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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 13E-4
ISSUER TENDER OFFER STATEMENT
(PURSUANT TO SECTION 13(E)(1) OFTHE SECURITIES EXCHANGE ACT OF 1934)
----------------
MGM GRAND, INC.
(NAME OF ISSUER)
MGM GRAND, INC.
(NAME OF PERSON(S) FILING STATEMENT)
COMMON STOCK, PAR VALUE $.01 PER SHARE
(TITLE OF CLASS OF SECURITIES)
552953101
(CUSIP NUMBER OF CLASS OF SECURITIES)
SCOTT LANGSNER
SECRETARY/TREASURER
MGM GRAND, INC.
3799 LAS VEGAS BLVD. SOUTH
LAS VEGAS, NEVADA 89109
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICES
AND COMMUNICATIONS ON BEHALF OF THE PERSON(S) FILING STATEMENT)
COPY TO:
JANET S. MCCLOUD, ESQ.
CHRISTENSEN, MILLER, FINK, JACOBS, GLASER, WEIL & SHAPIRO, LLP
2121 AVENUE OF THE STARS, 18TH FLOOR
LOS ANGELES, CALIFORNIA 90067
(310) 553-3000
JULY 2, 1998
(DATE TENDER OFFER FIRST PUBLISHED, SENT OR GIVEN TO SECURITY HOLDERS)
CALCULATION OF FILING FEE
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<TABLE>
<CAPTION>
TRANSACTION VALUATION* AMOUNT OF FILING FEE
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<S> <C>
$210,000,000 $42,000
</TABLE>
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* Calculated solely for purposes of determining the filing fee, based upon the
purchase of 6,000,000 shares at the tender offer price per share of $35.00.
[_] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the form
or schedule and the date of its filing.
Amount Previously Paid: N/A Filing Party: N/A
Form or Registration No.: N/A Date Filed: N/A
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<PAGE>
This Issuer Tender Offer Statement on Schedule 13E-4 (the "Statement")
relates to the tender offer by MGM Grand, Inc., a Delaware corporation (the
"Company"), to purchase up to 6,000,000 shares of common stock, par value $.01
per share (the "Shares"), at a price, net to the seller in cash, of $35.00 per
Share, upon the terms and subject to the conditions set forth in the Offer to
Purchase, dated July 2, 1998 (the "Offer to Purchase") and the related Letter
of Transmittal (which are herein collectively referred to as the "Offer").
Copies of such documents are filed as Exhibits (a)(1) and (a)(2),
respectively, to this Statement.
ITEM 1. SECURITY AND ISSUER.
(a) The name of the issuer is MGM Grand, Inc., a Delaware corporation. The
address of its principal executive offices is 3799 Las Vegas Boulevard South,
Las Vegas, Nevada 89109.
(b) The information set forth in "Introduction," "Section 1. Number of
Shares; Proration" and "Section 9. Interests of Directors and Executive
Officers; Transactions and Arrangements Concerning the Shares" in the Offer to
Purchase is incorporated herein by reference. The Offer is being made to all
holders of Shares, including officers, directors and affiliates of the
Company, although the Company has been advised that none of its directors or
senior executive officers nor Tracinda Corporation, its principal stockholder
("Tracinda") intends to tender any Shares pursuant to the Offer.
(c) The information set forth in "Introduction" and "Section 7. Price Range
of Shares; Dividends" in the Offer to Purchase is incorporated herein by
reference.
(d) This Statement is being filed by the issuer.
ITEM 2. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a)-(b) The information set forth in "Section 10. Source and Amount of
Funds" in the Offer to Purchase is incorporated herein by reference.
ITEM 3. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE ISSUER.
(a)-(j) The information set forth in "Introduction," "Section 8. Background
and Purpose of the Offer; Certain Effects of the Offer," "Section 9. Interests
of Directors and Executive Officers; Transactions and Arrangements Concerning
the Shares," "Section 10. Source and Amount of Funds" and "Section 12. Effects
of the Offer on the Market for Shares; Registration Under the Exchange Act" in
the Offer to Purchase is incorporated herein by reference.
ITEM 4. INTEREST IN SECURITIES OF THE ISSUER.
The information set forth in "Section 9. Interests of Directors and
Executive Officers; Transactions and Arrangements Concerning the Shares" and
"Schedule I--Certain Transactions Involving Shares" in the Offer to Purchase
is incorporated herein by reference.
ITEM 5. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO THE ISSUER'S SECURITIES.
The information set forth in "Introduction," "Section 8. Background and
Purpose of the Offer; Certain Effects of the Offer" and "Section 9. Interests
of Directors and Executive Officers; Transactions and Arrangements Concerning
the Shares" in the Offer to Purchase is incorporated herein by reference.
ITEM 6. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The information set forth in "Introduction" and "Section 16. Fees and
Expenses" in the Offer to Purchase is incorporated herein by reference.
2
<PAGE>
ITEM 7. FINANCIAL INFORMATION.
(a)-(b) The information set forth in "Important" and "Section 11. Certain
Information About the Company" in the Offer to Purchase is incorporated herein
by reference. The information set forth (i) in Exhibit 13 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1997, filed
as Exhibit (g)(1) hereto; and (ii) on pages 1 through 9 of the Company's
Quarterly Report on Form 10-Q for the period ended March 31, 1998, filed as
Exhibit (g)(2) hereto, in each case, is incorporated herein by reference.
ITEM 8. ADDITIONAL INFORMATION.
(a) Not applicable.
(b) The information set forth in "Section 13. Certain Legal Matters" in the
Offer to Purchase is incorporated herein by reference.
(c) The information set forth in "Section 12. Effects of the Offer on the
Market for Shares; Registration Under the Exchange Act" in the Offer to
Purchase is incorporated herein by reference.
(d) Not applicable.
(e) The information set forth in the Offer to Purchase and the related
Letter of Transmittal, copies of which are attached hereto as Exhibits (a)(1)
and (a)(2), respectively, is incorporated herein by reference.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<C> <S>
(a)(1) Form of Offer to Purchase dated July 2, 1998.
(a)(2) Form of Letter of Transmittal.
(a)(3) Form of Notice of Guaranteed Delivery.
(a)(4) Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies
and Other Nominees.
(a)(5) Form of Letter to Clients for use by Brokers, Dealers, Commercial
Banks, Trust Companies and Other Nominees.
(a)(6) Press Release issued by the Company dated June 23, 1998.
(a)(7) Form of Summary Advertisement dated July 2, 1998.
(a)(8) Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9.
(b) Not applicable.
(c) Not applicable.
(d) Not applicable.
(e) Not applicable.
(f) Not applicable.
(g)(1) Exhibit 13 to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1997.
(g)(2) Pages 1 through 9 of the Company's Quarterly Report on Form 10-Q for
the period ended March 31, 1998.
(g)(3) Consent of Independent Public Accountants.
</TABLE>
3
<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify that
the information set forth in this statement is true, complete and correct.
MGM Grand, Inc.
