letters of credit issued by financial institutions. The Company’s available borrowing capacity under the senior credit facility is reduced by any outstanding letters of credit. At December 31, 2017, the Company had $9 million in a letter of credit outstanding.

Leases where the Company is a lessee. The Company is party to various leases for real estate and equipment under operating lease arrangements. The Company’s future minimum obligations under non-cancelable leases are immaterial in each of the next five years, and in total.

Leases where the Company is a lessor. The Company enters into operating leases related to retail, dining and entertainment venues. As of December 31, 2017, the Company has 19 such leases in place. Tenants are primarily responsible for tenant improvements, though the Company provides construction allowances to certain lessees. Leases include base rent, common area maintenance charges and, in some cases, percentage rent based on the sales of the lessee. The Company’s expected fixed future minimum lease payments are immaterial in each of the next five years, and in total.

Several leases contain terms that are based on meeting certain operational criteria. Contingent rentals included in income were $2 million, $5 million and $14 million for the years ended December 31, 2017, 2016 and 2015, respectively.

	Year Ended December 31,
	2017		2016		2015

	(In thousands)
Supplemental cash flow disclosures:
Interest paid	$	68,585	$	43,410	$	68,306
Increase in due to MGM Resorts International payable related to capital expenditures		11,777		1,533		4,994

Non-cash investing and financing activities:
Reclassification of property and equipment, net to residential real estate	$	–	$	–	$	7,293

In April 2017, the Company paid a $600 million dividend, consisting of a $350 million dividend using proceeds from the new senior credit facilities and a $250 million dividend from cash on hand, of which $78 million was declared in accordance with the Company’s annual distribution policy. Of these dividends, $300 million was paid to MGM Resorts and $300 million was paid to Infinity World in April 2017. In March 2016, a $90 million dividend was declared in accordance with the Company’s annual distribution policy, and in April 2016, the Company declared $990 million special distribution in connection with the Crystals sale. Of these dividends and distributions totaling $1.1 billion, $540 million was paid to MGM Resorts in May 2016 and $540 million was paid to Infinity World in July 2016. In April 2015, the Company declared and paid a special dividend of $400 million. Under the annual distribution policy, the Company intends to distribute up to 35% of excess cash flow, subject to the approval of the Company’s board of directors.

MGM Resorts entered into a restated completion guarantee (as restated, the “completion guarantee”) that supported the remaining construction payables from the construction of CityCenter. See Note 11 for further discussion of the Perini lawsuit. The completion guarantee was terminated in June 2015 and as of December 31, 2015, MGM Resorts had funded $888 million under the completion guarantee which the Company recorded as equity contributions.

The Company and MGM Resorts have entered into agreements whereby MGM Resorts is responsible for the ongoing management of CityCenter and the Company. The LLC Agreement provides for Infinity World’s right to terminate the Operations Management Agreements if MGM Resorts’ ability to perform under those agreements is impacted by its financial condition. The Company is paying MGM Resorts management fees as stipulated in each of the agreements referenced below.

Operations management agreements. The Company and MGM Resorts entered into the following agreements to provide for the ongoing operations of CityCenter:

During the years ended December 31, 2017, 2016 and 2015, the Company incurred $49 million, $43 million and $41 million, respectively, related to the management fees discussed above. In addition, the Company reimburses MGM Resorts for costs, primarily employee compensation, associated with its management activities. During the years ended December 31, 2017, 2016 and 2015, the Company incurred $390 million, $387 million and $393 million, respectively, for reimbursed costs of management services provided by MGM Resorts. As of December 31, 2017 and 2016, the Company owed MGM Resorts $79 million and $77 million, respectively, for management services and reimbursable costs, and such amounts included $18 million and $7 million, respectively, related to capitalized construction costs, as well as $4 million and $13 million, respectively, related to NV energy expense, included in “Other long-term obligations.”

Aircraft agreement. The Company has an agreement with MGM Resorts whereby MGM Resorts provides the Company the use of its aircraft on a time sharing basis. The Company is charged a rate that is based on Federal Aviation Administration regulations, which provides for reimbursement for specific costs incurred by MGM Resorts without any profit or mark-up. The Company reimbursed MGM Resorts $2 million for aircraft related expenses for each of the years ended December 31, 2017, 2016 and 2015.

		Page
Independent Auditors’ Report		i
Consolidated Balance Sheets as of December 31, 2017 and 2016		1
Consolidated Statements of Operations for the years ended December 31, 2017, 2016 and 2015		2
Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015		3
Consolidated Statements of Members’ Equity for the years ended December 31, 2017, 2016 and 2015		4
Notes to Consolidated Financial Statements		5

Buildings and improvements		20 to 40 years
Land improvements		10 to 20 years
Furniture and fixtures		3 to 20 years
Equipment		3 to 15 years

	Year Ended December 31,
	2017		2016		2015

	(In thousands)
Rooms	$	21,873	$	21,711	$	22,513
Food and beverage		48,146		45,182		43,446
All other		4,219		5,180		8,153
	$	74,238	$	72,073	$	74,112

	December 31,
	2017			2016

	(In thousands)
Casino	$	97,356		$	94,885
Hotel		40,168			33,880
Other		7,529			13,962
		145,053			142,727
Less: Allowance for doubtful accounts		(26,789	)		(36,698	)
	$	118,264		$	106,029

	Balance at		Provision for			Write-offs,
	Beginning of		Doubtful			Net of			Balance at
	Period		Accounts			Recoveries			End of Period
Allowance for doubtful accounts:	(In thousands)
Year Ended December 31, 2017	$	36,698	$	(2,407	)	$	(7,502	)	$	26,789
Year Ended December 31, 2016		45,078		12,551			(20,931	)		36,698
Year Ended December 31, 2015		49,903		22,420			(27,245	)		45,078

For the year ending December 31,	(In thousands)
2018	$	16,000
2019		16,000
2020		16,000
2021		16,000
2022		16,000
Thereafter		1,512,000
	$	1,592,000