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FILED PURSUANT TO RULE 424(b)(1)
REGISTRATION NO. 333-03759
[LOGO OF MGM GRAND, INC.]
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7,500,000 SHARES
COMMON STOCK
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Of the 7,500,000 shares of Common Stock being offered hereby by MGM Grand,
Inc., a Delaware corporation ("MGM Grand" or the "Company"), 6,000,000 shares
are being offered initially in the United States (the "U.S. Offering") by the
U.S. Underwriters and 1,500,000 shares are being offered initially outside
the United States (the "International Offering" and together with the U.S.
Offering, the "Offering") by the International Underwriters (together with
the U.S. Underwriters, the "Underwriters"). See "Underwriting." The Common
Stock is listed on the New York Stock Exchange and trades under the symbol
"MGG." The last reported sale price of the Common Stock on the New York Stock
Exchange on June 26, 1996 was $39.50 per share.
Tracinda Corporation, a Nevada corporation wholly owned by Kirk Kerkorian
("Tracinda"), and Mr. Kerkorian (together, the "Principal Stockholders") own
approximately 72.5% of the outstanding shares of the Common Stock. The
percentage of the outstanding shares of Common Stock owned by the Principal
Stockholders upon completion of the Offering made hereby will be
approximately 62.9%.
FOR INFORMATION CONCERNING CERTAIN FACTORS WHICH SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS, SEE "RISK FACTORS" COMMENCING ON PAGE 9.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
NEITHER THE NEVADA GAMING COMMISSION, THE NEVADA STATE GAMING CONTROL BOARD,
NOR THE NEW JERSEY CASINO CONTROL COMMISSION HAS PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS OR THE INVESTMENT MERITS OF THE SECURITIES
OFFERED HEREBY. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED UPON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS TO
TO PUBLIC DISCOUNT(1) COMPANY(2)
<S> <C> <C> <C>
Per Share $39.50 $1.48 $38.02
Total(3) $296,250,000 $11,100,000 $285,150,000
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $1,000,000.
(3) The Company has granted the several Underwriters an option to purchase up
to an additional 1,125,000 shares of Common Stock to cover over-
allotments. If all such shares are purchased, the total Price to Public,
Underwriting Discount and Proceeds to Company will be $340,687,500,
$12,765,000 and $327,922,500, respectively. See "Underwriting."
Joint Global Coordinators
DEUTSCHE MORGAN GRENFELL OPPENHEIMER & CO., INC.
The shares of Common Stock are offered by the Underwriters, subject to prior
sale, when, as and if delivered to and accepted by them, and subject to the
approval of certain legal matters by counsel and certain other conditions.
The Underwriters reserve the right to withdraw, cancel or modify such offer
and to reject orders in whole or in part. It is expected that delivery of the
shares of Common Stock will be made in New York, New York against payment
therefor on or about July 2, 1996.
DEUTSCHE MORGAN GRENFELL OPPENHEIMER & CO., INC.
DEAN WITTER REYNOLDS INC. MONTGOMERY SECURITIES
The date of this Prospectus is June 27, 1996.
<PAGE>
MGM GRAND--DESCRIPTION OF PICTURES ON INSIDE COVER
Inside Back Cover:
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. Picture of MGM Grand Australia property
. Map of Australia and Southeast Asia with lines connecting Darwin, Australia
to several key cities in the region
. Table of travel time between Darwin, Australia and several key cities in
the region
. Picture of MGM Grand Las Vegas
. Artist's rendering of New Lion Entry (part of MGM Grand Las Vegas master
plan)
. Artist's rendering of New Entertainment Casino (part of MGM Grand Las Vegas
master plan)
Inside Front Cover:
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. Collage of entertainment events and several gaming and non-gaming amenities
at MGM Grand Las Vegas
Inside Gatefold Cover:
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. Aerial map of the intersection of Las Vegas Boulevard South and Tropicana
Avenue (the "New Four Corners") depicting key properties, including MGM
Grand Las Vegas and New York-New York
. Picture of scale model of New York-New York
MGM GRAND--TEXT FOR INSIDE COVER PICTURES
1. [Underneath MGM Grand Australia Picture]--MGM Grand Australia, acquired in
September 1995, is currently in the final stages of a major renovation
program.
2. [Underneath MGM Grand Las Vegas Picture]--The Company is embarking on a
$250 million enhancement project at MGM Grand Las Vegas to create The City
of Entertainment (see renderings below).
3. [Underneath MGM Grand Las Vegas--Lion Entry Picture]--The Lion Entry will
be reconstructed with a new six-story liquid-gold-colored lion and 80-foot
multimedia entertainment walls.
4. [Underneath MGM Grand Las Vegas--Entertainment Casino Picture]--The new
Entertainment Casino will be accessible through the Lion Entry and the
elevated pedestrian walkways from New York-New York and the Tropicana.
5. [Underneath Picture of New York-New York Model]--The New York-New York
Hotel/Casino is expected to open in the winter of 1996-1997.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE COMMON STOCK
AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE OVER-THE-
COUNTER MARKET, OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
2
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the information
appearing elsewhere in this Prospectus and in the documents and financial
statements incorporated herein by reference. Unless otherwise indicated, the
information in this Prospectus does not give effect to the exercise of the
Underwriters' over-allotment option described herein under "Underwriting."
THE COMPANY
MGM Grand is an entertainment, hotel and gaming company headquartered in Las
Vegas, Nevada. Through subsidiaries, the Company owns and operates the MGM
Grand Hotel/Casino in Las Vegas ("MGM Grand Las Vegas"), which management
believes is the largest hotel/casino in the world, and the MGM Grand Darwin
Hotel and Casino in Darwin, Australia ("MGM Grand Australia"). The Company also
owns a 50% interest in, and will be the joint operator of, the New York-New
York Hotel/Casino ("New York-New York"), a $460 million architecturally
distinctive destination resort hotel/casino in Las Vegas which is under
construction and is scheduled to open in the winter of 1996-1997. The Company
applied for a license with the New Jersey gaming authorities in February 1996,
and plans to develop a major destination resort hotel/casino in Atlantic City
("MGM Grand Atlantic City"). The Company is considering a number of
alternatives for its Atlantic City project, and any entry into the Atlantic
City market will be subject to finalization and execution of such plans, as
well as receipt of regulatory approvals, including licensing of the Company and
appropriate officers and directors.
MGM Grand Las Vegas is a 112-acre multi-themed destination resort located at
the "New Four Corners" intersection of Tropicana Avenue and Las Vegas Boulevard
South (the "Strip"), across the street from New York-New York, Excalibur and
the Tropicana. Management believes that MGM Grand Las Vegas is the largest
hotel/casino in the world and, because of the quality and variety of its
entertainment amenities, is a "must-see" attraction for visitors to Las Vegas.
MGM Grand Las Vegas features 5,005 guest rooms and suites, a 171,500 square
foot casino with approximately 3,500 slot machines and 160 table games, nine
restaurants, the 16,700 seat MGM Grand Garden Arena and two large showrooms,
which feature celebrity entertainers and EFX, an approximately $40 million
musical and special effects extravaganza production show starring Michael
Crawford.
MGM Grand completed its first international acquisition in September 1995,
when it acquired what is now MGM Grand Australia for approximately $80 million.
The acquisition provides the Company with geographic diversification and direct
access to the lucrative Australian and Southeast Asian gaming markets.
In July 1995, the Company established a new management team, led by J.
Terrence Lanni, Chairman and Chief Executive Officer, and Alex Yemenidjian,
President, Chief Operating Officer and Chief Financial Officer, as well as a
revised organizational structure at both the corporate and operating levels and
selected expansion and enhancement of the management team. The new management
team was primarily responsible for developing a corporate vision which is based
on achieving increased profitability with growth through a refocusing of
marketing efforts and positioning of MGM Grand as a global location-based
entertainment company with tight cost control systems.
STRATEGY--OVERVIEW
MGM Grand's strategy is to create unique destination resorts worldwide in
selected gaming markets, which are designed to provide customers with a total
entertainment experience, including: first class accommodations, dining and
amenities; exciting shows, sporting events, concerts and shopping; and
attractive gaming facilities. The Company utilizes entertainment themed
attractions, including well
3
<PAGE>
known movie characters and settings, to create an exciting environment
appealing to all segments of the gaming market and also utilizes targeted
marketing programs to attract premium customers.
The Company's new management team embarked on an operational restructuring
program designed to enhance revenues and minimize volatility, significantly
reduce operating costs, create financial flexibility, promote the Company's
reputation for providing first class entertainment and position the Company for
growth by renovating and expanding existing properties and developing new
destination resorts. The Company's revenue enhancement and cost control
programs, implemented in the third quarter of 1995, resulted in income from
continuing operations in the fourth quarter of 1995 increasing by approximately
127% compared to the same quarter in 1994, while income from continuing
operations for the first quarter of 1996 increased by approximately 525%
compared to the first quarter of 1995. See "Selected Quarterly Financial
Results." The Company is also implementing a financial restructuring via a
combination of the Offering and a new credit facility, which will significantly
lower the Company's cost of capital while enhancing its financial flexibility.
The Company intends to use the proceeds of the Offering, cash on hand and
certain of the proceeds available under the new and existing credit facilities
to defease its publicly held debt and finance the implementation of the
Company's growth strategy. On a proforma basis, implementation of the financial
restructuring would have increased earnings per share from continuing
operations for 1995 by $0.40. The cornerstones of the Company's growth strategy
are the $250 million enhancement of MGM Grand Las Vegas as "The City of
Entertainment," the opening of the $460 million New York-New York project, the
refurbishment of MGM Grand Australia, the planned development of a major
destination resort hotel/casino in Atlantic City and the continued monitoring
of gaming opportunities outside of Nevada.
STRATEGY--EXECUTION
Provide First Class Entertainment. The Company continuously strives to
achieve a leading reputation for offering high quality entertainment at each of
its resorts. The Company focuses on entertaining its customers by providing a
full spectrum of destination resort amenities, including world-class concerts
and sporting events, highly acclaimed production shows and headliners, quality
dining facilities, luxurious accommodations and exciting recreational
facilities. MGM Grand Las Vegas has presented headliners such as Barbra
Streisand, the Rolling Stones, Rod Stewart, Phil Collins, Elton John, Billy
Joel, Gladys Knight, Tom Jones, Whitney Houston, Bette Midler and the Four Tops
and, in March 1995, introduced EFX. In addition, MGM Grand Las Vegas presents
many sporting events, including world championship boxing matches featuring,
among others, George Foreman and Mike Tyson, as well as tennis matches, ice
skating and rodeos.
Enhance Performance of Existing Properties. In order to facilitate its growth
strategy, during the third quarter of 1995, the Company introduced a major
restructuring program designed to position the Company for sustained long-term
growth and to enhance shareholder value. The program is comprised of the
following three components:
Revenue Enhancements. Management has initiated revenue enhancements in
each area of its operations. In casino operations, the revenue enhancements
consist primarily of a more selective approach to the high-end segment of
the casino business in order to reduce volatility of operating results,
while at the same time increasing marketing attention to middle market
customers. The Company is also seeking to adjust the hotel guest mix to
increase room revenues by reducing the tour and travel segment and
emphasizing free and independent travelers and casino customers. The
Company is also expanding its retail operations and repositioning its
restaurant, theme park and show operations to enhance profitability.
4
<PAGE>
Cost Reductions. The cost reduction component of the restructuring
program consisted of a number of actions designed to improve operating
efficiencies without sacrificing the quality of customer service, including
an employee head count reduction of approximately 14% to date, implemented
in part through the outsourcing of three restaurants to premier operators,
i.e., Emeril Lagasse, Franco Nuschese and Restaurant Associates Corp.
Capital Improvements and Additions. The Company has embarked on an
extensive capital improvement program designed to enhance the quality of
the entertainment experience at each of its properties, including the
addition of major gaming and non-gaming amenities. Implementation of the
$250 million master plan for MGM Grand Las Vegas began in the second
quarter of 1996 and is expected to be funded out of existing cash on hand
and operating cash flow. The $15 million capital improvement program at MGM
Grand Australia is completed.
Continue Growth Strategy. The Company plans to leverage its highly
recognizable brand name and entertainment themes through expansion and
enhancement of existing properties and development of new themed properties in
selected markets throughout the world. The Company's improvement and expansion
projects include the following:
Creation of The City of Entertainment at MGM Grand Las Vegas. The Company
is embarking on a $250 million enhancement and expansion project at its
flagship property to create The City of Entertainment, which will include a
300,000 square foot expansion of entertainment, restaurant and retail
shopping areas, construction of a new 300,000 square foot convention
center, a significant enhancement of the major entrances and exteriors and
an upgrade of certain of the property's luxury suites. The renovation and
expansion began in June 1996 and is expected to be substantially completed
by the end of 1998. The project will be introduced in phases in order to
minimize disruption of operations. The Lion entry and exterior enhancements
will create theatrical multimedia projection and light shows designed to
increase foot traffic at the property. As part of the enhancement program,
the Company anticipates introducing a new Entertainment Casino area with
dramatic live entertainment, themed restaurants, a nightclub and an
increase in the number of gaming positions by approximately 500.
Renovation of MGM Grand Australia. In June 1996, an approximately $15
million major renovation program at MGM Grand Australia was completed. The
renovation included upgrading all 97 of the guest rooms (including 17
suites) and expansion of the casino space to approximately 500 slot
machines and 50 table games, including introduction of the Monte Carlo Room
for middle market customers and the Grand International Room for high-end
customers. Non-gaming amenities were enhanced through the addition of new
food, beverage, entertainment and retail facilities.
Opening of New York-New York. The Company, in conjunction with Primadonna
Resorts, Inc., an unaffiliated publicly traded operator of hotel/casinos
which is Nevada based ("Primadonna"), is developing this 48-story
destination resort, which will replicate many of Manhattan's landmark
buildings and icons, including the Statue of Liberty, the Empire State
Building, Central Park, the Brooklyn Bridge, and a Coney Island-style
roller coaster. The 84,000 square foot casino is expected to offer
approximately 2,400 slot machines and 75 table games. New York-New York is
located on the Strip at the "New Four Corners" directly across from MGM
Grand Las Vegas. New York-New York is expected to substantially increase
foot traffic at the MGM Grand Las Vegas since the two facilities will be
connected by an extension of the existing elevated pedestrian walkway,
which will lead into a dramatic new multimedia mezzanine level overlooking
the atrium of the Entertainment Casino at MGM Grand Las Vegas. Management
believes that the $460 million, 2,035 room and suite resort is
architecturally the most distinctive property ever built in Las Vegas. New
York-New York is scheduled to open in the winter of 1996-1997.
5
<PAGE>
Development of MGM Grand Atlantic City. The Company is reviewing a number
of alternatives for entering the Atlantic City market, including new
construction as well as acquisition and redevelopment of existing
properties. The Company intends to create a destination resort hotel/casino
in Atlantic City that will be larger and more elaborate than any other
facility currently in existence in that market. The Company expects to use
its entertainment themes at MGM Grand Atlantic City and plans to offer a
wide array of gaming and non-gaming amenities to its prospective customers.
The Company's plans for MGM Grand Atlantic City may also include the
development of retail and food and beverage facilities. The Company
believes that the acquisition and/or development of MGM Grand Atlantic City
could cost in excess of $700 million and that the development or
redevelopment could take up to three years. No assurance can be given that
the Company will acquire property or develop a hotel/casino in Atlantic
City, or if it does, as to its ultimate size, configuration or cost. Any
development or operation in Atlantic City will be subject to the receipt of
regulatory approvals, including licensing, acquisition of an appropriate
site or property and obtaining necessary financing.
Other Markets. The Company continues to evaluate growth opportunities in
other national and international locations which offer development
potential, including Argentina, Canada, Mexico and South Africa.
REFINANCING
In order to significantly lower the Company's cost of capital, enhance
financial flexibility and position the Company to finance its anticipated
future growth, MGM Grand has arranged for a new $500 million bank credit
facility to replace its existing high cost public debt. In May 1996, the
Company received a commitment from BA Securities, Inc. ("BA Securities"), an
affiliate of Bank of America N.T. & S.A. ("B of A"), to arrange for a new $500
million senior reducing revolving credit facility (the "Credit Facility"). The
Credit Facility will be used, together with cash on hand, proceeds from the
Offering and proceeds from the existing $60 million credit facility (the
"Operating Loan") of MGM Grand Hotel Finance Corp., a wholly owned subsidiary
of the Company ("MGM Grand Finance"), to defease MGM Grand Finance's
outstanding publicly held debt consisting of $220 million of 11 3/4% First
Mortgage Notes due May 1, 1999 and $253 million of 12% First Mortgage Notes due
May 1, 2002 (collectively, the "First Mortgage Notes"). On a proforma basis,
the Company's interest expense (net of tax benefits), would have decreased by
approximately $7.4 million for the quarter ended March 31, 1996 and $29.8
million for the year ended December 31, 1995, and proforma earnings per share
from continuing operations would have increased from $0.70 per share to $0.73
per share for the three months ended March 31, 1996 and from $0.96 per share to
$1.36 per share for the year ended December 31, 1995 (assuming that the
incremental earnings resulting from the defeasance were subject to tax at a
36.5% rate). The defeasance of the First Mortgage Notes will result in an
extraordinary charge of approximately $36.4 million, net of tax benefits, to
reflect the early discharge of the First Mortgage Notes and the expenses
related thereto. See "Defeasance of First Mortgage Notes." No assurances can be
given that the defeasance of the First Mortgage Notes will be accomplished or
that the bank facilities will be implemented on the terms described herein, or
at all. See "Risk Factors--Leverage and Related Debt Service."
6
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SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The summary consolidated financial data set forth below are qualified in
their entirety by, and should be read in conjunction with, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Company's consolidated financial statements and notes thereto included or
incorporated by reference herein. The summary consolidated financial data
presented below as of and for the quarter ended March 31, 1995 and 1996 are
derived from unaudited consolidated financial statements; however, in the
opinion of the Company, all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of the Company's financial
position and results of operations for such period have been included.
Operating results for the quarter ended March 31, 1996 are not necessarily
indicative of the results that may be expected for future periods, including
the entire year ended December 31, 1996.
<TABLE>
<CAPTION>
YEAR ENDED QUARTER ENDED
DECEMBER 31, MARCH 31,
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<S> <C> <C> <C> <C>
1994 1995 1995 1996
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(IN THOUSANDS, EXCEPT PER SHARE DATA,
PERCENTAGES AND ADRS)
STATEMENT OF OPERATIONS DATA:
Net revenues......................... $ 742,195 $ 721,843 $161,885 $209,304
Operating income..................... 129,715 103,823 20,306 49,223
Income from continuing operations.... 73,540 46,565 5,525 34,528
Net income........................... 74,576 46,565 5,525 34,528
Earnings per share from continuing
operations(1)....................... $1.50 $0.96 $0.11 $0.70
Proforma earnings per share from
continuing operations(2)............ 1.36 0.73
OTHER DATA:
EBITDA(3)............................ $ 175,392 $ 158,417 $ 32,876 $ 63,960
Cash flows from operating activities. 94,461 114,544 7,687 79,169
Cash flows from investing activities. (192,955) (166,034) (62,951) (14,110)
Cash flows from financing activities. (36,952) 85,648 8,760 8,504
Interest expense, net of capitalized
interest............................ 61,927 59,329 15,329 15,797
Proforma interest expense, net of
capitalized interest(2)............. 12,458 4,114
MGM Grand Las Vegas average daily
room rate ("ADR")................... $ 86.00 $ 98.00 $ 99.00 $ 103.00
MGM Grand Las Vegas occupancy rate... 92.0% 89.5% 87.5% 93.3%
</TABLE>
<TABLE>
<CAPTION>
AT MARCH 31, 1996
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PROFORMA
ACTUAL AS ADJUSTED(4)
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(IN THOUSANDS)
<S> <C> <C>
SELECTED BALANCE SHEET DATA:
Cash and cash equivalents............................. $ 183,580 $ 73,689
Total assets.......................................... 1,334,871 1,223,644
Long term debt........................................ 555,131 217,131
Stockholders' equity.................................. 623,528 871,244
</TABLE>
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(1) Earnings per share for the first two quarters of the year ended December
31, 1995 was a cumulative loss of $0.03. In the third quarter of 1995, the
Company announced a restructuring plan to enhance revenues and reduce
operating costs. Earnings per share for the third quarter was $0.33.
Earnings per share for the fourth quarter of 1995, which was the first full
quarter in which the benefits of the restructuring were realized, was
$0.66.
(2) Proforma statement of operations data is presented assuming the following
occurred at the beginning of each period presented: (i) receipt of the
$284.2 million net proceeds of the Offering; (ii) borrowing of $135 million
under the new bank facility and the Operating Loan; and (iii) defeasance of
the First Mortgage Notes. On a supplemental basis, net income per share,
including the extraordinary charge on extinguishment of debt of $36.4
million, net of income tax benefit of $20.9 million, would have been $0.71
per share and $0.10 per share for the periods ended December 31, 1995 and
March 31, 1996, respectively.
(3) "EBITDA" consists of net income plus net interest expense, taxes,
depreciation and amortization. EBITDA should not be construed as an
alternative to operating income as an indicator of the Company's operating
performance, or as an alternative to cash provided by operating activities
as a measure of liquidity, or as any other measure of performance
determined in accordance with generally accepted accounting principles. The
Company has presented EBITDA solely as supplemental disclosure because the
Company believes that certain investors consider this information useful in
the comparison and evaluation of financial performance of companies with
substantial depreciation and amortization. Other significant uses of cash
flows are required before cash will be available to the Company, including
debt service, taxes and cash expenditures for various long term assets. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
(4) Proforma as adjusted balance sheet data assumes: (i) receipt of $284.2
million net proceeds of the Offering; and (ii) defeasance of the First
Mortgage Notes, using cash on hand of $103.3 million, net proceeds from the
Offering and borrowings of $135 million under the new bank facility and the
Operating Loan, and an extraordinary charge of $36.4 million, net of income
tax benefit of $20.9 million.
7
<PAGE>
THE OFFERING
Of the 7,500,000 shares of Common Stock initially being offered hereby by the
Company, 6,000,000 shares are initially being offered in the United States by
the U.S. Underwriters and 1,500,000 shares are initially being offered
concurrently outside the United States by the International Underwriters.
<TABLE>
<S> <C>
Common Stock offered by the
Company(1).................... 7,500,000 shares
Common Stock to be outstanding
after the Offering(1)......... 56,625,578 shares, of which approximately 62.9% will be
owned by the Principal Stockholders.
Use of Proceeds................ The net proceeds of the Offering, together with cash on
hand and certain of the proceeds from the bank facilities
and the Operating Loan, are intended to be used for
general corporate purposes, including defeasance of the
First Mortgages Notes. Upon defeasance of the First
Mortgage Notes, the Credit Facility will become available
for general corporate purposes, including acquisition,
development and/or construction of additional destination
resort hotel/casinos, including MGM Grand Atlantic City.
See "Use of Proceeds."
Listing........................ The Common Stock is listed on the New York Stock Exchange
under the symbol "MGG."
</TABLE>
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(1) Assumes no exercise of the Underwriters' over-allotment option to purchase
up to an additional 1,125,000 shares of Common Stock. If such option is
exercised, total outstanding shares of Common Stock would be 57,750,578, of
which approximately 61.7% would be owned by the Principal Stockholders.
Does not include 2,940,091 shares of Common Stock underlying outstanding
stock options.
8
<PAGE>
RISK FACTORS
This Prospectus, including the documents incorporated by reference herein,
contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended. Also, documents subsequently filed by the
Company with the Securities and Exchange Commission will contain forward-
looking statements. Actual results could differ materially from those
projected in the forward-looking statements as a result of the risk factors
set forth below and the matters set forth or incorporated in the Prospectus
generally. The Company cautions the reader, however, that this list of factors
may not be exhaustive, particularly with respect to future filings. Before
making a decision to purchase any of the securities described in this
Prospectus, prospective investors should carefully consider the following
factors.
COMPETITION. The Company faces significant domestic and international
competition from both established casinos and newly emerging gaming
operations. The Company believes that the legalization of casino gaming in
various domestic jurisdictions over the last several years and the opening of
gaming facilities operated by Native Americans have not, to date, had a
material adverse impact on its Las Vegas operations. However, proposals have
been made for a significant number of casinos, generally water-based, in a
number of other jurisdictions and several large metropolitan areas.
Legalization of gaming in additional domestic jurisdictions would also provide
opportunities for expansion by the Company's competitors, some of which have
greater financial resources than the Company, which could adversely affect the
Company's existing and proposed operations. The Company believes that the
adoption of legislation approving casino gaming in any jurisdiction near
Nevada (particularly California or the other southwestern states) or near New
Jersey (particularly New York or Pennsylvania) or the advent of full-scale
gaming on nearby Native American lands could have a material adverse effect on
its present and planned operations in Las Vegas and Atlantic City. The Company
also competes with other forms of legalized gaming, including state-sponsored
lotteries and pari-mutuel wagering. In markets in which the Company commences
operations or seeks to commence operations, it often faces intense competition
for licenses, desirable sites, qualified personnel and, ultimately, customers
from other companies in the gaming industry.
The Company believes that casino competition in the markets in which it
competes and plans to compete is based primarily on the location and physical
design of the casino and, where applicable, hotel accommodations, the extent
and quality of personalized service offered to guests and casino customers,
the price and quality of rooms and food and beverages, the number and quality
of restaurants, convention and other public facilities, promotional
allowances, the entertainment offered, the variety of table games and slot
machines, table limits, casino credit granted to customers and parking
availability. Management believes that the reputation of MGM Grand Las Vegas
as a first-class facility enhances its competitiveness in its market.
Las Vegas. Hotel/casinos located on the Strip ("Strip Hotels") compete
primarily with other Strip Hotels and with a few major hotels in downtown Las
Vegas. Strip Hotels offering similar prices compete with each other primarily
on the basis of quality of rooms, restaurants and facilities, entertainment
offered, complimentary goods and services given, credit limits and quality of
personal attention offered to guests and casino customers. Some of the
Company's competitors may have greater resources. See "Business--MGM Grand Las
Vegas" and "Business--Las Vegas Market."
Australia. Australian casinos generally operate under exclusive licenses,
which create regional monopolies for a fixed term. Currently, MGM Grand
Australia has an exclusive operating license in the northern half of the
Northern Territory and a gaming tax rate guarantee through 2005, which are
subject to review in 2003. Because of these regional monopolies, Australian
casinos do not compete among themselves for local middle to low end players.
However, Far East premium players have become an increasingly important source
of revenue. Consequently, this market has become very competitive, as
evidenced by the gaming activity in Malaysia, Macau and the Philippines, the
recent growth in the number of casinos operating in Australia, and an increase
in the number of casino cruise ships.
9
<PAGE>
Effective January 1996, hotels and clubs were permitted to operate, in
limited quantities, cash jackpot slots ("poker machines") in the northern half
of the Northern Territory, creating increased competition in the Darwin market
for local middle to low end players. Through 2005, MGM Grand Australia will
participate in the win from these poker machines, thereby mitigating the
effect of such competition. MGM Grand Australia is remodeling its public
gaming floor, restaurant and retail stores in order to remain competitive and
improve local business. See "Business--MGM Grand Australia" and "Business--
Australia Market."
Atlantic City. Competition in the Atlantic City hotel/casino market is
intense. While no new hotel/casinos have commenced operations in Atlantic City
since 1990, there are several sites on the Boardwalk and in the Atlantic City
Marina area on which hotel/casinos could be built. In addition, various
applications for casino licenses have been filed and announcements with
respect thereto made from time to time, and all 12 of the existing Atlantic
City hotel/casinos have recently expanded, are in the process of expanding or
have announced intentions to expand, their facilities. Casinos in Atlantic
City must be located in approved hotel facilities which must have a prescribed
number of qualified sleeping units depending on the size of the casino space.
Competition among Atlantic City hotel/casinos is based primarily upon
promotional allowances, advertising, the attractiveness of the casino area,
service, quality and price of rooms, food and beverages, restaurants,
convention and parking facilities and entertainment. "See Business--MGM Grand
Atlantic City" and "Business--Atlantic City Market."
