<PAGE>
UNITED STATES
SECURITIES & EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1996
-------------------------------------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Transition period from - to -
---------------------- -----------------------
Commission File Number: 0-16760
-------------------------------------------------------
MGM GRAND, INC.
- - ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 88-0215232
------------------------------- ----------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3799 Las Vegas Boulevard South, Las Vegas, Nevada 89109
- - -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(702) 891-3333
- - -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- - -------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at May 10, 1996
------------------------------- -----------------------------
Common Stock, $.01 par value 49,125,578 shares
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of
Operations for the three months ended
March 31, 1996 and March 31, 1995........................ 1
Condensed Consolidated Balance Sheets at
March 31, 1996 and December 31, 1995..................... 2
Condensed Consolidated Statements of Cash Flows
for the three months ended March 31, 1996 and
and March 31, 1995....................................... 3
Notes to Condensed Consolidated Financial
Statements............................................... 4-9
Item 2. Management's Discussion and Analysis of Financial
Conditions and Results of Operations..................... 10-14
PART II. OTHER INFORMATION........................................ 15
</TABLE>
<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.
-1-
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---------- ------------
<S> <C> <C>
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.
-2-
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
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 FINANCING 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.
-3-
<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 20 acres at one of the busiest
intersections 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 land, 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
4
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 1. Organization and Basis Presentation (continued)
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.
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>
-5-
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 3. Long Term Debt and Notes Payable (continued)
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 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
-6-
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 3. Long Term Debt and Notes Payable (continued)
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.
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. 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.
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
-7-
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 6. Income Taxes (continued)
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>
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 tax
liability 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.
-8-
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 6. Income Taxes (continued)
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.
-9-
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
This Form 10-Q contains forward-looking statements within the meaning of
section 27a of the Securities Act of 1933, as amended. Actual results could
differ materially from those projected in the forward-looking statements.
Results of Operations
The Company, through its wholly-owned subsidiaries, owns and operates the
MGM Grand Hotel/Casino ("MGM Grand Las Vegas") in Las Vegas, Nevada which
commenced operations on December 18, 1993, and the MGM Grand Australia
Hotel/Casino ("MGM Grand Australia"), which was acquired on September 7, 1995.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------
1996 1995
----------- -----------
(In thousands)
<S> <C> <C>
Operating revenues:
MGM Grand Las Vegas......................... $ 200,782 $ 161,961
MGM Grand Australia......................... 8,797 --
Eliminations................................ $ (275) (76)
--------- ---------
$ 209,304 $ 161,885
========= =========
Operating income:
MGM Grand Las Vegas......................... $ 52,546 $ 22,333
MGM Grand Australia......................... (1,812) --
--------- ---------
50,734 22,333
Corporate expense........................... (1,511) (2,027)
--------- ---------
49,223 20,306
Interest income................................ 1,581 548
Interest expense, net.......................... (15,797) (15,329)
Other, net..................................... (479) --
Provision for income taxes..................... -- --
--------- ---------
Net income..................................... $ 34,528 $ 5,525
========= =========
</TABLE>
-10-
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Continued)
Quarter versus Quarter
Net revenues for the first quarter of 1996 were $209,304,000, representing
an increase of $47,419,000 (29.3%), compared with $161,885,000 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
national customer base and improvement in customer mix, while continuing to
reduce revenue volatility.
Casino revenues for the first quarter of 1996 were $130,256,000,
representing an increase of $38,930,000 (42.6%) when compared with $91,326,000
during the same period in the prior year. The increase was primarily due to MGM
Grand Las Vegas casino revenues of $122,747,000 for the first quarter of 1996
which increased $31,421,000 (34.4%), compared with $91,326,000 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 significantly suppressed the 1995 first quarter results, have
not affected the 1996 first quarter. MGM Grand Australia reported casino
revenues for the period of $7,509,000 (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. 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.
Room revenues of $43,801,000 for the first quarter of 1996 increased
$4,910,000 (12.6%), compared with $38,891,000 in the prior period. MGM Grand Las
Vegas room revenues were $43,523,000, an increase of $4,605,000 (11.8%) when
compared with $38,918,000 in the same period of the prior year. The increase was
principally due to an improved occupancy of 93.3% and room rate of $103 in the
quarter of 1996, compared with 87.5% and $99, respectively, in the same period
of the prior year. MGM Grand Australia reported room revenues of $323,000 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 of the "wet"
season.
Food and beverage revenues were $20,094,000 in the first quarter of 1996,
representing a decrease of $2,701,000 (11.8%),
-11-
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Continued)
Quarter versus Quarter (continued)
compared with $22,795,000 in the first quarter of the prior year. The decrease
in the first quarter of 1996 was due to the outsourcing of three restaurants to
premiere operators in the third and fourth quarters of 1995. MGM Grand Australia
reported food and beverage revenues of $1,243,000 for the first quarter of 1996.
Entertainment, retail and other revenues were $29,109,000 for the first
quarter of 1996, representing an increase of $6,460,000 (28.5%) when compared
with $22,649,000 in the first quarter of 1995. The increase in revenues for the
first quarter of 1996 was largely due to the EFX production show which commenced
in late March 1995. Additionally, revenues increased as a result of the Star
Lane Shops retail mall, which was not operational in the first quarter of the
prior year, and lease income from the previously noted outsourcing of three
restaurants in the third and fourth quarters of 1995. 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 a decrease in
revenues from the MGM Grand Garden which held three events in the first quarter
of 1996, compared with eight events in the prior year's quarter.
Operating expense was $158,570,000 in the first quarter of 1996,
representing an increase of $19,018,000 (13.6%) when compared with $139,552,000
in the first quarter of 1995. The overall increase was primarily attributable to
higher casino taxes as a result of the improved gaming activity, increased
casino marketing costs for special events, increased room department payroll
costs associated with the increased occupancy in the first quarter of 1996, and
operating costs of EFX and the Star Lane Shops retail mall, which opened during
March 1995 and September 1995, respectively. Additionally, the provision for
doubtful accounts and discounts increased by $7,450,000. Depreciation and
amortization increased in the current quarter due to the addition of EFX
equipment and the Star Lane Shops retail mall, as well as other asset additions,
which were not fully depreciated in the 1995 period. Such expense increases were
partially offset by decreases in costs resulting from the effects of the
restructuring plan and the continuing cost containment efforts.