By: /s/ Scott Langsner
-----------------------------------
SCOTT LANGSNER
SECRETARY/TREASURER
Dated: July 2, 1998
4
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
ITEM DESCRIPTION PAGE
------ ----------- ----
<C> <S> <C>
(a)(1) Form of Offer to Purchase dated July 2, 1998.
(a)(2) Form of Letter of Transmittal.
(a)(3) Form of Notice of Guaranteed Delivery.
(a)(4) Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees.
(a)(5) Form of Letter to Clients for use by Brokers, Dealers,
Commercial Banks, Trust Companies and Other Nominees.
(a)(6) Press Release issued by the Company dated June 23, 1998.
(a)(7) Form of Summary Advertisement dated July 2, 1998.
(a)(8) Guidelines for Certification of Taxpayer Identification Number
on Substitute Form W-9.
(b) Not applicable.
(c) Not applicable.
(d) Not applicable.
(e) Not applicable.
(f) Not applicable.
(g)(1) Exhibit 13 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997.
(g)(2) Pages 1 through 9 of the Company's Quarterly Report on Form 10-Q
for the period ended March 31, 1998.
(g)(3) Consent of Independent Public Accountants.
</TABLE>
5
<PAGE>
EXHIBIT (a)(1)
MGM GRAND, INC.
OFFER TO PURCHASE FOR CASH UP TO 6,000,000 SHARES OF ITS COMMON STOCK AT A
PURCHASE PRICE OF $35.00 PER SHARE
THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS EXPIRE AT 5:00 P.M., NEW
YORK CITY TIME, ON FRIDAY, JULY 31, 1998, UNLESS THE OFFER IS EXTENDED.
MGM Grand, Inc., a Delaware corporation (the "Company"), invites its
stockholders to tender shares of its common stock, par value $.01 per share
(the "Shares"), to the Company at a price of $35.00 per Share in cash, upon
the terms and subject to the conditions set forth in this Offer to Purchase
and the related Letter of Transmittal (which together constitute the "Offer").
The Company will pay $35.00 per Share, net to the seller in cash (the
"Purchase Price"), for Shares validly tendered and not withdrawn, upon the
terms and subject to the conditions of the Offer, including the proration
terms hereof. The Company reserves the right, in its sole discretion, to
purchase more than 6,000,000 Shares pursuant to the Offer.
THE OFFER IS NOT CONDITIONED ON ANY MINIMUM NUMBER OF SHARES BEING TENDERED.
THE OFFER IS, HOWEVER, SUBJECT TO CERTAIN OTHER CONDITIONS. SEE SECTION 6.
The Shares are listed and principally traded on the New York Stock Exchange,
Inc. (the "NYSE") under the symbol "MGG." On June 22, 1998, the last full
trading day on the NYSE prior to the announcement by the Company of the price
of and the number of Shares sought in the Offer, the closing per Share sales
price as reported on the NYSE Composite Tape was $26.625. STOCKHOLDERS ARE
URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR THE SHARES. SEE SECTION 7.
THE BOARD OF DIRECTORS OF THE COMPANY HAS APPROVED THE OFFER. HOWEVER,
STOCKHOLDERS MUST MAKE THEIR OWN DECISIONS WHETHER TO TENDER SHARES AND, IF
SO, HOW MANY SHARES TO TENDER. NEITHER THE COMPANY NOR ITS BOARD OF DIRECTORS
MAKES ANY RECOMMENDATION AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING
SHARES. THE COMPANY HAS BEEN ADVISED THAT NONE OF ITS DIRECTORS, SENIOR
EXECUTIVE OFFICERS OR PRINCIPAL STOCKHOLDER INTENDS TO TENDER ANY SHARES
PURSUANT TO THE OFFER.
THE DEALER MANAGER FOR THE OFFER IS:
MERRILL LYNCH & CO.
The Date of this Offer to Purchase is July 2, 1998.
<PAGE>
IMPORTANT
Any stockholders desiring to tender all or any portion of their Shares
should either: (i) complete and sign the Letter of Transmittal or a facsimile
thereof in accordance with the instructions in the Letter of Transmittal, mail
or deliver it with any required signature guarantee and any other required
documents to ChaseMellon Shareholder Services, LLC (the "Depositary"), and
either mail or deliver the stock certificates for such Shares to the
Depositary (with all such other documents) or follow the procedure for book-
entry delivery set forth in Section 3, or (ii) request a broker, dealer,
commercial bank, trust company or other nominee to effect the transaction for
such stockholder. A stockholder having Shares registered in the name of a
broker, dealer, commercial bank, trust company or other nominee must contact
that broker, dealer, commercial bank, trust company or other nominee if such
stockholder desires to tender such Shares. Stockholders who desire to tender
Shares and whose certificates for such Shares are not immediately available or
who cannot comply with the procedure for book-entry transfer on a timely basis
or whose other required documentation cannot be delivered to the Depositary,
in any case, by the expiration of the Offer should tender such Shares by
following the procedures for guaranteed delivery set forth in Section 3. TO
EFFECT A VALID TENDER OF SHARES, STOCKHOLDERS MUST VALIDLY COMPLETE THE LETTER
OF TRANSMITTAL.
Questions and requests for assistance or for additional copies of this Offer
to Purchase, the Letter of Transmittal or the Notice of Guaranteed Delivery
may be directed to the Information Agent at its address and telephone number
set forth on the back cover of this Offer to Purchase.
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included or
incorporated by reference in this Offer to Purchase contains statements that
are forward-looking, such as statements relating to plans for future expansion
and other business development activities, as well as other capital spending,
financing sources, the effects of regulation (including gaming and tax
regulations) and competition. Such forward-looking information involves
important risks and uncertainties that could significantly affect anticipated
results in the future and, accordingly, such results may differ from those
expressed in any forward-looking statements made by or on behalf of the
Company. These risks and uncertainties include, but are not limited to, those
relating to development and construction activities, dependence on existing
management, leverage and debt service (including sensitivity to fluctuations
in interest rates), domestic or global economic conditions (including
sensitivity to fluctuations in foreign currencies), changes in federal or
state tax laws or the administration of such laws, changes in gaming laws or
regulations (including legalization of gaming in certain jurisdictions) and
the requirement to apply for licenses and approvals under applicable
jurisdictional laws and regulations (including gaming laws and regulations).
2
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SUMMARY
This general summary is provided for the convenience of the Company's
stockholders and is qualified in its entirety by reference to the full text
and more specific details of this Offer to Purchase.
<TABLE>
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Number of Shares to be Purchased 6,000,000 Shares.
<S> <C>
Purchase Price $35.00 net to the seller in cash.
How to Tender Shares See Section 3. CALL THE INFORMATION AGENT
(CHASEMELLON SHAREHOLDER SERVICES, LLC) AT
(800) 953-2497 OR CONSULT YOUR BROKER FOR
ASSISTANCE.
Brokerage Commissions None.
Stock Transfer Tax None, if payment is made to the registered
holder.
Expiration and Proration Dates Friday, July 31, 1998, at 5:00 p.m., New York
City time, unless extended by the Company.
Payment Date As soon as practicable after the Expiration
Date.