RISKS OF DEVELOPMENT AND NEW CONSTRUCTION. Substantial progress has been
made in the construction of New York-New York, which management believes will
open in winter 1996-1997; however, no assurances can be given that the opening
will occur by that time or that the budgeted project costs of $460 million
will not be exceeded. Major construction projects, such as New York-New York,
entail significant risks, including shortages of materials or skilled labor,
unforeseen engineering, environmental and/or geological problems, work
stoppages, weather interference and unanticipated cost increases. As of May 1,
1996, the incurred costs and awarded fixed price contracts represent
approximately 82.9% of the $460 million project budget, and the total
construction costs incurred were approximately $226 million. See "Business--
New York-New York."
The Company has not acquired any property for the development of MGM Grand
Atlantic City. The design, budget and schedule for construction and opening of
the project are at a preliminary stage, and will be subject to the risks
described above attendant to large-scale new projects and may be subject to
additional costs and delays beyond preliminary estimates. No assurance can be
given that the Company will acquire property for, or develop, MGM Grand
Atlantic City. See "Business--MGM Grand Atlantic City."
The opening of New York-New York and MGM Grand Atlantic City will be
contingent upon completion of construction, hiring and training of sufficient
personnel and receipt of all necessary licenses, permits and authorizations.
The scope of the approvals required to construct and open New York-New York
and MGM Grand Atlantic City are extensive and the failure to obtain such
approvals or difficulties with construction or staffing could delay or prevent
the completion of construction or opening of all or part of such facilities or
increase the costs thereof. New York-New York has applied for and must obtain,
prior to commencement of gaming activities, approvals and licenses from the
Nevada Gaming Commission (the "Nevada Commission"), the Nevada State Gaming
Control Board (the "Nevada Board"), the Clark County Liquor and Gaming
Licensing Board (the "CCLGLB") and any other applicable governmental or
administrative state or local agency involved in the regulation of gaming and
gaming activities in the State of Nevada (collectively, the "Nevada Gaming
Authorities"). The ownership and operation of New York-New York will be
subject to extensive state and local regulation by Nevada Gaming Authorities.
MGM Grand Atlantic City will be subject to comparable
10
<PAGE>
stringent regulation by gaming authorities in New Jersey and other state and
local agencies. The grant of such licenses and approvals cannot be assured.
See "Regulation and Licensing."
EFFECT OF THE CITY OF ENTERTAINMENT MASTER PLAN ON OPERATIONS. The $250
million phased renovation of certain aspects of MGM Grand Las Vegas began in
June 1996 and is scheduled to be completed by the end of 1998. The Company has
designed the master plan to minimize construction-related disruptions.
However, the renovation and expansion project will disrupt casino operations
in the current Oz casino, which has underperformed the other casino operations
at MGM Grand Las Vegas. It is not expected that any other casino areas will be
closed. No assurance can be given that operations at MGM Grand Las Vegas will
not be adversely affected while the renovation and expansion is in progress.
In addition, no assurance can be given that the renovation and expansion of
MGM Grand Las Vegas will be completed on schedule or as planned. See
"Business--MGM Grand Las Vegas."
LEVERAGE AND RELATED DEBT SERVICE. The Company has substantial annual fixed
debt service requirements. In May 1992, MGM Grand Finance, a wholly owned
subsidiary of the Company, completed the sale of $473 million principal amount
of First Mortgage Notes and entered into the Operating Loan. The Company has
guaranteed payment of principal and interest on the First Mortgage Notes as
well as any amounts borrowed pursuant to the Operating Loan. There are no
amounts currently outstanding under the Operating Loan.
The Company has received a commitment from BA Securities, an affiliate of B
of A, to arrange for a new $500 million senior reducing revolving credit
facility. The credit facility is expected to be used, together with cash on
hand, proceeds of the Offering and proceeds available under the Operating
Loan, to defease the First Mortgage Notes in accordance with the Indenture
pursuant to which they were issued (the "Indenture"). See "Defeasance of First
Mortgage Notes" for a description of the proposed terms of the new credit
facility. No assurances can be given that the defeasance of the First Mortgage
Notes will be accomplished (in which case the covenants under the First
Mortgage Notes will continue to apply) or that the credit facility will be
implemented on the terms described herein, or at all.
The Company has guaranteed a loan of approximately $82 million (Aus $105
million) incurred by its subsidiary MGM Grand Australia Pty Ltd. in connection
with its acquisition of what is now MGM Grand Australia.
In connection with the $225 million Construction/Revolving Loan Agreement
entered into by New York-New York Hotel, LLC, the Company and Primadonna,
which is the other 50% owner, have guaranteed completion of the project and
have entered into a "keep-well" agreement in connection with the operation of
New York-New York. As a result of these obligations, the Company may, under
certain circumstances, be required to make additional cash equity
contributions to New York-New York Hotel, LLC.
The Company expects to incur substantial indebtedness in connection with
developing and opening MGM Grand Atlantic City. The Company has not arranged
financing to cover all of the costs of the Atlantic City project, and
accordingly, the terms of any borrowings have not been determined. No
assurance can be given that the Company will be able to obtain such financing
or upon what terms. See "Business--MGM Grand Atlantic City."
The Company's ability to make interest and principal payments on its
outstanding indebtedness will depend on the generation of sufficient cash flow
from the operations of the MGM Grand Las Vegas, MGM Grand Australia and, after
their respective openings, New York-New York (which is expected to occur in
winter 1996-1997) and MGM Grand Atlantic City.
11
<PAGE>
Future operating results are subject to significant business, economic,
regulatory and competitive uncertainties and contingencies, many of which are
beyond the control of the Company. No assurance can be given that the
Company's hotel/casinos will attract a sufficient number of guests, gaming
customers and other visitors to generate sufficient cash flow to meet such
debt service requirements.
SUSTAINABILITY OF RECENT IMPROVEMENTS IN OPERATING RESULTS. As a result of
its restructuring program, which commenced in the second half of 1995, the
Company has experienced a substantial improvement in operating income for the
last quarter of 1995 and the first quarter of 1996, as compared to the
comparable prior periods. No assurance can be given that this trend will
continue over the long term. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
RISKS ASSOCIATED WITH HIGH-END GAMING AND KEY MARKETS. The Company
recognizes that there are business risks associated with high-end gaming and
the international patrons who comprise the principal part of this segment.
High-end gaming is more volatile than other forms of gaming, and variances
attributable to high-end gaming may have a positive or negative impact on cash
flow and earnings in a particular quarter. A downturn in economic conditions
in the countries in which these customers reside could cause a reduction in
the frequency of visits and revenues generated by such customers. In addition,
the collectability of receivables from international customers could be
adversely affected by future business or economic trends, or by significant
events in the countries in which such customers reside. The Company extends
credit to those customers whose level of play and financial resources warrant,
in the opinion of management, such extension.
Gaming debts may not be legally enforced in certain foreign jurisdictions or
in certain jurisdictions within the United States as being violative of public
policy. Judgments on gaming debts are enforceable in all states under the Full
Faith and Credit Clause of the United States Constitution. Such judgments,
however, are not binding on the courts of foreign nations, although the assets
in the United States of foreign debtors may be reached to satisfy such
judgments.
A substantial portion of the Company's table game revenues is attributable
to the play of a small number of international customers. The loss or a
reduction in play of the most significant of such customers could have a
material adverse effect on the Company's future operating results. Management
believes that economic conditions in certain of the countries in which these
customers reside have caused a reduction in the frequency of visits by such
customers to its casinos in recent years, and the decline may continue. The
Company is broadening its marketing efforts, focusing on increasing its
penetration of the domestic market and expanding its efforts in key
international markets in order to reduce the volatility and expense associated
with certain segments of the high-end market. See "Business--Las Vegas Target
Market and Marketing Strategy."
DEPENDENCE ON KEY MANAGEMENT AND SINGLE PROPERTY. Historically, the Company
has operated only one property, and as such, the Company's operations are
presently primarily dependent upon the results achieved by MGM Grand Las
Vegas. With the addition of MGM Grand Australia and the anticipated addition
of New York-New York and MGM Grand Atlantic City, the Company will begin a new
phase of operations including multiple properties. The Company will face the
inherent risks associated with the change from managing a single property
enterprise to a multiple property enterprise. The Company instituted a
management change in mid-1995 when J. Terrence Lanni became Chairman of the
Board and Chief Executive Officer and Alex Yemenidjian became President and
Chief Operating Officer in addition to serving as Chief Financial Officer. In
addition, the Company has subsequently added several key executives to its
senior management team. The Company's future results will depend to a
substantial extent upon the success of its new management team. See
"Management."
12
<PAGE>
GOVERNMENT REGULATION. The Company's business is subject to comprehensive
and stringent government regulation. In addition, there have been in the past
and are currently a number of proposals which could adversely affect the
gaming industry and the Company, including excise taxes and certain other
matters affecting the industry. See "Regulation and Licensing."
CONTROL BY PRINCIPAL STOCKHOLDERS. The Principal Stockholders own
approximately 72.5% of the outstanding shares of the Common Stock. After
completion of the Offering, the percentage of the outstanding shares of Common
Stock owned by them will be approximately 62.9% (61.7%, assuming exercise of
the over-allotment option). Because of their holdings, the Principal
Stockholders have, and after the Offering will continue to have, the ability
to elect all of the Company's directors and approve or disapprove any other
matter submitted to a vote of stockholders.
13
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the Offering are estimated to be $284.2
million ($326.9 million if the Underwriters' over-allotment option is
exercised in full). The net proceeds of the Offering, together with cash on
hand and certain of the proceeds available under the bank facilities and the
Operating Loan, will be used for general corporate purposes, including the
defeasance of the Company's currently outstanding $220 million principal
amount of 11 3/4% First Mortgage Notes due May 1, 1999 and $253 million
principal amount of 12% First Mortgage Notes due May 1, 2002. Upon defeasance
of the First Mortgage Notes, the Credit Facility will become available for
general corporate purposes, including acquisition, development and/or
construction of additional destination resort hotel/casinos, including MGM
Grand Atlantic City. See "Defeasance of First Mortgage Notes" for a
description of the proposed terms of the Credit Facility. Pending utilization,
the net proceeds of the Offering will be invested in short-term, interest-
bearing investment grade securities.
PRICE RANGE OF COMMON STOCK
The Common Stock is listed on the New York Stock Exchange (stock symbol--
MGG). The following table sets forth for the quarters indicated the high and
low composite per share closing sales prices as reported by the New York Stock
Exchange.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1994
First Quarter.............................................. $39 3/8 $27 3/4
Second Quarter............................................. 29 3/4 23 1/4
Third Quarter.............................................. 32 24 1/4
Fourth Quarter............................................. 32 1/4 24 1/8
1995
First Quarter.............................................. $30 3/4 $23 3/4
Second Quarter............................................. 32 1/4 26 3/4
Third Quarter.............................................. 28 23 3/4
Fourth Quarter............................................. 26 23
1996
First Quarter.............................................. $39 3/4 $22 3/4
Second Quarter (1)......................................... 47 7/8 38 3/8
</TABLE>
- --------
(1) Through June 26, 1996.
DIVIDEND POLICY
The Company has not paid any dividends to date and does not expect to pay
dividends in the foreseeable future. The Indenture governing the First
Mortgage Notes and the Operating Loan place restrictions on the ability of MGM
Grand Hotel, Inc. to make distributions or pay dividends to the Company. MGM
Grand Hotel, Inc. may make distributions or pay dividends subject to minimum
net worth requirements, debt service ratios and earnings. Such restrictions,
as a practical matter, limit the ability of the Company to pay dividends. The
bank facilities and any loan incurred in connection with MGM Grand Atlantic
City are expected to contain restrictions on the ability of MGM Grand to
declare and pay dividends. See "Risk Factors--Leverage and Related Debt
Service" and "Defeasance of First Mortgage Notes."
14
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of March 31, 1996 and on a proforma as adjusted basis to give
effect to (i) the offering of 7,500,000 shares of Common Stock at an offering
price of $39.50 per share, and (ii) the defeasance of the First Mortgage Notes
concurrent with the closing of the Offering. See "Defeasance of First Mortgage
Notes."
<TABLE>
<CAPTION>
MARCH 31, 1996
--------------------------
(IN THOUSANDS)
PROFORMA
ACTUAL AS ADJUSTED(1)
---------- --------------
<S> <C> <C>
Cash and cash equivalents............................ $ 183,580 $ 73,689
========== ==========
Current obligation, capital leases................... $ 2,772 $ 2,772
========== ==========
Long term debt (less current portion):
11 3/4% First Mortgage Notes due 1999.............. $ 220,000 $ --
12% First Mortgage Notes due 2002.................. 253,000 --
Australian Hotel/Casino Loan due 2000.............. 82,131 82,131
Credit Facility.................................... -- 135,000
---------- ----------
555,131 217,131
Long term obligation, capital leases................. 9,613 9,613
Stockholders' equity:
Common stock, $.01 par value; 75,000,000 shares
authorized; 49,085,078 shares issued,
56,585,078 shares issued, as adjusted............. 491 566
Capital in excess of par value..................... 626,990 911,065
Note receivable stock sale......................... (5,000) (5,000)
Retained earnings (deficit)........................ 4,043 (32,391)
Currency translation............................... (2,996) (2,996)
---------- ----------
Total stockholders' equity........................ 623,528 871,244
---------- ----------
Total capitalization................................. $1,188,272 $1,097,988
========== ==========
</TABLE>
- --------
(1) Proforma as adjusted data assumes: (i) receipt of $284.2 million net
proceeds of the Offering; and (ii) defeasance of the First Mortgage Notes,
using cash on hand of $103.3 million, net proceeds from the Offering and
borrowings of $135 million under the new bank facilities and the Operating
Loan, and an extraordinary charge of $36.4 million, net of income tax
benefit of $20.9 million. See "Use of Proceeds."
15
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The selected consolidated financial information set forth below is qualified
in its entirety by, and should be read in conjunction with, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Company's consolidated financial statements and notes thereto included or
incorporated by reference herein. The selected consolidated financial
information presented below as of and for the quarter ended March 31, 1995 and
1996 is derived from unaudited consolidated financial statements; however, in
the opinion of the Company, all adjustments, consisting of normal recurring
adjustments, necessary for the presentation of the Company's financial
position and results of operations for such period have been included.
Operating results for the quarter ended March 31, 1996 are not necessarily
indicative of the results that may be expected for future periods, including
the entire year ended December 31, 1996.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, QUARTER ENDED MARCH 31,
-------------------------------- ------------------------------
1994 1995 1995 1996
--------------- --------------- -------------- --------------
(IN THOUSANDS, EXCEPT PER SHARE DATA, PERCENTAGES AND ADRS)
<S> <C> <C> <C> <C>
REVENUES:
Casino................. $ 434,297 $ 404,742 $ 91,326 $ 130,256
Rooms.................. 145,196 160,470 38,891 43,801
Food and beverage...... 91,566 89,299 22,795 20,094
Entertainment, retail
and other............. 122,758 123,307 22,649 29,109
--------------- --------------- -------------- --------------
793,817 777,818 175,661 223,260
Less: Promotional
allowances............ 51,622 55,975 13,776 13,956
--------------- --------------- -------------- --------------
742,195 721,843 161,885 209,304
OPERATING EXPENSES:
Casino................. 183,514 195,140 49,732 56,330
Rooms.................. 45,303 44,195 10,825 11,782
Food and beverage...... 65,043 57,293 14,712 12,273
Entertainment, retail
and other............. 115,443 92,667 19,009 22,621
Provision for doubtful
accounts and
discounts............. 44,181 57,683 8,176 15,626
General and
administrative........ 106,884 99,086 24,528 24,722
Depreciation and
amortization.......... 44,433 55,419 12,570 15,216
Restructuring costs.... -- 5,942 -- --
--------------- --------------- -------------- --------------
Operating profit before
corporate expense...... 137,394 114,418 22,333 50,734
Corporate expense...... 7,679 10,595 2,027 1,511
--------------- --------------- -------------- --------------
Operating income..... 129,715 103,823 20,306 49,223
NONOPERATING INCOME
(EXPENSE):
Interest income........ 5,544 2,896 548 1,581
Interest expense, net
of capitalized
interest.............. (61,927) (59,329) (15,329) (15,797)
Other, net............. 208 (825) -- (479)
--------------- --------------- -------------- --------------
(56,175) (57,258) (14,781) (14,695)
--------------- --------------- -------------- --------------
Income from continuing
operations............. $ 73,540 $ 46,565 $ 5,525 $ 34,528
--------------- --------------- -------------- --------------
Net income.............. 74,576 46,565 5,525 34,528
=============== =============== ============== ==============
Weighted average shares
outstanding............ 48,988 48,544 48,555 49,604
Earnings per share from
continuing
operations(1).......... $ 1.50 $ 0.96 $ 0.11 $ 0.70
Proforma earnings per
share(2)............... 1.36 0.73
OTHER DATA:
EBITDA(3)............... $ 175,392 $ 158,417 $ 32,876 $ 63,960
Cash flow from operating
activities............. 94,461 114,544 7,687 79,169
Cash flow from investing
activities............. (192,955) (166,034) (62,951) (14,110)
Cash flow from financing
activities............. (36,952) 85,648 8,760 8,504
Proforma interest
expense, net of
capitalized
interest(2)............ 12,458 4,114
MGM Grand Las Vegas
average daily room rate
("ADR")................ 86.00 98.00 99.00 103.00
MGM Grand Las Vegas
occupancy rate......... 92.0% 89.5% 87.5% 93.3%
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
-------------------------
PROFORMA
ACTUAL AS ADJUSTED(4)
---------- --------------
(IN THOUSANDS)
<S> <C> <C>
SELECTED BALANCE SHEET DATA:
Cash and cash equivalents............................. $ 183,580 $ 73,689
Total assets.......................................... 1,334,871 1,223,644
Long term debt........................................ 555,131 217,131
Stockholders' equity.................................. 623,528 871,244
</TABLE>
- -------
(1) Earnings per share for the first two quarters of the year ended December
31, 1995 was a cumulative loss of $0.03. In the third quarter of 1995, the
Company announced a restructuring plan to enhance revenues and reduce
operating costs. Earnings per share for the third quarter was $0.33.
Earnings per share for the fourth quarter of 1995, which was the first
full quarter in which the benefits of the restructuring were realized, was
$0.66.
(2) Proforma statement of operations data is presented assuming the following
occurred at the inception of each period presented: (i) receipt of the
$284.2 million net proceeds of the Offering; (ii) borrowing of $135
million under the new bank facility and the Operating Loan; and (iii)
defeasance of the First Mortgage Notes. On a supplemental basis, net
income per share, including the extraordinary charge on extinguishment of
debt of $36.4 million, net of income tax benefit of $20.9 million, would
have been $0.71 per share and $0.10 per share for the periods ended
December 31, 1995 and March 31, 1996, respectively.
(3) "EBITDA" consists of net income plus net interest expense, taxes,
depreciation and amortization. EBITDA should not be construed as an
alternative to operating income as an indicator of the Company's operating
performance, or as an alternative to cash provided by operating activities
as a measure of liquidity, or as any other measure of performance
determined in accordance with generally accepted accounting principles.
The Company has presented EBITDA solely as supplemental disclosure because
the Company believes that certain investors consider this information
useful in the comparison and evaluation of financial performance of
companies with substantial depreciation and amortization. Other
significant uses of cash flows are required before cash will be available
to the Company, including debt service, taxes and cash expenditures for
various long term assets--see Liquidity and Capital Resources on page 24.
(4) Proforma as adjusted balance sheet data assumes: (i) receipt of $284.2
million net proceeds of the Offering; and (ii) defeasance of the First
Mortgage Notes, using cash on hand of $103.3 million, net proceeds from
the Offering and borrowings of $135 million under the new bank facility
and the Operating Loan, and an extraordinary charge of $36.4 million, net
of income tax benefit of $20.9 million.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
Since inception of operations in 1987, MGM Grand has transformed itself from
an owner/operator of medium sized hotel/casinos and a specialized first class
airline into a developer, owner and operator of world class destination
resorts providing first class entertainment and gaming. As a result,
management does not believe that the Company's results of operations for
periods prior to 1994 provide a meaningful comparison to more recent periods.
The Company sold the Sands Hotel and Casino in 1989, closed the Marina Hotel
and Casino in 1990 and sold the Desert Inn Hotel and Casino in 1991. In
addition, the Company sold its airline in 1994 and, as a result, reclassified
such results to discontinued operations. The Company began construction of the
approximately $1 billion MGM Grand Las Vegas, which management believes is the
world's largest hotel/casino, in October 1991 and commenced operations in
December 1993. In December 1994, the Company entered into a joint venture with
Primadonna for the joint development and operation of the $460 million New
York-New York hotel/casino. Construction of New York-New York commenced in
March 1995 and the facility is expected to open in the winter of 1996-1997. In
September 1995, the Company commenced its international expansion by acquiring
what is now MGM Grand Australia for approximately $80 million. The Company has
finalized a major renovation program at MGM Grand Australia, which was
completed in June 1996.
In 1994, the first full year of operations at MGM Grand Las Vegas, the
Company experienced an unusually high table games hold percentage. Table game
hold is the percentage of table revenue (win) compared to table game drop
which is customer buy-in. In the first half of 1995, the Company experienced
significant volatility and an unusually low table games hold percentage (i.e.,
table game hold which was below the average anticipated hold as reflected in
the Company's annual budget). In the third quarter of 1995, the Company's new
management team implemented more stringent policies designed to reduce high-
end gaming volatility (i.e., significant swings in overall table game hold as
a result of the impact of high end play). As a result, the Company had a more
normalized table games hold percentage during the second half of 1995, which
continued in the first quarter of 1996. Principally as a result of the table
games hold percentage fluctuations, partially offset by increased hotel
revenues, the Company experienced a $20.4 million decrease in net revenues
(2.7%) from $742.2 million for the year ended December 31, 1994, to $721.8
million for the year ended December 31, 1995. In order to increase revenues,
control costs and reposition the Company for sustained long-term growth, the
new management team introduced a comprehensive operational restructuring plan
in the third quarter of 1995. The restructuring program resulted in a non-
recurring restructuring charge of $5.9 million. As a result of implementation
of this plan, net revenues in the fourth quarter of 1995 increased by $21.5
million (12.5%) from $171.8 million in the fourth quarter of 1994 to $193.3
million in the fourth quarter of 1995. This revenue growth trend accelerated
in the first quarter of 1996, with net revenues increasing by $47.4 million
(29.3%) from $161.9 million in the first quarter of 1995 to $209.3 million in
the first quarter of 1996. The Company believes that the operating
efficiencies realized from the restructuring program should continue to
benefit the Company in the future.
Principally as a result of the positive impacts of the restructuring which
led to increased revenue, an improvement in customer mix and sharply lower
operating costs, operating income increased by $18.2 million (65.7%) to $45.9
million for the fourth quarter of 1995 from $27.7 million in the fourth
quarter of 1994. Income from continuing operations for the fourth quarter of
1995 increased by $17.8 million (127.1%) to $31.8 million from $14.0 million
in the fourth quarter of 1994. Earnings per share from continuing operations
increased by 127.6% from $0.29 to $0.66. The improving trend in operating
results continued in the first quarter of 1996, with operating income
increasing by $28.9 million (142%) from $20.3 million in the first quarter of
1995 to $49.2 million in the first quarter of 1996, net income increasing by
$29.0 million (525%) from $5.5 million to $34.5 million, and earnings per
share increasing from $0.11 per share to $0.70 per share.
17
<PAGE>
During 1996, the Company (i) unveiled a $250 million master plan for the
enhancement of MGM Grand Las Vegas as The City of Entertainment, (ii) will
complete a $15 million refurbishment of MGM Grand Australia, (iii) is
finalizing the construction and development of its 50% owned New York-New York
destination resort and (iv) is pursuing the acquisition and/or development of
a destination resort casino/hotel in Atlantic City, which is expected to cost
at least $700 million. If the Company, as expected, proceeds with the
acquisition and/or development of MGM Grand Atlantic City, it will likely
require additional financing in 1998 which could include, but not be limited
to, expansion of the Credit Facility or other forms of debt or equity
financing. In order to increase financial flexibility and significantly reduce
interest expense, the Company expects to complete the defeasance of its First
Mortgage Notes during the third quarter of 1996. It is anticipated that the
Company will incur an extraordinary charge of approximately $36.4 million, net
of income tax benefit, as a result of the defeasance which will result in a
reduction in interest expense of approximately $29.8 million per year, net of
income tax benefit. The Company is currently evaluating the alternate use
and/or disposition of certain existing assets which could be affected by
implementation of the MGM Grand Las Vegas master plan. Although the specific
assets to be redeployed or disposed of in connection with the MGM Grand Las
Vegas master plan have not yet been determined, the write-down of the carrying
value of such assets is not currently expected to exceed $13 million, net of
income tax benefit.
RESULTS OF OPERATIONS
First Quarter Ended March 31, 1996 Compared to First Quarter Ended March 31,
1995
Net revenues for the first quarter of 1996 were $209.3 million, representing
an increase of $47.4 million (29.3%) compared to $161.9 million during the
same period in the prior year. The significant improvement for the first
quarter of 1996 over the prior year period reflects the Company's emphasis on
building the domestic customer base, improving the customer mix and reducing
revenue volatility. Casino revenues for the first quarter of 1996 were $130.3
million, representing an increase of $39.0 million (42.6%) compared to $91.3
million during the same period in the prior year. The increase is primarily
due to MGM Grand Las Vegas casino revenues of $122.8 million for the first
quarter of 1996 which increased $31.5 million (34.5%) compared to $91.3
million during the same period in the prior year. The increase was
attributable to improved overall volume and win percentages for table games
and slots, partially offset by a lower win in baccarat as a result of a
decreased volume when compared with the prior year. As a result of
management's more prudent approach to high-end gaming and renewed focus on
middle market customer growth, the volatile effects of liberal casino policies
with respect to high-end gaming which reduced hold percentages and, therefore,
significantly suppressed the 1995 first quarter results, have not affected the
1996 first quarter. MGM Grand Australia reported casino revenues for the
period of $7.5 million (data for the prior year period before the September
1995 acquisition of MGM Grand Australia is not applicable). MGM Grand
Australia was under renovation and construction for much of the quarter, which
adversely affected revenues and led to a quarterly loss. In addition, casino
revenues at MGM Grand Australia were adversely impacted by abnormally low win
percentages. The Company is implementing revenue enhancement, cost containment
and volatility reduction programs at MGM Grand Australia similar to those
adopted at MGM Grand Las Vegas. See "Risk Factors--Risks Associated With High-
End Gaming and Key Markets."
Room revenues of $43.8 million for the first quarter of 1996 increased $4.9
million (12.6%) compared to $38.9 million in the prior period. MGM Grand Las
Vegas room revenues were $43.5 million, an increase of $4.6 million (11.8%)
compared to $38.9 million in the same period of the prior year. The increase
was principally due to an improved occupancy and room rate of 93.3% and $103,
respectively, in the quarter of 1996 compared to 87.5% and $99, respectively
in the same period in the prior year. Hotel occupancy and the improvement in
room rates at MGM Grand Las Vegas reflect a significant increase in
convention, special event and tour and travel customers during the first
quarter of 1996. MGM Grand Australia reported room revenues of $0.3 million on
a hotel occupancy of 54.6% for the first quarter of 1996, reflecting the
effects of the renovation and construction and the lower occupancy rates
typical for the "wet" season.
18
<PAGE>
Food and beverage revenues were $20.1 million in the first quarter of 1996,
representing a decrease of $2.7 million (11.8%), compared to $22.8 million in
the first quarter of the prior year. MGM
Grand Las Vegas food and beverage revenues of $18.9 million decreased $3.9
million (17.3%) in the first quarter of 1996 compared to $22.8 million in the
prior period. The decrease in the first quarter of 1995 was due to the
outsourcing of three restaurants to premier operators. MGM Grand Australia
reported food and beverage revenues of $1.2 million for the first quarter of
1996.