Operating income was $49,223,000 for the quarter ended March 31, 1996
representing an increase of $28,917,000 (142.2%) over $20,306,000 for the same
period in 1995. MGM Grand Las Vegas operating income was $52,546,000 for the
first quarter of 1996 representing an increase of $30,214,000 (135.3%) from
$22,332,000 in the prior year's quarter. MGM Grand Australia incurred an
operating loss for the period of $1,812,000.
-12-
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Continued)
Quarter versus Quarter (continued)
Corporate and other expenses decreased to $1,511,000 in the first quarter
of 1996, compared with $2,027,000 in the same period of 1995, primarily
attributable to a reduction of amortization related to the Don King Productions,
Inc., boxing agreement.
Interest income of $1,581,000 for the period ended March 31, 1996,
increased by $1,033,000 from $548,000 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, when compared with the lower cash balances in
the prior year.
Interest expense in the first quarter of 1996 of $15,797,000 (net of
capitalized interest) increased slightly by $468,000, compared with $15,329,000
in the same period of 1995. The increase in the first quarter of 1996 was
primarily due to interest of $1,820,000 related to the MGM Grand Australia bank
loan, which was not outstanding during the same period of 1995, partially offset
by capitalized interest of $1,117,000 for the New York-New York construction
project. Additional interest expense was incurred in the first quarter of 1995
as a result of $8,000,000 outstanding on the MGM Grand Las Vegas bank line of
credit which had been repaid by the first quarter of 1996.
Income tax provision has not been recorded due to utilization of tax
benefits not realized in prior years, which have offset any provision for the
current period.
-13-
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Continued)
Liquidity and Capital Resources
As of March 31, 1996 and December 31, 1995, the Company held cash and cash
equivalents of $183,580,000 and $110,017,000, respectively. Cash provided by
operating activities for the first three months of 1996 was $79,169,000 when
compared with $7,687,000 for the first three months of 1995.
Capital expenditures during the first three months of 1996 were
$14,120,000, consisting primarily of $8,029,000 related to MGM Grand Las Vegas
general property improvements, and $5,994,000 at MGM Grand Australia for the
renovation program which includes enhanced guest accommodations, public
areas, and other property improvements.
On May 6, 1996, MGM Grand Las Vegas announced details of a 30-month,
$250,000,000 Master Plan designed to transform the facility into "The City of
Entertainment", thus creating additional exciting food, beverage,
entertainment and retail venues. The Plan features a series of substantive
improvements and additions throughout its 112-acre destination resort property.
The Master Plan will unfold in four phases, and is scheduled to begin in June
1996. Details of the extensive renovation include refurbishment of the lion
entry, the porte cochere, casino areas, luxury suites, parking facilities, and
the theme park. In addition, new facilities include a convention center,
entertainment/retail complex, and a second porte cochere entrance. The Company
is evaluating the alternative use and/or disposition of certain existing assets,
which could be affected by implementation of the Master Plan. Although the
specific assets to be redeployed, or disposed of, in connection with the Master
Plan has not yet been determined, the write-down of the carrying value of such
assets is not currently expected to exceed $20,000,000.
The remaining expenditures for 1996 are expected to be approximately
$76,700,000, of which approximately $32,000,000 relate to MGM Grand Las Vegas
for general property improvements, and approximately $39,500,000 for the Master
Plan property renovation. MGM Grand Australia remaining capital expenditures for
1996 are expected to be approximately $5,200,000, related to the renovation
program and for general property improvements.
On September 20, 1995, bank financing of up to $225,000,000 was completed
by NYNY. The first draw down occurred on September 30, 1995, and as of March 31,
1996 $119,601,000 had been drawn down under the facility. Capital lease
financing of up to $60,000,000 is anticipated during 1996. The Company may
contribute additional equity for its share of the amount necessary to complete
the project. As a lender requirement for the project financing, both the Company
and Primadonna were required to enter into a joint and several completion
guarantee, as well as a Keep-Well Agreement (see Note 3).
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., 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 as well as a commitment from B of A for a $125 million interim
facility. The Company plans to sell approximately 7,500,000 shares of Common
Stock (excluding Underwriter's option to purchase 1,125,000 shares of common
stock) in an underwritten public offering (the "Offering"). Based upon the
closing price of the common stock, as reported by the New York Stock Exchange on
May 13, 1996 ($41.00), it is anticipated that the net proceeds of the Offering
will be approximately $295.0 million ($339.4 million if the Underwriters' over-
allotment option is exercised in full).
The bank facilities will be used, together with cash on hand, and proceeds from
the Offering, to defease the outstanding secured debt obligations of MGM Grand
Hotel Finance Corp., a wholly owned subsidiary of the Company, which consists 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.
It is anticipated that the defeasance will result in an extraordinary charge of
approximately $37 million.
-14-
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Continued)
PART II. OTHER INFORMATION
None of the items 1 through 4 of Part II are applicable.
Item 5. Legal Proceedings
On April 5, 1996, a lawsuit was filed in the Superior Court of California,
County of Los Angeles by Sheldon Gordon and Randy Brant against the Company.
The suit alleges that the Company breached an oral joint venture agreement to
have real estate developers Gordon/Brant design and develop a retail and
entertainment center at the portion of the hotel/casino which fronts the Strip.
They are suing for $350,000 in costs advanced in anticipation of the project
being constructed, as well as damages of approximately $100,000,000 from lost
profits that would have resulted upon completion, and damage to their
reputations. Management believes that the claims are wholly without merit and
does not expect that the lawsuit will have a material adverse effect on the
Company's financial condition or results of operations.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
10.1 Commitment letter for Interim Bank Financing dated May 13, 1996.
10.2 Commitment letter for Credit Facility dated May 13, 1996.
b. Reports on Form 8-K
none
-15-
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MGM GRAND, INC.
------------------------------
(Registrant)
/s/ Alejandro Yemenidjian
Date: May 10, 1996 ------------------------------
Alejandro Yemenidjian
President, Chief Operating
Officer, and Chief Financial
Officer
(principal financial officer)
/s/ Scott Langsner
Date: May 10, 1996 ------------------------------
Scott Langsner
Secretary/Treasurer
(principal accounting officer)
-16-
<PAGE>
[LETTERHEAD OF BANK OF AMERICA APPEARS HERE]
May 13, 1996
Mr. Alex Yemenidjian
MGM Grand, Inc.