Position of the Company Neither the Company nor its Board of
Directors makes any recommendation to any
stockholder as to whether to tender or
refrain from tendering Shares. The Company
has been advised that none of its directors,
senior executive officers or principal
stockholder intends to tender any Shares
pursuant to the Offer.
Withdrawal Rights Tendered Shares may be withdrawn at any time
until 5:00 p.m., New York City time, on
Friday, July 31, 1998 (unless the Offer is
extended by the Company) and, unless
previously purchased, at any time after 12:00
midnight, New York City time, on Thursday,
August 27, 1998. See Section 4.
Odd Lots There will be no proration of Shares tendered
by any stockholder owning beneficially fewer
than 100 Shares in the aggregate as of the
close of business on June 30, 1998 and as of
the Expiration Date, who tenders all such
Shares prior to the Expiration Date and who
checks the "Odd Lots" box in the Letter of
Transmittal and, if applicable, the Notice of
Guaranteed Delivery.
Further Developments Call the Information Agent or consult your
broker.
</TABLE>
3
<PAGE>
THE COMPANY HAS NOT AUTHORIZED ANY PERSON TO MAKE ANY RECOMMENDATION ON
BEHALF OF THE COMPANY AS TO WHETHER STOCKHOLDERS SHOULD TENDER OR REFRAIN FROM
TENDERING SHARES PURSUANT TO THE OFFER. THE COMPANY HAS NOT AUTHORIZED ANY
PERSON TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION
WITH THE OFFER ON BEHALF OF THE COMPANY OTHER THAN THOSE CONTAINED IN THIS
OFFER TO PURCHASE OR IN THE LETTER OF TRANSMITTAL. DO NOT RELY ON ANY SUCH
RECOMMENDATION OR ANY SUCH INFORMATION OR REPRESENTATIONS, IF GIVEN OR MADE,
AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE DEALER MANAGER.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
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<S> <C>
Summary................................................................... 3
Introduction.............................................................. 5
The Offer................................................................. 6
1. Number of Shares; Proration........................................... 6
2. Tenders by Owners of Fewer than 100 Shares............................ 8
3. Procedure for Tendering Shares........................................ 8
4. Withdrawal Rights..................................................... 12
5. Purchase of Shares and Payment of Purchase Price...................... 13
6. Certain Conditions of the Offer....................................... 14
7. Price Range of Shares................................................. 16
8. Background and Purpose of the Offer; Certain Effects of the Offer..... 16
9. Interests of Directors and Executive Officers; Transactions and
Arrangements Concerning the Shares.................................... 17
10. Source and Amount of Funds............................................ 18
11. Certain Information about the Company................................. 19
12. Effect of the Offer on the Market for Shares; Registration under the
Exchange Act.......................................................... 24
13. Certain Legal Matters................................................. 24
14. Certain United States Federal Income Tax Consequences................. 25
15. Extension of the Offer; Termination; Amendment........................ 30
16. Fees and Expenses..................................................... 31
17. Miscellaneous......................................................... 31
SCHEDULE I--Certain Transactions Involving Shares......................... 33
</TABLE>
4
<PAGE>
To the holders of shares of Common Stock of
MGM Grand, Inc.:
INTRODUCTION
MGM Grand, Inc., a Delaware corporation (the "Company"), invites its
stockholders to tender shares of its common stock, par value $.01 per share
(the "Shares"), to the Company at a price of $35.00 per Share in cash, upon
the terms and subject to the conditions set forth in this Offer to Purchase
and the related Letter of Transmittal (which together constitute the "Offer").
The Company will pay $35.00, net to the seller in cash (the "Purchase
Price"), for all Shares validly tendered prior to the Expiration Date (as
defined in Section 1) and not withdrawn, upon the terms and subject to the
conditions of the Offer, including the proration terms described below. The
Company reserves the right, in its sole discretion, to purchase more than
6,000,000 Shares pursuant to the Offer.
THE OFFER IS NOT CONDITIONED ON ANY MINIMUM NUMBER OF SHARES BEING TENDERED.
THE OFFER IS, HOWEVER, SUBJECT TO CERTAIN OTHER CONDITIONS. SEE SECTION 6.
If, before the Expiration Date, more than 6,000,000 Shares (or such greater
number of Shares as the Company may elect to purchase) are validly tendered
and not withdrawn, the Company will, upon the terms and subject to the
conditions of the Offer, purchase Shares first from all Odd Lot Owners (as
defined in Section 2) who validly tender all their Shares and then on a pro
rata basis from all other stockholders who validly tender Shares (and do not
withdraw them prior to the Expiration Date). The Company will return at its
own expense all Shares not purchased pursuant to the Offer, including Shares
not purchased because of proration. The Purchase Price will be paid net to the
tendering stockholder in cash for all Shares purchased. Tendering stockholders
will not be obligated to pay brokerage commissions, solicitation fees or,
subject to Instruction 7 of the Letter of Transmittal, stock transfer taxes on
the Company's purchase of Shares pursuant to the Offer. HOWEVER, ANY TENDERING
STOCKHOLDER OR OTHER PAYEE WHO FAILS TO COMPLETE, SIGN AND RETURN TO THE
DEPOSITARY THE SUBSTITUTE FORM W-9 THAT IS INCLUDED WITH THE LETTER OF
TRANSMITTAL MAY BE SUBJECT TO REQUIRED BACKUP FEDERAL INCOME TAX WITHHOLDING
OF 31% OF THE GROSS PROCEEDS PAYABLE TO SUCH STOCKHOLDER OR OTHER PAYEE
PURSUANT TO THE OFFER. SEE SECTION 3.
THE BOARD OF DIRECTORS OF THE COMPANY HAS APPROVED THE OFFER. HOWEVER,
STOCKHOLDERS MUST MAKE THEIR OWN DECISIONS WHETHER TO TENDER SHARES AND, IF
SO, HOW MANY SHARES TO TENDER. NEITHER THE COMPANY NOR ITS BOARD OF DIRECTORS
MAKES ANY RECOMMENDATION TO ANY STOCKHOLDER AS TO WHETHER TO TENDER OR REFRAIN
FROM TENDERING SHARES. THE COMPANY HAS BEEN ADVISED THAT NONE OF ITS
DIRECTORS, SENIOR EXECUTIVE OFFICERS OR PRINCIPAL STOCKHOLDER INTENDS TO
TENDER ANY SHARES PURSUANT TO THE OFFER.
On June 23, 1998, the Company announced its intention to make an offer to
purchase up to 6,000,000 Shares at $35.00 per Share as part of a 12,000,000
Share repurchase program, with the Offer
5
<PAGE>
to commence on July 2, 1998. The Company is making the Offer because it
believes (i) the Shares to be significantly undervalued in the public market;
(ii) in light of the Company's strong financial position and excess cash
balances due to slower than anticipated expenditures related to the Atlantic
City and Detroit developments, investing in the Company's Shares represents an
attractive use of the Company's capital and an efficient way to provide value
to the Company's stockholders; and (iii) the Offer will afford to those
stockholders who desire liquidity an opportunity to sell all or a portion of
their Shares without the usual transaction costs associated with open market
sales. After the Offer is completed, the Company expects to have sufficient
cash, cash flow and access to other sources of capital to fund its operations
and capital projects, including the on-going transformation of MGM Grand Las
Vegas into the City of Entertainment and the proposed hotel/casino
developments in Atlantic City, New Jersey and Detroit, Michigan.