Entertainment, retail and other revenues were $29.1 million for the first
quarter of 1996, representing an increase of $6.5 million (28.5%), compared to
$22.6 million in the first quarter of 1995, consisting only of revenues
generated by MGM Grand Las Vegas. The increase in revenues for the first
quarter of 1996 was largely due to the EFX production show which commenced in
March 1995 and featured eleven shows in the first quarter of 1995, compared to
116 shows in the first quarter of 1996, and the Star Lane Shops retail mall
which was not operational in the prior year's quarter. The overall increase in
revenue was partially offset by reduced revenues at the theme park as a result
of both a drop in attendance and reduced ticket prices and decreases in
revenues from the MGM Grand Garden which held three events in the first
quarter of 1996 compared to eight in the prior year's first quarter. The
number of Company-sponsored events decreased in favor of "four-wall" venues
(i.e., events sponsored by an outside promoter whereby the Company leases the
showroom or arena space to the promoter), which transfers the operating risk
to the outside show producers.
Promotional allowances were $14.0 million in the first quarter of 1996 (6.7%
of revenues), an increase of $0.2 million (1.3%) from $13.8 million in 1995
(8.5% of revenues). MGM Grand Las Vegas reported $13.7 million for promotional
allowances for the first quarter of 1996, a decrease of $0.1 million compared
to the same period in the prior year, and MGM Grand Australia promotional
allowances were $0.3 million for the first quarter of 1996.
Casino expenses were $56.3 million for the first quarter of 1996 (43.2% of
casino revenues), an increase of $6.6 million (13.3%) compared to $49.7
million in 1995 (54.5% of casino revenues). MGM Grand Las Vegas reported
casino expenses of $50.5 million, an increase of $0.8 million (1.6%), compared
to the prior period. This increase was the result of increased gaming taxes
due to casino revenues and increased marketing costs related to special
events, which was offset by cost savings resulting from the Company's cost
containment program. MGM Grand Australia casino expenses were $5.8 million for
the first quarter of 1996.
Room expenses were $11.8 million for the first quarter of 1996 (26.9% of
room revenues), an increase of $1.0 million (8.8%) from the $10.8 million in
1995 (27.8% of room revenues). MGM Grand Las Vegas reported room expenses of
$11.4 million, an increase of $0.6 million (5.7%) compared to the prior
period, as a result of higher payroll costs associated with increased
occupancy. MGM Grand Australia reported room expenses of $0.4 million for the
first quarter of 1996.
Food and beverage expenses were $12.3 million for the first quarter of 1996
(61.1% of food and beverage revenues) a decrease of $2.4 million (16.6%)
compared to $14.7 million in 1995 (64.5% of food and beverage revenues). MGM
Grand Las Vegas reported food and beverage expenses of $10.9 million, a
decrease of $3.8 million (26.2%) compared to the prior period, primarily as a
result of the outsourcing of three Company operated restaurants in the first
quarter of 1996 as part of the restructuring plan. MGM Grand Australia
reported food and beverage expenses of $1.4 million for the first quarter of
1996.
Entertainment, retail and other expenses were $22.6 million in the first
quarter of 1996 (77.7% of entertainment, retail and other revenues), an
increase of $3.6 million (19.0%) from entertainment, retail and other expenses
of $19.0 million in 1995 (83.9% of entertainment, retail and other revenues).
The increase is primarily related to the operations of EFX which opened in
March 1995 and the operations of Star Lane Shops retail mall which opened in
September 1995, partially offset by a reduction in MGM Grand Garden costs
reflecting fewer events held during the first quarter of 1996 compared to
1995.
19
<PAGE>
Provision for doubtful accounts and discounts was $15.6 million for the
first quarter of 1996, an increase of $7.4 million (91.1%) from $8.2 million
in the prior period. MGM Grand Las Vegas increased
the reserve for specific customer accounts based on aging of casino receivable
balances and other factors. Casino receivables are generated by gaming
customers who obtain credit in exchange for gaming chips at MGM Grand Las
Vegas. See "Notes to Condensed Consolidated Financial Statements." MGM Grand
Australia is restricted by law from offering credit to its customers.
General and administrative expense, representing operating expense not
directly attributable to specific company departments, was $24.7 million
(excluding corporate expense) for the first quarter of 1996, an increase of
$0.2 million (0.8%) from $24.5 million for the same period in 1995. MGM Grand
Las Vegas reported $23.0 million for general and administrative expense during
the first quarter of 1996, a decrease of $1.6 million (6.7%) from $24.6
million in the 1995 period. Contributing to the improvements in expenses were
lower advertising expenditures related to EFX in the first quarter of 1996,
coupled with the benefits of the cost containment efforts. MGM Grand Australia
reported general and administrative expense of $1.7 million.
Depreciation and amortization expense was $15.2 million in the first quarter
of 1996, an increase of $2.6 million (21.1%) from $12.6 million in the first
quarter of 1995. MGM Grand Las Vegas reported $14.2 million in depreciation
and amortization expense an increase of $1.6 million as a result of a full
quarter of depreciation for the EFX show equipment and Star Lane Shops mall,
which opened in September 1995, as well as other asset additions during the
1996 first quarter. MGM Grand Australia reported depreciation and amortization
expense of $1.0 million.
Corporate expense was $1.5 million for the first quarter of 1996, a decrease
of $0.5 million compared to $2.0 million in the prior year period. The
decrease was primarily attributable to a reduction of amortization related to
the Don King Productions, Inc. boxing promotion agreement. Corporate expenses
represent operating expenses generated by the Company, which benefit the
Company and its subsidiaries and do not directly benefit specific operations.
Operating income for the quarter ended March 31, 1996 was $49.2 million
representing an increase of $28.9 million (142.4%) over the same period of
1995. MGM Grand Las Vegas operating income was $52.5 million for the first
quarter of 1996 representing an increase of $30.2 million (135.3%) from the
prior year's quarter. MGM Grand Australia incurred an operating loss for the
period of $1.8 million.
Interest income of $1.6 million for the period ended March 31, 1996
increased by $1.1 million from $0.5 million in the first quarter of 1995. The
increase was attributable to higher invested cash balances at MGM Grand Las
Vegas during the first quarter of 1996 reflecting the strong operating
activity and increased collections on casino receivables compared to the prior
year activity when cash balances were lower.
Interest expense in the first quarter of 1996 of $15.8 million (net of
capitalized interest) increased slightly by $0.5 million compared to $15.3
million in the same period of 1995. The increase in the first quarter of 1996
was primarily due to interest of $1.8 million related to the MGM Grand
Australia bank loan which was incurred in September 1995, partially offset by
capitalized interest of $1.1 million for the New York-New York construction
project. Additional interest expense was incurred in the first quarter of 1995
as a result of $8.0 million outstanding on the MGM Grand Las Vegas bank line
of credit which had been repaid by the first quarter of 1996.
Income before income taxes for the quarter ended March 31, 1996 was $34.5
million, representing an increase of $29.0 million (525%) over the 1995 period
of $5.5 million. MGM Grand Las Vegas reported income before income taxes of
$35.2 million for the current period, an increase of $30.7 million (687.8%)
versus $4.5 million in the prior year ended. MGM Grand Australia reported a
loss before income taxes of $3.6 million for the quarter.
20
<PAGE>
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Net revenues for the year ended December 31, 1995 were $721.8 million,
representing a decrease of $20.4 million (2.7%) compared to $742.2 million for
the year ended December 31, 1994. The decrease in revenue was primarily due to
a reduction in casino revenue, offset by an increase in room revenue. The
change in revenue mix is reflected in the increase in room revenues as a
percentage of total revenues from 19.6% in 1994 to 22.2% in 1995. In addition,
promotional allowances increased from 7.0% of revenues in 1994 to 7.8% of
revenues in 1995.
Casino revenues for the year ended December 31, 1995 were $404.7 million,
compared to $434.3 million for the year ended December 31, 1994, a decrease of
$29.6 million (6.8%). MGM Grand Las Vegas casino revenues were $397.4 million
for the year ended December 31, 1995 compared to $434.3 million in 1994, a
decrease of $36.9 million (8.5%). This decrease in casino revenue was
primarily due to an unusually high table game hold percentage in 1994 and a
marginal decrease in 1995 slot revenues, offset by an increase in table game
drop (excluding baccarat) for the year ended December 31, 1995. The increased
table game drop in 1995 was largely due to higher table game volume combined
with a more normal table game hold percentage, whereas the decrease in 1995
slot revenues resulted from a 13.5% reduction in slot play which was partially
offset by an increase in slot hold due to an improved mix and layout of slot
machines. The more normal table game hold in the 1995 period, as well as the
stronger slot hold, were consistent with the Company's plan to emphasize
middle market customer activity and reduce overall gaming volatility. MGM
Grand Australia casino revenues were $7.3 million for the period since its
acquisition on September 7, 1995 through December 31, 1995.
Room revenues for the year ended December 31, 1995 were $160.5 million,
compared to $145.2 million for the year ended December 31, 1994, representing
an increase of $15.3 million (10.5%). MGM Grand Las Vegas room revenues were
$160.1 million for the year ended December 31, 1995, an increase of $14.6
million (10.0%) from $145.5 million in 1994. The increase in room revenue was
primarily due to the increase in the average daily room rate from $86 in 1994
to $98 in 1995, partially offset by a slightly lower occupancy percentage of
89.5% for the year ended December 31, 1995 compared to 92.0% for the year
ended December 31, 1994. The increased room rates and change in occupancy
reflect the Company's yield management plan to improve the customer mix and
increase the casino and independent traveler segments, while de-emphasizing
the lower yielding tour and travel segment. MGM Grand Australia room revenues
were $0.4 million for the period since its acquisition through December 31,
1995.
Food and beverage revenues were $89.3 million for the year ended December
31, 1995, representing a decrease of $2.3 million (2.5%) from $91.6 million in
1994. MGM Grand Las Vegas food and beverage revenues were $4.2 million (4.6%)
lower for the year ended December 31, 1995 compared to the same period in
1994. This decrease was attributable to the Company's restructuring plan which
converted three restaurants into leased facilities during the third and fourth
quarters of 1995. As a result, the Company anticipates that until the new
facilities planned for MGM Grand Las Vegas become operational, food and
beverage revenues will be lower than previously attained, with corresponding
reductions in food and beverage expenses. The Company also anticipates that
other revenues will increase as a result of lease income from the food and
beverage tenants. MGM Grand Australia food and beverage revenues were $2.1
million for the period since its acquisition through December 31, 1995.
Entertainment, retail and other revenues were $123.3 million for the year
ended December 31, 1995, an increase of $0.5 million (0.4%) from $122.8
million in 1994. MGM Grand Las Vegas entertainment, retail and other revenues
increased $0.8 million (0.7%) for the year ended December 31, 1995 compared to
the same period in 1994. Entertainment, retail and other revenues increased in
1995 due to the opening of the EFX production show and the addition of the
Star Lane Shops retail
21
<PAGE>
mall, offset by lower revenue from the theme park as well as entertainment and
sports events in the MGM Grand Garden. As part of its restructuring plan and
in an effort to reduce volatility at MGM Grand Garden, the Company decreased
the number of Company sponsored events during 1995 in favor of "four-wall"
venues, which transfers the operating risk to the outside show producers.
Promotional allowances were $56.0 million for the year ended December 31,
1995 (7.8% of revenues), an increase of $4.4 million (8.4%) from $51.6 million
in 1994 (7.0% of revenues). MGM Grand Las Vegas promotional allowances were
$55.6 million for the year ended December 31, 1995 compared to $51.6 million
for the same period in 1994. This increase was attributable to increased
marketing efforts designed to attract national customers. MGM Grand Australia
promotional allowances were $0.4 million for the period since its acquisition
through December 31, 1995.
Casino expenses were $195.1 million for the year ended December 31, 1995
(48.2% of casino revenues), an increase of $11.6 million (6.3%) compared to
$183.5 million in 1994 (42.3% of casino revenues). MGM Grand Las Vegas casino
expenses were $192.4 million for the year ended December 31, 1995, an increase
of $8.9 million (4.9%) compared to casino expenses of $183.5 million in 1994.
This increase was primarily due to increased national marketing promotional
expenses and expenses related to the Mike Tyson boxing event held at the MGM
Grand Garden. MGM Grand Australia casino expenses were $2.7 million for the
period since its acquisition through December 31, 1995.
Room expenses were $44.2 million for the year ended December 31, 1995 (27.5%
of room revenues), a decrease of $1.1 million (2.4%) from room expenses of
$45.3 million in 1994 (31.2% of room revenues). MGM Grand Las Vegas room
expenses were $43.7 million for the year ended December 31, 1995 compared with
$45.3 million for the year ended December 31, 1994, a decrease of $1.6 million
(3.6%). This decrease was principally due to the Company's continuing cost
containment efforts, of which labor cost reduction was a large component. MGM
Grand Australia room expenses were $0.5 million for the period since its
acquisition through December 31, 1995.
Food and beverage expenses were $57.3 million for the year ended December
31, 1995 (64.2% of food and beverage revenues), a decrease of $7.7 million
(11.8%) from food and beverage expenses of $65.0 million in 1994 (71.0% of
food and beverage revenues). MGM Grand Las Vegas food and beverage expenses
were $55.5 million for the year ended December 31, 1995, a decrease of $9.5
million or (14.6%) from food and beverage expenses of $65.0 million in 1994.
This decrease was primarily due to the outsourcing of three Company operated
restaurants in the second half of 1995. MGM Grand Australia food and beverage
expenses were $1.8 million for the period since its acquisition through
December 31, 1995.
Entertainment, retail and other expense was $92.7 million for the year ended
December 31, 1995 (75.2% of entertainment, retail and other revenues), a
decrease of $22.7 million (19.7%) from entertainment, retail and other
expenses of $115.4 million in 1994 (94.0% of entertainment, retail and other
revenues). This decrease was primarily attributable to the effect of the
Company's restructuring plan at its flagship MGM Grand Las Vegas property,
which led to lower theme park expenses and fewer MGM Grand Garden events
partially offset by the expenses of the EFX production show which opened
during March 1995. In addition, the Company is engaging more outside show
producers in the MGM Grand Garden and sponsoring fewer of its own events in
order to reduce its operating risk and expenses.
Provision for doubtful accounts and discounts increased $13.5 million
(30.6%) from $44.2 million in 1994 to $57.7 million in 1995. MGM Grand Las
Vegas increased reserves for specific customer accounts based on aging of
casino receivable balances and other factors.
For the year ended December 31, 1995, the Company incurred a one-time
restructuring charge against earnings of $5.9 million. This restructuring
charge consisted of one-time charges, primarily
22
<PAGE>
employee severance payments related to the Company's overall plan designed to
reduce costs and improve operating efficiencies at MGM Grand Las Vegas.
General and administrative expense was $99.1 million for the year ended
December 31, 1995 (13.7% of revenues), a decrease of $7.8 million (7.3%) from
general and administrative expenses of $106.9 million in 1994 (14.4% of
revenues). MGM Grand Las Vegas general and administrative expenses were $95.5
million of the year ended December 31, 1995 compared to $107.6 million for the
same period in 1994, representing a decrease of $12.1 million (11.2%). This
decrease was primarily attributable to the Company's continuing cost
containment efforts. MGM Grand Australia general and administrative expenses
were $3.6 million for the period since its acquisition through December 31,
1995.
Depreciation and amortization expense was $55.4 million for the year ended
December 31, 1995, representing an increase of $11.0 million (24.7%) compared
to depreciation and amortization expenses of $44.4 million in 1994. MGM Grand
Las Vegas depreciation and amortization expenses were $54.6 million for the
year ended December 31, 1995 compared with $44.3 million for the same period
in 1994, representing an increase of $10.3 million (23.1%). This increase was
primarily due to the addition of EFX production show equipment in the 1995
period, as well as the completion of construction of the Star Lane Shops
retail mall and general property improvements. MGM Grand Australia
depreciation and amortization expenses were $0.8 million for the period since
its acquisition through December 31, 1995.
Corporate expense was $10.6 million for the year ended December 31, 1995, an
increase of $2.9 million (38.0%) from corporate expense of $7.7 million in
1994. This increase was primarily due to the amortization of costs recognized
for the Don King Productions, Inc. boxing promotion agreement related to the
exclusive rights to all Mike Tyson fights.
Operating income was $103.8 million for the year ended December 31, 1995
compared with $129.7 million for the year ended December 31, 1994,
representing a decrease of $25.9 million (20.0%). MGM Grand Las Vegas had
operating income of $113.6 million for the year ended December 31, 1995, a
decrease of $21.6 million (16.0%) from operating income of $135.2 million in
1994. MGM Grand Australia had operating income of $0.9 million for the period
since its acquisition through December 31, 1995.
Interest income was $2.9 million for the year ended December 31, 1995, a
decrease of $2.6 million from interest income of $5.5 million in 1994.
Interest income was higher in the 1994 period reflecting the earnings on the
remaining undisbursed MGM Grand Las Vegas construction funds.
Interest expense decreased $2.6 million (4.2%) from $61.9 million for the
year ended December 31, 1994 to $59.3 million for the year ended December 31,
1995. The decrease was primarily due to interest capitalization of $4.3
million in the 1995 period based on the Company's New York-New York and Star
Lane Shops retail mall construction projects, partially offset by interest
expense of $2.3 million incurred by MGM Grand Australia for the period since
its acquisition through December 31, 1995.
Net income for the year ended December 31, 1995 was $46.6 million compared
to net income of $74.6 million for the year ended December 31, 1994,
representing a decrease of $28.0 million (37.6%). Earnings per share were
$0.96 per share for the year ended December 31, 1995 compared to $1.52 per
share for 1994.
23
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1996 and December 31, 1995, the Company held cash and cash
equivalents of $183.6 million and $110.0 million, respectively. Cash provided
by operating activities for the first three months of 1996 was $79.2 million
versus $7.7 million for the first three months of 1995.
Capital expenditures during the first three months of 1996 were $14.1
million consisting primarily of $8.1 million related to MGM Grand Las Vegas
for general property improvements, and $6.0 million at MGM Grand Australia for
the renovation program which includes enhanced guest accommodations and public
areas, and other property improvements.
The Company anticipates expenditures of approximately $522.5 million during
the third quarter of 1996 to fund the defeasance of the First Mortgage Notes.
The defeasance is expected to decrease the Company's interest expense by
approximately $29.8 million (net of tax benefits) annually and will result in
a one-time extraordinary charge in the quarter the defeasance is funded of
approximately $36.4 million, net of tax benefits.
SOURCES AND USES OF FUNDS FOR DEFEASANCE OF FIRST MORTGAGE NOTES
($ IN MILLIONS)
SOURCES OF FUNDS
<TABLE>
<S> <C>
Common Stock Offering(1)................................................ $284.2
Credit Facility and Operating Loan...................................... 135.0
Cash on hand............................................................ 103.3
------
Total sources....................................................... $522.5
======
USES OF FUNDS
Defeasance of First Mortgage Notes(2)................................... $522.5
------
Total uses.......................................................... $522.5
======
</TABLE>
- --------
(1) Gives effect to the offering of 7,500,000 shares of Common Stock at an
offering price of $39.50 per share, less fees and expenses.
(2) Estimated based on the price of U.S. Government securities as of June 26,
1996.
Capital expenditures through 1997 are expected to aggregate approximately
$650 million, including: (i) $200 million of the approximately $250 million to
be expended to implement the master plan to transform MGM Grand Las Vegas into
The City of Entertainment; (ii) approximately $60 million for general property
improvements related to MGM Grand Las Vegas; (iii) approximately $5 million
for MGM Grand Australia; (iv) approximately $50 million additional investment
in New York-New York to fund the Company's share of capital expense to
complete and open the project; and (v) approximately $335 million toward the
development of MGM Grand Atlantic City.
In addition to the above capital requirements, New York-New York, which is
50% owned by the Company, is expected to incur up to $60 million in 1996 in
capital lease financing to finance furniture, fixtures and equipment for New
York-New York.
The Company anticipates that it will fund its financing and capital
requirements for the next eighteen months through cash on hand, cash flow from
operations and borrowings under the $500 million Credit Facility. The
development of MGM Grand Atlantic City is likely to require additional
financing in 1998, which could include, but not be limited to, expansion of
the Credit Facility or other forms of debt or equity financing.
24
<PAGE>
BUSINESS
GENERAL
MGM Grand is an entertainment, hotel and gaming company headquartered in Las
Vegas, Nevada. Through subsidiaries, the Company owns and operates MGM Grand
Las Vegas and MGM Grand Australia. The Company also owns a 50% interest in,
and will be the joint operator, of New York-New York, a $460 million
architecturally distinctive destination resort hotel/casino in Las Vegas which
is under construction and is scheduled to open in the winter of 1996-1997. The
Company applied for a license with the New Jersey gaming authorities in
February 1996 and plans to develop a major destination resort hotel/casino in
Atlantic City. The Company is considering a number of alternatives for its
Atlantic City project, and any entry into the Atlantic City market will be
subject to finalization and execution of such plans, as well as receipt of
regulatory approvals, including licensing of the Company and appropriate
officers and directors.
In July 1995, the Company established a new management team, led by J.
Terrence Lanni, Chairman and Chief Executive Officer, and Alex Yemenidjian,
President, Chief Operating Officer and Chief Financial Officer, as well as a
revised organizational structure at both the corporate and operating levels
and selected expansion and enhancement of the management team. The new
management team was primarily responsible for developing a corporate vision
which is based on achieving increased profitability with growth through a
refocusing of marketing efforts and positioning of MGM Grand as a global
location-based entertainment company with tight cost control systems.
MGM Grand's strategy is to create unique destination resorts worldwide in
selected gaming markets, which are designed to provide customers with a total
entertainment experience, including: first class accommodations, dining and
amenities; exciting shows, sporting events, concerts and shopping; and
attractive gaming facilities. The Company utilizes entertainment themed
attractions, including well known movie characters and settings, to create an
exciting environment appealing to all segments of the gaming market and also
utilizes targeted marketing programs to attract premium customers.
The Company's new management team embarked on an operational restructuring
program designed to enhance revenues and minimize volatility, significantly
reduce operating costs, promote the Company's reputation for providing first
class entertainment and position the Company for growth by renovating and
expanding existing properties and developing new destination resorts. The
Company's revenue enhancement and cost control programs, implemented in the
third quarter of 1995, resulted in income from continuing operations in the
fourth quarter of 1995 increasing by more than approximately 127%, compared to
the same quarter in 1994, while income from continuing operations for the
first quarter of 1996 increased by approximately 525% compared to the first
quarter of 1995. See "Selected Consolidated Financial Information." The
Company is also implementing a financial restructuring via a combination of
the Offering and the new Credit Facility, which will significantly lower the
Company's cost of capital while enhancing its financial flexibility. The
Credit Facility will be used, together with cash on hand, proceeds from the
Offering and proceeds from the Operating Loan to defease the First Mortgage
Notes and finance the implementation of the Company's growth strategy. On a
proforma basis, earnings per share from continuing operations for 1995 would
have increased by $0.40 as a result of the defeasance. The cornerstones of the
Company's growth strategy are the $250 million enhancement of MGM Grand Las
Vegas as The City of Entertainment, the opening of the $460 million New York-
New York themed destination resort hotel/casino joint venture, the
refurbishment of MGM Grand Australia, the planned development of a major
destination resort hotel/casino in Atlantic City with an estimated cost of at
least $700 million and the continued monitoring of gaming activities outside
of Nevada.
25
<PAGE>
MGM GRAND LAS VEGAS
Current Property
MGM Grand Las Vegas is a multi-themed destination resort located on
approximately 112 acres at the "New Four Corners" on the Strip, across the
street from New York-New York, Excalibur and the Tropicana. Management
believes MGM Grand Las Vegas is the largest hotel/casino in the world and,
because of the quality and variety of its entertainment options offered, is a
"must see" attraction for visitors to Las Vegas. The facility has over 350
feet of frontage on the Strip and 1,450 feet on Tropicana Avenue and is easily
accessible from McCarran International Airport ("McCarran Airport") and
Interstate 15 via Tropicana Avenue.
MGM Grand Las Vegas creates an exciting and unique gaming and entertainment
experience intended to appeal to all segments of the Las Vegas market. The
casino is approximately 171,500 square feet in size and is one of the largest
casinos in the world. The casino includes approximately 3,500 slot machines,
160 table games, a baccarat pit, a poker room, a race and sports book and a
keno lounge. The casino is divided into four themed casinos: Monte Carlo,
Hollywood, Sports and Oz, which enhance the total entertainment experience and
variety of gaming opportunities available to the casino patron. The Oz casino
is being replaced by the Entertainment Casino as part of the MGM Grand Las
Vegas master plan.
MGM Grand Las Vegas has approximately 5,005 guest rooms and suites,
including approximately 4,250 typical guest rooms decorated in five different
themes: Deep South, Hollywood, Monte Carlo, Emerald and Casablanca. Typical
guest rooms are approximately 450 square feet in size, which management
believes is significantly larger than the average standard room for Strip
Hotels. MGM Grand Las Vegas also has over 750 luxury suites, more than any
other Las Vegas hotel. These suites range in size from 650 to 6,000 square
feet. Parking is available for approximately 9,000 cars, including 4,800
garage spaces and valet parking for 1,200 cars. MGM Grand Las Vegas provides
extensive recreational facilities for its guests, including a state of the art
health spa, four lighted tennis courts and a swimming complex featuring a
sandy beach, waterfalls, a children's area and luxury cabanas.
The complex also features the MGM Grand Garden, the only large scale indoor
multi-purpose arena included in a Las Vegas hotel/casino complex, with seating
capacity for more than 16,700 patrons for sporting events and concerts. The
MGM Grand Garden has been designed so that within a period of as little as
four hours it can be transformed from a sporting facility to an exhibition
hall with over 130,000 square feet of convention and exhibition space.
Management believes that the MGM Grand Garden enables the Company to attract
sporting and special events which have not previously been held in Las Vegas
or have traditionally been held outdoors at other Las Vegas hotels. The MGM
Grand Garden has hosted major entertainers such as Barbra Streisand, the
Rolling Stones, Rod Stewart, Phil Collins, Whitney Houston, Bette Midler,
Elton John and Billy Joel as well as world championship boxing matches,
featuring, among others, George Foreman and Mike Tyson, tennis matches, ice
skating and rodeos. The Hollywood Theater, which seats 660, has hosted "The
Tonight Show" and has featured Gladys Knight, Tom Jones and the Four Tops. The
Grand Theater which seats 1,774 customers, features the approximately $40
million grand spectacle EFX production show, starring Michael Crawford, the
original "Phantom of the Opera."
The Company and Bally's jointly own and operate a $25 million elevated
monorail linking MGM Grand Las Vegas with the corner of Flamingo Road and the
Strip. The monorail is a one-mile, high-capacity, transit-grade system, and
costs are shared equally with Bally's. The Company has had discussions with
neighboring properties and the Las Vegas Convention and Visitors Authority
("LVCVA") as to the possible extension of the monorail system, which has the
capacity to be extended from McCarran Airport to the Las Vegas Convention
Center. No assurance can be given that the monorail will be extended.
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Additional amenities of MGM Grand Las Vegas include nine restaurants,
offering a wide variety of dining experiences, including Emeril's New Orleans
Fish House, Wolfgang Puck Cafe, Gatsby's, Tre Visi-LaScala and Coyote Cafe,
and a food court area, with a combined seating capacity for over 3,000
customers. MGM Grand Las Vegas has an approximately 30,000 square foot Midway
area between the casino and the entrance to the 33-acre theme park, which
offers guests extensive non-gaming entertainment. The Midway area houses
approximately 30 carnival games of skill for individuals of all ages, as well
as an extensive video arcade. The 33-acre theme park is accessible only from
MGM Grand Las Vegas and has 11 major attractions, including rides, live
entertainment and shows, and retail shops. In the summer of 1996, the Company
plans to open its new Skycoaster ride, which is a 25-story part sky-diving,
part hang-gliding attraction. The Company has approximately 11 acres adjacent
to the theme park which are available for future expansion.