3799 Las Vegas Boulevard South
Las Vegas, Nevada 89109
Dear Alex:
Bank of America National Trust and Savings Association is pleased to commit
to provide the $125,000,000 bridge credit facility (the "Bridge Facility") for
MGM Grand, Inc. (the "Company") described on the attached Summary of Bridge
Facility Terms and Conditions (the "Bridge Summary"), the terms and provisions
of which are incorporated herein by this reference.
Together with proceeds of the proposed offering of common stock of the
Company, borrowings under the existing $60,000,000 credit facility maintained by
MGM Grand Hotel Finance Corp., and the Company's existing cash, the Bridge
Facility would be used to fund the approximately $523,000,000 deposit necessary
to defease the FMN's described in the Bridge Summary.
Our commitment is subject to our receipt, concurrently with our issuance of
this letter, of commitments for the entire amount of the proposed $500,000,000
Senior Secured Reducing Revolving Credit Facilities (on the terms and conditions
set forth in the Summary of Terms and Conditions of even date herewith and our
separate commitment letter to you with respect thereto). Our commitment is also
conditioned upon your acceptance of this letter by signing it and returning it
to us not later than close of business on May 14, 1996.
This letter may not be disclosed to any person, or its existence referred
to in a communication to any such person, prior to such acceptance and payment.
This commitment will terminate if the $523,000,000 deposit to the FMN trustee
has not been made by August 31, 1996.
<PAGE>
Our commitment is conditioned upon execution of mutually satisfactory
definitive loan documentation containing appropriate and customary
representations, warranties, covenants and events of default. Our commitment is
also subject to the absence of any material and adverse change in the financial
condition, operations, assets or business of the Company and its subsidiaries,
laws or governmental regulations which are relevant to the transactions
contemplated, or the financial and credit markets disrupting the bank loan
syndication market generally.
By executing this letter, you agree that you shall not solicit or accept
any other proposal or commitment to provide financing for the transactions
contemplated by the Bridge Summary during the period between the date of this
letter and December 5, 1996.
By accepting this letter, the Company agrees that it shall pay on demand
all reasonable costs and expenses of BofA (including legal fees and
disbursements and the allocated costs of internal counsel) in connection with
the preparation of the Bridge Summary and the negotiation and documentation of
the Credit Documents and syndication of the Bridge Facility, whether or not the
transactions contemplated by the Bridge Summary are actually consummated. In
addition, the Company shall defend and indemnify BofA and its officers,
directors, employees and agents (each, an "Indemnified Person"), against all
claims, damages, liabilities and expenses which may be incurred by or asserted
against any of them in connection with the transactions contemplated by this
letter and the Bridge Summary and for any reasonable legal or other expenses
incurred in connection with investigating, defending or participating in any
such loss, claim, damage, liability or action or other proceeding, whether
commenced or threatened, or in any way relating to the extension of the
financing contemplated by this letter and the Bridge Summary or from any use or
intended use of any of the proceeds thereof except, in the case of any
Indemnified Person, to the extent any such loss, claim, damage or liability
results from the gross negligence or willful misconduct of such Indemnified
Person.
<PAGE>
Please sign this letter in the space provided below to accept this
commitments. We look forward to a prompt closing of this transaction.
Sincerely,
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION
By: /s/William S. Newby
-------------------------------
William S. Newby, Managing Director
By: /s/Jon Varnell
-------------------------------
Jon Varnell, Managing Director
Accepted and agreed:
MGM GRAND, INC.
By: Alejandro Yemenidjian
-----------------------
Title: Pres, COO, & CFO
--------------------
<PAGE>
Confidential Draft May 13, 1996
MGM GRAND, INC.
$125,000,000 BRIDGE CREDIT FACILITY
Summary of Terms and Conditions
- - ------------------------------------------------------------------------------
BORROWER: MGM Grand, Inc.
BRIDGE FACILITY: 91 day term loan.
AMOUNT: $125,000,000
LENDER: Bank of America National Trust and Savings Association
("BofA").
PURPOSE: Together with the proceeds from the proposed issuance of
common stock of Borrower, borrowings of the entire
balance available under the existing $60,000,000 credit
facility maintained by MGM Grand Hotel Finance Corp.
("Finance Corp.") and the Company's existing cash, to
fund an approximately $523,000,000 deposit necessary to
defease the $473,000,000 (face amount) of existing First
Mortgage Notes ("FMN's") issued by Finance Corp.
AVAILABILITY: The Bridge Facility will become available concurrently
with the consummation of the equity offering and the
deposit of sufficient funds with the trustee for the
FMN's to successfully defease the FMN's. The final
structure of the transaction in which the FMN's will be
defeased is to be negotiated, but must be acceptable to
BofA.
The availability of the Bridge Facility would also be
conditioned upon the execution and delivery of
substantially all loan documentation for the proposed
$500,000,000 Senior Secured Reducing Revolving Credit
Facilities (as described in the Summary of Terms and
Conditions of even date herewith (the "Takeout Summary")
delivered to Borrower by Bank of America.
MATURITY: Earlier of successful defeasance of the FMN's and
December 4, 1996.
SECURITY: Second priority pledge by the Borrower of the stock of
the MGM Grand Hotel, Inc. and Finance Corp., subject only
to the liens therein now held by the lenders under the
existing $60,000,000 Facility and the FMN's.
INTEREST RATE: Base Rate or a single 90 day LIBOR loan at LIBOR plus
1.50%. "Base Rate" and "LIBOR" have the meanings set
forth in the Takeout Summary.
MGM Grand, Inc. BankAmerica Corp.
-1-
<PAGE>
Confidential Draft May 13, 1996
INTEREST PAYMENTS: Interest will be payable at the end of each calendar
month.
UNDERWRITING AND
BREAKUP FEES: As set forth in a letter agreement with BofA.
DOCUMENTATION: The Bridge Facility will be subject to preparation,
execution, and delivery of a Loan Agreement and other
mutually acceptable loan documentation which will contain
the normal conditions precedent, representations and
warranties, covenants, events of default and other
provisions including, without limitation, those outlined
below.