Stockholders who are participants in the Company's Employee Stock Purchase
Plan (the "Purchase Plan") may instruct ChaseMellon Shareholder Services, LLC,
as administrator of the Purchase Plan, to tender part or all of the Shares
credited to a participant's account in the Purchase Plan by following the
instructions set forth in "Procedure for Tendering Shares--Employee Stock
Purchase Plan" in Section 3.
As of June 30, 1998, there were 58,001,480 Shares outstanding and 4,426,786
Shares issuable upon exercise of outstanding stock options under the Company's
stock option plans (the "Options"). The 6,000,000 Shares that the Company is
offering to purchase represent approximately 10.3% of the outstanding Shares
(approximately 9.6% assuming the exercise of all outstanding Options). The
Shares are listed on the New York Stock Exchange, Inc. ("NYSE") under the
symbol "MGG." On June 22, 1998, the last full trading day on the NYSE prior to
the announcement by the Company of the Purchase Price of and the number of
Shares sought in the Offer, the closing per Share sales price, as reported on
the NYSE Composite Tape, was $26.625. THE COMPANY URGES STOCKHOLDERS TO OBTAIN
CURRENT QUOTATIONS OF THE MARKET PRICE OF THE SHARES.
THE OFFER
1. NUMBER OF SHARES; PRORATION
Upon the terms and subject to the conditions of the Offer, the Company will
accept for payment (and thereby purchase) 6,000,000 Shares or such lesser
number of Shares as are validly tendered before the Expiration Date (and not
withdrawn in accordance with Section 4) at a net cash price of $35.00 per
Share. The term "Expiration Date" means 5:00 p.m., New York City time, on
Friday, July 31, 1998, unless and until the Company in its sole discretion
shall have extended the period of time during which the Offer is open, in
which event the term "Expiration Date" shall refer to the latest time and date
at which the Offer, as so extended by the Company, shall expire. See Section
15 for a description of the Company's right to extend the time during which
the Offer is open and to delay, terminate or amend the Offer. Subject to
Section 2, if the Offer is oversubscribed, Shares tendered before the
Expiration Date will be eligible for proration. The proration period also
expires on the Expiration Date.
The Company reserves the right, in its sole discretion, to purchase more
than 6,000,000 Shares pursuant to the Offer. See Section 15. In accordance
with applicable regulations of the Securities and Exchange Commission (the
"Commission"), the Company may purchase pursuant to the Offer an additional
amount of Shares not to exceed 2% of the outstanding Shares without amending
or extending the Offer. If (i) the Company increases or decreases the price to
be paid for Shares, the Company increases or decreases the fee of Merrill
Lynch & Co. (the "Dealer Manager"), the
6
<PAGE>
Company increases the number of Shares being sought and such increase in the
number of Shares being sought exceeds 2% of the outstanding Shares, or the
Company decreases the number of Shares being sought and (ii) the Offer is
scheduled to expire at any time earlier than the expiration of a period ending
on the tenth business day from, and including, the date that notice of such
increase or decrease is first published, sent or given in the manner specified
in Section 15, the Offer will be extended until the expiration of such period
of ten business days. For purposes of the Offer, a "business day" means any
day other than a Saturday, Sunday or federal holiday and consists of the time
period from 12:01 a.m. through 12:00 midnight, New York City time.
THE OFFER IS NOT CONDITIONED ON ANY MINIMUM NUMBER OF SHARES BEING TENDERED.
THE OFFER IS, HOWEVER, SUBJECT TO CERTAIN OTHER CONDITIONS. SEE SECTION 6.
The Company will pay the Purchase Price for all Shares validly tendered
prior to the Expiration Date and not withdrawn, upon the terms and subject to
the conditions of the Offer. All Shares not purchased pursuant to the Offer,
including Shares not purchased because of proration, will be returned to the
tendering stockholders at the Company's expense as promptly as practicable
following the Expiration Date.
If the number of Shares validly tendered and not withdrawn prior to the
Expiration Date is less than or equal to 6,000,000 Shares (or such greater
number of Shares as the Company may elect to purchase), the Company will, upon
the terms and subject to the conditions of the Offer, purchase at the Purchase
Price all Shares so tendered.
Priority. Upon the terms and subject to the conditions of the Offer, in the
event that prior to the Expiration Date more than 6,000,000 Shares (or such
greater number of Shares as the Company may elect to purchase pursuant to the
Offer) are validly tendered and not withdrawn, the Company will purchase such
validly tendered Shares in the following order of priority:
(i) all Shares validly tendered and not withdrawn prior to the Expiration
Date by any Odd Lot Owner (as defined in Section 2) who:
(a) tenders all Shares beneficially owned by such Odd Lot Owner
(partial tenders will not qualify for this preference); and
(b) completes the box captioned "Odd Lots" on the Letter of
Transmittal and, if applicable, on the Notice of Guaranteed
Delivery; and
(ii) after purchase of all of the foregoing Shares, all other Shares
validly tendered and not withdrawn prior to the Expiration Date on a
pro rata basis.
Proration. In the event that proration of tendered Shares is required, the
Company will determine the final proration factor as promptly as practicable
after the Expiration Date. Proration for each stockholder tendering Shares
(other than Odd Lot Owners) shall be based on the ratio of the number of
Shares tendered by such stockholder to the total number of Shares tendered by
all stockholders (other than Odd Lot Owners). This ratio will be applied to
stockholders tendering Shares (other than Odd Lot Owners) to determine the
number of Shares that will be purchased from each such stockholder pursuant to
the Offer. Although the Company does not expect to be able to announce the
final results of such proration until approximately seven business days after
the Expiration Date, it will announce preliminary results of proration by
press release as promptly as practicable after the Expiration Date.
Stockholders can obtain such preliminary information from the Information
Agent and may be able to obtain such information from their brokers.
7
<PAGE>
As described in Section 14, the number of Shares that the Company will
purchase from a stockholder may affect the United States federal income tax
consequences to the stockholder of such purchase and therefore may be relevant
to a stockholder's decision whether to tender Shares. The Letter of
Transmittal affords each tendering stockholder the opportunity to designate
the order of priority in which Shares tendered are to be purchased in the
event of proration.
This Offer to Purchase and the related Letter of Transmittal will be mailed
to record holders of Shares as of June 30, 1998 and will be furnished to
brokers, banks and similar persons whose names, or the names of whose
nominees, appear on the Company's stockholder list or, if applicable, who are
listed as participants in a clearing agency's security position listing for
subsequent transmittal to beneficial owners of Shares.