Description of Las Vegas Master Plan
In June 1996, the Company embarked on an approximately $250 million master
planned expansion and enhancement of MGM Grand Las Vegas to create The City of
Entertainment. The program will consist of extensive capital improvements and
additions to both the exterior and interior of the resort, as well as the
expansion of non-gaming amenities such as entertainment, theme park, retail
and restaurants, and an increase in the number of gaming positions. In an
effort to limit disruption of existing operations, the construction will be
phased over a 30-month period. The improvements are expected to be financed
out of cash on hand and cash flow from existing operations. The plans, some of
which are still preliminary, are designed to enhance the appeal of the
property, generate increased traffic and improve operating results. Certain
assets may be redeployed or disposed of in connection with the MGM Grand Las
Vegas master plan. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Projects currently included in the master plan are:
Refurbishment and Expansion of the "Studio Walk." The enhancements and
changes to the current restaurant, food court and arcade promenade began in
June 1996. "Studio Walk," as the area will be named, will be themed to portray
a Hollywood sound stage and will feature a number of memorable Hollywood
landmarks. New and exciting retail and restaurant tenants will be added to the
present complement. Such notable Hollywood icons as The Brown Derby, the
Farmers' Market and Griffith Park Observatory will inspire the look and feel
of Studio Walk. It will comprise approximately 115,000 square feet and, when
completed, will incorporate five restaurants and a food court, six retail
stores, and an entertainment/night club. In an effort to bring the retail
stores into a higher traffic area, the Midway arcade will be placed on the
lower level where there will be additional room to enjoy all of the excitement
surrounding the arcade activities. Three major MGM Grand-owned retail stores
will be located on Studio Walk. Studio Walk is expected to be completed in
November 1996 at an estimated cost of $20 million.
Reconstruction of the Lion Entry. The current Lion Entry and exterior of MGM
Grand Las Vegas along the Strip and Tropicana Avenue will be reconstructed and
re-themed beginning in the fourth quarter of 1996. A new Lion will be erected
at the intersection of the Strip and Tropicana. This majestic, liquid-gold-
colored Lion will be part of a theatrical experience, rising more than six
stories. The building's exterior, featuring 80-foot entertainment walls, will
highlight a number of elements including statuary, lights, video, and water
features. Multimedia projection and light shows will run continuously. The
current overhead walkways at the "New Four Corners" will be extended and will
enter directly into MGM Grand Las Vegas at a new mezzanine level. Sightlines
on these walkways will include giant-screen video monitors.
Creation of the Entertainment Casino. The entertainment gateway area,
currently known as Emerald City, and the adjacent Oz Casino will each undergo
a face-lift beginning in the fourth quarter of this year. Guests will enter
from the overhead walkways and emerge on the new mezzanine level overlooking
this area. They will descend on escalators, staircases or elevator to the new
Entertainment
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Casino floor that will also include a dramatic live entertainment venue,
themed restaurants and a night club. As a part of the development of the
Entertainment Casino, the number of slot machines and table games will be
expanded by approximately 400 and 12, respectively, resulting in an increase
in total gaming positions by approximately 500. This project is expected to
start in the fall of 1996 and be substantially completed by the fall of 1997,
at a cost of approximately $30 million.
Construction of a 300,000 Square Foot Convention Center. During the fourth
quarter of 1996, construction is expected to begin on a new 300,000-square-
foot convention center. The convention center will cost approximately $45
million and is expected to be completed in the fourth quarter of 1997. It will
contain the latest in meeting facilities and will be designed to provide both
indoor and outdoor environments that will be unique compared to any other
convention center in the world. It is anticipated that the convention center
will be located adjacent to the MGM Grand Adventures theme park.
Development of Entertainment and Retail Complex. An approximately $60
million entertainment and retail complex, which will highlight night club
entertainment, themed restaurants, retail stores and other attractions, will
be constructed on a portion of the current site occupied by the MGM Grand
Adventures theme park. The approximately 300,000 square foot complex is
expected to begin construction during the fourth quarter of 1996.
Enhancement of Theme Park. The 33-acre MGM Grand Adventures theme park,
which includes exciting rides and shows for all ages, along with themed
restaurants and retail shops, will be enhanced to heighten the entertainment
experience. New rides, including the world's highest Skycoaster (a 25-story
high, part sky-diving, part hang-gliding attraction which includes a 100-foot
free fall at speeds of up to 70 miles per hour) are being added and certain
other rides are being moved or removed to increase the overall appeal of the
theme park. Approximately $8 million has been allocated for the master plan
programs involving the theme park. The project's estimated completion is the
first quarter of 1997.
Redesign of the Porte Cochere and Hotel Lobby. The porte cochere which
presently serves as the main vehicle entrance to MGM Grand Las Vegas will
feature an entertainment theme consistent with The City of Entertainment. A
detailed vehicle ingress and egress study is being commissioned before plans
are finalized. It is estimated that the porte cochere project will cost $17
million.
Addition of a Second Porte Cochere. The Company plans to build a second
porte cochere in close proximity to the proposed entertainment and retail
complex and convention center, thereby creating a second valet entrance to MGM
Grand Las Vegas. It is anticipated that construction will begin in the second
quarter of 1997 at an estimated cost of $5 million.
Upgrading of Luxury Suites. MGM Grand Las Vegas' penthouse floor, which
consists of 52 luxury suites and 24-hour butler service, will be reconfigured
along with complete new interior designs in order to maintain a leadership
position in the high-end market. An estimated $30 million has been designated
for this program, which is expected to be completed in the fourth quarter of
1998.
Additional Parking Spaces. The new components of the master plan will
generate a need for an additional parking complex which is estimated at 2,000
spaces, bringing total parking capacity at the MGM Grand Las Vegas to
approximately 11,000 spaces. Approximately $13 million has been allocated for
the enhancement of present parking and the addition of a new parking facility.
NEW YORK-NEW YORK
New York-New York is located at the intersection of Tropicana Avenue and the
Strip, the "New Four Corners," across the street from MGM Grand Las Vegas,
Excalibur and the Tropicana and in close proximity to Monte Carlo and Luxor.
New York-New York will include 2,035 guest rooms and suites, approximately
2,400 slot machines and 75 table games, a poker room, a race and sports book,
a keno lounge and themed entertainment attractions and restaurant/retail
outlets. Ground breaking
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occurred on March 30, 1995, and the project is expected to open in the winter
of 1996-1997. The original 18-acre site, located on one of the busiest
intersections in Las Vegas, was contributed to the venture by the Company
during 1995, and in February 1995, the venture acquired an adjacent two-acre
parcel. The new resort will replicate many of Manhattan's landmark buildings
and icons, including the Statue of Liberty, the Empire State Building, Central
Park and the Brooklyn Bridge, making it one of the most distinctive properties
ever built in Las Vegas. New York-New York is expected to substantially
increase foot traffic into MGM Grand Las Vegas since the two facilities will
be connected by an elevated pedestrian walkway.
New York-New York Hotel, LLC, which is developing and will own and operate
New York-New York, is owned equally by the Company and Primadonna and is
managed by an experienced independent management team appointed by New York-
New York Hotel, LLC's six-member board of directors, which consists of three
directors appointed by each of the Company and Primadonna. Accordingly,
neither the Company nor Primadonna will control the project. The operating
agreement for New York-New York Hotel, LLC contains a buy/sell provision
allowing either party, at any time after the project has been open for six
months (or earlier in the event of certain disputes), to make an offer for a
stated price for the other party's interest. The other party must either sell
its interest or buy the offering party's interest at the stated price. If MGM
Grand and Primadonna are unable to reach agreement on any joint venture
decision, there is no mechanism for resolving the dispute other than through
the buy/sell provision. The Company has made no provision for financing a
purchase of Primadonna's interest in New York-New York Hotel, LLC should the
buy/sell provision be invoked, and no assurance can be given that it will be
able to do so should the situation arise.
LAS VEGAS MARKET
MGM Grand Las Vegas targets (and on opening, New York-New York will target)
the large and expanding Las Vegas tourist and gaming market. Las Vegas is the
largest city in Nevada with a local population in excess of one million and is
Nevada's principal tourist center. Gaming and tourism are the major
attractions, complemented by warm weather and the availability of many year-
round recreational activities. Although Las Vegas' principal markets are the
Western region of the United States, most significantly Southern California
and Arizona, Las Vegas also serves as a destination resort for visitors from
all of North America. In addition, a significant percentage of visitors
originate from Latin America and the Pacific Rim countries such as Japan,
Taiwan, Hong Kong and Singapore.
Las Vegas is one of the largest and fastest growing entertainment markets in
the country. According to the LVCVA, the number of visitors traveling to Las
Vegas has increased at a steady and significant rate for the last ten years
from 15.2 million in 1986 to more than 29 million in 1995, a compound annual
growth rate of 7.5%. Gaming has continued to be a strong and growing business
in Las Vegas. Las Vegas Strip gaming revenues have increased at a compound
annual growth rate of 9.9% from $1.6 billion in 1986 to $3.6 billion in 1995.
Historically, Las Vegas has had one of the strongest and most resilient
hotel markets in the country. Starting with the opening of The Mirage in 1989
and Excalibur in 1990, the number of hotel and motel rooms in Las Vegas has
increased by 33.5% from 67,400 in 1989 to 90,000 in 1995, giving Las Vegas the
most hotel and motel rooms in the country. Despite this significant increase
in the supply of rooms, Las Vegas hotel occupancy rate exceeded 91% for each
of 1993, 1994 and 1995. There can be no assurance that this resiliency will
continue in the future. As of January 1, 1996, there were approximately 12,000
hotel rooms under construction (which constitutes a 13.3% increase in the
number of hotel and motel rooms in Las Vegas) and the LVCVA estimated that
approximately 43,000 additional hotel rooms were proposed for construction. As
Las Vegas hotels have experienced a significant increase in supply and a
strong average occupancy, Las Vegas motels, which are generally older and
offer lower quality services than Strip Hotels, have experienced a decrease in
both their number of rooms and their occupancy rate. As of December 31, 1995,
there were over 15,800 motel rooms in Las Vegas which may be vulnerable to
displacement by the new hotels.
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The Company believes that the growth in the Las Vegas market has been
enhanced as a result of a dedicated program by the LVCVA and major Las Vegas
hotels to promote Las Vegas as a major convention site, the increased capacity
of McCarran Airport and the introduction of large themed destination resorts
in Las Vegas. In 1986, approximately 1.5 million persons attended conventions
in Las Vegas and spent approximately $1.0 billion. In 1995, the number of
convention delegates had increased to 2.9 million, and the amount of non-
gaming convention revenue generated by convention delegates was approximately
$3.4 billion. According to the LVCVA, Las Vegas was the largest convention
market in the country in 1995.
During the past five years, McCarran Airport has expanded its facilities to
accommodate the increased number of airlines and passengers which it services.
The number of passengers traveling through McCarran Airport has increased from
12.4 million in 1986 to 28.0 million in 1995, a compound annual growth rate of
9.5%. In addition, McCarran Airport reported that during the first three
months of 1996, the number of passengers traveling through McCarran Airport
increased by 10% over the first three months of 1995. With the addition of a
new runway and a charter/international terminal in 1991, McCarran Airport is
positioned to meet future demand for passenger services. Construction is
currently underway on numerous roadway enhancements to improve access to the
airport. These additions are expected to give McCarran Airport the ability to
accommodate over 30 million travelers annually. The U.S. Customs Department
has also announced that it will open an office at McCarran Airport. The
airport has additional long-term expansion plans which will provide additional
runways, three new satellite concourses, 60 additional gates and other
facilities.
The vitality of the Las Vegas market and the relative position of MGM Grand
Las Vegas in such market is demonstrated by the following table derived from
1995 LVCVA and Company information:
<TABLE>
<CAPTION>
STRIP MGM GRAND AS A %
HOTELS(1) LAS VEGAS OF STRIP HOTELS
------------ -------------- ---------------
<S> <C> <C> <C>
Number of rooms.................. 56,335 5,005 8.9%
Average daily room rate(2)....... $70.00 $98.00 NA
Occupancy rate(2)................ 93.4% 89.5% NA
Casino space (square feet)....... 2,323,000 171,500 7.4%
Number of slot machines.......... 51,027 3,500 6.9%
Number of table games............ 2,249 160 7.1%
Gaming revenues.................. $3.6 billion $397.4 million 11.0%
Gaming revenues per position per
day(3).......................... $148.90 $235.69 NA
</TABLE>
- --------
(1) Including MGM Grand Las Vegas.
(2) ADR and occupancy rate for Strip Hotels is based on the fiscal year ended
June 30, 1995, while ADR and occupancy rate for MGM Grand Las Vegas is
based on the fiscal year ended December 31, 1995.
(3) Assumes slot machines and table games are one and seven positions each,
respectively.
LAS VEGAS TARGET MARKET AND MARKETING STRATEGY
The Company uses the unique characteristics of MGM Grand Las Vegas to target
the following major segments of the Las Vegas market: (i) mid-level and high-
end gaming; (ii) free and independent travelers; (iii) special
events/conventions; (iv) tour and travel; and (v) local. It is anticipated
that New York-New York will follow a similar strategy (with additional
emphasis on lower to middle market gaming customers).
Mid-Level and High-End Gaming. Management believes it has been able to
target successfully high-end gaming patrons using the resort's elegant
surroundings, fine restaurants, approximately 750 luxury suites (ranging from
650 to 6,000 square feet) and extensive entertainment facilities to attract
and retain these discriminating customers. Use of unique attractions,
facilities and service as high-end
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marketing tools (as opposed to credit and discounts) is an integral part of
the Company's marketing plan. Additionally, the Company uses traditional
foreign and regional marketing offices to reach this market segment.
High-end gaming (which consists principally of baccarat but also includes
other high limit games), including the extension of credit to facilitate such
activity, is a significant, although not a predominant part of MGM Grand Las
Vegas' business. As part of a shift in marketing strategy, MGM Grand Las Vegas
has adopted a more selective approach to the high-end segment of the market in
order to reduce volatility of operating results, while at the same time
increasing marketing attention to guests and customers in the middle segments
of the market.
Free and Independent Travelers. This market segment consists of persons who
travel to Las Vegas from all areas of the world, many of whom originate from
the western region of the United States. These customers are not affiliated
with groups and make their reservations directly with the resort or through
independent travel agents. This market segment has a high growth potential due
to the continued increase in the acceptance of gaming among the general
population and attractive demographics.
Special Events/Conventions. This market segment consists of persons
attracted to MGM Grand Las Vegas to attend conventions and special events. The
Company believes that through careful selection of conventions and special
events, MGM Grand Las Vegas is able to attract visitors who are good gaming
customers.
Tour and Travel. The tour and travel segment of the market consists of
customers who utilize "packages" to reduce the cost of travel, lodging and
entertainment. These "packages" are produced by wholesalers and travel agents
and emphasize mid-week stays in Las Vegas. Tour and travel patrons often book
at "off-peak" periods thereby enabling the Company to maintain occupancy rates
at the highest levels year round.
Local. The Company believes that most Strip properties do not target Las
Vegas residents as part of their customer base. Although MGM Grand Las Vegas
does not emphasize this market, management believes that its extensive array
of non-gaming attractions including distinctive restaurants, makes MGM Grand
Las Vegas attractive to local customers and to out-of-town guests of local
residents.
In an effort to increase revenues from both casino and hotel operations, the
Company has begun to adjust its hotel guest mix, reducing the tour and travel
segment and emphasizing free and independent travelers and casino customers.
Free and independent travelers typically pay a higher room rate, and together
with casino customers, generally have a higher gaming budget compared to the
tour and travel customer.
New York-New York is expected to appeal to each of these markets, with a
greater emphasis on lower and middle market segments. Management does not
believe that New York-New York's opening will have an adverse effect on MGM
Grand Las Vegas. The Company believes that with the addition of three new
hotel/casinos in close proximity to the intersection of Tropicana Avenue and
the Strip, and 25,000 new hotel rooms, the south end of the Strip, and the
"New Four Corners" in particular, will become the new center of visitor
traffic in Las Vegas. Management believes that, as with the past openings of
mega-resorts on the Strip, the Las Vegas market, as a whole, will expand to
accommodate the new capacity.
MARKETING TECHNIQUES
The Company focuses on entertaining its guests by offering a full spectrum
of destination resort amenities. MGM Grand Las Vegas has three venues (the
16,700 seat MGM Grand Garden arena, the
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1,774-seat Grand Theater and the 660-seat Hollywood Theater) from which it
offers headliner entertainment for shows and concerts, world-class sporting
events and the musical and special effects extravaganza EFX. In addition, the
resort offers quality dining facilities, luxurious accommodations, a 33-acre
theme park and exciting recreational facilities.
The Company seeks to attract new customers through general advertising of
special events and promotions. In addition, the Company has recently begun
opening retail outlets located in high traffic locations which are designed to
enhance name recognition, raise general brand awareness and increase and
diversify revenues and cash flow.
The Company designs promotional offers targeted at certain patrons that are
expected to provide revenues based upon their historical gaming patterns, and
contacts customers through a combination of direct mail, telemarketing and
direct marketing from regional offices. The Company uses a specialized multi-
tiered marketing approach to attract customers in each of the major segments
to which it markets.
The Company believes the 16,700 seat MGM Grand Garden provides a venue to
attract prime customers to athletic events, such as boxing and tennis, and
concerts on a scale and style heretofore unavailable in the Las Vegas market.
Management also believes that industrial exhibits and trade shows find the
arena, which can be transformed into a 130,000 square foot exhibition center,
to be particularly attractive. In addition to the MGM Grand Garden, the
Company has traditional convention facilities and plans to build an
approximately 300,000 square foot convention center. Management believes that
the delegates attending conventions and special events at its facilities will
be more affluent and have better gaming customer and hotel guest demographics
than the traditional trade show delegate.
Mid-Level and High-End Gaming. In line with management's goals of enhancing
revenues, while simultaneously reducing volatility of operating results, the
Company has developed a more selective approach to the high-end of the casino
business. The Company has instituted a comprehensive program of controls
designed to temper the normal volatility in earnings typically associated with
certain types of high-end gaming, by not aggressively pursuing certain of the
largest players in this segment who typically request substantial perquisites,
expansion of credit and betting limits and relaxation of certain casino rules
to enhance their odds. In an effort to replace such casino patrons and expand
its mid and high-end gaming base, the Company has focused its marketing
efforts on expanding the number of mid range customers by increasing the
number of U.S. regional and international player development offices. The
Company contacts customers directly, offering personalized service, credit
availability and access to a variety of complimentary or reduced rate room,
dinner, entertainment and special event reservations. MGM Grand Las Vegas has
over 750 luxury suites (including 52 private two-story penthouse suites) which
are utilized for the Company's better gaming guests.
Free and Independent Travelers. Management has begun to focus additional
time and marketing resources toward expanding the middle market customer base.
The Company is currently developing a national marketing program that will
include opening of additional regional offices to directly market to potential
customers. In addition, the Company has developed many affinity programs
targeted to the middle market. Members of MGM Grand Las Vegas' slot club can
earn bonus points, based upon the amount of slot machine play, redeemable for
free gifts, complimentary amenities or cash rebates. The MGM Players Card will
be used in all of the Company's properties, in an effort to build an
international database of repeat gaming customers. In addition, the Company
runs an array of special events, including slot and table tournaments,
designed to attract customers for an extended stay.
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MGM GRAND AUSTRALIA
With the success of MGM Grand Las Vegas, the Company has been developing a
strategy to pursue growth opportunities in other localities. MGM Grand
Australia is the Company's first such expansion.
On September 7, 1995, the Company, through its wholly-owned subsidiary, MGM
Grand Australia Pty Ltd., completed the acquisition of what is now known as
MGM Grand Australia. MGM Grand Australia is located on 18 acres of beachfront
property next to the Arafura Sea on the north central coast. The resort
includes a public and private casino, 97 rooms and suites, restaurants and
other facilities. With the completion of a $15 million capital improvement
program in June 1996, casino operations include approximately 50 table games,
500 slots ("poker machines") and a keno lounge in three distinct casino
environments. The capital improvement program included renovation of all 97
rooms (including 17 suites), expansion of casino facilities (including two new
gaming rooms for middle and high-end players) and addition of dining,
entertainment and retail amenities. The Company has positioned MGM Grand
Australia as a multi-faceted gaming/entertainment facility for the local
market and as an exclusive destination resort targeting premium international
table game customers.
MGM Grand Australia is expected to benefit from its strategic location in
the Southeast Asian gaming market. The Darwin International Airport is an
average of 5.5 air hours away from the major Asian cities. Darwin is well
located relative to the major Asian gaming markets of Indonesia, Malaysia,
Singapore and Hong Kong; it is approximately four hours flying time closer to
these markets than the major casinos in Perth, Melbourne and Sydney. For
example, Darwin is within 6.0, 7.7 and 4.7 and 4.0 air hours from Hong Kong,
Tokyo, Singapore and Jakarta, respectively. However, absent significant use of
air charters, limitations on scheduled air service may impede full
exploitation of this market. Approximately 210,000 international tourists
visited the Northern Territory in 1995; given its proximity to Asia, the
Northern Territory Ministry of Tourism expects the number of visitors to
continue growing at 10% or more per year, to almost 300,000 in 1998.
Because of MGM Grand Australia's smaller size, geographic location and
target market, high-end gaming has constituted a large proportion of the
gaming business of MGM Grand Australia, thereby causing wider quarterly
operating variances. In addition, because weather conditions in the Darwin
area vary from the "dry" season (June through November), which is the most
popular time for visitors, to the "wet" season (December through May), MGM
Grand Australia's business is expected to be somewhat seasonal. Due to the
increasing competition, the limitations on scheduled air service to Darwin and
significant construction associated with the renovation of the property, MGM
Grand Australia has not attained its desired level of premium players. As a
result, its operating margins have been negatively impacted and future
operating results could be adversely affected if this trend continues. In an
effort to attract premium players, MGM Grand Australia has recently
refurbished the Monte Carlo private gaming room and the hotel guest suites,
and has added the Grand International private gaming room.
AUSTRALIA MARKET
The gaming industry in Australia is well developed, generating over $40
billion in gross wagering in 1995, including over $1.2 billion of wagering at
the country's thirteen licensed casinos, according to International Gaming and
Wagering Business. Australians spent nearly $400 per capita on gaming in 1995,
versus $170 in the U.S. and $370 in Hong Kong.
The Northern Territory has a population of 174,000 with approximately
210,000 international and 430,000 Australian tourists in fiscal 1995. Unlike
the U.S., Australia has granted, for the most part, regional casino monopolies
in its provinces. Two casinos operate in the Northern Territory, MGM Grand's
property in Darwin on the northern coast, and a small casino in Alice Springs
in the southern part of the Territory. Gross casino gaming revenue in fiscal
1995 for the Northern Territory was
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estimated at $35.2 million. Gaming machines are being installed in clubs and
hotels in 1996; MGM Grand Australia will effectively receive 22.0% of the
revenues from these machines through 2005 in the form of a tax rebate.
MGM GRAND ATLANTIC CITY
Atlantic City is, after Las Vegas, the second largest gaming destination in
the United States. The Company believes that it has the potential to
successfully expand its domestic base through developing and operating a
destination resort in Atlantic City. Management believes that Atlantic City
represents an attractive market for additional development due to its
proximity to areas with favorable demographics, including a large population
base with a high level of disposable income. In addition, management believes
that the market does not currently have a "must-see" destination resort, such
as the planned MGM Grand Atlantic City. The Company believes that destination
resorts will attract Atlantic City patrons from greater distances and for
increased lengths of stay and, with the addition of MGM Grand Atlantic City
and the proposed Mirage Resorts "H-Tract" development, that the Atlantic City
market will grow significantly. Additionally, as with the Las Vegas and Reno
markets, an increased room base often results in an increase in scheduled air
service, including regional shuttles. Historically, the Las Vegas and Atlantic
City markets have shown a strong correlation between hotel room inventory and
casino revenues. There can be no assurance that a Las Vegas-style destination
resort will be successful in the Atlantic City Market.
The Proposed Project
The Company is reviewing a number of alternatives for entering the Atlantic
City market, including new construction as well as acquisition and
redevelopment of existing properties. The Company intends to create a
destination resort hotel/casino in Atlantic City that will be larger and more
elaborate than any other facility currently in existence in that market. The
Company expects to use its entertainment themes at MGM Grand Atlantic City,
and plans to offer a wide array of gaming and non-gaming amenities to its
prospective customers. The Company's plans for MGM Grand Atlantic City may
also include the development of retail and food and beverage facilities. The
Company believes that the acquisition and/or development of MGM Grand Atlantic
City could cost in excess of $700 million and that the development or
redevelopment could take up to three years. The Company has not acquired any
property for the development of MGM Grand Atlantic City. The design, budget
and schedule for development or redevelopment of a project are at a
preliminary stage, and will be subject to the risks attendant to large-scale
projects and may be subject to additional costs and delays beyond preliminary
estimates. No assurance can be given that the Company will acquire property or
develop a hotel/casino in Atlantic City, or if it does, as to its ultimate
size, configuration or cost. Any development or operation in Atlantic City
will be subject to the receipt of regulatory approvals, including licensing,
acquisition of an appropriate site or property and obtaining necessary
financing.
ATLANTIC CITY MARKET
The Atlantic City market currently consists of 12 hotel/casinos which as of
December 31, 1995 had 9,404 rooms, 959,000 square feet of casino space, 29,057
slot machines and 1,301 table games. According to the Atlantic City Department
of Planning and Development (the "ACDPD"), more than 58 million people
(approximately 23.5% of the United States population) live within 300 miles of
Atlantic City, and more than 17.8 million people live within 100 miles. The
ACDPD reports that Atlantic City receives approximately 5.5 million visitors
annually, who come on average 5.7 times per year. Most of these visitors are
"day-trippers," but there are a substantial number of overnight visitors, who
are believed to have a higher gaming budget. The Company believes that the
overnight visitor component will increase substantially as destination resorts
and "must see" attractions such as the proposed MGM Grand Atlantic City make
Atlantic City a more exciting and appealing attraction for the middle and
high-end gaming customer. According to the ACDPD, Atlantic City casinos
experience an average win per person per day approximately 269.0% higher for
overnight visitors ($295) as compared to day-trippers ($80).
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The Atlantic City gaming market has demonstrated continued growth despite
the recent proliferation of new gaming venues across the country. The 12
hotel/casinos in Atlantic City generated approximately $3.75 billion in gaming
revenues in 1995, a 9.5% increase over 1994 gaming revenues of approximately
$3.42 billion. Gaming revenue per position in 1995 was $269.03 per day. From
1990 to 1995, total gaming revenues in Atlantic City increased 27.3%, while
hotel rooms increased only approximately 6.5% during this period. Although
total visitor volume to Atlantic City remained relatively constant in 1995,
the visitor mix has become more favorable. The volume of bus customers dropped
to 9.6 million in 1995, continuing a decline from 11.7 million in 1990. The
volume of customers traveling by other means to Atlantic City has grown from
20.1 million in 1990 to 23.7 million in 1995.
Casino revenue growth in Atlantic City has lagged behind that of other
traditional gaming markets, principally Las Vegas, for the last five years.
Management believes that this relatively slow growth is partially attributable
to two key factors. First, prior to 1995 there had been no significant
additions to hotel capacity in Atlantic City since 1990. Las Vegas visitor
volumes have increased, in part, due to the continued addition of new hotel
capacity. Both markets have exhibited a strong historical correlation between
hotel room inventory and total casino revenues. Secondly, the regulatory
environment and infrastructure problems in Atlantic City had made it more
difficult and costly to operate. Total regulatory costs and tax levies in New
Jersey have exceeded Nevada since inception. Atlantic City has been less
attractive to the gaming customer due to infrastructure problems, manifested
by impaired accessibility of the casinos, downtown congestion and the
condition of the areas surrounding the casinos.