COVENANTS: As set forth in the Takeout Summary, except that No
repayments of the $60,000,000 Finance Corp. facility
during the term of the Bridge Facility would be
permitted.
CONDITIONS: Successful consummation of the proposed offering of
common stock of Borrower yielding net proceeds to
Borrower of not less than $250,000,000. Concurrent
equity contribution of not less than $350,000,000 to
Finance Corp.
Execution and delivery of substantially all documentation
for the Takeout Facility by all parties thereto, and the
satisfaction of all conditions precedent thereto, other
-----
than successful defeasance of the FMN's, the absence of a
Default or Event of Default thereunder, and the receipt
by the lenders of the Takeout Facility of the guarantees
of MGM Grand Hotel, Inc. and MGM Grand Atlantic City and
their receipt of the Security described in the Takeout
Summary.
Concurrent deposit of funds to defease the FMN's with the
trustee pursuant to an irrevocable trust and security
agreement which is reasonably acceptable to BofA, but in
any event providing for the release of all security for
the FMN's upon the end of the 90 day period if no
intervening bankruptcy or insolvency of Borrower, MGM
Grand Hotel, Inc. or Finance Corp. has occurred.
Preparation, execution and delivery of loan documentation
in a form which is usual and customary for transactions
of a similar nature, including, without limitation, the
following, in form and substance satisfactory to BofA:
(A) all legal matters shall be satisfactory to the Banks,
including favorable legal opinions and no judgment,
order, injunction or other restraint shall exist, and
no litigation shall be pending or threatened, that in
the judgment of the Banks would prohibit or impose,
or result in the imposition of, materially adverse
conditions upon the financing contemplated hereby;
MGM Grand, Inc. BankAmerica Corp.
-2-
<PAGE>
Confidential Draft May 13, 1996
(B) receipt by Borrower, and continuing effectiveness, of
all licenses, regulatory approvals, governmental
authorizations, permits, etc., necessary to the
ongoing business as now conducted;
(C) execution and delivery of satisfactory closing
documentation;
(D) no material adverse change (i) in the financial
condition, operations, assets, or business of
Borrower or (ii) that would have a material adverse
effect on the rights or remedies of the BofA, or on
the ability of Borrower to perform its obligations
under the Loan Agreement and other loan documents.
REPORTING As set forth in the Takeout Summary.
REQUIREMENTS:
EVENTS OF DEFAULT: As set forth in the Takeout Summary - Cross Default to
Takeout Facility.
CLEAR MARKET: Borrower shall agree that, except for the anticipated
equity offering, the Takeout Facility and subordinated
debt, from the date of this Summary of Terms and
Conditions through December 5, 1996 neither it nor any of
its subsidiaries will engage in any other material
financing transaction, or solicit interest in such a
transaction, without the consent of BofA.
TAXES: All payments will be made free and clear of any present
or future taxes, withholdings or other deductions
whatsoever (other than taxes imposed on the overall
income (whether gross or net) of a Bank by the
jurisdiction in which the Bank is organized, resident or
doing business).
MISCELLANEOUS: Customary indemnity and yield protection (including risk-
based capital adequacy, increased costs and interest
period breakage indemnities), illegality and similar
provisions.
ASSIGNMENTS AND
PARTICIPATIONS: As set forth in the Takeout Summary.
FEES AND EXPENSES: Borrower shall pay all reasonable costs and expenses
(including without limitation, the allocated fees and
expenses of in-house counsel), incurred by BofA in the
enforcement and collection of obligations under the
Bridge Facility.
MGM Grand, Inc. BankAmerica Corp.
-3-
<PAGE>
Confidential Draft May 13, 1996
GOVERNING LAW: State of Nevada.
This Summary is not meant to be, nor should it be construed as, an attempt to
define all of the terms and conditions of the transaction contemplated hereby,
nor is it intended to reflect specific document phrasing that will exist in the
Loan Agreement. This Summary is intended only to outline the basic points of
business understanding around which a Loan Agreement can be structured.
MGM Grand, Inc. BankAmerica Corp.
-4-
<PAGE>
[LETTERHEAD OF BANK OF AMERICA APPEARS HERE]
May 13, 1996
Mr. Alex Yemenidjian
MGM Grand, Inc.
3799 Las Vegas Boulevard South
Las Vegas, Nevada 89109
Dear Alex:
Bank of America National Trust and Savings Association is pleased to commit
to provide up to $300,000,000 of the proposed aggregate $500,000,000 secured
credit facility (the "Facility") for MGM Grand, Inc. Our commitment is based
upon the attached Summary of Terms and Conditions (the "Summary"), the terms and
provisions of which are incorporated herein by this reference. We would serve
as Administrative Agent for the Facility.
Lenders which execute this letter and commit to provide a $50,000,000
portion of the Facility not later than Tuesday, May 14, 1996 would be Co-Agents
under the Facility. No Co-Agents would be accepted after that date. Co-Agents
will commit to provide their portions of the Facility (also based upon the
Summary) by executing this letter in the appropriate space provided below. Our
commitment and the commitment of each Co-Agent (collectively, the "Commitments")
are conditioned upon the commitment by at least four of the potential Co-Agents
listed below of $50,000,000 each by Tuesday, May 14, 1996. In the event that
five Co-Agents commit an aggregate of $250,000,000 by that date, our commitment
amount will automatically be reduced to $250,000,000.
BA Securities, Inc. agrees to use its best efforts to arrange a mutually
acceptable syndicate of lenders for the Facility. MGM Grand, Inc. would be
entitled to accept oversubscriptions up to a total Facility amount of
$600,000,000, provided that Bank of America would be entitled to reduce the
--------
amount of its initial commitment prior to your acceptance of oversubsciptions,
as set forth in the fee letter described below. We reserve the right to
allocate a portion of our commitment to our affiliate, Bank of America Nevada.
<PAGE>
The Commitments are conditioned upon your acceptance of this letter by
signing it and returning it to us not later than close of business on May 14,
1996, together with your payment of the Breakup Fees referred to in the Summary
and in our separate letter agreement dated today respecting fees payable to Bank
of America and BA Securities, Inc.
This letter may not be disclosed to any person (other than your legal
counsel), or its existence referred to in a communication to any such person,
prior to such acceptance and payment. The Commitments will terminate if the
transactions contemplated by the Summary have not been consummated by December
5, 1996.