2. TENDERS BY OWNERS OF FEWER THAN 100 SHARES
The Company, upon the terms and subject to the conditions of the Offer, will
accept for purchase, without proration, all Shares validly tendered and not
withdrawn on or prior to the Expiration Date by or on behalf of stockholders
who beneficially owned as of the close of business on June 30, 1998, and
continue to beneficially own as of the Expiration Date, an aggregate of fewer
than 100 Shares ("Odd Lot Owners"). To avoid proration, however, an Odd Lot
Owner must validly tender all such Shares that such Odd Lot Owner beneficially
owns; partial tenders will not qualify for this preference. This preference is
not available to partial tenders or to owners of 100 or more Shares in the
aggregate, even if such owners have separate stock certificates for fewer than
100 such Shares. Any Odd Lot Owner wishing to tender all such Shares
beneficially owned by such stockholder pursuant to this Offer must complete
the box captioned "Odd Lots" in the Letter of Transmittal and, if applicable,
on the Notice of Guaranteed Delivery. See Section 3. Stockholders owning an
aggregate of less than 100 Shares whose Shares are purchased pursuant to the
Offer will avoid both the payment of brokerage commissions and any applicable
odd lot discounts payable on a sale of their Shares in transactions on the
NYSE.
The Company also reserves the right, but will not be obligated, to purchase
all Shares duly tendered by any stockholder who tendered all Shares
beneficially owned and who, as a result of proration, would then beneficially
own an aggregate of fewer than 100 Shares. If the Company exercises this
right, it will increase the number of Shares that it is offering to purchase
in the Offer by the number of Shares purchased through the exercise of such
right.
3. PROCEDURE FOR TENDERING SHARES
Proper Tender of Shares. For Shares to be validly tendered pursuant to the
Offer:
(i) the certificates for such Shares (or confirmation of receipt of such
Shares pursuant to the procedures for book-entry transfer set forth
below), together with a properly completed and duly executed Letter of
Transmittal (or manually signed facsimile thereof) with any required
signature guarantees, and any other documents required by the Letter of
Transmittal, must be received prior to 5:00 p.m., New York City time, on
the Expiration Date by the Depositary at its address set forth on the
back cover of this Offer to Purchase; or
(ii) the tendering stockholder must comply with the guaranteed delivery
procedure set forth below.
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<PAGE>
In addition, Odd Lot Owners who tender all Shares must complete the section
entitled "Odd Lots" on the Letter of Transmittal and, if applicable, on the
Notice of Guaranteed Delivery, in order to qualify for the preferential
treatment available to Odd Lot Owners as set forth in Section 2.
Signature Guarantees and Method of Delivery. No signature guarantee is
required on the Letter of Transmittal if (i) the Letter of Transmittal is
signed by the registered holder of the Shares (which term, for purposes of
this Section, includes any participant in The Depository Trust Company (the
"Book-Entry Transfer Facility") whose name appears on a security position
listing as the holder of the Shares) tendered therewith and payment and
delivery are to be made directly to such registered holder, or (ii) if Shares
are tendered for the account of a member firm of a registered national
securities exchange, a member of the National Association of Securities
Dealers, Inc. or a commercial bank or trust company (not a savings bank or
savings and loan association) having an office, branch or agency in the United
States (each such entity being hereinafter referred to as an "Eligible
Institution"). In all other cases, all signatures on the Letter of Transmittal
must be guaranteed by an Eligible Institution. See Instruction 1 of the Letter
of Transmittal. If a certificate representing Shares is registered in the name
of a person other than the signer of a Letter of Transmittal, or if payment is
to be made, or Shares not purchased or tendered are to be issued, to a person
other than the registered holder, the certificate must be endorsed or
accompanied by an appropriate stock power, in either case signed exactly as
the name of the registered holder appears on the certificate, with the
signature on the certificate or stock power guaranteed by an Eligible
Institution. In this regard see Section 5 for information with respect to
applicable stock transfer taxes. In all cases, payment for Shares tendered and
accepted for payment pursuant to the Offer will be made only after timely
receipt by the Depositary of certificates for such Shares (or a timely
confirmation of a book-entry transfer of such Shares into the Depositary's
account at the Book-Entry Transfer Facility as described above), a properly
completed and duly executed Letter of Transmittal (or manually signed
facsimile thereof) and any other documents required by the Letter of
Transmittal.
THE METHOD OF DELIVERY OF ALL DOCUMENTS, INCLUDING SHARE CERTIFICATES, THE
LETTER OF TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS, IS AT THE ELECTION AND
RISK OF THE TENDERING STOCKHOLDER. IF DELIVERY IS BY MAIL, REGISTERED MAIL
WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED.
Book-Entry Delivery. The Depositary will establish an account with respect
to the Shares at the Book-Entry Transfer Facility for purposes of the Offer
within two business days after the date of this Offer to Purchase. Any
financial institution that is a participant in the Book-Entry Transfer
Facility's system may make book-entry delivery of the Shares by causing such
facility to transfer such Shares into the Depositary's account in accordance
with such facility's procedure for such transfer. Even though delivery of
Shares may be effected through book-entry transfer into the Depositary's
account at the Book-Entry Transfer Facility, a properly completed and duly
executed Letter of Transmittal (or manually signed facsimile thereof), with
any required signature guarantees and other required documents must, in any
case, be transmitted to and received by the Depositary at one of its addresses
set forth on the back cover of this Offer to Purchase prior to the Expiration
Date, or the guaranteed delivery procedure set forth below must be followed.
DELIVERY OF THE LETTER OF TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS TO THE
BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY.
Guaranteed Delivery. If a stockholder desires to tender Shares pursuant to
the Offer and such stockholder's Share certificates cannot be delivered to the
Depositary prior to the Expiration Date (or the procedures for book-entry
transfer cannot be completed on a timely basis) or time will not permit
9
<PAGE>
all required documents to reach the Depositary before the Expiration Date,
such Shares may nevertheless be tendered provided that all of the following
conditions are satisfied:
(i) such tender is made by or through an Eligible Institution;
(ii) the Depositary receives (by hand, mail, overnight courier, telegram or
facsimile transmission), on or prior to the Expiration Date, a
properly completed and duly executed Notice of Guaranteed Delivery
substantially in the form the Company has provided with this Offer to
Purchase, including (where required) a signature guarantee by an
Eligible Institution in the form set forth in such Notice of
Guaranteed Delivery; and
(iii) the certificates for all tendered Shares in proper form for transfer
(or confirmation of book-entry transfer of such Shares into the
Depositary's account at the Book-Entry Transfer Facility), together
with a properly completed and duly executed Letter of Transmittal (or
manually signed facsimile thereof) and any required signature
guarantees or other documents required by the Letter of Transmittal,
are received by the Depositary within three NYSE trading days after
the date the Depositary receives such Notice of Guaranteed Delivery.
If any tendered Shares are not purchased, or if less than all Shares
evidenced by a stockholder's certificates are tendered, certificates for
unpurchased Shares will be returned as promptly as practicable after the
expiration or termination of the Offer or, in the case of Shares tendered by
book-entry transfer at the Book-Entry Transfer Facility, such Shares will be
credited to the appropriate account maintained by the tendering stockholder at
the Book-Entry Transfer Facility, in each case without expense to such
stockholder.