Total Atlantic City slot revenues increased 12.0% in 1995, continuing the
trend of increases over the last five years. From 1990 through 1995, slot
revenue growth in Atlantic City has averaged 8.5% per year. Total table
revenue increased 4.4% in 1995, while table game revenue from 1990 to 1995 has
decreased on average 0.7% per year. Management believes that slow growth in
table revenues is primarily attributable to two factors. First, the slot
product has been significantly improved over the last five years; dollar bill
acceptors, new slot machines, video poker and blackjack and other improvements
have increased the popularity of slot play among a wider universe of casino
patrons. Slot revenues increased from 58.3% of total casino revenues in 1990
to 68.7% in 1995. The second reason for historic slow growth is that table
game players are typically higher end players and are more likely to be
interested in overnight stays and other amenities. During peak season and
weekends, room availability in Atlantic City is currently inadequate to meet
demand, making it difficult for casino operators to aggressively promote table
play. In addition, casino operators in Atlantic City added slot machines in
favor of table games due to increased public acceptance of slot play and due
to slot machines' comparatively higher profitability as a result of lower
labor and support costs. Since 1990, the number of slot machines in Atlantic
City has increased 37.6%, while the number of table games has decreased by
4.2%.
According to announced hotel room expansion projects, room inventory at the
existing 12 hotel/casinos is expected to increase approximately 50% over the
next two years, from its current base of 9,404 to approximately 13,860. Since
1993, the average daily room rate in Atlantic City has decreased approximately
0.7% from $81.21 to $80.67, according to the New Jersey Casino Control
Commission, while the occupancy rate increased 3.4% from 88.9% to 91.9% over
the same period.
Despite generally lower overall growth rates than the Las Vegas market,
management believes that Atlantic City possesses similar revenue and cash flow
generation capabilities. The approximately $3.75 billion of gaming revenue
produced by the 12 hotel/casinos in Atlantic City in 1995 exceeded the
approximately $3.12 billion of gaming revenues produced by the 18 largest
(based on net revenue) Las Vegas Strip Hotels, for the same period, even
though the Atlantic City hotel/casinos have less than one-quarter the number
of hotel rooms as the Las Vegas Strip Hotels. Win per unit figures in Atlantic
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City are at a significant premium to Las Vegas win per unit performance,
primarily due to the constrained supply of gaming positions in Atlantic City
compared to Las Vegas.
The regulatory environment in Atlantic City has improved significantly over
the last several years. New games, such as poker and keno, have been approved,
24-hour gaming has been permitted, registration of hotel employees has been
eliminated, license terms have been extended, and various operational
requirements have been relaxed. These regulatory changes have resulted in
reduced costs for the operators and created a more varied and attractive
environment for the gaming customer.
Management believes that recent gaming regulatory reforms will serve to
permit future reductions in operating expenses of casinos in Atlantic City and
to increase the funds available for additional infrastructure development
through the New Jersey Casino Redevelopment Authority ("CRDA"). Due
principally to an improved regulatory environment, general improvements of
economic conditions in 1993, 1994 and 1995 and high occupancy rates, all 12 of
the Atlantic City hotel/casinos have recently expanded, are in the process of
expanding or have announced plans to expand their facilities. In addition,
Mirage Resorts has entered into an agreement with Atlantic City for the
development of the "H-Tract," a 170-acre site in the Atlantic City Marina, and
plans to construct a 2,000 room hotel/casino with 100,000 square feet of
casino space, and Hilton and Circus Circus have each announced intentions to
enter the Atlantic City market. Management believes that these increases in
hotel/casino capacity, together with infrastructure improvements, and
community revitalization programs, will be instrumental in stimulating future
revenue growth in the Atlantic City market and increasing its appeal as a
destination resort.
In addition to the planned casino expansions, major infrastructure
improvements have been proposed or have begun. These include, among other
projects, new housing and retail development, a tunnel connecting the Atlantic
City Expressway to the Marina and construction of a new $254 million
Convention Center. The CRDA is currently overseeing the development of the
"tourist corridor" that will link the new Convention Center with the Boardwalk
and will, when completed, feature approximately 500,000 square feet of exhibit
and pre-function space, 42 meeting rooms, food-service facilities and a 1,600
car underground parking garage. The new convention center will be the largest
exhibition space between New York and Washington, D.C. The tourist corridor is
scheduled to be completed in conjunction with the completion of the new
convention center, planned to open in January 1997.
Seasonality
The gaming industry in Atlantic City is seasonal, with the heaviest activity
usually occurring during the period from May through September, and with
December and January showing substantial decreases in activity. Due to the
dominance in the past of the "day-tripper" component of the visitor mix,
casino revenues have generally been significantly higher on Fridays, Saturdays
and holidays than on other days.
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<PAGE>
REGULATION AND LICENSING
Gaming activities are highly and stringently regulated. For a description of
regulation of the Company's present activities in Nevada and Australia, see
the Form 10-K, "Item 1. Business-Hotels and Gaming--MGM Grand Las Vegas--
Nevada Governmental Regulation" and "--MGM Grand Australia-Australia
Government Regulation."
Nevada
The ownership and operation of casino gaming facilities in Nevada are
subject to: (i) the Nevada Gaming Control Act and the regulations promulgated
thereunder (collectively, the "Nevada Act"); and (ii) various local
regulations. The Company's gaming operations are subject to the licensing and
regulatory control of the Nevada Gaming Authorities.
The laws, regulations and supervisory procedures of the Nevada Gaming
Authorities are based upon declarations of public policy that are concerned
with, among other things: (i) the prevention of unsavory or unsuitable persons
from having a direct or indirect involvement with gaming at any time or in any
capacity; (ii) the establishment and maintenance of responsible accounting
practices and procedures; (iii) the maintenance of effective controls over the
financial practices of licensees, including the establishment of minimum
procedures for internal fiscal affairs and the safeguarding of assets and
revenues, providing reliable record keeping and requiring the filing of
periodic reports with the Nevada Gaming Authorities; (iv) the prevention of
cheating and fraudulent practices; and (v) the provision of a source of state
and local revenues through taxation and licensing fees. Changes in such laws,
regulations and procedures could have an adverse effect on the Company's
gaming operations.
MGM Grand Hotel, Inc. operates MGM Grand Las Vegas and is required to be
licensed by the Nevada Gaming Authorities. The Company is required to be
registered by the Nevada Commission as a publicly traded corporation
("Registered Corporation") and as such, it is required periodically to submit
detailed financial and operating reports to the Nevada Commission and furnish
any other information that the Nevada Commission may require.
Any beneficial holder of the Company's voting securities, regardless of the
number of shares owned, may be required to file an application, be
investigated and be found suitable as a beneficial holder of the Company's
voting securities if the Nevada Commission has reason to believe that such
ownership would otherwise be inconsistent with the declared policies of the
State of Nevada. The applicant must pay all costs of investigation incurred by
the Nevada Gaming Authorities in conducting any such investigation.
The Nevada Act requires any person who acquires more than 5% of the
Company's voting securities to report the acquisition to the Nevada
Commission. The Nevada Act requires that beneficial owners of more than 10% of
the Company's voting securities apply to the Nevada Commission for a finding
of suitability within thirty days after the Chairman of the Nevada Board mails
the written notice requiring such filing. Under certain circumstances, an
"institutional investor," as defined in the Nevada Act, which acquires more
than 10% but not more than 15% of the Company's voting securities, may apply
to the Nevada Commission for a waiver of such finding of suitability if such
institutional investor holds the voting securities for investment purposes
only. An institutional investor shall not be deemed to hold voting securities
for investment purposes unless the voting securities were acquired and are
held in the ordinary course of business as an institutional investor and not
for the purpose of causing, directly or indirectly, the election of a majority
of the members of the Board of Directors of the Company, any change in the
corporate charter, bylaws, management, policies or operations of the Company
or any of its gaming affiliates, or any other action which the Nevada
Commission finds to be inconsistent with holding the Company's voting
securities for investment purposes only. Activities that
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<PAGE>
are not deemed to be inconsistent with holding voting securities for
investment purposes only include: (i) voting on all matters voted on by
stockholders; (ii) making financial and other inquiries of management of the
type normally made by securities analysts for informational purposes and not
to cause a change in its management, policies or operations; and (iii) such
other activities as the Nevada Commission may determine to be consistent with
such investment intent. If the beneficial holder of voting securities who must
be found suitable is a corporation, partnership or trust, it must submit
detailed business and financial information including a list of beneficial
owners. The applicant is required to pay all costs of investigation.
Any person who fails or refuses to apply for a finding of suitability or a
license within thirty days after being ordered to do so by the Nevada
Commission or the Chairman of the Nevada Board, may be found unsuitable. The
same restrictions apply to a record owner if the record owner, after request,
fails to identify the beneficial owner. Any stockholder found unsuitable and
who holds, directly or indirectly, any beneficial ownership of the common
stock of a Registered Corporation beyond such period of time as may be
prescribed by the Nevada Commission may be guilty of a criminal offense. The
Company is subject to disciplinary action if, after it receives notice that a
person is unsuitable to be a stockholder or to have any other relationship
with the Company or MGM Grand Hotel, Inc., the Company (i) pays that person
any dividend or interest upon voting securities of the Company, (ii) allows
that person to exercise, directly or indirectly, any voting right conferred
through securities held by that person, (iii) pays remuneration in any form to
that person for services rendered or otherwise, or (iv) fails to pursue all
lawful efforts to require such unsuitable person to relinquish his voting
securities for cash at fair market value. Additionally, the CCLGLB has taken
the position that it has the authority to approve all persons owing or
controlling the stock of any corporation controlling a gaming license.
The Company is required to maintain a current stock ledger in Nevada that
may be examined by the Nevada Gaming Authorities at any time. If any
securities are held in trust by an agent or by a nominee, the record holder
may be required to disclose the identity of the beneficial owner to the Nevada
Gaming Authorities. A failure to make such disclosure may be grounds for
finding the record holder unsuitable. The Company is also required to render
maximum assistance in determining the identity of the beneficial owner.
The Company may not make a public offering of any securities without the
prior approval of the Nevada Commission if the securities or the proceeds
therefrom are intended to be used to construct, acquire or finance gaming
facilities in Nevada, or to retire or extend obligations incurred for such
purposes. Such approval, if given, does not constitute a finding,
recommendation or approval by the Nevada Commission or the Nevada Board as to
the accuracy or adequacy of the prospectus or the investment merits of the
securities. Any representation to the contrary is unlawful. On July 27, 1995,
the Nevada Commission granted the Company prior approval to make public
offerings for a period of one year, subject to certain conditions (the "Shelf
Approval"). However, the Shelf Approval may be rescinded for good cause
without prior notice upon the issuance of an interlocutory stop order by the
Chairman of the Nevada Board. This Offering is made pursuant to such Shelf
Approval. The Shelf Approval does not constitute a finding, recommendation or
approval by the Nevada Commission or the Nevada Board as to the accuracy or
adequacy of the Prospectus or the investment merits of the Common Stock
offered thereby. Any representation to the contrary is unlawful.
New Jersey
The ownership and operation of hotel/casino facilities and gaming activities
in Atlantic City, New Jersey are subject to extensive state regulation under
the New Jersey Casino Control Act (the "New Jersey Act") and the regulations
("Regulations") of the New Jersey Casino Control Commission (the "New Jersey
Commission") and other applicable laws. In general, the New Jersey Act and
Regulations arguably provide for more extensive controls over a broader scope
of gaming-related activities than does the Nevada regulatory system.
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<PAGE>
The New Jersey Act and Regulations concern primarily the financial stability
and character of casino licensees, their intermediary and holding companies,
their employees, their security holders and others financially interested in
casino operations, the nature of hotel and casino facilities and a wide range
of gaming and non-gaming related operations. The New Jersey Act and
Regulations include detailed provisions concerning, among other things:
financial and accounting practices used in connection with casino operations;
residence and equal employment opportunities for employees of casino
operators, contractors for casino facilities and others; rules of games,
levels of supervision of games and methods of selling and redeeming chips;
manner of granting credit, duration of credit and enforceability of gaming
debts; manufacture, distribution and sale of gaming equipment; security
standards, management control procedures, accounting and cash control methods
and reports to gaming authorities; advertising of casinos and standards for
entertainment; and distribution of alcoholic beverages in casinos. A number of
these provisions require practices which are different from those in Nevada
and some of them result in casino operating costs being higher than those in
comparable facilities in Nevada.
The New Jersey Act also established the New Jersey Division of Gaming
Enforcement (the "New Jersey Division") to investigate all license
applications, enforce the provisions of the New Jersey Act and Regulations and
prosecute all proceedings for violations of the New Jersey Act and Regulations
before the New Jersey Commission. The New Jersey Division also conducts audits
and continuing reviews of all casino operations.
The Company's wholly owned subsidiary MGM Grand Atlantic City, Inc. has
applied to be licensed by the New Jersey Commission to operate a casino, and
the Company has applied to be approved as a qualified holding company. Such
applications are presently pending. Officers and directors of the Company and
MGM Grand Atlantic City, Inc. and employees who will work at the hotel/casino
facilities to be operated by MGM Grand Atlantic City, Inc. must also be
approved or licensed. In addition, all contracts affecting the facilities must
be approved, and all enterprises that conduct business with MGM Grand Atlantic
City, Inc. will be required to register with the New Jersey Commission and
those enterprises that conduct gaming-related businesses or that conduct
business on a regular and continuing basis, as defined by the Regulations,
must be licensed by the New Jersey Commission.
The New Jersey Commission has broad discretion regarding the issuance,
renewal, revocation and suspension of casino licenses. Casino licenses are not
transferable. A hotel/casino facility must also continually satisfy certain
requirements concerning, among other things, the number of qualifying sleeping
units and the relationship between the number of qualifying sleeping units and
the square footage of casino space.
The New Jersey Act further provides that each person who directly or
indirectly holds any beneficial interest or ownership of the securities issued
by a casino licensee or any of its intermediary or holding companies, those
persons who, in the opinion of the New Jersey Commission, have the ability to
control the casino licensee or its intermediary or holding companies or elect
a majority of the board of directors of said companies, other than a banking
or other licensed lending institution which makes a loan or holds a mortgage
or other lien acquired in the ordinary course of business, lenders and
underwriters of said companies may be required to seek qualification from the
New Jersey Commission. However, because the Company intends to qualify as a
publicly traded holding company, in accordance with the provisions of the New
Jersey Act, a waiver of qualification may be granted by the New Jersey
Commission, with the concurrence of the Director of the New Jersey Division,
if it is determined that said persons or entities are not significantly
involved in the activities of MGM Grand Atlantic City and, in the case of
security holders, do not have the ability to control the Company or elect one
or more of its directors. There exists a rebuttable presumption that any
person holding 5% or more of the equity securities of a casino licensee's
intermediary or holding company or a person having the ability to elect one or
more of the directors of such a company has the ability to control the company
and thus must obtain qualification from the New Jersey Commission. The
Principal Stockholders, as the holders of more than a majority of the
Company's outstanding Common Stock, will be required to obtain such
qualification.
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<PAGE>
Notwithstanding this presumption of control, the New Jersey Act provides for
a waiver of qualification for passive "institutional investors," as defined by
the New Jersey Act, if the institutional investor purchased the securities for
investment purposes only and where such securities constitute (i) less than
10% of the equity securities of a casino licensee's holding or intermediary
company or (ii) debt securities of a casino licensee's holding or intermediary
company representing a percentage of the outstanding debt of such company not
exceeding 20% or a percentage of any issue of the outstanding debt of such
company not exceeding 50%. The waiver of qualification is subject to certain
conditions including, upon request of the New Jersey Commission, filing a
certified statement that the institutional investor has no intention of
influencing or affecting the affairs of the issuer, except that an
institutional investor holding voting securities shall be permitted to vote on
matters put to a vote of the holders of outstanding voting securities.
Additionally, a waiver of qualification may also be granted to institutional
investors holding a higher percentage of securities of a casino licensee's
holding or intermediary company upon a showing of good cause.
If an institutional investor that has been granted a waiver subsequently
changes its investment intent, or if the New Jersey Commission finds
reasonable cause to believe that the institutional investor may be found
unqualified, no action other than divestiture shall be taken by the investor
with respect to the security holdings until there has been compliance with the
provisions of the New Jersey Act concerning interim casino authorization. The
provisions of the New Jersey Act concerning interim casino authorization
provide that whenever a security holder of either equity or debt is required
to qualify pursuant to the New Jersey Act, the security holder shall, within
30 days after the New Jersey Commission determines that qualification is
required or declines to waive qualification, (i) file a completed application
for qualification, along with an executed and approved trust agreement,
wherein all securities of the holding or intermediary company held by that
security holder are placed in trust pending qualification, or (ii) file a
notice of intent to divest itself of such securities as the New Jersey
Commission may require so as to remove the need for qualification, which
securities must be divested within 120 days from the date such determination
was made.
The New Jersey Act further requires that corporate licensees and their
subsidiaries, intermediaries and holding companies adopt certain provisions in
their certificates of incorporation that require certain remedial action in
the event that an individual owner of any security of such company is found
disqualified under the New Jersey Act. The required certificate of
incorporation provisions vary depending on whether the stock of the company
subject to the requirements of the New Jersey Act is publicly or privately
traded. Pursuant to the New Jersey Act, the certificate of incorporation of a
publicly held company must provide that any securities of such corporation are
held subject to the condition that if a holder is found to be disqualified by
the New Jersey Commission pursuant to the New Jersey Act such holder shall
dispose of his interest in such company. The certificate of incorporation of a
privately held company must create the absolute right of the company to
repurchase at the market price or purchase price, whichever is the lesser, any
security, share or other interest in the company in the event the New Jersey
Commission disapproves a transfer in accordance with the provisions of the New
Jersey Act.
The Company is a publicly held company and, accordingly, the Company's
Certificate of Incorporation will, in connection with licensing, be amended to
provide that a holder of the Company's securities must dispose of such
securities if the holder is found disqualified under the New Jersey Act. In
addition, the Company intends to amend its Certificate of Incorporation to
provide that the Company may redeem the stock of any holder found to be
disqualified.
If the New Jersey Commission should find a security holder to be unqualified
to be a holder of securities of a casino licensee or holding company, not only
must the disqualified holder dispose of such securities but, in addition,
commencing on the date the New Jersey Commission serves notice upon the
Company of the determination of disqualification, it shall be unlawful for the
disqualified holder (1) to receive any dividends or interest upon any such
securities, (2) to exercise, directly or
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<PAGE>
through any trustee or nominee, any right conferred by such securities, or (3)
to receive any remuneration in any form from the licensee for services
rendered or otherwise. If the New Jersey Commission should find a security
holder to be unqualified to be a holder of securities of a casino licensee or
holding company, the New Jersey Commission shall take any necessary action to
protect the public interest including the suspension or revocation of the
casino license except that if the disqualified person is the holder of
securities of a publicly traded holding company, the New Jersey Commission
shall not take action against the casino license if (1) the holding company
has the corporate charter provisions concerning divestiture of securities by
disqualified owners required by the New Jersey Act, (2) the holding company
has made good faith efforts including the prosecution of legal remedies to
comply with any order of the New Jersey Commission, and (3) the disqualified
holder does not have the ability to control the company or elect one or more
members of the company's board of directors.
If, at any time, it is determined that MGM Grand Atlantic City, Inc. has
violated the New Jersey Act or Regulations, or if any security holder of the
Company or MGM Grand Atlantic City, Inc. who is required to be qualified under
the New Jersey Act is found to be disqualified but does not dispose of the
securities, MGM Grand Atlantic City, Inc. could be subject to fines or its
license could be suspended or revoked. If MGM Grand Atlantic City, Inc.'s
license is revoked, the New Jersey Commission could appoint a conservator to
operate and to dispose of any hotel/casino facilities of MGM Grand Atlantic
City, Inc. Net proceeds of a sale by a conservator and net profits of
operations by a conservator (at least up to an amount equal to a fair return
on MGM Grand Atlantic City, Inc.'s investment which is reasonable for casinos
or hotels) would be paid to the Company.
In addition to compliance with the New Jersey Act and Regulations relating
to gaming, any facility built in Atlantic City by MGM Grand Atlantic City,
Inc. or any other subsidiary of the Company must comply with the New Jersey
and Atlantic City laws and regulations relating to, among other things, the
Coastal Area Facilities Review Act, construction of buildings, environmental
considerations, operation of hotels and the sale of alcoholic beverages.
The New Jersey Commission is authorized to establish fees for the issuance
or renewal of casino licenses and casino hotel alcoholic beverage licenses.
There is also an annual license fee on each slot machine. The New Jersey
Commission is also authorized by regulation to establish annual fees for the
issuance and renewal of licenses other than casino licenses.
The New Jersey Act imposes an annual tax of eight percent on gross revenues
(as defined in the New Jersey Act). In addition, casino licensees are required
to invest one and one-quarter percent of gross revenues for the purchase of
bonds to be issued by the CRDA or make other approved investments equal to
that amount. In the event the investment requirement is not met, the casino
licensee is subject to a tax in the amount of two and one-half percent on
gross revenues.
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MANAGEMENT
The following table sets forth the executive officers and directors of MGM
Grand and the principal officers of each of the Company's operating
subsidiaries as of May 14, 1996:
<TABLE>
<CAPTION>
NAME POSITION
- ---- --------
<S> <C>
J. Terrence Lanni Chairman of the Board and Chief Executive Officer
Alex Yemenidjian President, Chief Operating Officer, Chief Financial Officer and Director
Fred Benninger Vice Chairman of the Board
Scott Langsner Secretary/Treasurer
Kenneth A. Rosevear Senior Vice President-Development
T. Patrick Smith Vice President-Real Estate
Edward J. Jenkins Vice President
Gary Charters Vice President-Development
James D. Aljian Director
Terry N. Christensen Director
Glenn A. Cramer Director
Willie D. Davis Director
Alexander M. Haig, Jr. Director
Lee A. Iacocca Director
Kirk Kerkorian Director
Walter M. Sharp Director
Jerome B. York Director
Daniel M. Wade President and Chief Operating Officer of MGM Grand Hotel, Inc.
Robert V. Moon President of Destron, Inc.
Bob Bowman President of MGM Grand Merchandising, Inc.
Patricia Johnson General Manager and Chief Financial Officer of MGM Grand
Australia Pty Ltd.
</TABLE>
J. TERRENCE LANNI (age 53) has served as Chairman of the Company since July
1995, and as a Director, Chairman of the Executive Committee and Chief
Executive Officer of the Company since June 1995. He also served as President
of the Company from June 1995 to July 1995. Prior thereto, he was President
and Chief Operating Officer of Caesars World, Inc. from April 1981 to February
1995.
ALEX YEMENIDJIAN (age 40) has served as a Director of the Company since
December 1989, as President of the Company since July 1995, as Chief Operating
Officer of the Company since June 1995, and as Chief Financial Officer of the
Company since May 1994. He also served as Executive Vice President of the
Company from June 1992 to July 1995, as Chairman of the Executive Committee
from January 1991 to June 1992, and as President and Chief Operating Officer
of the Company from March 1990 to January 1991. He has also served as an
executive of Tracinda since January 1990.
FRED BENNINGER (age 79) has served as a Director of the Company since
February 1986, and as Vice Chairman of the Board since April 1995. He was
Chairman of the Board from August 1987 to April 1995. He also served as Chief
Executive Officer of the Company from August 1987 to January 1991, and as
President of the Company from August 1987 to March 1990.
SCOTT LANGSNER (age 43) has served as Secretary/Treasurer of the Company
since July 1987.
KENNETH A. ROSEVEAR (age 46) has served as Senior Vice President-Development
of the Company since November 1995. From November 1993 to November 1995, he
served as President of Caesars World Gaming Development Corporation. For more
than five years prior thereto, he served as Chief Executive of Sun
International Group in South Africa.
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<PAGE>
T. PATRICK SMITH (age 47) has served as Vice President-Real Estate of the
Company since September 1995. For more than five years prior thereto, he
served in a variety of positions with the Irvine Company, most recently as
Chief Executive Officer of Irvine Apartment Communities, Inc., a publicly
traded real estate investment trust of The Irvine Company.
EDWARD J. JENKINS (age 51) has served as Vice President of the Company since
October 1995. From July 1992 to October 1995, he served as Vice President,
Security, for Caesars World, Inc. He previously was a 30-year veteran of the
FBI, holding various management positions at Bureau offices throughout the
United States.
GARY CHARTERS (age 52) has served as Vice President Development of the
Company since April 1996. From June 1991, he served as Director of Corporate
Development of Boyd Gaming Corporation and prior thereto since August 1989,
served as a Senior Manager of the Management Consulting Services division of
Deloitte & Touche.
JAMES D. ALJIAN (age 63) has served as an executive of Tracinda since
October 1987 and is a director of Chrysler Corporation ("Chrysler").
TERRY N. CHRISTENSEN (age 55) has been a partner of the law firm of
Christensen, White, Miller, Fink, Jacobs, Glaser & Shapiro, LLP since May 1988
and is a director of GIANT GROUP, LTD.
GLENN A. CRAMER (age 74) served as a director of Transamerica Corporation
from 1968 to April 1994 and as Chairman of the Executive Committee of
Transamerica Airlines from 1983 to April 1994.
WILLIE D. DAVIS (age 61) is President and a director of All-Pro
Broadcasting, Inc., an AM and FM radio broadcasting company. Mr. Davis is a
director of Sara Lee Corporation, K-Mart Corporation, Johnson Controls, Inc.,
Alliance Bank, WICOR, Dow Chemical Company, Rally's Hamburgers, Inc. and LA
Gear, Inc.
ALEXANDER M. HAIG, JR. (age 72) is Chairman of Worldwide Associates, Inc.,
an international business advisory firm, and a director of America Online,
Inc. and Interneuron Pharmaceuticals, Inc. Mr. Haig has been a consultant to
the Company since May 1990, in connection with the Company's research
regarding expansion in certain foreign jurisdictions.
LEE A. IACOCCA (age 71) was a director of Chrysler from November 1978 to
September 1993 and also served in the following capacities with Chrysler:
Chairman of the Board from September 1979 until his retirement on December 31,
1992; and President from November 1978 to September 1979. Mr. Iacocca is
Chairman Emeritus of the Statute of Liberty-Ellis Island Foundation, Inc.,
Chairman of the Committee for Corporate Support for the Joslin Diabetes
Foundation, Founder and Chairman of the Advisory Board to the Iacocca
Institute at Lehigh University, Chairman of the Iacocca Foundation, a member
of the Advisory Board of Reading is Fundamental, honorary Chairman of the
National PTA since 1991, and an honorary trustee of Lehigh University. Mr.
Iacocca is a director of New World Communications Group, Inc. and Koo Koo Roo
Chicken, Inc.
KIRK KERKORIAN (age 78) has been Chief Executive Officer, President and sole
director of Tracinda for more than the past five years.
WALTER M. SHARP (age 79) has been President of Walter M. Sharp Company
(financial consultants) and a consultant to Tracinda for more than the past
five years.
JEROME B. YORK (age 57) has served as Vice Chairman of Tracinda since
September 1995. Mr. York served as Senior Vice President and Chief Financial
Officer of IBM Corporation from May 1993 to September 1995, and director of
IBM Corporation from January 1995 to September 1995 and as Executive Vice
President Finance and Chief Financial Officer of Chrysler from May 1990 to May
1993, and director of Chrysler from April 1992 to May 1993.
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<PAGE>
DANIEL M. WADE (age 44) has served as President and Chief Operating Officer
of MGM Grand Hotel, Inc. since July 1995. He also served as Executive Vice
President and Chief Operating Officer of MGM Grand Hotel, Inc. from January
1995 to July 1995, as Executive Vice President of Theme Park Operations from
September 1994 to January 1995, and as Senior Vice President and General
Manager of Theme Park Operations from September 1992 to September 1994. He
also served as Senior Vice President of Operations of the Marina Hotel and
Casino from December 1990 to September 1992.
ROBERT V. MOON (age 45) has served as President of Destron, Inc. (the
Company's marketing subsidiary) since June 1995 and as Senior Vice President
of Casino Marketing of MGM Grand Hotel, Inc. from September 1993 to June 1995.