The Commitments are conditioned upon execution of mutually satisfactory
definitive loan documentation containing appropriate and customary
representations, warranties, covenants and events of default. The Commitments
are also subject to the absence of any material and adverse change in the
financial condition, operations, assets or business of MGM Grand, Inc. and its
subsidiaries, laws or governmental regulations which are relevant to the
transactions contemplated, or the financial and credit markets disrupting the
bank loan syndication market generally.
It is understood that you will assist us in preparing an Information
Memorandum for use in the process of arranging the lender syndicate, and that
senior management will be available to meet with prospective syndicate members
as we may request.
By executing this letter, you agree that you shall not solicit or accept
any other proposal or commitment to provide financing for the transactions
contemplated by the Summary during the period between the date of this letter
and December 5, 1996.
By accepting this letter, MGM Grand, Inc. agrees that it shall pay on
demand all reasonable costs and expenses of the Administrative Agent and BA
Securities, Inc. (including legal fees and disbursements and the allocated costs
of internal counsel) in connection with the preparation of the Summary and the
negotiation and documentation of the Credit Documents and syndication of the
Facility, whether or not the transactions contemplated by the Summary are
actually consummated. In addition, MGM Grand, Inc. shall defend and indemnify
the Administrative Agent, BA Securities, Inc., their respective officers,
directors, employees and agents (each, an "Indemnified Person"), against all
claims, damages, liabilities and expenses which may be incurred by or asserted
against any of them in connection with the transactions contemplated by this
letter and the Summary and for any reasonable legal or
<PAGE>
other expenses incurred in connection with investigating, defending or
participating in any such loss, claim, damage, liability or action or other
proceeding, whether commenced or threatened, or in any way relating to the
extension of the financing contemplated by this letter and the Summary or from
any use or intended use of any of the proceeds thereof except, in the case of
any Indemnified Person, to the extent any such loss, claim, damage or liability
results from the gross negligence or willful misconduct of such Indemnified
Person.
Please sign this letter in the space provided below and make the payment
described above to accept the Commitments. We look forward to a prompt closing
of this transaction.
Sincerely,
BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION
By:/s/ William S. Newby
--------------------------------
William S. Newby, Managing Director
By:/s/ Jon Varnell
--------------------------------
Jon Varnell, Managing Director
BA SECURITIES, INC.
By:/s/ Edward F. Millet
--------------------------------
Edward F. Millet, Vice President
Accepted and agreed:
MGM GRAND, INC.
By: Alejandro Yemenidjian
-----------------------
Title: Pres, COO, & CFO
--------------------
<PAGE>
Each of the undersigned hereby commits to provide a $50,000,000 portion of the
Facility referred to above and will act as a Co-Agent for the Facility.
BANK OF SCOTLAND
By: /s/ CATHERINE ONNIFREY
-------------------------
Title: VICE PRESIDENT
----------------------
SOCIETE GENERALE
By: /s/ DONALD SCHUBERT
-------------------------
Title: VICE PRESIDENT
----------------------
THE LONG-TERM CREDIT BANK OF JAPAN, LTD.
By: /s/ MOTOKAZU UEMATSU
-------------------------
Title: DEPUTY GENERAL MANAGER
----------------------
WELLS FARGO BANK, N.A.
By: /s/ BRAD PETERSON
-------------------------
Title: VICE PRESIDENT
----------------------
CANADIAN IMPERIAL BANK OF COMMERCE
By: /s/ DEAN J. DECKER
-------------------------
Title: ASSOCIATE DIRECTOR
----------------------
<PAGE>
Confidential Draft May 13, 1996
MGM GRAND, INC.
SENIOR SECURED $500,000,000 REDUCING REVOLVING CREDIT FACILITY
Summary of Terms and Conditions
- - -------------------------------------------------------------------------------
BORROWER: MGM Grand, Inc.
GUARANTORS: MGM Grand Hotel, Inc. ("Hotel"); and MGM Grand Atlantic
City, Inc. ("MGM AC").
FACILITY: A 5 - 1/2 year senior secured reducing revolving line of
credit.
AMOUNT: $500,000,000; Borrower reserves the right to accept
oversubscriptions to the Facility which result in an
increase in the amount of the Facility to up to
$600,000,000 (subject, however, to the consent of both
BofA and the Arranger).
SWING LINE: A $15,000,000 portion of the Facility would be made
available to Borrower by means of a Swing Line. The
outstanding principal balance of the Swing Line Advances
would not exceed $5,000,000 for a period in excess of 3
business days. Swing Line Advances would be funded by
Bank of America Nevada at a rate equal to the Base Rate
plus the Base Rate Spread described below. Each Bank
would have a risk participation in Swing Line Advances
which is equal to its pro rata share of the Facility.
Swing Line Advances would not constitute usage for the
purpose of computing Commitment Fees due to the Banks.
PURPOSES: 1) Refinance certain existing indebtedness for borrowed
money of Borrower and its Subsidiaries.
2) Finance up to $250,000,000 of Masterplan capital
improvements at the MGM Grand Hotel/Casino over the
next two years;
3) Finance initial development costs for a new project
in Atlantic City; and
4) General corporate purposes.
AVAILABILITY: The Facility will become available upon the earlier to
occur of:
(i) the successful defeasance of the $473,000,000
(face amount) of existing First Mortgage Notes
("FMN's") issued by MGM Grand Hotel Finance Corp. for
approximately $523,000,000, including related
transaction costs; or
(ii) concurrently with the deposit of sufficient
funds with the trustee for the FMN's (in the form of
government securities in the approximate amount of
$523,000,000) to successfully defease the FMN's,
provided that the Borrower
--------
MGM Grand, Inc. BankAmerica Corp.
-1-
<PAGE>
Confidential Draft May 13, 1996
is able to provide the Agent with a first priority
lien in those government securities to secure the
Facility.
In the latter case, after 91 days, the Agent would
release its lien in the government securities
concurrently with (i) its receipt of the Hotel Guaranty,
a first priority mortgage on the MGM Grand, Las Vegas,
and its other first priority security from Hotel and (ii)
the corresponding release of security from the FMN
Indentures. The final structure of the transaction in
which the FMN's will be defeased is to be negotiated, but
must be acceptable to the Agent and the Banks. In any
event, the defeasance of the FMN's must be structured so
that the Agent and the Banks are entitled to the benefits
of the Security described below or the government
securities, without gaps or the risk of avoidance because
of preference claims or other similar risks.