Backup Federal Income Tax Withholding. Under the United States federal
income tax backup withholding rules, unless an exemption applies under the
applicable law and regulations, 31% of the gross proceeds payable to a
stockholder or other payee pursuant to the Offer must be withheld and remitted
to the United States Treasury, unless the stockholder or other payee provides
such person's taxpayer identification number (employer identification number
or social security number) to the Depositary and certifies under penalties of
perjury that such number is correct. Therefore, each tendering stockholder
should complete and sign the Substitute Form W-9 included as part of the
Letter of Transmittal so as to provide the information and certification
necessary to avoid backup withholding, unless such stockholder otherwise
establishes to the satisfaction of the Depositary that the stockholder is not
subject to backup withholding. Certain stockholders, including, among others,
all corporations and certain foreign stockholders (in addition to foreign
corporations), are not subject to these backup withholding and reporting
requirements. In order for a foreign stockholder to qualify as an exempt
recipient, that stockholder must submit an IRS Form W-8 or a Substitute Form
W-8, signed under penalties of perjury, attesting to that stockholder's exempt
status. Such statements can be obtained from the Depositary. See Instructions
9 and 10 of the Letter of Transmittal.
TO PREVENT BACKUP FEDERAL INCOME TAX WITHHOLDING EQUAL TO 31% OF THE GROSS
PAYMENTS MADE TO STOCKHOLDERS FOR SHARES PURCHASED PURSUANT TO THE OFFER, EACH
STOCKHOLDER WHO DOES NOT OTHERWISE ESTABLISH AN EXEMPTION FROM SUCH
WITHHOLDING MUST PROVIDE THE DEPOSITARY WITH THE STOCKHOLDER'S CORRECT
TAXPAYER IDENTIFICATION NUMBER AND PROVIDE CERTAIN OTHER INFORMATION BY
COMPLETING THE SUBSTITUTE FORM W-9 INCLUDED WITH THE LETTER OF TRANSMITTAL.
For a discussion of certain United States federal income tax consequences to
tendering stockholders, see Section 14.
10
<PAGE>
Withholding For Foreign Stockholders. Even if a foreign stockholder has
provided the required certification to avoid backup withholding, the
Depositary will withhold United States federal income taxes equal to 30% of
the gross payments payable to a foreign stockholder or his or her agent unless
the Depositary determines that a reduced rate of withholding is available
pursuant to a tax treaty or that an exemption from withholding is applicable
because such gross proceeds are effectively connected with the conduct of a
trade or business within the United States. For this purpose, a foreign
stockholder is any stockholder that is not (i) a citizen or resident of the
United States; (ii) a corporation, partnership, or other entity created or
organized in or under the laws of the United States, any State or any
political subdivision thereof; (iii) an estate, the income of which is subject
to United States federal income taxation regardless of the source of such
income; or (iv) a trust if a court within the United States is able to
exercise primary supervision of the administration of the trust and one or
more United States persons have the authority to control all substantial
decisions of the trust. In order to obtain a reduced rate of withholding
pursuant to a tax treaty, a foreign stockholder must deliver to the Depositary
before the payment a properly completed and executed IRS Form 1001. In order
to obtain an exemption from withholding on the grounds that the gross proceeds
paid pursuant to the Offer are effectively connected with the conduct of a
trade or business within the United States, a foreign stockholder must deliver
to the Depositary a properly completed and executed IRS Form 4224. The
Depositary will determine a stockholder's status as a foreign stockholder and
eligibility for a reduced rate of, or exemption from, withholding by reference
to any outstanding certificates or statements concerning eligibility for a
reduced rate of, or exemption from, withholding (e.g., IRS Form 1001 or IRS
Form 4224) unless facts and circumstances indicate that such reliance is not
warranted. A foreign stockholder may be eligible to obtain a refund of all or
a portion of any tax withheld if such stockholder meets the "complete
redemption," "substantially disproportionate" or "not essentially equivalent
to a dividend" test described in Section 14 or is otherwise able to establish
that no tax or a reduced amount of tax is due. Backup withholding generally
will not apply to amounts subject to the 30% or a treaty-reduced rate of
withholding. Foreign stockholders are urged to consult their own tax advisors
regarding the application of United States federal income tax withholding,
including eligibility for a withholding tax reduction or exemption, and the
refund procedure. See Instructions 9 and 10 of the Letter of Transmittal.
Employee Stock Purchase Plan. As of June 26, 1998, the Purchase Plan owned
37,924 Shares. Shares credited to participants' accounts under the Purchase
Plan will be tendered by ChaseMellon Shareholder Services, LLC, as
administrator, according to instructions provided to the administrator from
participants in the Purchase Plan. Shares for which the administrator has not
received timely instructions from participants will not be tendered. The
administrator will make available to the participants whose accounts are
credited with Shares under the Purchase Plan all documents furnished to
stockholders generally in connection with the Offer. Each participant may
direct that all, some or none of the Shares credited to the participant's
account under the Purchase Plan be tendered and the price at which such
participant's Shares are to be tendered. Participants in the Purchase Plan are
urged to read the Letter of Transmittal and related materials carefully.
Tendering Stockholder's Representation and Warranty; Company's Acceptance
Constitutes an Agreement. It is a violation of Rule 14e-4 promulgated under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), for a
person acting alone or in concert with others, directly or indirectly, to
tender Shares for such person's own account unless at the time of tender and
at the Expiration Date such person has a "net long position" equal to or
greater than the amount tendered in (i) the Shares and will deliver or cause
to be delivered such Shares for the purpose of tender to the Company within
the period specified in the Offer, or (ii) other securities immediately
convertible into, exercisable for or exchangeable into Shares ("Equivalent
Securities") and, upon the acceptance of
11
<PAGE>
such tender, will acquire such Shares by conversion, exchange or exercise of
such Equivalent Securities to the extent required by the terms of the Offer
and will deliver or cause to be delivered such Shares so acquired for the
purpose of tender to the Company within the period specified in the Offer.
Rule 14e-4 also provides a similar restriction applicable to the tender or
guarantee of a tender on behalf of another person. A tender of Shares made
pursuant to any method of delivery set forth herein will constitute the
tendering stockholder's representation and warranty to the Company that
(i) such stockholder has a "net long position" in Shares or Equivalent
Securities being tendered within the meaning of Rule 14e-4, and (ii) such
tender of Shares complies with Rule 14e-4. The Company's acceptance for
payment of Shares tendered pursuant to the Offer will constitute a binding
agreement between the tendering stockholder and the Company upon the terms and
subject to the conditions of the Offer.
Determinations of Validity; Rejection of Shares; Waiver of Defects; No
Obligation to Give Notice of Defects. All questions as to the number of Shares
to be accepted, the price to be paid therefor and the validity, form,
eligibility (including time of receipt) and acceptance for payment of any
tender of Shares will be determined by the Company, in its sole discretion,
which determination shall be final and binding on all parties. The Company
reserves the absolute right to reject any or all tenders it determines not to
be in proper form or the acceptance of or payment for which may, in the
opinion of the Company's counsel, be unlawful. The Company also reserves the
absolute right to waive any of the conditions of the Offer and any defect or
irregularity in the tender of any particular Shares or any particular
stockholder. No tender of Shares will be deemed to be properly made until all
defects or irregularities have been cured or waived. None of the Company, the
Dealer Manager, the Depositary, the Information Agent or any other person is
or will be obligated to give notice of any defects or irregularities in
tenders, and none of them will incur any liability for failure to give any
such notice.