Prior to that he served as Senior Vice President of Casino Marketing of
Caesars Palace, Las Vegas from May 1990 to September 1993.
BOB BOWMAN (age 53) has served as President of MGM Grand Merchandising, Inc.
since January 1996. For the twenty-five years prior to that he served in a
variety of positions with The Walt Disney Company, most recently as Vice
President of Store Planning and Development.
PATRICIA JOHNSON (age 51) has served as General Manager and Chief Financial
Officer of MGM Grand Australia Pty Ltd. since November 1995. For the more than
two years prior to that she has held various positions with MGM Grand Hotel,
Inc., most recently as Vice President of Casino Marketing. Before joining the
Company, she served in numerous positions with the Las Vegas Hilton, most
recently as Casino Controller.
DESCRIPTION OF COMMON STOCK
The authorized capital stock of the Company consists of 75 million shares of
Common Stock. Holders of the Common Stock are entitled to dividends when and
as declared by the Board of Directors. Holders have one vote per share and the
right to the net assets in liquidation after payment of any amounts due to
creditors. Holders are not liable for further calls or assessments by the
Company. There are no sinking fund or redemption provisions relating to the
Common Stock. The Common Stock has noncumulative voting rights, which means
that holders of a majority of the shares voting for the election of directors
can elect 100% of the directors if they choose to do so.
The Transfer Agent and Registrar for the Common Stock is Mellon Securities
Trust Company, New York, New York.
44
<PAGE>
DEFEASANCE OF FIRST MORTGAGE NOTES
The Company has received a commitment from BA Securities, an affiliate of B
of A, to arrange a 5-1/2 year senior reducing $500 million revolving credit
facility (the "Credit Facility"), subject to the Company's right to accept,
with the consent of BA Securities and B of A, oversubscriptions of up to $100
million. B of A will commit an initial amount of $250 million to the Credit
Facility.
The Company intends to utilize cash from operations, proceeds from the
Offering, proceeds available under the Operating Loan and up to $150 million
of proceeds available under the Credit Facility to fund the defeasance of the
First Mortgage Notes in accordance with the terms of the Indenture. The
Operating Loan consists of a $60 million secured revolving credit facility
provided by B of A, as agent for a group of banks, to MGM Grand Finance
concurrently with the issuance of the First Mortgage Notes. In order to
defease the First Mortgage Notes, the Company will purchase and deposit with
the secured lenders' agent for the benefit of the holders of the First
Mortgage Notes approximately $522.5 million of qualifying U.S. Government
securities (the "Defeasance Deposit"). The Defeasance Deposit will be used to
fund interest payments on the First Mortgage Notes through May 1, 1997, the
call as of such date of the First Mortgage Notes at 101.958% of the
outstanding principal amount in the case of the 11 3/4% First Mortgage Notes
and 105.333% of the outstanding principal amount in the case of the 12% First
Mortgage Notes, and related expenses. Upon the Defeasance Deposit being
delivered, the Defeasance Deposit will be held as collateral for the First
Mortgage Notes and, approximately 91 days following such delivery, the liens
on the assets of MGM Grand Hotel, Inc. and MGM Grand Finance will be released.
To the extent the Company draws upon the Credit Facility to fund the
Defeasance Deposit, the lenders will have a first lien on U.S. Government
securities aggregating 105% of the amounts borrowed under the Credit Facility
to fund the Defeasance Deposit. Such lien will be released by the lenders
concurrently with the release of the liens on the assets of MGM Grand Hotel,
Inc. and MGM Grand Finance (other than the Defeasance Deposit), which will
thereupon be pledged to the lenders to secure the Credit Facility.
Upon completion of the defeasance of the First Mortgage Notes, most of the
restrictive covenants contained in the Indenture applicable to MGM Grand
Hotel, Inc. and MGM Grand Finance will lapse and be of no further force and
effect. These covenants include the maintenance by MGM Grand Hotel, Inc. of
certain financial ratios and limitations on additional debt, dividends, stock
repurchases, disposition of assets, mergers and similar transactions. The
defeasance of the First Mortgage Notes will result in an extraordinary charge,
of approximately $36.4 million, net of tax benefits, to reflect the early
discharge of the First Mortgage Notes and the expenses related thereto.
The Credit Facility will be unconditionally guaranteed by MGM Grand Hotel,
Inc., MGM Grand Finance and MGM Grand Atlantic City, Inc., and will be
secured, among other things, by a pledge of substantially all of the assets of
the Company (including the stock of MGM Grand Hotel, Inc., MGM Grand Finance
and MGM Grand Atlantic City, Inc., but not the Company's interest in New York-
New York or MGM Grand Australia). MGM Grand Hotel, Inc., MGM Grand Finance and
MGM Grand Atlantic City, Inc. will pledge substantially all of their assets in
support of the Credit Facility. The guarantee of the Credit Facility by MGM
Grand Hotel, Inc. and MGM Grand Finance and the pledge by MGM Grand Hotel,
Inc. and MGM Grand Finance of their respective assets in support of the Credit
Facility, will not be effective until completion of the defeasance of the
First Mortgage Notes.
The Operating Loan, is secured on a pari passu basis by the assets securing
the First Mortgage Notes. In connection with the defeasance, MGM Grand Finance
may draw on the Operating Loan, which will be refinanced through and
terminated upon consummation of the Credit Facility.
Up to $150 million of the Credit Facility will be available to fund the
defeasance and for general corporate purposes. Upon completion of the
defeasance, the entire Credit Facility will be available for general corporate
purposes, including to finance initial development costs for MGM Grand
Atlantic City.
45
<PAGE>
Availability under the Credit Facility will decline in quarterly increments of
$25 million, commencing on December 31, 1999, with the balance due on December
31, 2001. The Company may request one year extensions subject to the consent
of the Lenders, which would have the effect of deferring scheduled reductions
in availability.
Interest on outstanding balances and commitment fees on unutilized
availabilities under the Credit Facility will be determined pursuant to a
formula based on the Company's leverage ratio (the ratio of Total Debt to
Annualized Cash Flow), and in the case of interest rates, to the Eurodollar or
base rate prevailing from time to time. Total Debt will be defined under the
Credit Facility as the average of the principal amount of the Company's funded
debt outstanding on the last day of each of the three calendar months in the
fiscal quarter being measured, plus 50% of the funded debt of New York-New
York until the opening of that project or for any quarterly period in which
New York-New York's EBITDA is less than $20 million. Annualized Cash Flow will
be defined as the aggregate (without duplication) of the Company's EBITDA for
the prior four fiscal quarters, pre-opening expenses for such period, plus
cash distributions received from New York-New York for such period. As the
Company's leverage ratio declines, the interest rate and commitment fee will
also decline. The Company will also pay certain underwriting and agency fees
in connection with the Credit Facility.
The Credit Facility will also require the Company to comply with certain
financial and operating covenants customary for such facilities, including
limitations on dividends, acquisitions and mergers. While the Indenture
covenants (which will terminate upon completion of the defeasance) were in
certain respects more restrictive than those expected to be imposed under the
Credit Facility, for the most part they applied only to MGM Grand Las Vegas
and MGM Grand Finance, and not to the Company. By way of example, the
Indenture limits dividends payable by MGM Grand Las Vegas to the Company, but
does not restrict dividends payable by the Company. The interim facility and
the Credit Facility will restrict dividends payable by the Company. The
Company has not paid and does not expect to pay dividends in the foreseeable
future. See "Dividend Policy."
It is anticipated that the defeasance of the First Mortgage Notes will be
effected in the beginning of the third quarter of 1996. There can be no
assurance that the defeasance of the First Mortgage Notes will be accomplished
or that the terms of the Credit Facility will not be different from the terms
described above. See "Risk Factors--Leverage and Related Debt Service."
46
<PAGE>
UNDERWRITING
The U.S. Underwriters named below, for whom Deutsche Morgan Grenfell/C. J.
Lawrence Inc. and Oppenheimer & Co., Inc. are acting as representatives (the
"U.S. Representatives"), and the International Underwriters named below, for
whom Morgan Grenfell & Co., Limited and Oppenheimer International Ltd. are
acting as representatives (the "International Representatives," and together
with the U.S. Representatives, the "Joint Global Coordinators"), have
severally agreed, subject to the terms and conditions contained in the
Underwriting Agreement (the form of which is filed as an exhibit to the
Company's Registration Statement, of which this Prospectus is a part), to
purchase from the Company the respective number of shares of Common Stock
indicated below opposite their respective names. The Underwriters are
committed to purchase all of the shares, if they purchase any.
<TABLE>
<CAPTION>
NUMBER OF
U.S. UNDERWRITERS SHARES
----------------- ---------
<S> <C>
Deutsche Morgan Grenfell/C. J. Lawrence Inc. ....................... 962,500
Oppenheimer & Co., Inc.............................................. 962,500
Dean Witter Reynolds Inc............................................ 962,500
Montgomery Securities............................................... 962,500
Bear, Stearns & Co. Inc. ........................................... 350,000
BT Securities Corporation........................................... 350,000
Morgan Stanley & Co. Incorporated................................... 350,000
Salomon Brothers Inc. .............................................. 350,000
Ladenburg, Thalmann & Co. Inc. ..................................... 150,000
Legg Mason Wood Walker, Incorporated................................ 150,000
Raymond James & Associates, Inc. ................................... 150,000
The Seidler Companies Incorporated.................................. 150,000
Sutro & Co. Incorporated............................................ 150,000
---------
Total........................................................... 6,000,000
=========
<CAPTION>
INTERNATIONAL UNDERWRITERS
--------------------------
<S> <C>
Morgan Grenfell & Co., Limited...................................... 290,625
Oppenheimer International Ltd. ..................................... 290,625
Dean Witter International Ltd. ..................................... 290,625
Montgomery Securities............................................... 290,625
ABN AMRO Bank N.V. ................................................. 37,500
Barclays de Zoete Wedd Limited...................................... 37,500
Credit Lyonnais Securities.......................................... 37,500
Goldman Sachs International......................................... 37,500
Robert Fleming & Co. Limited........................................ 37,500
Nomura International plc............................................ 37,500
Swiss Bank Corporation.............................................. 37,500
J. Henry Schroder & Co. Limited..................................... 37,500
UBS Limited......................................................... 37,500
---------
Total........................................................... 1,500,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters thereunder are subject to approval of certain legal matters by
counsel and to various other conditions.
The U.S. Underwriters and the International Underwriters have entered into
an Intersyndicate Agreement (the "Intersyndicate Agreement") that provides for
the coordination of their activities. Pursuant to the Intersyndicate
Agreement, sales may be made between the U.S. Underwriters and the
International Underwriters of such number of shares of Common Stock as may be
mutually agreed. The price of any shares of Common Stock so sold shall be the
initial public offering price, less an amount not greater than the selling
concession.
47
<PAGE>
Under the terms of the Intersyndicate Agreement, the International
Underwriters and any dealer to whom they sell shares of Common Stock will not
offer to sell or sell shares of Common Stock to persons who are United States
persons or to persons they believe intend to resell to persons who are United
States persons, and the U.S. Underwriters and any dealer to whom they sell
shares of Common Stock will not offer to sell or sell shares of Common Stock
to any non-United States person or to persons they believe intend to resell to
non-United States persons, except, in each case, for transactions pursuant to
such agreement.
The Joint Global Coordinators have advised the Company that the Underwriters
propose initially to offer the Common Stock to the public on the terms set
forth on the cover page of this Prospectus. The Price to Public and
Underwriting Discount will be identical in the U.S. and International
Offerings. The Underwriters may allow to selected dealers (who may include the
Underwriters) a concession of not more than $0.85 per share. The selected
dealers may reallow a concession of not more than $0.10 to certain other
dealers. After the initial public offering, the price and concessions and re-
allowances to dealers and other selling terms may be changed by the Joint
Global Coordinators. The Common Stock is offered subject to receipt and
acceptance by the Underwriters, and to certain other conditions, including the
right to reject orders in whole or in part. The Underwriters do not intend to
sell any of the shares of Common Stock offered hereby to accounts for which
they exercise discretionary authority.
The Company has granted an option to the Underwriters to purchase up to a
maximum of 1,125,000 additional shares of Common Stock to cover over-
allotments, if any, at the public offering price, less the underwriting
discount set forth on the cover page of this Prospectus. Such option may be
exercised at any time until 30 days after the date of the Underwriting
Agreement. To the extent the Underwriters exercise this option, each of the
Underwriters will be committed, subject to certain conditions, to purchase
such additional shares in approximately the same proportion as set forth in
the above table. The Underwriters may purchase such shares only to cover over-
allotments made in connection with the Offering.
Each International Underwriter has represented and agreed that (i) it has
not offered or sold and will not offer or sell any shares of Common Stock
offered hereby to persons in the United Kingdom except to persons whose
ordinary activities involve them in acquiring, holding, managing or disposing
of investments (as principal or agent) for the purpose of their business or
otherwise in circumstances which have not resulted and will not result in an
offer to the public in the United Kingdom within the meaning of the Public
Offers of Securities Regulations 1995 (the "U.K. Regulations"), (ii) it has
complied and will comply with all applicable provisions of the Financial
Services Act 1986 and the U.K. Regulations with respect to anything done by it
in relation to the shares of Common Stock offered hereby in, from or otherwise
involving the United Kingdom, and (iii) it has only issued or passed on and
will only issue or pass on to any person in the United Kingdom any document
received by it in connection with the issue of the shares of Common Stock
offered hereby if that person is of a kind described in Article 11(3) of the
Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order
1995 or is a person to whom such document may otherwise lawfully be issued or
passed on.
The Underwriting Agreement provides that the Company will indemnify the
several Underwriters against certain liabilities including civil liabilities
under the Securities Act of 1933, as amended, or will contribute to payments
the Underwriters may be required to make in respect thereof.
In connection with the Offering, the Company, Tracinda and the directors of
the Company have agreed not to offer, sell or otherwise dispose of any shares
of Common Stock for a period of 120 days after the later of: (i) the date of
this Prospectus; and (ii) the first date on which shares of Common Stock
hereby are offered to the public, without the prior written consent of the
Joint Global Coordinators.
48
<PAGE>
LEGAL MATTERS
Certain legal matters in connection with the validity of the Common Stock
offered hereby will be passed upon for the Company by Christensen, White,
Miller, Fink, Jacobs, Glaser & Shapiro, LLP, Los Angeles, California. Terry N.
Christensen, a director of the Company, is a partner of Christensen, White,
Miller, Fink, Jacobs, Glaser & Shapiro, LLP. Certain legal matters will be
passed upon for the Underwriters by Gibson, Dunn & Crutcher LLP, Los Angeles,
California.
The statements as to matters of law and legal conclusions concerning New
Jersey gaming laws included under the caption "Regulation and Licensing--New
Jersey" (other than the subcaption "Other Laws and Regulations") have been
prepared by Horn, Goldberg, Gorny, Daniels, Plackter, Weiss & Casiello, P.C.,
Atlantic City, New Jersey, New Jersey gaming counsel for the Company.
The statements as to matters of law and legal conclusions concerning Nevada
gaming laws included under the captions "Risk Factors--Risks of Development
and New Construction" and "Regulation and Licensing--Nevada" in this
Prospectus and "Item 1. Business--Hotels and Gaming--MGM Grand Las Vegas--
Nevada Government Regulation" in the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995 have been prepared by Lionel Sawyer &
Collins, Las Vegas, Nevada, Nevada gaming counsel for the Company.
EXPERTS
The consolidated financial statements of the Company included in this
Prospectus and incorporated by reference in the Registration Statement have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are included
(incorporated by reference) herein in reliance upon the authority of said firm
as experts in accounting and auditing in giving said reports.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files periodic reports, proxy statements and other information with
the Securities and Exchange Commission ("the Commission"). Such periodic
reports, proxy statements and other information can be inspected and copied at
the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Room 1024, Washington, D.C., at its Chicago Regional Office at
500 West Madison, Suite 1400, Chicago, Illinois 60661, and at its New York
Regional Office at 7 World Trade Center, Suite 1300, New York, New York 10048.
Copies of such material can be obtained from the Public Reference Section of
the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549 after payment of the rates prescribed by the
Commission. Copies of such reports, proxy statements and other information
concerning the Company can also be inspected at the offices of the New York
Stock Exchange at 20 Broad Street, New York, New York 10005.
This Prospectus constitutes part of a Registration Statement on Form S-3
filed by the Company with the Commission under the Securities Act of 1933, as
amended (the "Securities Act"). This Prospectus does not contain all of the
information set forth in the Registration Statement, certain items of which
are contained in schedules and exhibits to the Registration Statement as
permitted by the rules and regulations of the Commission. Reference is hereby
made to the Registration Statement and the exhibits thereto for further
information with respect to the Company. Any statements contained herein
concerning the provisions of any contract, agreement or other document are not
necessarily complete, and in each instance, reference is made to the copy of
such contract, agreement or other document filed as an exhibit to the
Registration Statement or otherwise filed with the Commission. For
49
<PAGE>
further information, reference is made to the Registration Statement,
including exhibits and schedules thereto. The Registration Statement can be
inspected and copied at the Public Reference Room of the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents, which have been filed with the Commission, are
incorporated herein and specifically made a part hereof by this reference: (i)
the Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1995, as amended; (ii) the Company's Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 1996; (iii) the Company's Proxy Statement
dated March 29, 1996; and (iv) the description of the Common Stock which is
contained in the Company's Registration Statement on Form 8-A dated April 20,
1988. In addition, all documents filed by the Company pursuant to Sections
13(a), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of the Offering made hereby shall be
deemed to be incorporated by reference into this Prospectus and to be part
hereof from the date of filing of such documents with the Commission. Any
statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained
herein or in any other subsequently filed document which also is or is deemed
to be incorporated by reference herein modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon written or oral request, a copy of any or all of
the documents incorporated herein by reference, other than exhibits to such
documents not specifically incorporated by reference therein. Such requests
should be addressed to Secretary/Treasurer, MGM Grand, Inc., as indicated
below.
The Company was incorporated in Delaware in January 1986. The executive
offices of the Company are located at 3799 Las Vegas Boulevard South, Las
Vegas, Nevada 89109. The Company's mailing address is P.O. Box 98655, Las
Vegas, Nevada 89199, and its telephone number is (702) 891-3333.
50
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND SELECTED QUARTERLY FINANCIAL RESULTS
<TABLE>
<S> <C>
Report of Independent Public Accountants.................................. F-2
Consolidated Statements of Operations for the Years Ended December 31,
1995, 1994
and 1993................................................................. F-3
Consolidated Balance Sheets as of December 31, 1995 and 1994.............. F-4
Consolidated Statements of Cash Flows for the Years Ended December 31,
1995, 1994
and 1993................................................................. F-5
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1995, 1994 and 1993......................................... F-6
Notes to Consolidated Financial Statements................................ F-7
Condensed Consolidated Statements of Operations for the Three Months Ended
March 31, 1996 and 1995.................................................. F-21
Condensed Consolidated Balance Sheets as of March 31, 1996 and December
31, 1995................................................................. F-22
Condensed Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 1996 and 1995.................................................. F-23
Notes to Condensed Consolidated Financial Statements...................... F-24
Selected Quarterly Financial Results...................................... F-28
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
MGM Grand, Inc.:
We have audited the accompanying consolidated balance sheets of MGM Grand,
Inc. (a Delaware corporation) and subsidiaries as of December 31, 1995 and
1994, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of MGM Grand, Inc. and
subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Las Vegas, Nevada
January 31, 1996
F-2
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE
DATA)
<S> <C> <C> <C>
Revenues:
Casino................................... $ 404,742 $ 434,297 $ 26,702
Rooms.................................... 160,470 145,196 4,505
Food and beverage........................ 89,299 91,566 3,696
Entertainment, retail and other.......... 123,307 122,758 5,166
---------- ---------- ----------
777,818 793,817 40,069
Less: Promotional allowances............. 55,975 51,622 3,053
---------- ---------- ----------
721,843 742,195 37,016
---------- ---------- ----------
Expenses:
Casino................................... 195,140 183,514 9,341
Rooms.................................... 44,195 45,303 1,016
Food and beverage........................ 57,293 65,043 2,529
Entertainment, retail and other.......... 92,667 115,443 6,180
Provision for doubtful accounts and
discounts............................... 57,683 44,181 3,855
General and administrative............... 99,086 106,884 6,378
Restructuring costs...................... 5,942 -- --
Depreciation and amortization............ 55,419 44,433 1,647
Hotel preopening expenses................ -- -- 45,130
---------- ---------- ----------
607,425 604,801 76,076
---------- ---------- ----------
Operating Profit (Loss) Before
Corporate Expense..................... 114,418 137,394 (39,060)
Corporate expense........................ 10,595 7,679 5,486
---------- ---------- ----------
Operating Income (Loss)................ 103,823 129,715 (44,546)
---------- ---------- ----------
Nonoperating Income (Expense):
Interest income.......................... 2,896 5,544 12,231
Interest expense, net of amounts
capitalized............................. (59,329) (61,927) (6,596)
Other, net............................... (825) 208 16
---------- ---------- ----------
(57,258) (56,175) 5,651
---------- ---------- ----------
Income (Loss) Before Discontinued
Operations............................ 46,565 73,540 (38,895)
---------- ---------- ----------
Discontinued Operations:
Income (loss) from discontinued
operations.............................. -- (7,012) (78,691)
Gain on disposal of discontinued
operations.............................. -- 8,048 --
---------- ---------- ----------
-- 1,036 (78,691)
---------- ---------- ----------
Income (Loss) Before Provision (Benefit)
for Income Taxes.......................... 46,565 74,576 (117,586)
Provision (benefit) for income taxes..... -- -- --
---------- ---------- ----------
Net Income (Loss)...................... $ 46,565 $ 74,576 $ (117,586)
========== ========== ==========
Per Share of Common Stock:
Income (Loss) before discontinued
operations.............................. $ 0.96 $ 1.50 $ (0.82)
Discontinued operations.................. -- 0.02 (1.65)
---------- ---------- ----------
Net Income (Loss)...................... $ 0.96 $ 1.52 $ (2.47)
========== ========== ==========
Weighted Average Shares Outstanding........ 48,544,000 48,988,000 47,587,000
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------
1995 1994
---------- ----------
(IN THOUSANDS,
EXCEPT PER SHARE
DATA)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............................ $ 110,017 $ 75,859
Accounts receivable, net............................. 78,559 95,432
Prepaid expenses..................................... 12,657 13,431
Inventories.......................................... 10,982 9,641
Notes receivable..................................... 529 14,325
---------- ----------
Total current assets............................... 212,744 208,688
---------- ----------
Property and Equipment, net............................ 903,906 880,023
---------- ----------
Other Assets:
Investment in unconsolidated affiliates.............. 53,611 10,955
Deposits............................................. 16,340 2,434
Excess of purchase price over fair market value of
net assets acquired, net............................ 40,662 --
Other assets, net.................................... 54,959 51,411
---------- ----------
Total other assets................................. 165,572 64,800
---------- ----------
$1,282,222 $1,153,511
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable..................................... $ 20,746 $ 29,306
Current obligation, capital leases................... 2,170 2,145
Accrued interest on long term debt................... 9,368 9,429
Other accrued liabilities............................ 87,146 83,251
---------- ----------
Total current liabilities.......................... 119,430 124,131
---------- ----------
Deferred Revenues...................................... 8,568 8,505
Deferred Income Taxes.................................. 8,134 5,942
Long Term Obligation, Capital Leases................... 10,443 12,554
Long Term Debt......................................... 551,099 473,000
Commitments and Contingencies
Stockholders' Equity:
Common Stock ($.01 par value, 75,000,000 shares
authorized, 48,774,856 and 50,651,016 shares
issued)............................................. 488 507
Capital in excess of par value....................... 623,489 663,186
Note receivable stock sale........................... (10,000) --
Common stock in treasury (2,726,506 shares at
December 31, 1994).................................. -- (57,264)
Retained earnings (deficit).......................... (30,485) (77,050)
Currency translation adjustment...................... 1,056 --
---------- ----------
Total stockholders' equity......................... 584,548 529,379
---------- ----------
$1,282,222 $1,153,511
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1995 1994 1993
--------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income (loss)............................ $ 46,565 $ 74,576 $(117,586)
Adjustments to reconcile net income (loss) to
net cash from operating activities:
Gain on sale of airline..................... -- (8,048) --
Aircraft carrying value adjustment.......... -- -- 68,948
Amortization of debt offering costs......... 3,308 3,858 1,312
Depreciation and amortization............... 55,419 44,433 8,018
Aircraft overhaul amortization.............. -- -- 1,993
Provision for doubtful accounts and
discounts.................................. 57,683 44,181 3,855
Change in assets and liabilities:
Accounts receivable........................ (40,395) (93,311) (33,724)
Inventories................................ (3,784) (4,574) (12,508)
Prepaid expenses........................... 2,589 (1,677) (10,536)
Deferred income taxes...................... (2,034) -- --
Accounts payable, accrued liabilities and
other..................................... (5,863) 35,023 52,632
Currency translation adjustment............ 1,056 -- --
--------- --------- ---------
Net cash from operating activities........ 114,544 94,461 (37,596)
--------- --------- ---------
Cash Flows From Investing Activities:
Purchases of property and equipment, net..... (37,447) (65,976) (480,054)
Acquisition of MGM Grand Australia........... (71,942) -- --
Dispositions of property and equipment, net.. 488 691 684
Change in construction payables.............. (3,915) (92,740) 64,548
Notes receivable............................. 13,796 -- --
Deposits and other assets.................... (67,014) (34,930) 2,141
--------- --------- ---------
Net cash from investing activities........ (166,034) (192,955) (412,681)
--------- --------- ---------
Cash Flows From Financing Activities:
Borrowings from (repayments to) banks and
others...................................... 78,099 (10,000) 10,000
Borrowings under line of credit.............. 15,000 -- --
Repayment of line of credit.................. (15,000) -- --
Issuance of common stock..................... 7,549 822 71,619
Repurchase of common stock................... -- (27,774) --
--------- --------- ---------
Net cash from financing activities........ 85,648 (36,952) 81,619
--------- --------- ---------
Net Increase (Decrease) In Cash And Cash
Equivalents.................................. 34,158 (135,446) (368,658)
Cash And Cash Equivalents At Beginning Of
Year......................................... 75,859 211,305 579,963
--------- --------- ---------
Cash And Equivalents At End Of Year........... $ 110,017 $ 75,859 $ 211,305
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
COMMON CAPITAL IN NOTE RETAINED CURRENCY TOTAL
STOCK COMMON EXCESS OF RECEIVABLE TREASURY EARNINGS TRANSLATION STOCKHOLDERS'
OUTSTANDING STOCK PAR VALUE STOCK SALE STOCK (DEFICIT) ADJUSTMENT EQUITY
----------- ------ ---------- ---------- -------- --------- ----------- -------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1992................... 46,803,271 $485 $589,827 $ -- $(29,490) $ (34,040) $ -- $ 526,782
Issuance of common
stock................. 1,955,000 20 70,604 -- -- -- -- 70,624
Issuance of common
stock pursuant to
employee
stock options......... 86,560 1 994 -- -- -- -- 995
Adjustments to net sale
proceeds in excess of
Desert Inn assets
sold.................. -- -- 940 -- -- -- -- 940
Net loss............... $(117,586) (117,586)
---------- ---- -------- -------- -------- --------- ------ ---------
Balance at December 31,
1993................... 48,844,831 506 662,365 -- (29,490) (151,626) -- 481,755
Issuance of common
stock pursuant to
employee
stock options......... 71,479 1 821 -- -- -- -- 822
Repurchase of common
stock................. (991,800) -- -- -- (27,774) -- -- (27,774)
Net income............. -- -- -- -- -- 74,576 -- 74,576
---------- ---- -------- -------- -------- --------- ------ ---------
Balance at December 31,
1994................... 47,924,510 507 663,186 -- (57,264) (77,050) -- 529,379
Issuance of common
stock for note
receivable............ 618,557 -- -- (15,000) 15,000 -- -- --
Payment received from
note receivable....... -- -- -- 5,000 -- -- -- 5,000
Issuance of common
stock pursuant to
employee
stock options......... 231,789 2 2,546 -- -- -- -- 2,548
Retirement of treasury
stock................. -- (21) (42,243) -- 42,264 -- -- --
Net income............. -- -- -- -- -- 46,565 -- 46,565
Currency translation
adjustment............ -- -- -- -- -- -- 1,056 1,056
---------- ---- -------- -------- -------- --------- ------ ---------
Balance at December 31,
1995................... 48,774,856 $488 $623,489 $(10,000) $ -- $ (30,485) $1,056 $ 584,548
========== ==== ======== ======== ======== ========= ====== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION
MGM Grand, Inc. (the "Company") is a Delaware corporation incorporated on
January 29, 1986. As of December 31, 1995, approximately 74% of the
outstanding shares of the Company's common stock was owned by Kirk Kerkorian
and Tracinda Corporation ("Tracinda"), a Nevada corporation wholly-owned by
Kirk Kerkorian.