MATURITY: December 31, 2001. Borrower may request one-year
extensions of the Facility (and correspondingly defer the
Scheduled Facility Reductions, below) at any time
following the one year anniversary of closing the
Facility, subject to consent to 100% of the Banks.
MANAGING AND
ADMINISTRATIVE AGENT: Bank of America National Trust and Savings Association
("BofA"; in its capacity as Administrative Agent,
"Agent").
ARRANGER: BA Securities, Inc. Arranger will endeavor, on a best
efforts basis, to arrange a group of Co-Agents to
collectively commit an aggregate initial amount to the
Facility of at least $200,000,000.
CO-AGENTS: Invitations to Bank of Scotland, Societe Generale, Long-
Term Credit Bank of Japan, Wells Fargo, and Canadian
Imperial Bank of Commerce.
SECURITY: Substantially all of the assets of Borrower and
the Guarantors, to include, without limitation, a pledge
by the Borrower of the stock of the Guarantors; first
deeds of trust on, and security interests in, the MGM
Grand Hotel/Casino and the Atlantic City project,
together with any improvements hereafter undertaken; and
a pledge of all other personal property, FF&E, contract
rights, equipment leases, intangibles, and other
significant unencumbered assets of Borrower and
Guarantors now owned or hereafter acquired (MGM Darwin
and New York-New York are specifically excluded).
MGM Grand, Inc. BankAmerica Corp.
-2-
<PAGE>
Confidential Draft May 13, 1996
SCHEDULED
FACILITY REDUCTIONS: Availability under the Facility will reduce according to
the following schedule (unless extensions of the Facility
have been granted by the Banks -- see Maturity, above):
<TABLE>
<CAPTION>
Remaining
Date Reduction Availability
---- ------------ ------------
<S> <C> <C>
12/31/99 $ 25,000,000 $475,000,000
03/31/00 $ 25,000,000 $450,000,000
06/30/00 $ 25,000,000 $425,000,000
09/30/00 $ 25,000,000 $400,000,000
12/31/00 $ 25,000,000 $375,000,000
03/31/01 $ 25,000,000 $350,000,000
06/30/01 $ 25,000,000 $325,000,000
09/30/01 $ 25,000,000 $300,000,000
12/31/01 $300,000,000 $0
</TABLE>
In the event that the amount of the Facility is increased
by reason of an oversubscription, the Reduction Amounts
set forth above will be ratably increased.
VOLUNTARY
PREPAYMENT: Base Rate Loans may be prepaid without penalty at any
time upon one business days' notice to the Agent.
Prepayment of LIBOR loans may occur upon three business
days' notice during an interest period provided that
Borrower shall reimburse the Banks for any funding losses
and loss of anticipated profits to the Banks.
Prepayments shall be in an aggregate principal amount of
not less than $10,000,000 and in increments of $1,000,000
above $10,000,000. Both principal and accrued interest
shall be due and payable on the proposed prepayment date.
Subject to the provisions regarding prepayment, Borrower
may reduce or cancel unused commitments without penalty
upon three business days' notice to the Agent.
INTEREST RATES AND
COMMITMENT FEES: Based on the ratio of Borrower's Leverage Ratio (as
defined below), as follows (basis points):
<TABLE>
<CAPTION>
Base
Leverage LIBOR Rate Commitment
Ratio (x) Spread Spread Fee
--------- ------ ------ ---
<S> <C> <C> <C>
x (less than) 1.25 75.0 0.0 25.00
1.25 (less than or equal to) x (less than) 1.75 100.0 0.0 31.25
1.75 (less than or equal to) x (less than) 2.25 125.0 25.0 37.50
2.25 (less than or equal to) x (less than) 2.75 150.0 50.0 37.50
2.75 (less than or equal to) x (less than) 3.25 175.0 75.0 43.75
x (greater than or equal to) 3.25 200.0 100.0 50.00
</TABLE>
"Base Rate" means the higher of (a) BofA's "Reference
Rate" (calculated on a 365/366 day basis) and (b) the
federal funds rate plus 0.50% (calculated on a 360 day
basis). The "LIBOR" rate
MGM Grand, Inc. BankAmerica Corp.
-3-
<PAGE>
Confidential Draft May 13, 1996
shall be reserve adjusted. Both the LIBOR rate and all
fees under the loan documents will be calculated on a 360
day basis.
INTEREST PERIODS: LIBOR rate loans will be available for interest periods
of 1, 2, 3 or 6 months. No more than 15 LIBOR loans
shall be outstanding at any one time.
INTEREST PAYMENTS: Interest will be payable on Base Rate Loans at the end of
each calendar month, and on each other type of Loan at
the end of each Interest Period, but not less frequently
than every 90 days if Interest Periods longer than 90
days are selected.
NOTICE OF
BORROWINGS: Borrower must give notice to the Agent of its intention
to borrow under the LIBOR option 3 eurodollar banking
days before the requested loan. Base Rate borrowings are
available on a same day basis.
MINIMUM
BORROWINGS: Advances under the Facility shall be in integral
multiples of $1,000,000 which are not less than
$10,000,000.
COMMITMENT FEES: Commitment fees shall be payable with respect to the
average daily unused portion of the Facility quarterly in
arrears and upon any termination of all or any portion of
the Facility.
ADMINISTRATIVE FEE: Annual Administrative Fee payable as set forth in a
letter with BofA.
UNDERWRITING FEES: Agent: As set forth in a letter agreement with BofA.
Co-Agents: 1.00% for $50,000,000 commitments, payable
upon consummation of the initial loans on the commitment
amount accepted by Borrower and Arranger.
BREAKUP FEE: Borrower will pay $25,000 to each Co-Agent and an amount
set forth in a letter agreement to the Agent within one
week of commitment, for use of the Commitment Letters
providing an aggregate $500,000,000 underwriting of the
Facility. Such amounts will be credited to the
Underwriting Fees payable at closing to BofA/Arranger and
the Co-Agents, respectively.
DOCUMENTATION: The Facility will be subject to preparation, execution,
and delivery of a Loan Agreement and other mutually
acceptable loan documentation which will contain the
normal conditions precedent, representations and
warranties, covenants, events of default and other
provisions including, without limitation, those outlined
below.