CERTIFICATES FOR SHARES, TOGETHER WITH A PROPERLY COMPLETED LETTER OF
TRANSMITTAL AND ANY OTHER DOCUMENTS REQUIRED BY THE LETTER OF TRANSMITTAL,
MUST BE DELIVERED TO THE DEPOSITARY AND NOT TO THE COMPANY. ANY SUCH DOCUMENTS
DELIVERED TO THE COMPANY WILL NOT BE FORWARDED TO THE DEPOSITARY AND THEREFORE
WILL NOT BE DEEMED TO BE VALIDLY TENDERED.
4. WITHDRAWAL RIGHTS
Except as otherwise provided in this Section 4, tenders of Shares pursuant
to the Offer are irrevocable. Shares tendered pursuant to the Offer may be
withdrawn at any time before the Expiration Date and, unless accepted for
payment by the Company as provided in this Offer to Purchase, may also be
withdrawn after 12:00 midnight, New York City time, on Thursday, August 27,
1998.
For a withdrawal to be effective, the Depositary must receive (at its
address set forth on the back cover of this Offer to Purchase) a notice of
withdrawal in written, telegraphic or facsimile transmission form on a timely
basis. Such notice of withdrawal must specify the name of the person who
tendered the Shares to be withdrawn, the number of Shares tendered, the number
of Shares to be withdrawn and the name of the registered holder, if different
from that of the person who tendered such Shares. If the certificates have
been delivered or otherwise identified to the Depositary, then, prior to the
release of such certificates, the tendering stockholder must also submit the
serial numbers shown on the particular certificates evidencing the Shares and
the signature on the notice of withdrawal must be guaranteed by an Eligible
Institution (except in the case of Shares tendered by an Eligible
Institution). If Shares have been tendered pursuant to the procedure for book-
entry transfer set forth in Section 3, the notice of withdrawal must specify
the name and the number of the account at the Book-Entry Transfer Facility to
be credited with the withdrawn Shares and otherwise comply with the procedures
of such facility.
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<PAGE>
All questions as to the form and validity, including time of receipt, of
notices of withdrawal will be determined by the Company, in its sole
discretion, which determination shall be final and binding on all parties.
None of the Company, the Dealer Manager, the Depositary, the Information Agent
or any other person is or will be obligated to give any notice of any defects
or irregularities in any notice of withdrawal, and none of them will incur any
liability for failure to give any such notice. Withdrawals may not be
rescinded, and any Shares properly withdrawn will thereafter be deemed not
tendered for purposes of the Offer. However, withdrawn Shares may be
retendered before the Expiration Date by again following any of the procedures
described in Section 3.
If the Company extends the Offer, is delayed in its purchase of Shares or is
unable to purchase Shares pursuant to the Offer for any reason, then, without
prejudice to the Company's rights under the Offer, the Depositary may, subject
to applicable law, retain on behalf of the Company all tendered Shares, and
such Shares may not be withdrawn except to the extent tendering stockholders
are entitled to withdrawal rights as described in this Section 4.
5. PURCHASE OF SHARES AND PAYMENT OF PURCHASE PRICE
Upon the terms and subject to the conditions of the Offer, the Company will
purchase and pay the Purchase Price for all of the Shares accepted for payment
pursuant to the Offer as soon as practicable after the Expiration Date. In all
cases, payment for Shares tendered and accepted for payment pursuant to the
Offer will be made promptly (subject to possible delay in the event of
proration) but only after timely receipt by the Depositary of certificates for
Shares (or of a timely confirmation of a book-entry transfer of such Shares
into the Depositary's account at the Book-Entry Transfer Facility), a properly
completed and duly executed Letter of Transmittal (or manually signed
facsimile thereof) and any other required documents.
Payment for Shares purchased pursuant to the Offer will be made by
depositing the aggregate Purchase Price therefor with the Depositary, which
will act as agent for tendering stockholders for the purpose of receiving
payment from the Company and transmitting payment to the tendering
stockholders. In the event of proration, the Company will determine the
proration factor and pay for those tendered Shares accepted for payment as
soon as practicable after the Expiration Date. However, the Company does not
expect to be able to announce the final results of any such proration until
approximately seven business days after the Expiration Date. Under no
circumstances will the Company pay interest on the Purchase Price including,
without limitation, by reason of any delay in making payment. Certificates for
all Shares not purchased, including all Shares not purchased due to proration,
will be returned (or, in the case of Shares tendered by book-entry transfer,
such Shares will be credited to the account maintained with the Book-Entry
Transfer Facility by the participant who so delivered such Shares) as promptly
as practicable following the Expiration Date or termination of the Offer
without expense to the tendering stockholder. In addition, if certain events
occur, the Company may not be obligated to purchase Shares pursuant to the
Offer. See Section 6.
The Company will pay all stock transfer taxes, if any, payable on the
transfer to it of Shares purchased pursuant to the Offer; provided, however,
that if payment of the Purchase Price is to be made to, or (in the
circumstances permitted by the Offer) if unpurchased Shares are to be
registered in the name of, any person other than the registered holder, or if
tendered certificates are registered in the name of any person other than the
person signing the Letter of Transmittal, the amount of all stock transfer
taxes, if any (whether imposed on the registered holder or such other person),
payable on account of the transfer to such person will be deducted from the
Purchase Price unless evidence
13
<PAGE>
satisfactory to the Company of the payment of such taxes or exemption
therefrom is submitted. See Instruction 7 of the Letter of Transmittal.
ANY TENDERING STOCKHOLDER OR OTHER PAYEE WHO FAILS TO COMPLETE FULLY, SIGN
AND RETURN TO THE DEPOSITARY THE SUBSTITUTE FORM W-9 INCLUDED WITH THE LETTER
OF TRANSMITTAL MAY BE SUBJECT TO REQUIRED BACKUP FEDERAL INCOME TAX
WITHHOLDING OF 31% OF THE GROSS PROCEEDS PAID TO SUCH STOCKHOLDER OR OTHER
PAYEE PURSUANT TO THE OFFER. SEE SECTION 3. ALSO SEE SECTION 3 REGARDING
FEDERAL INCOME TAX CONSEQUENCES FOR FOREIGN STOCKHOLDERS.