Through its wholly-owned subsidiary, MGM Grand Hotel, Inc. ("MGM Grand
Hotel"), the Company owns and operates the MGM Grand Hotel/Casino ("MGM Grand
Las Vegas"), a fully integrated hotel/casino and entertainment complex in Las
Vegas, Nevada. MGM Grand Las Vegas commenced operations on December 18, 1993.
Through its wholly-owned subsidiary, MGM Grand Australia Pty Ltd., the
Company owns and operates the MGM Grand Diamond Beach Hotel/Casino in Darwin,
Australia ("MGM Grand Australia"), a hotel/casino resort. The results of
operations of MGM Grand Australia are included from September 7, 1995, the
date of acquisition (see Note 15).
On December 28, 1994, the Company and Primadonna Resorts, Inc.
("Primadonna") executed definitive agreements for the formation of New York-
New York Hotel, LLC ("NYNY Hotel"), a 50% joint venture between the Company
and Primadonna. The Company and Primadonna will jointly and equally own,
develop and operate NYNY Hotel, a themed hotel/casino, with an approximate
cost of $460,000,000, including construction costs, preopening costs and
capitalized interest. The project is located on the northwest corner of
Tropicana Avenue and Las Vegas Boulevard, across from MGM Grand Las Vegas.
Groundbreaking occurred on March 30, 1995. The plans for NYNY Hotel call for
the destination resort to include approximately 2,035 hotel rooms, a casino,
themed entertainment attractions, restaurants and retail outlets.
The Company and Bally's Las Vegas completed their joint development of the
elevated monorail linking MGM Grand Las Vegas with the corner of Flamingo Road
and the Las Vegas Strip. The monorail is a one-mile, high-capacity, transit-
grade system which cost approximately $25,000,000. The project costs were
shared equally with Bally's. The system began operations on June 14, 1995.
The Company operated MGM Grand Air, a scheduled and charter airline service,
through its wholly-owned subsidiary, MGM Grand Air, Inc., from September 1987
until December 31, 1994, when MGM Grand Air was sold (see Note 16).
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
a. Principles of Consolidation--The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries.
Investments in unconsolidated affiliates which are 50% or less owned are
accounted for under the equity method. Significant intercompany accounts are
eliminated in consolidation.
b. Management's Use of Estimates--The preparation of the consolidated
financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
c. Cash and Cash Equivalents--Cash and cash equivalents consist of
investments in bank certificates of deposit and other interest bearing
instruments with original maturities of 90 days or less. Such investments are
carried at cost, which approximate market value.
F-7
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
d. Receivables--Receivables are due within one year and are recorded net of
amounts estimated to be uncollectible.
e. Inventories--Inventories are stated at the lower of cost or market, which
is determined generally by the FIFO method.
f. Property and Equipment--Property and equipment are stated at cost.
Maintenance, repairs and renewals that neither materially add to the value of
the property nor appreciably prolong its life are charged to expense as
incurred. The Company capitalized interest during the period that MGM Grand
Las Vegas was under construction, as well as during periods for other major
construction projects. Gains or losses on dispositions of property and
equipment are included in the determination of income. Depreciation and
amortization are provided on a straight-line basis over the estimated useful
lives of the assets as follows:
<TABLE>
<S> <C>
Buildings..................................................... 15 to 40 years
Furniture, fixtures and equipment............................. 3 to 7 years
Land improvements............................................. 10 years
Leasehold improvements........................................ 5 to 20 years
</TABLE>
g. Excess of Purchase Price Over Fair Market Value of Net Assets Acquired--
The excess of purchase price over fair market value of net assets acquired are
amortized on a straight-line basis over 40 years.
h. Other Assets--The estimated cost of normal hotel operating quantities
(base-stock) of china, silverware, glassware, linen and utensils is recorded
as an asset and is not depreciated. Costs of base-stock replacements are
expensed as incurred. Direct costs incurred related to the sale of common
stock to the public were charged against common stock proceeds at the time of
the sale. Direct costs related to the debt offering and bank financing are
being deferred and amortized over the debt repayment periods. Organizational
costs are amortized on a straight-line basis over 60 months.
i. Revenue Recognition--Casino revenue is the aggregate of gaming wins less
losses. Through the date of sale of MGM Grand Air on December 31, 1994,
passenger ticket sales and aircraft charter sales were recognized as revenue
when the transportation was rendered. Tickets sold but not used are refundable
and are included in other accrued liabilities.
j. Promotional Allowances--The retail value of accommodations, food,
beverages, and other services furnished to hotel/casino guests without charge
is included in gross revenue and then deducted as promotional allowances. The
estimated retail value of these promotional allowances was $55,975,000,
$51,622,000 and $3,053,000 for the years ended December 31, 1995, 1994 and
1993, respectively. The estimated cost of providing such promotional
allowances was included in casino expenses as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Rooms.............................................. $ 8,512 $ 7,809 $ 659
Food and beverage.................................. 23,588 24,115 1,170
Other.............................................. 3,804 5,176 84
-------- -------- -------
$ 35,904 $ 37,100 $ 1,913
======== ======== =======
</TABLE>
F-8
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
k. Hotel Preopening Expenses--Hotel preopening expenses include direct
salaries and other costs incurred during the period prior to commencement of
operations of MGM Grand Las Vegas. Such costs were expensed in 1993 upon
opening of the facility.
l. Income Taxes--The Company adopted statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" effective January 1, 1993
(see Note 14).
m. Currency Translation--Assets and liabilities denominated in Australian
dollars are translated into U.S. dollars at year end exchange rates, and
related gains and losses, net of applicable deferred income taxes, are
reflected in stockholders' equity.
n. Net Income (Loss) Per Common Share--Net income (loss) per common share
has been computed based upon the weighted average number of shares of common
stock and common stock equivalents, if dilutive, outstanding during each year
(48,544,000 in 1995, 48,988,000 in 1994, and 47,587,000 in 1993).
Supplementary unaudited information--On a supplemental unaudited basis, net
income per share assuming defeasance of the First Mortgage Notes as described
in the Registration Statement, would have been $.69 per share for the year
ended December 31, 1995.
o. Reclassifications--Certain reclassifications have been made to conform
the prior year with the current year presentation.
NOTE 3. STATEMENTS OF CASH FLOWS
The following supplemental disclosures are provided for the Consolidated
Statements of Cash Flows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash payments made for:
Interest, net of amounts capitalized............ $ 55,750 $ 58,975 $ 3,535
======== ======== =======
State and federal taxes......................... $ 620 $ 755 $ 203
======== ======== =======
</TABLE>
On June 5, 1995, the Company retired all remaining shares of common stock
held in Treasury, which thereupon resumed the status of authorized unissued
shares, in a non-cash transaction in the amount of $42,264,000.
In 1993, the Company acquired property and equipment with capital leases
totalling $15,423,000. During the same year, amortization of deferred bond
offering costs of $1,705,000 was capitalized to property and equipment as a
component of the total capitalized interest. In addition, $940,000 was
credited in 1993 to Capital in Excess of Par Value in connection with the 1991
sale of the Desert Inn Hotel/Casino.
F-9
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4. ACCOUNTS RECEIVABLE
Components of receivables were as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Casino................................................... $ 98,878 $ 97,254
Hotel.................................................... 12,509 14,194
Other.................................................... 246 1,608
-------- --------
111,633 113,056
Less: Allowance for doubtful accounts and discounts...... (33,074) (17,624)
-------- --------
$ 78,559 $ 95,432
======== ========
</TABLE>
Credit is issued in exchange for gaming chips at MGM Grand Las Vegas as
permitted by the regulations of the Nevada Gaming Commission and the Nevada
State Gaming Control Board. The Company extends credit to certain casino
patrons, a substantial portion of whom reside in countries other than the
United States, following evaluation of credit worthiness. The Company
maintains an allowance for doubtful accounts and discounts which is based on
management's estimate of the amount expected to be uncollectible considering
historical experience and the information management obtains regarding the
credit worthiness of the customer. The collectibility of these receivables
could be affected by future business or economic trends or other significant
events in the countries in which such customers reside. Although management
believes the allowance is adequate, it is possible that the estimated amount
of cash collections with respect to the casino accounts receivable could
change.
NOTE 5. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Land.................................................... $ 99,625 $ 90,567
Buildings and improvements.............................. 669,227 621,835
Equipment, furniture, fixtures and leasehold improve-
ments.................................................. 202,508 194,756
Equipment under capital lease........................... 17,836 17,793
Construction in progress................................ 7,772 615
-------- --------
996,968 925,566
Less: Accumulated depreciation and amortization......... (93,062) (45,543)
-------- --------
$903,906 $880,023
======== ========
</TABLE>
F-10
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6. INVESTMENTS IN UNCONSOLIDATED AFFILIATES
Investments in unconsolidated affiliates consisted of the following:
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
New York-New York Hotel, LLC................................ $40,938 $ 1,455
MGM Grand-Bally's Monorail, LLC............................. 12,673 9,500
------- -------
$53,611 $10,955
======= =======
</TABLE>
NOTE 7. OTHER ACCRUED LIABILITIES
Other accrued liabilities consisted of the following:
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Accrued salaries and related................................ $29,856 $28,740
Casino front money.......................................... 21,279 28,010
Casino chip liability....................................... 5,831 3,943
Advance deposits............................................ 5,113 3,521
Accrued gaming taxes........................................ 4,168 2,339
Other liabilities........................................... 20,899 16,698
------- -------
$87,146 $83,251
======= =======
</TABLE>
NOTE 8. LONG TERM DEBT
Long term debt consisted of the following:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
11 3/4% First Mortgage Notes due May 1, 1999.............. $220,000 $220,000
12% First Mortgage Notes due May 1, 2002.................. 253,000 253,000
Australian Hotel/Casino Loan due December 1, 2000......... 78,099 --
-------- --------
551,099 473,000
Less: Current Maturities.................................. -- --
-------- --------
$551,099 $473,000
======== ========
</TABLE>
Total interest incurred during 1995, 1994, and 1993 was $63,646,000,
$61,927,000, and $59,472,000, respectively, of which $4,317,000 and
$52,876,000 was capitalized in 1995 and 1993, respectively. In 1994, the
Company did not capitalize any interest.
The First Mortgage Notes Indenture contains various restrictive covenants
including the maintenance of certain financial ratios and limitations on
additional debt, dividends, stock repurchases, disposition of assets, mergers
and similar transactions. At December 31, 1995, MGM Grand Hotel, Inc. was
limited to dividend payments of approximately $51,000,000 to the Company.
Based on the quoted market value of the First Mortgage Notes at December 31,
1995 and 1994, the fair value of the First Mortgage Notes was $512,999,000 and
$513,081,000, respectively.
F-11
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
On September 7, 1995, the Company completed the acquisition of the Diamond
Beach Hotel/Casino in Darwin, Australia (see Note 15). The acquisition cost
was financed by an Australian bank facility which provides a total
availability of approximately $78,099,000 and includes funding for general
corporate purposes. Interest on the facility is based on the bank reference
rate or Eurodollar rate. The loan agreement contains various restrictive
covenants on MGM Grand Australia and the Company, including the maintenance of
certain financial ratios and limitations on additional debt, dividends, and
disposition of assets. It also restricts acquisitions and similar
transactions. The facility matures in December 2000. The indebtedness has been
wholly guaranteed by the Company.
Maturities of the Company's long term debt are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------ (IN THOUSANDS)
<S> <C>
1996........................................................ $ --
1997........................................................ 67,087
1998........................................................ 67,087
1999........................................................ 125,806
2000........................................................ 101,370
Thereafter.................................................. 189,749
--------
$551,099
========
</TABLE>
On September 20, 1995, NYNY Hotel (see Note 1) completed its bank financing
for up to $225,000,000. The non-revolving construction line of credit converts
to a reducing revolver upon completion of construction and commencement of
operations. The Company and Primadonna have guaranteed completion of the
project as a condition to facility availability, and have executed a joint and
several unlimited Keep-Well Agreement which provides that in the event of
insufficient bank loan ratios by NYNY Hotel, the partners will make cash
infusions which are sufficient to bring NYNY Hotel into compliance with
covenants.
On June 16, 1993, Grand Laundry, Inc., a wholly-owned subsidiary of MGM
Grand Hotel, Inc. obtained a $10,000,000 loan from a financial institution for
a laundry facility. The loan was paid off on December 27, 1994.
On May 14, 1992, the Company secured a commitment from several banks for a
$60,000,000 line of credit for MGM Grand Las Vegas. The facility became
available on November 18, 1993, and expires on December 31, 1999. The Company
incurs a commitment fee ranging up to .5% for the unused portion of the line
of credit. No amounts were outstanding under the line of credit during 1994.
During 1995, the Company borrowed and repaid $15,000,000 under the bank line
of credit, and as of December 31, 1995, no amounts were outstanding under the
facility.
NOTE 9. COMMITMENTS AND CONTINGENCIES
The Company and its subsidiaries leased buildings and equipment under non-
cancelable operating lease agreements which expire through the year 2000. The
leases generally provide that the Company pay taxes, insurance and maintenance
expense related to the leased assets.
F-12
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
At December 31, 1995, the Company was obligated under non-cancelable
operating leases and capital leases to make future minimum lease payments as
follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
YEAR ENDING DECEMBER 31, LEASES LEASES
------------------------ --------- -------
(IN THOUSANDS)
<S> <C> <C>
1996...................................................... $ 3,512 $ 3,194
1997...................................................... 3,163 3,465
1998...................................................... 5,588 2,836
1999...................................................... 1,403 2,872
2000...................................................... 1,926 1,549
Thereafter................................................ 15,518 1,500
------- -------
Total Minimum Lease Payment............................... $31,110 15,416
======= -------
Amount Representing Interest.............................. (2,803)
-------
Total Obligation Under Capital Leases..................... 12,613
Less: Amount due within one year.......................... (2,170)
-------
Amount due after one year................................. $10,443
=======
</TABLE>
Rental expense on the above noted non-cancelable operating leases was
$3,552,000, $12,225,000 and $1,152,000 for the years ended December 31, 1995,
1994 and 1993, respectively.
Through the date of sale of the airline on December 31, 1994 (see Note 16),
MGM Grand Air had a lease with the City of Los Angeles Department of Airports
covering terminal facilities at Los Angeles International Airport. The lease
was transferred with the sale of the airline.
In 1993, the Company entered into a three-year operating lease for
hotel/casino and theme park equipment in the amount of $48,000,000, with
quarterly lease payments of approximately $2,500,000. In December 1994 and
January 1995, the Company terminated the lease and purchased the equipment for
approximately $42,000,000. In addition, during 1993, the Company entered into
capital leases for hotel/casino and theme park equipment in the amount of
$15,423,000.
NOTE 10. STOCKHOLDERS' EQUITY
On August 17, 1993, the Company completed a common stock public offering.
Total common stock issued at completion of the offering was 1,955,000 shares
at a price of $37.75 per share, resulting in net proceeds of approximately
$70,600,000. The Company allocated such funds for general corporate purposes
including additions to property, plant, and equipment, and the exploration of
other expansion opportunities.
On May 24, 1995, and as amended on November 27, 1995, the Company and MGM
Grand Hotel, Inc. entered into a Promotion Agreement with Don King
Productions, Inc. ("DKP"), pursuant to which, among other things: (i) MGM
Grand Hotel, Inc. has the exclusive right to present six of Mike Tyson's first
seven fights; (ii) MGM Grand Hotel, Inc. made a non-interest bearing working
capital advance of $15,000,000 to DKP, to be repaid on January 25, 1998; (iii)
the Company sold DKP 618,557 treasury shares of the Company's Common Stock for
$15,000,000, evidenced by a non-interest bearing promissory note to be repaid
in three $5,000,000 installments out of the proceeds of each of the first
three Tyson fights which occur in the MGM Grand Garden or at another site
selected by MGM Grand Hotel, Inc.; (iv) the Company guaranteed to DKP that the
market value of the shares will equal or exceed $30,000,000 ($48.50 per share)
as of January 25, 1998; and (v) the Company and DKP
F-13
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
entered into security agreements and a registration rights agreement with
respect thereto. Through December 31, 1995, one fight had occurred pursuant to
the agreement, and accordingly, the Company expensed approximately $2,600,000,
representing the accumulated per fight amortization of the difference between
the guaranteed share price and the market price of $23.00 at December 31,
1995. Further, at December 31, 1995, the total cash requirement of the
guarantee would be approximately $15,800,000. The remaining balance
outstanding of $10,000,000 on the non-interest bearing promissory note is
reflected as note receivable stock sale and is included as a reduction to
stockholders' equity.
As of December 31, 1993, the Company had 1,734,706 shares of its common
stock held in treasury. On March 9, 1994, the Company announced that it
intended to acquire in open market purchases as many as 1,000,000 shares of
its common stock. Through December 31, 1994, the Company had acquired 991,800
shares of its common stock. No further purchases of shares have been made or
are anticipated. On June 5, 1995, the Company retired all of the remaining
2,107,949 shares of common stock held in treasury, which thereupon resumed the
status of authorized but unissued shares.
NOTE 11. STOCK OPTION PLAN
The Company has adopted a nonqualified stock option plan and an incentive
stock plan which provides for the granting of stock options pursuant to
applicable provisions of the Internal Revenue Code and regulations. The
aggregate options available under the plans are 5,000,000 shares.
In 1995, 1,985,250 options were granted at exercise prices ranging from
$24.00 to $30.25 pursuant to the nonqualified plan. During 1995, 231,789
nonqualified stock options were exercised at prices ranging from $10.75 to
$12.00. At December 31, 1995, 3,106,232 options at exercise prices ranging
from $10.25 to $30.25 were outstanding of which 448,769 were exercisable.
During the year, certain stock options were amended to reduce the per share
exercise prices to $26.00 (the market price on the date of amendment) from
exercise prices ranging from $26.25 to $32.50.
In 1994, 273,750 options were granted at exercise prices ranging from $24.25
to $32.50 pursuant to the nonqualified plan. During 1994, 71,479 nonqualified
stock options were exercised at $11.50 each. At December 31, 1994, 1,875,850
options at exercise prices ranging from $10.25 to $32.50 were outstanding of
which 435,901 were exercisable.
In 1993, 491,100 options were granted at exercise prices ranging from $19.13
to $40.75 pursuant to the nonqualified plan. During 1993, 86,560 stock options
were exercised at $11.50 each. At December 31, 1993, 1,792,100 options at
exercise prices ranging from $10.25 to $40.75 were outstanding of which
317,000 were exercisable.
The Company has agreements with eight executives which provide that, upon a
change of control, any unvested stock options covered by such agreements
become exercisable. The total number of stock options subject to such
agreements is 1,975,000, of which 1,500,000 options become immediately
exercisable, and the remaining 475,000 options become exercisable if
employment status is diminished within twelve months following a change in
control.
The plans are administered by a compensation and stock option committee of
the Company's board of directors. Salaried officers and other key employees of
the Company and its subsidiaries are eligible to receive options. The exercise
price in each instance is 100% of the fair market value of the Company's
common stock on the date of grant. The options generally have ten-year terms
and are exercisable in four annual installments.
F-14
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Financial Accounting Standards Board issued its Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation," which
is effective for fiscal years beginning after December 15, 1995. This
statement recommends that the Company account for its stock option plans by
recognizing the fair value of stock options granted over the vesting period of
the option. If the Company does not change its accounting policy, the
statement requires, at a minimum, that the Company disclose the pro forma
impact on net income and earnings per share as though the recommended
accounting method had been used. The Company has determined that it will not
change from its current method of accounting for stock options, but it will
make the required disclosures in the future.
NOTE 12. EMPLOYEE PENSION AND SAVINGS PLANS
Effective February 1993, MGM Grand Hotel, Inc. adopted a 401(k) employee
savings plan for all full time employees not a part of a bargaining unit. The
savings plan allows participants to defer, on a pretax basis, a portion of
their salary and accumulate tax deferred earnings as a retirement fund. MGM
Grand Hotel, Inc. matches 25% of employee contributions up to a maximum of 1%
of a participating employee's eligible gross wages. Additionally, MGM Grand
Hotel, Inc. makes contributions to the employees' savings plan based on length
of service which vest over a five year period. For the periods ended December
31, 1995 and 1994, MGM Grand Hotel, Inc. contributions under this arrangement
were $3,189,000 and $3,361,000, respectively.
Effective November 1994, the Company and MGM Grand Hotel, Inc. adopted a
Nonqualified Deferred Retirement Plan for certain key employees not a part of
a collective bargaining unit. The Nonqualified Deferred Retirement Plan allows
participants to defer, on a pretax basis, a portion of their salary and
accumulate tax deferred earnings, plus interest, as a retirement fund. These
deferrals are in addition to those allowed under the MGM Grand Hotel, Inc.
401(k) savings plan. All deferred amounts vest immediately. There are no
employer matching contributions made under this plan. The full amount vested
in a participant's account will be distributed to a participant following
termination of employment, normal retirement or in the event of disability or
death.
Effective with the September 1995 acquisition of the Diamond Beach Hotel and
Casino by MGM Grand Australia Pty Ltd., (see Notes 1 and 15), an Australian
employee retirement fund was acquired. The fund is subject to the
Superannuation Industry (Supervision) Act of 1993, imposing a legal obligation
on MGM Grand Australia to contribute to all employees. MGM Grand Australia
maintains two categories for the plan, depending on employment status:
category (A) for executive employees and category (B) for staff. Death and
Disablement benefits are provided for all members; however, category (A)
members receive increased coverages under both benefits. MGM Grand Australia
contributes 6% of salary to satisfy the Superannuation Guarantee Legislation,
and allows participants to defer, on a pretax basis, a portion of their salary
(minimum 3%) and accumulate tax deferred earnings as a retirement fund. The
full amount vested in members' retirement accounts is payable to the member
following termination of employment, or normal retirement. For the period
since acquisition on September 7, 1995, to December 31, 1995, MGM Grand
Australia contributions under these arrangements were $64,000 and $221,000 for
the executive employees and staff, respectively.
Through the date of sale of the airline on December 31, 1994, MGM Grand Air
maintained a noncontributory 401(k) employee savings plan for employees not a
part of a bargaining unit. This savings plan allowed participants to defer, on
a pretax basis, a portion of their salary and accumulate tax deferred earnings
as a retirement fund. Administration of the savings plan was assumed by the
purchaser of the airline.
F-15
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 13. COMPANY RESTRUCTURING PLAN
On August 1, 1995, the Company announced details of a comprehensive
restructuring plan designed to reduce costs and improve efficiency of
operations at MGM Grand Las Vegas. This restructuring resulted in a one-time
charge against earnings in the third quarter of 1995 totalling $5,942,000,
primarily related to employee severance payments.
NOTE 14. INCOME TAXES
The Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS 109") for the year ended December 31,
1993. The impact of adopting this new standard was not material to the
consolidated financial statements of the Company for 1993.
SFAS 109 requires the recognition of deferred tax assets, net of applicable
reserves, related to net operating loss carryforwards and certain temporary
differences. The standard requires recognition of a future tax benefit to the
extent that realization of such benefit is more likely than not. Otherwise, a
valuation allowance is applied. At December 31, 1995, the Company determined
that $18,013,000 of tax benefits did not satisfy the recognition criteria set
forth in the standard. Accordingly, a valuation allowance was recorded for the
applicable deferred tax assets.
The provision (benefit) for income taxes for the years ended December 31,
1995, 1994 and 1993, is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1995 1994 1993
--------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Current--Federal.................................. $ 2,034 $ 575 $ --
Deferred--Federal................................. (2,034) (575) --
--------- ------- ------
Total........................................... $ -- $ -- $ --
========= ======= ======
</TABLE>
Reconciliation of the Federal income tax rate and the Company's effective
tax rate is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Federal income tax rate........................ 35% 35% 35%
Changes in valuation allowance................. (35) (35) --
Net operating loss--no benefit recorded........ -- -- (35)
-------- -------- --------
Effective tax rate............................. -- % -- % -- %
======== ======== ========
</TABLE>
F-16
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
As of December 31, 1995, after having given effect to SFAS 109, the major
tax effected components of the Company's net deferred tax liability are as
follows:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------
1995 1994
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Deferred Tax Asset
Net operating loss carryforward..................... $ 45,871 $ 45,559
Bad debt reserve.................................... 8,034 6,302
Hotel preopening expenses........................... 8,860 12,448
Accruals, reserves and other........................ 3,479 1,924
Tax credit carryforwards............................ 5,606 1,410
--------- ---------
71,850 67,643
Less: Valuation allowance............................. (18,013) (32,150)
--------- ---------
53,837 35,493
--------- ---------
Deferred Tax Liability
Depreciation and amortization....................... (58,499) (37,963)
Capitalized interest................................ (3,472) (3,472)
--------- ---------
Total deferred tax liability...................... (61,971) (41,435)
--------- ---------
Net Deferred Tax Liability............................ $ (8,134) $ (5,942)
========= =========
</TABLE>
At December 31, 1995, the Company had a tax return net operating loss
carryforward of approximately $131,000,000 which will expire as follows:
<TABLE>
<CAPTION>
NET OPERATING
YEAR OF EXPIRATION LOSS CARRYWARD
------------------ --------------
(IN THOUSANDS)
<S> <C>
2006.......................................................... $ 14,500
2007.......................................................... 9,900
2008.......................................................... 28,100
2009.......................................................... 22,800
2010.......................................................... 55,700
--------
$131,000
========
</TABLE>
In addition, the Company has an alternative tax credit carryforward of
$3,400,000 which does not expire, and a general business tax credit
carryforward of $2,206,000 which expires in different periods through 2010.
F-17
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 15. AUSTRALIAN CASINO ACQUISITION
On September 7, 1995, the Company, through its wholly owned subsidiary, MGM
Grand Australia, Pty Ltd., completed the acquisition of the Diamond Beach
Hotel/Casino in Darwin, Australia, for approximately U.S. $75,971,000, subject
to certain adjustments. The acquisition costs include $59,972,000 for the
purchase of stock and $14,200,000 of debt assumption, and debt and
organization costs of $1,799,000. In addition, on October 24, 1995, the
Company expended approximately $3,774,000 to acquire the remaining 14.3%
interest not already owned in the Territory Property Trust, which owns the
land and buildings of MGM Grand Australia. MGM Grand Australia is located on
18 acres of beachfront property on the north central coast of Australia. The
resort includes a public and private casino, 97 rooms and suites, restaurants,
and other facilities. The Company financed the acquisition through an
Australian bank facility (see Note 8). The acquisition was accounted for using
the purchase method, whereby the assets acquired were recorded at their fair
market values. The purchase price allocation is as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Cash......................................................... $ 7,803
Property, plant and equipment................................ 36,088
Excess of purchase price over fair market value of net assets
acquired.................................................... 40,980
Deferred income taxes........................................ (4,226)
Net liabilities.............................................. (900)
-------
$79,745
=======
</TABLE>
Concurrent with the closing of the transaction on September 7, 1995, the
Company granted to certain of the sellers an option to acquire 22.5% of the
stock of the Company's Australian subsidiary. The option, which was granted
for a nominal consideration, is exercisable at any time during the third and
fourth years following the closing, at an exercise price of approximately
$14,400,000 subject to certain adjustments. The option holders also granted to
the Company a two-year option to purchase 25% interests in each of Aspinall's
Club in London, U.K., and Aspinall Casino SA in Le Touquet, France, with an
exercise price in each case based on the amount of the owners' respective
investments in such casinos.