MGM Grand, Inc. BankAmerica Corp.
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<PAGE>
Confidential Draft May 13, 1996
COVENANTS AND
CONDITIONS: The Loan Agreement will contain covenants usual and
customary for a financing of this nature, including, but
not limited to, the Borrower's covenant to maintain its
fundamental business, compliance with law, ERISA
compliance, notice of default, and material litigation.
Covenants will include, among others, the following:
Financial
Covenants: Financial covenants will be measured quarterly, beginning
with the first full calendar quarter after Closing.
(A) Maximum Leverage Ratio of not more than the following
(individual quarterly levels to be determined):
<TABLE>
<CAPTION>
During Fiscal
Year Ending Maximum Ratio
----------- -------------
<S> <C>
12/31/96 3.00
12/31/97 3.00
12/31/98 3.80
12/31/99 3.00
and thereafter
</TABLE>
Leverage Ratio defined as the ratio of Total Debt to
Cashflow. Cashflow is defined as EBITDA of the
Borrower, plus pre-opening expenses, plus EBITDA of
---- ----
MGM Grand Australia (but not including return of
capital), plus operating cashflow from New York - New
----
York distributed to and received by Borrower (but not
including return of capital). Total Debt defined as
all funded debt, plus letters of credit, plus all
contingent obligations (e.g., guarantees and other
forms of support), plus 50% of the amount of debt
outstanding on the New York-New York project until
the opening of New York-New York; following the
opening of New York-New York, and for so long as the
New York-New York Keep-Well Agreement is in place,
50% of its debt amount will be included in this
calculation (for the subsequent quarter) only when
New York-New York does not achieve quarterly EBITDA
of at least $20,000,000.
(B) Minimum Interest Coverage Ratio not less than the
following (individual quarterly levels to be
determined):
<TABLE>
<CAPTION>
During Fiscal
Year Ending Minimum Ratio
------------- -------------
<S> <C>
12/31/96 3.00
12/31/97 3.00
12/31/98 2.25
12/31/99 3.00
and thereafter
</TABLE>
Defined as (Cashflow - Maintenance CAPEX (to be
defined) - Income Tax Provision - Cash
Dividends)/(Cash
MGM Grand, Inc. BankAmerica Corp.
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<PAGE>
Confidential Draft May 13, 1996
Interest + Payments required by Borrower under the
New York-New York Keep-Well Agreement).
(C) Maximum New Venture CAPEX. Limited to (i)
$750,000,000 on the Atlantic City project, (ii) up to
$250,000,000 for Masterplan improvements at Hotel,
(iii) amounts payable under the New York-New York
Keep-Well Agreement, New York-New York pre-opening
costs and additional equity infusions to New York -
New York required under the current $460 million
budget, (iv) an additional $200,000,000 over the life
of the Facility, and (v) 100% of the net proceeds
received from additional equity offerings subsequent
to 12/31/96.
(D) Minimum Tangible Net Worth of not less than the sum
of (i) 85% of Consolidated Tangible Net Worth as of
the closing date (but after having accounted for the
defeasance/buyback costs of the FMN's), plus (ii) 50%
of cumulative Consolidated Net Income after closing
(not reduced by Consolidated Net Losses), plus (iii)
75% of the net proceeds of any equity offering.
Negative
Covenants: The Loan Agreement will contain negative covenants
including, without limitation, acquisitions, mergers and
similar transactions, asset sales, and restricted
payments (including dividends, which are payable by
Borrower subject to Financial Covenants (B) and (D)
above, and so long as Borrower's Leverage Ratio is not
greater than 2.0). Change in control (to be defined) of
the Borrower shall not result in an Event of Default, but
rather an optional termination of the Facility
commitments by the Banks if Requisite Banks so elect. No
additional senior indebtedness or liens are permitted,
except for secured purchase money indebtedness and
capital leases under baskets to be defined. Unsecured
subordinated debt of Borrower will be permitted so long
as it is on terms consistent with the current market (to
be later defined).
Also, Borrower may enter into secured swap agreements
with one or more Banks in a notional amount up to
$250,000,000 that shall be secured on a pari passu basis
with the obligations under the Facility.
Conditions of Lending: For the initial advance, usual and customary for
transactions of a similar nature, including, without
limitation, the following, in form and substance
satisfactory to the Agent and the Banks:
(A) all legal matters shall be satisfactory to the Banks,
including favorable legal opinions and no judgment,
order, injunction or other restraint shall exist, and
no litigation shall be pending or threatened, that in
the judgment of the Banks would prohibit or impose,
or result in the
MGM Grand, Inc. BankAmerica Corp.
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<PAGE>
Confidential Draft May 13, 1996
imposition of, materially adverse conditions upon the
financing contemplated hereby;
(B) receipt by Borrower, and continuing effectiveness, of
all licenses, regulatory approvals, governmental
authorizations, permits, etc., necessary to the
ongoing business as now conducted;
(C) execution and delivery of satisfactory closing
documentation;
(D) no material adverse change (i) in the financial
condition, operations, assets, or business of
Borrower or (ii) that would have a material adverse
effect on the rights or remedies of the Agent or
Banks, or on the ability of Borrower to perform its
obligations under the Loan Agreement and other loan
documents.
(E) FIRREA appraisal and update to environmental
assessment.
(F) Solvency certificate by each Guarantor.
For each subsequent Advance, usual and customary for
transactions of a similar nature, including, without
limitation, the following, in form and substance
satisfactory to the Banks:
(A) absence of Event of Default, matured or unmatured;
(B) representations and warranties true, correct and
complete as the date of such advance, immediately
prior to and after giving effect to the proposed
borrowing;
(C) no material adverse change (i) in the financial
condition, operations, assets or business of
Borrower, or (ii) that would have a material adverse
effect on the rights or remedies of the Agent or
Banks, or on the ability of Borrower to perform its
obligations, under the Loan Agreement and other loan
documents.
Reporting
Requirements: To be negotiated.
EVENTS OF DEFAULT: Customary, including, without limitation, failure to
maintain material franchises and licenses, breach of
covenants, breach of representations and warranties,
bankruptcy/insolvency, judgments and attachments of
Borrower or any Guarantor, unfunded ERISA liabilities and
withdrawal liabilities under multiemployer plans, all
subject to mutually satisfactory materiality thresholds
and grace, notice and cure periods, as appropriate.
REQUISITE BANKS: Banks comprising 66-2/3% of total commitments under the
Facility.
MGM Grand, Inc. BankAmerica Corp.
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<PAGE>
Confidential Draft May 13, 1996
CLEAR MARKET: Borrower shall agree that, except for the anticipated
equity offering, and related transactions and
subordinated debt, from the date of this Summary of Terms
and Conditions through December 5, 1996 neither it nor
the Guarantors will engage in any other material
financing transaction, or solicit interest in such a
transaction, without the consent of the Arranger.
TAXES: All payments will be made free and clear of any present
or future taxes, withholdings or other deductions
whatsoever (other than taxes imposed on the overall
income (whether gross or net) of a Bank by the
jurisdiction in which the Bank is organized, resident or
doing business).
MISCELLANEOUS: Customary indemnity and yield protection (including risk-
based capital adequacy, increased costs and interest
period breakage indemnities), illegality and similar
provisions.
ASSIGNMENTS AND
PARTICIPATIONS: Each Bank may assign all or any part of its loans or
commitment to an affiliate of such lender or to any other
Bank without consent, and to one or more financial
institutions that are Eligible Assignees with the prior
consent of the Agent and Borrower. The Agent's and the
Borrower's consent shall be required for all assignments,
but shall not be unreasonably withheld. The minimum
amount of any such assignment shall be $10,000,000, or
such lesser amount as constitutes the remaining amount of
a Bank's commitment (except that there shall be no
minimum assignment among the Banks or to their
affiliates), and each assigning Bank shall pay to the
Agent a recordation fee of $2,500 with respect to each
such assignment. As used herein, the term "Eligible
Assignee" means any Affiliate of the assignor Bank and
any commercial bank having a combined capital and surplus
of not less than $100,000,000 which is (i) organized
under the laws of the United States or any state thereof,
or (ii) the domestic branch or agency of any such
commercial bank organized under the laws of a country
which is a member of the Organization for Economic
Cooperation and Development. Upon any such assignment,
the assignee financial institution shall become a Bank
for all purposes under the loan documents.
Each Bank may sell participations for all or any part of
the Facility or commitment provided, that (i) such Banks
--------
shall remain responsible for its total obligations under
the loan documents, (ii) Borrower and the Agent shall
continue to deal solely with such Bank in connection with
such Bank's rights and obligations under the loan
documents, and (iii) such Bank shall not sell any
participation under which the participant would have
rights to approve any amendment or waiver relating to any
loan documents except to the extent any such amendment or
waiver would (a) extend the final maturity date or the
date for the payment of any installments of fees,
principal or interest due in respect of the Facility, (b)
reduce the amount of any installment of principal due in
respect of the Facility, (c) reduce the interest
MGM Grand, Inc. BankAmerica Corp.
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<PAGE>
Confidential Draft May 13, 1996
rates of fees applicable to the Facility, (d) release the
Guarantors or any material collateral, or (e) change the
definition of Requisite Banks.
FEES AND EXPENSES: Borrower shall pay all reasonable costs and expenses
(including without limitation, the allocated fees and
expenses of in-house counsel), incurred by the Arranger,
the Agent, and any Bank in the enforcement and collection
of obligations under the Facility.
GOVERNING LAW: State of Nevada.
This Summary is not meant to be, nor should it be construed as, an attempt to
define all of the terms and conditions of the transaction contemplated hereby,
nor is it intended to reflect specific document phrasing that will exist in the
Loan Agreement. This Summary is intended only to outline the basic points of
business understanding around which a Loan Agreement can be structured.
MGM Grand, Inc. BankAmerica Corp.
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<PAGE>
Confidential Draft May 13, 1996
BA SECURITIES, INC.
SPECIAL DISCLOSURE STATEMENT
BA Securities, Inc. ("BA Securities") is a wholly-owned, direct subsidiary of
BankAmerica Corporation, the parent company of Bank of America NT&SA ("Bank of
America"). BA Securities is a broker-dealer registered with the Securities and
Exchange Commission, and is a member of the National Association of Securities
Dealers, Inc. and the Securities Investor Protection Corporation.
BA Securities is not a bank. The securities and financial instruments sold,
---
offered or recommended by BA Securities are not bank deposits, are not
guaranteed by, and are not otherwise obligations of, any bank, thrift or other
subsidiary of BankAmerica Corporation, and are not insured by the Federal
Deposit Insurance Corporation or any other governmental agency.
From time to time, Bank of America's affiliates may lend to one or more issuers
whose securities are underwritten, dealt in, or placed by BA Securities. You
are referred to the relevant prospectus, offering statement or other disclosure
document for material information relating to any such lending relationship, and
whether the proceeds of an issue will be used to repay any such loans.
Furthermore, the obligations of BA Securities are not those of any affiliated
bank or thrift, and no such affiliated bank or thrift is responsible for
securities underwritten, dealt in, or placed by BA Securities.
BA Securities also may participate from time to time in a primary or secondary
distribution of securities offered or sold to you by it. Further, BA Securities
may act as an investment adviser to issuers whose securities may be offered or
sold to you by it.
MGM Grand, Inc. BankAmerica Corp.
-10-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 183,580
<SECURITIES> 0
<RECEIVABLES> 93,569
<ALLOWANCES> (40,850)
<INVENTORY> 10,662
<CURRENT-ASSETS> 263,519
<PP&E> 1,010,004
<DEPRECIATION> (106,363)
<TOTAL-ASSETS> 1,334,871
<CURRENT-LIABILITIES> 136,816
<BONDS> 0
491
0
<COMMON> 0
<OTHER-SE> 623,037
<TOTAL-LIABILITY-AND-EQUITY> 1,334,871
<SALES> 223,260
<TOTAL-REVENUES> 209,304
<CGS> 0
<TOTAL-COSTS> 142,944
<OTHER-EXPENSES> 1,511
<LOSS-PROVISION> 15,626
<INTEREST-EXPENSE> 15,797
<INCOME-PRETAX> 34,528
<INCOME-TAX> 0
<INCOME-CONTINUING> 34,528
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 34,528
<EPS-PRIMARY> .70
<EPS-DILUTED> 0
</TABLE>