NOTE 16. DISCONTINUED OPERATIONS/SALE OF MGM GRAND AIR
On December 31, 1994, MGM Grand, Inc. completed the sale of MGM Grand Air
for a note receivable totalling approximately $14,325,000, realizing a pretax
gain of $8,048,000. As of December 31, 1995, the principal on the Note had
been reduced to approximately $432,000.
Prior year operating results of MGM Grand Air have been accounted for as
discontinued operations, and such financial statements have been restated.
Summary operating results of discontinued operations, excluding the above
noted gain, are as follows:
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED DECEMBER 31,
-----------------------
1994 1993
----------- -----------
<S> <C> <C>
Revenues............................................ $19,535,000 $20,784,000
Reduction in aircraft carrying value................ $ -- $68,948,000
Operating loss...................................... $ 7,012,000 $78,691,000
</TABLE>
F-18
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 17. RELATED-PARTY TRANSACTIONS
In conjunction with the Company's 50% interest in the MGM Grand-Bally's
monorail joint venture, the Company, through its wholly-owned subsidiary, MGM
Grand Hotel, Inc., contributed approximately $750,000 to the joint venture as
part of its operating contribution during 1995.
In August 1995, the Company made a $5,000,000 working capital advance to
NYNY Hotel. The $5,000,000 advance, together with interest, was repaid during
September 1995. The Company and NYNY Hotel have entered into various other
transactions and arrangements which, individually and in the aggregate, are
not material.
During 1995, MGM Grand Las Vegas chartered a Boeing 727 aircraft and a
Challenger aircraft from Tracinda, which total lease payments of $147,000 and
$63,000, respectively. MGM Grand Las Vegas also leased Tracinda's Challenger
aircraft through a third party operator for $243,000 during 1995.
In November 1992, the Company was granted a no-cost two-year option from
Tracinda to purchase approximately 18 acres of undeveloped land across the Las
Vegas Strip from MGM Grand Las Vegas. Effective September 1, 1994, the option
was extended to September 1, 1995. The option, which gave the Company the
right to acquire the property at Tracinda's purchase cost of $31,500,000,
together with its actual costs incurred in connection with the ownership of
the property, plus interest, was exercised on January 5, 1995, for a total
cost of approximately $36,500,000. On January 6, 1995, the Company contributed
the property to NYNY Hotel (see Notes 1 and 6), as its share of the capital
contribution to the hotel/casino construction project.
In November 1993, MGM Grand Hotel, Inc. agreed to sell to Tracinda two
unused parcels of land (approximately .56 acres total) for $272,950. The
Company, based upon appraisals it received, believes that this sale was on
terms comparable to what it could have obtained for the land on an arms length
basis in an equivalent transaction with a third party. The acquisition was
completed on March 1, 1994.
During the period from October 10, 1992, through January 20, 1993, MGM Grand
Air, Inc. leased a Boeing 757 aircraft from Tracinda, with lease and related
payments totalling $479,000. Also during 1993, payments by The Stars' Desert
Inn to MGM Grand Air for the charter of aircraft amounted to $67,000.
In August 1992, MGM Grand Las Vegas installed and commenced testing of a
property management computer software system at The Stars' Desert Inn which
was then owned by Tracinda. The system was used at The Stars' Desert Inn until
September 1993. MGM Grand Las Vegas also agreed to use The Stars' Desert Inn
casino to test certain gaming equipment from July to September 1993. MGM Grand
Las Vegas reimbursed The Stars' Desert Inn for its estimated costs, which were
approximately $13,000 in 1993 and $229,000 in 1994. The Stars' Desert Inn did
not exercise an option to retain the computer software system. The Stars'
Desert Inn retained all revenues generated by the gaming equipment.
During the years ended December 31, 1995, 1994 and 1993, the Company and
Tracinda have entered into various other transactions and arrangements which,
individually and in the aggregate, are not material.
F-19
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 18. INDUSTRY SEGMENTS
The Company operates in the Hotel/Casino industry segment through the
operations of the MGM Grand Las Vegas, which commenced operations on December
18, 1993, and MGM Grand Australia, which was acquired on September 7, 1995
(see Note 15). Airline operations have been reclassified for the years
presented to Discontinued Operations as a result of the sale of the airline
(see Note 16). Sales between industry segments are immaterial and generally at
prices approximately equal to those charged to unaffiliated customers.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Net revenues:
Hotel/Casino.......................... $ 721,843 $ 742,195 $ 37,016
---------- ---------- ----------
Operating income (loss):
Hotel/Casino.......................... $ 120,360 $ 137,394 $ 6,070
Corporate expenses.................... (10,595) (7,679) (5,486)
Hotel preopening expenses............. -- -- (45,130)
Restructuring costs................... (5,942) -- --
---------- ---------- ----------
$ 103,823 $ 129,715 $ (44,546)
---------- ---------- ----------
Identifiable assets:
Hotel/Casino.......................... $1,250,771 $1,088,767 $1,071,612
Discontinued operations--airline...... -- 2,618 2,501
Corporate............................. 31,451 62,126 86,010
---------- ---------- ----------
$1,282,222 $1,153,511 $1,160,123
---------- ---------- ----------
Capital expenditures:
Hotel/Casino.......................... $ 37,371 $ 60,086 $ 474,454
Discontinued operations--airline...... -- 5,552 5,568
Corporate............................. 76 338 32
---------- ---------- ----------
$ 37,447 $ 65,976 $ 480,054
---------- ---------- ----------
Depreciation and amortization:
Hotel/Casino.......................... $ 55,315 $ 44,346 $ 1,593
Corporate expenses.................... 104 87 54
---------- ---------- ----------
$ 55,419 $ 44,433 $ 1,647
========== ========== ==========
</TABLE>
F-20
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------
MARCH 31, MARCH 31,
1996 1995
--------- ---------
<S> <C> <C>
Revenues:
Casino.................................................. $130,256 $ 91,326
Room.................................................... 43,801 38,891
Food and beverage....................................... 20,094 22,795
Entertainment, retail and other......................... 29,109 22,649
-------- --------
223,260 175,661
Less: promotional allowances............................ 13,956 13,776
-------- --------
209,304 161,885
-------- --------
Expenses:
Casino.................................................. 56,330 49,732
Room.................................................... 11,782 10,825
Food and beverage....................................... 12,273 14,712
Entertainment, retail and other......................... 22,621 19,009
Provision for doubtful accounts and discounts........... 15,626 8,176
General and administrative.............................. 24,722 24,528
Depreciation and amortization........................... 15,216 12,570
-------- --------
158,570 139,552
-------- --------
Operating Profit before Corporate Expense................. 50,734 22,333
Corporate Expense......................................... 1,511 2,027
-------- --------
Operating Income.......................................... 49,223 20,306
-------- --------
Other Income (Expense):
Interest income......................................... 1,581 548
Interest expense, net of amounts capitalized............ (15,797) (15,329)
Other, net.............................................. (479) --
-------- --------
(14,695) (14,781)
-------- --------
Income before Provision for Income Taxes.................. 34,528 5,525
Provision for income taxes.............................. -- --
-------- --------
Net Income................................................ $ 34,528 $ 5,525
======== ========
Per Share of Common Stock:
Net income.............................................. $ 0.70 $ 0.11
======== ========
Weighted average shares outstanding (000's)............... 49,604 48,555
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-21
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
AS OF
------------------------
MARCH 31, DECEMBER 31,
1996 1995
---------- ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents........................... $ 183,580 $ 110,017
Accounts receivable, net............................ 52,719 78,559
Prepaid expenses.................................... 16,311 12,657
Inventories......................................... 10,662 10,982
Notes receivable.................................... 247 529
---------- ----------
Total current assets.............................. 263,519 212,744
---------- ----------
Property and Equipment, Net........................... 903,641 903,906
Other Assets:
Investments in unconsolidated affiliates............ 54,552 53,611
Deposits............................................ 15,366 16,340
Excess of purchase price over fair market value of
net assets acquired, net........................... 40,390 40,662
Other assets, net................................... 57,403 54,959
---------- ----------
Total other assets................................ 167,711 165,572
---------- ----------
$1,334,871 $1,282,222
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.................................... $ 16,841 $ 20,746
Current obligation, capital leases.................. 2,772 2,170
Accrued interest on long term debt.................. 23,421 9,368
Other accrued liabilities........................... 93,782 87,146
---------- ----------
Total current liabilities......................... 136,816 119,430
---------- ----------
Deferred Revenues..................................... 9,783 8,568
Deferred Income Taxes................................. -- 8,134
Long Term Obligation, Capital Leases.................. 9,613 10,443
Long Term Debt........................................ 555,131 551,099
Commitments and Contingencies
Stockholders' Equity:
Common stock ($.01 par value, 75,000,000 shares
authorized, 49,085,078 and 48,774,856 shares
issued)............................................ 491 488
Capital in excess of par value...................... 626,990 623,489
Note receivable from stock sale..................... (5,000) (10,000)
Retained earnings (deficit)......................... 4,043 (30,485)
Currency translation adjustment..................... (2,996) 1,056
---------- ----------
Total stockholders' equity........................ 623,528 584,548
---------- ----------
$1,334,871 $1,282,222
========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-22
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
------------------
1996 1995
-------- --------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income............................................... $ 34,528 $ 5,525
Adjustments to reconcile net income to net cash from
operating activities:
Amortization of debt offering costs.................... 754 401
Depreciation and amortization.......................... 15,243 12,595
Provision for doubtful accounts and discounts.......... 15,626 8,176
Change in assets and liabilities:
Accounts receivable.................................. 10,214 (2,069)
Inventories.......................................... 230 651
Prepaid expenses..................................... (3,654) (3,326)
Deferred income taxes................................ (12,318) --
Accounts payable, accrued liabilities and other...... 18,567 (14,266)
Currency translation adjustment...................... (21) --
-------- --------
Net cash from operating activities................. 79,169 7,687
-------- --------
Cash Flows from Investing Activities:
Purchases of property and equipment...................... (14,120) (12,426)
Dispositions of property and equipment, net.............. 277 135
Note receivable.......................................... 282 9,285
Deposits and other assets, net........................... (549) (59,945)
-------- --------
Net cash from investing activities................. (14,110) (62,951)
-------- --------
Cash Flows from Financing Activities:
Borrowing under line of credit........................... 2,294 8,000
Repayment of line of credit.............................. (2,294) --
Issuance of common stock................................. 8,504 760
-------- --------
Net cash from financing activities................. 8,504 8,760
-------- --------
Net Increase (Decrease) in Cash and Cash Equivalents....... 73,563 (46,504)
Cash and Cash Equivalents at Beginning of Period........... 110,017 75,859
-------- --------
Cash and Cash Equivalents at End of Period................. $183,580 $ 29,355
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-23
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION
MGM Grand, Inc. (the "Company") is a Delaware corporation, incorporated on
January 29, 1986. As of March 31, 1996 approximately 72.5% of the outstanding
shares of the Company's common stock were owned by Kirk Kerkorian and Tracinda
Corporation ("Tracinda"), a Nevada corporation wholly-owned by Kirk Kerkorian.
Through its wholly-owned subsidiary, MGM Grand Hotel, Inc. ("MGM Grand
Hotel") the Company owns and operates MGM Grand Hotel/Casino ("MGM Grand Las
Vegas"), a fully integrated hotel/casino and entertainment complex in Las
Vegas, Nevada. MGM Grand Las Vegas commenced operations on December 18, 1993.
Through its wholly-owned subsidiary, MGM Grand Australia Pty Ltd., the
Company owns and operates the MGM Grand Diamond Beach Hotel/Casino ("MGM Grand
Australia"), a hotel/casino resort in Darwin, Australia. MGM Grand Australia
commenced operations on September 7, 1995, the date of acquisition.
On December 28, 1994, the Company and Primadonna Resorts, Inc.
("Primadonna") executed definitive agreements for the formation of New York-
New York Hotel, LLC ("NYNY"), a 50% joint venture between the Company and
Primadonna. The project is located on 18 acres at the busiest intersection in
Nevada, the northwest corner of Tropicana Avenue and Las Vegas Boulevard
across from MGM Grand Las Vegas. Groundbreaking occurred on March 30, 1995.
The plans for NYNY call for the destination resort to include a 2,035-room
hotel and casino, themed entertainment attractions and restaurants and retail
outlets at an approximate cost of $460,000,000, including construction and
preopening costs, and capitalized interest. The Company and Primadonna will
jointly and equally own, develop and operate NYNY. Completion is scheduled for
December 1996.
The Company and Bally's Las Vegas jointly own and operate an elevated
monorail linking MGM Grand Las Vegas with the corner of Flamingo Road and the
Las Vegas Strip. The monorail is a one-mile, high-capacity, transit-grade
system, and costs are shared equally with Bally's Las Vegas.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. These condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the 1995 Annual Report
included in Form 10-K.
In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (which include only
normal recurring adjustments) necessary to present fairly the financial
position as of March 31, 1996, and the results of operations for the three
month periods ended March 31, 1996 and March 31, 1995. The results of
operations for such periods are not necessarily indicative of the results to
be expected for the full year.
Certain reclassifications have been made to prior period financial
statements to conform with the 1996 presentation.
NOTE 2. STATEMENTS OF CASH FLOWS
For the three months ended March 31, 1996 and March 31, 1995, cash payments
made for interest were $2,066,000 and $529,000, respectively.
Cash payments made for state and federal taxes for the three months ended
March 31, 1996 and March 31, 1995 were $2,027,000 and $500,000, respectively.
F-24
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3. LONG TERM DEBT AND NOTES PAYABLE
Long term debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
--------- ------------
<S> <C> <C>
11 3/4% First Mortgage Notes due May 1, 1999.......... $220,000 $220,000
12% First Mortgage Notes due May 1, 2002.............. 253,000 253,000
Australian Hotel/Casino Loan.......................... 82,131 78,099
-------- --------
$555,131 $551,099
======== ========
</TABLE>
Total interest incurred for the first three months of 1996 and 1995 was
$16,914,000 and $15,329,000, respectively, of which $1,117,000 was capitalized
in the 1996 period, related to construction of the Company's joint venture
project NYNY. No interest was capitalized in the first quarter of 1995.
The Company has a $60,000,000 line of credit with several banks for MGM
Grand Hotel. No amounts were outstanding under the line of credit during the
three months ended March 31, 1996, and $8,000,000 was outstanding as of March
31, 1995.
The First Mortgage Notes Indenture and the Bank Line of Credit contain
provisions which generally limit dividend and other restricted payments by MGM
Grand Hotel to the Company unless (1) no default shall have occurred
thereunder, (2) the consolidated net worth of MGM Grand Hotel is greater than
$415,000,000, (3) MGM Grand Hotel, Inc. meets its indebtedness tests and (4)
such dividends and other restricted payments do not exceed the sum of
$25,000,000 plus 50% of cumulative consolidated net income.
The Australian bank facility provides a total availability of approximately
$82,131,000 (AUS$105,000,000) and includes funding for general corporate
purposes. Interest on the facility is based on the bank reference rate or
eurodollar rate. The loan agreement contains various restrictive covenants on
the Company and MGM Grand Australia, including the maintenance of certain
financial ratios and limitations on additional debt, dividends, and
disposition of assets. It also restricts acquisitions and similar
transactions. The indebtedness has been wholly guaranteed by the Company and
matures in December 2000.
MGM Grand Australia has a $15,644,000 (AUS$20,000,000) uncommitted standby
line of credit, with a funding period of 91 days for working capital purposes.
During the three months ended March 31, 1996, $2,294,000 was borrowed and
repaid under the bank facility.
On September 20, 1995, NYNY, a joint venture between the Company and
Primadonna Resorts, Inc. (see Note 1) completed its bank financing for up to
$225,000,000. The non-revolving construction line of credit converts to a
reducing revolver upon completion of construction and commencement of
operations. The Company and Primadonna Resorts, Inc. (the "Partners") have
guaranteed completion of the project as a condition to facility availability,
and have executed a joint and several unlimited Keep-Well Agreement. The
agreement provides that in the event of insufficient bank loan ratios by NYNY,
the Partners will make cash infusions which are sufficient to bring NYNY into
compliance with covenants.
F-25
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4. ISSUANCE OF COMMON STOCK
On May 24, 1995, the Company and MGM Grand Hotel, Inc. entered into a
Promotion agreement with Don King Productions, Inc. ("DKP"), pursuant to
which, among other things: (i) MGM Grand Las Vegas will have the exclusive
right to present six of Mike Tyson's first seven fights; (ii) MGM Grand Hotel
made a non-interest bearing working capital advance of $15,000,000 to DKP, to
be repaid on January 25, 1998; (iii) the Company sold DKP 618,557 treasury
shares of the Company's common stock for $15,000,000, evidenced by a non-
interest bearing promissory note to be repaid in three $5,000,000 installments
out of the proceeds of each of the first three Tyson fights which occur in the
MGM Grand Garden or at another site selected by MGM Grand Hotel; (iv) the
Company guaranteed to DKP that the market value of the shares will equal or
exceed $30,000,000 ($48.50 per share) as of January 25, 1998; and (v) the
Company and DKP entered into security agreements and a registration rights
agreement with respect thereto. At March 31, 1996, and June 20, 1996, the
total cash requirement would be approximately $6,300,000 and $2,400,000,
respectively. The remaining balance outstanding of $5,000,000 on the non-
interest bearing promissory note is reflected as a note receivable from stock
sale and is included in stockholders' equity.
NOTE 5. EARNINGS PER SHARE
Earnings per share is based on the weighted average number of shares of
common stock and common stock equivalents, if dilutive, outstanding during
each period (49,604,127 and 48,554,545 shares) for the three month periods
ended March 31, 1996 and 1995, respectively.
On a supplemental basis, net income per share assuming defeasance of the
First Mortgage Notes, as described in the Registration Statement, would have
been $.08 per share for the three months ended March 31, 1996.
NOTE 6. INCOME TAXES
The Company accounts for income taxes according to Statement of Financial
Accounting Standard No. 109, "Accounting for income Taxes" ("SFAS 109"). SFAS
109 requires the recognition of deferred tax assets, net of applicable
reserves, related to net operating loss carryforwards and certain temporary
differences. The standard requires recognition of a deferred tax asset to the
extent that realization of such asset is more likely than not. Otherwise, a
valuation allowance is applied. As of March 31, 1996, the Company determined
that $4,741,000 of deferred tax assets did not satisfy the recognition
criteria set forth in the standard. Accordingly, valuation allowance was
recorded for the deferred tax assets.
The provision (benefit) for income taxes for the quarters ended March 31,
1996 and 1995, is as follows (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
-------------
1996 1995
------- ----
<S> <C> <C>
Current-Federal............................................ $ 9,811 $--
Deferred-Federal........................................... (9,811) --
------- ----
Total.................................................... $ -- $--
======= ====
</TABLE>
F-26
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Reconciliation of the income tax rate and the Company's effective tax rate
is as follows:
<TABLE>
<CAPTION>
MARCH 31,
------------
1996 1995
----- -----
<S> <C> <C>
Effective income tax rate.................................. 35.0% 35.0%
Other...................................................... 1.5 --
Reduction in valuation allowance........................... (36.5) (35.0)
----- -----
Effective tax rate......................................... -- % -- %
===== =====
</TABLE>
As of March 31, 1996 and December 31, 1995, after having given effect to
SFAS 109, the major tax-effected components of the Company's net deferred
taxes are as follows (in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
--------- ------------
<S> <C> <C>
DEFERRED TAX ASSETS--FEDERAL......................... $ 71,533 $ 71,850
Less: Valuation allowance.......................... (4,741) (18,013)
-------- --------
Net deferred tax assets............................ 66,792 53,837
DEFERRED TAX LIABILITIES............................. (62,608) (61,971)
-------- --------
NET DEFERRED TAX ASSET (LIABILITY)................... 4,184 (8,134)
======== ========
</TABLE>
The net deferred tax asset at March 31, 1996, is included in other assets in
the accompanying condensed consolidated balance sheets.
At March 31, 1996, the Company had a net operating loss carryforward for
income tax purposes of approximately $95,100,000 which expires in different
periods through 2010, General Business Credit carryovers of $2,400,000 which
expires in different periods through 2010, and an Alternative Minimum Tax
credit carryover of $12,000,000 which does not expire.
F-27
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
SELECTED QUARTERLY FINANCIAL RESULTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER
--------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
1995
Net revenues................... $161,885 $168,397 $198,281 $193,280 $721,843
Operating income............... 20,306 8,680 28,940 45,897 103,823
Net income (loss).............. 5,525 (6,637) 15,870 31,807 46,565
Per share of common stock:
Income (loss) before
discontinued operations..... $ 0.11 $ (0.14) $ 0.33 $ 0.66 $ 0.96
-------- -------- -------- -------- --------
Net income (loss) per share.. $ 0.11 $ (0.14) $ 0.33 $ 0.66 $ 0.96
======== ======== ======== ======== ========
1994
Net revenues................... $174,958 $186,846 $208,558 $171,833 $742,195
Operating income............... 18,201 34,426 49,437 27,651 129,715
Income before discontinued
operations.................... 3,876 20,258 35,399 14,007 73,540
Net income..................... 3,354 20,195 31,785 19,242 74,576
Per share of common stock:
Income before discontinued
operations.................. $ 0.08 $ 0.41 $ 0.72 $ 0.29 $ 1.50
Discontinued operations...... (0.01) -- (0.07) 0.11 0.02
-------- -------- -------- -------- --------
Net income per share......... $ 0.07 $ 0.41 $ 0.65 $ 0.40 $ 1.52
======== ======== ======== ======== ========
</TABLE>
F-28
<PAGE>
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CON-
STITUTE AN OFFER TO SELL, OR A SOLICITATION OF ANY OFFER TO BUY, THE COMMON
STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION. EXCEPT WHERE OTHERWISE INDICATED, THIS PRO-
SPECTUS SPEAKS AS OF THE EFFECTIVE DATE OF THE REGISTRATION STATEMENT. NEI-
THER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UN-
DER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS NOT BEEN ANY
CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary...................................................... 3
Risk Factors............................................................ 9
Use of Proceeds......................................................... 14
Price Range of Common Stock............................................. 14
Dividend Policy......................................................... 14
Capitalization.......................................................... 15
Selected Consolidated Financial Information............................. 16
Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... 17
Business................................................................ 25
Regulation and Licensing................................................ 37
Management.............................................................. 42
Description of Common Stock............................................. 44
Defeasance of First Mortgage Notes...................................... 45
Underwriting............................................................ 47
Legal Matters........................................................... 49
Experts................................................................. 49
Available Information................................................... 49
Documents Incorporated By Reference..................................... 50
Index to Financial Statements........................................... F-1
Selected Quarterly Financial Results.................................... F-28
</TABLE>
- -------------------------------------------------------------------------------
[LOGO OF MGM GRAND, INC.]
7,500,000 SHARES
COMMON STOCK
DEUTSCHE MORGAN GRENFELL
OPPENHEIMER & CO., INC.
DEAN WITTER REYNOLDS INC.
MONTGOMERY SECURITIES
PROSPECTUS
JUNE 27, 1996
<PAGE>
[LOGO OF MGM GRAND, INC.]
- --------------------------------------------------------------------------------
7,500,000 SHARES
COMMON STOCK
- --------------------------------------------------------------------------------
Of the 7,500,000 shares of Common Stock being offered hereby by MGM Grand,
Inc., a Delaware corporation ("MGM Grand" or the "Company"), 6,000,000 shares
are being offered initially in the United States (the "U.S. Offering") by the
U.S. Underwriters and 1,500,000 shares are being offered initially outside
the United States (the "International Offering" and together with the U.S.
Offering, the "Offering") by the International Underwriters (together with
the U.S. Underwriters, the "Underwriters"). See "Underwriting." The Common
Stock is listed on the New York Stock Exchange and trades under the symbol
"MGG." The last reported sale price of the Common Stock on the New York Stock
Exchange on June 26, 1996 was $39.50 per share.
Tracinda Corporation, a Nevada corporation wholly owned by Kirk Kerkorian
("Tracinda"), and Mr. Kerkorian (together, the "Principal Stockholders") own
approximately 72.5% of the outstanding shares of the Common Stock. The
percentage of the outstanding shares of Common Stock owned by the Principal
Stockholders upon completion of the Offering made hereby will be
approximately 62.9%.
FOR INFORMATION CONCERNING CERTAIN FACTORS WHICH SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS, SEE "RISK FACTORS" COMMENCING ON PAGE 9.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
NEITHER THE NEVADA GAMING COMMISSION, THE NEVADA STATE GAMING CONTROL BOARD,
NOR THE NEW JERSEY CASINO CONTROL COMMISSION HAS PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS OR THE INVESTMENT MERITS OF THE SECURITIES
OFFERED HEREBY. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED UPON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS TO
TO PUBLIC DISCOUNT(1) COMPANY(2)
<S> <C> <C> <C>
Per Share $39.50 $1.48 $38.02
Total(3) $296,250,000 $11,100,000 $285,150,000
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $1,000,000.
(3) The Company has granted the several Underwriters an option to purchase up
to an additional 1,125,000 shares of Common Stock to cover over-
allotments. If all such shares are purchased, the total Price to Public,
Underwriting Discount and Proceeds to Company will be $340,687,500,
$12,765,000 and $327,922,500, respectively. See "Underwriting."
Joint Global Coordinators
DEUTSCHE MORGAN GRENFELL OPPENHEIMER & CO., INC.
The shares of Common Stock are offered by the Underwriters, subject to prior
sale, when, as and if delivered to and accepted by them, and subject to the
approval of certain legal matters by counsel and certain other conditions.
The Underwriters reserve the right to withdraw, cancel or modify such offer
and to reject orders in whole or in part. It is expected that delivery of the
shares of Common Stock will be made in New York, New York against payment
therefor on or about July 2, 1996.
DEUTSCHE MORGAN GRENFELL OPPENHEIMER INTERNATIONAL LTD.
DEAN WITTER INTERNATIONAL LTD. MONTGOMERY SECURITIES
The date of this Prospectus is June 27, 1996.
<PAGE>
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CON-
STITUTE AN OFFER TO SELL, OR A SOLICITATION OF ANY OFFER TO BUY, THE COMMON
STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION. EXCEPT WHERE OTHERWISE INDICATED, THIS PRO-
SPECTUS SPEAKS AS OF THE EFFECTIVE DATE OF THE REGISTRATION STATEMENT. NEI-
THER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE
IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF.
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
PAGE
----
Prospectus Summary...................................................... 3
Risk Factors............................................................ 9
Use of Proceeds......................................................... 14
Price Range of Common Stock............................................. 14
Dividend Policy......................................................... 14
Capitalization.......................................................... 15
Selected Consolidated Financial Information............................. 16
Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... 17
Business................................................................ 25
Regulation and Licensing................................................ 37
Management.............................................................. 42
Description of Common Stock............................................. 44
Defeasance of First Mortgage Notes...................................... 45
Underwriting............................................................ 47
Legal Matters........................................................... 49
Experts................................................................. 49
Available Information................................................... 49
Documents Incorporated By Reference..................................... 50
Index to Financial Statements........................................... F-1
Selected Quarterly Financial Results.................................... F-28
</TABLE>
- -------------------------------------------------------------------------------
[LOGO OF MGM GRAND, INC.]
7,500,000 SHARES
COMMON STOCK
DEUTSCHE MORGAN GRENFELL
OPPENHEIMER INTERNATIONAL LTD.
DEAN WITTER INTERNATIONAL LTD.
MONTGOMERY SECURITIES
PROSPECTUS
JUNE 27, 1996