6. CERTAIN CONDITIONS OF THE OFFER
Notwithstanding any other provision of the Offer, the Company shall not be
required to accept for payment, purchase or pay for any Shares tendered, and
may terminate or amend the Offer or may postpone the acceptance for payment
of, or the purchase of and the payment for Shares tendered, subject to Rule
13e-4(f) promulgated under the Exchange Act, if at any time on or after July
2, 1998 and prior to the time of payment for any such Shares (whether any
Shares have theretofore been accepted for payment, purchased or paid for
pursuant to the Offer) any of the following events shall have occurred (or
shall have been determined by the Company to have occurred) that, in the
Company's judgment in any such case and regardless of the circumstances giving
rise thereto (including any action or omission to act by the Company), makes
it inadvisable to proceed with the Offer or with such acceptance for payment
or payment:
(a) there shall have been threatened, instituted or pending before any court,
agency, authority or other tribunal any action, suit or proceeding by any
government or governmental, regulatory or administrative agency or
authority or by any other person, domestic or foreign, or any judgment,
order or injunction entered, enforced or deemed applicable by any such
court, authority, agency or tribunal, which (i) challenges or seeks to
make illegal, or to delay or otherwise directly or indirectly to restrain,
prohibit or otherwise affect the making of the Offer, the acquisition of
Shares pursuant to the Offer or is otherwise related in any manner to, or
otherwise affects, the Offer; or (ii) could, in the sole judgment of the
Company, materially affect the business, condition (financial or other),
income, operations or prospects of the Company and its subsidiaries, taken
as a whole, or otherwise materially impair in any way the contemplated
future conduct of the business of the Company and its subsidiaries, taken
as a whole, or materially impair the Offer's contemplated benefits to the
Company; or
(b) there shall have been any action threatened or taken, or any approval
withheld, or any statute, rule or regulation invoked, proposed, sought,
promulgated, enacted, entered, amended, enforced or deemed to be
applicable to the Offer or the Company or any of its subsidiaries, by any
government or governmental, regulatory or administrative authority or
agency or tribunal, domestic or foreign, which, in the sole judgment of
the Company, would or might directly or indirectly result in any of the
consequences referred to in clause (i) or (ii) of paragraph (a) above; or
(c) there shall have occurred (i) the declaration of any banking moratorium or
any suspension of payments in respect of banks in the United States
(whether or not mandatory); (ii) any general suspension of trading in, or
limitation on prices for, securities on any United States national
securities exchange or in the over-the-counter market; (iii) the
commencement or escalation of a war, armed hostilities or any other
national or international crisis directly or indirectly involving the
United States; (iv) any limitation (whether or not mandatory) by any
governmental, regulatory or administrative agency or authority on, or any
event which, in the sole judgment of the Company, might materially affect,
the extension of credit by banks or other lending institutions in
14
<PAGE>
the United States; (v) any significant decrease in the market price of the
Shares or in the market prices of equity securities generally in the United
States or any change in the general political, market, economic or
financial conditions or in the commercial paper markets in the United
States or abroad that could have in the sole judgment of the Company a
material adverse effect on the business, condition (financial or
otherwise), income, operations or prospects of the Company and its
subsidiaries, taken as a whole, or on the trading in the Shares or on the
proposed financing for the Offer; (vi) in the case of any of the foregoing
existing at the time of the announcement of the Offer, a material
acceleration or worsening thereof; or (vii) any decline in either the Dow
Jones Industrial Average or the S&P 500 Composite Index by an amount in
excess of 10% measured from the close of business on July 1, 1998; or
(d) any change shall occur or be threatened in the business, condition
(financial or other), income, operations or prospects of the Company and
its subsidiaries, taken as a whole, which in the sole judgment of the
Company is or may be material to the Company and its subsidiaries taken as
a whole; or
(e) a tender or exchange offer with respect to some or all of the Shares
(other than the Offer), or a merger or acquisition proposal for the
Company, shall have been proposed, announced or made by another person or
shall have been publicly disclosed, or the Company shall have learned that
(i) any person or "group" (within the meaning of Section 13(d)(3) of the
Exchange Act) shall have acquired or proposed to acquire beneficial
ownership of more than 5% of the outstanding Shares, or any new group
shall have been formed that beneficially owns more than 5% of the
outstanding Shares; or
(f) any person or group shall have filed a Notification and Report Form under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976 reflecting an
intent to acquire the Company or any of its Shares.
The foregoing conditions are for the Company's sole benefit and may be
asserted by the Company regardless of the circumstances giving rise to any
such condition (including any action or inaction by the Company) or may be
waived by the Company in whole or in part. The Company's failure at any time
to exercise any of the foregoing rights shall not be deemed a waiver of any
such right, and each such right shall be deemed an on-going right that may be
asserted at any time and from time to time. Any determination by the Company
concerning the events described above and any related judgment or decision by
the Company regarding the inadvisability of proceeding with the purchase of or
payment for any Shares tendered will be final and binding on all parties.
15
<PAGE>
7. PRICE RANGE OF SHARES
The Shares are listed on the NYSE. The high and low closing prices per Share
on the NYSE Composite Tape as compiled from published financial sources for
the periods indicated are listed below:
<TABLE>
<CAPTION>
HIGH LOW
-------- --------
<S> <C> <C>
FISCAL 1996
1st Quarter.............................................. $39.75 $22.75
2nd Quarter.............................................. 47.875 38.375
3rd Quarter.............................................. 43.25 35.50
4th Quarter.............................................. 45.125 34.125
FISCAL 1997
1st Quarter.............................................. $40.00 $32.875
2nd Quarter.............................................. 40.125 32.375
3rd Quarter.............................................. 43.75 32.9375
4th Quarter.............................................. 44.8125 34.50
FISCAL 1998
1st Quarter.............................................. $39.1875 $33.625
2nd Quarter.............................................. 35.125 26.625
</TABLE>
On June 22, 1998, the last full trading day on the NYSE prior to the
announcement by the Company of the Purchase Price and the number of Shares
sought in the Offer, the closing per Share price on the NYSE was $26.625. THE
COMPANY URGES STOCKHOLDERS TO OBTAIN CURRENT QUOTATIONS OF THE MARKET PRICE OF
THE SHARES.
8. BACKGROUND AND PURPOSE OF THE OFFER; CERTAIN EFFECTS OF THE OFFER
On June 23, 1998, the Company announced its intention to make an offer to
purchase up to 6,000,000 Shares at $35.00 per Share as part of a 12,000,000
Share repurchase program, with the Offer to commence on July 2, 1998. The
Company is making the Offer because it believes (i) the Shares to be
significantly undervalued in the public market; (ii) in light of the Company's
strong financial position and excess cash balances due to slower than
anticipated expenditures related to the Atlantic City and Detroit
developments, investing in the Company's Shares represents an attractive use
of the Company's capital and an efficient way to provide value to the
Company's stockholders; and (iii) the Offer will afford to those stockholders
who desire liquidity an opportunity to sell all or a portion of their Shares
without the usual transaction costs associated with open market sales. After
the Offer is completed, the Company expects to have sufficient cash, cash flow
and access to other sources of capital to fund its operations and capital
projects, including the ongoing transformation of the MGM Grand Hotel/Casino
in Las Vegas, Nevada ("MGM Grand Las Vegas") into the City of Entertainment
and the proposed hotel/casino developments in Atlantic City, New Jersey and
Detroit, Michigan.
The Offer provides stockholders who are considering a sale of all or a
portion of their Shares the opportunity to sell their Shares to the Company at
$35.00 per Share. Any Odd Lot Owners whose Shares are purchased pursuant to
the Offer will avoid both the payment of brokerage commissions and any
applicable odd lot discounts payable on sales of odd lots. To the extent the
purchase of Shares in the Offer results in a reduction in the number of record
or beneficial holders of Shares, the costs to the Company for services to
stockholders will be reduced. Stockholders who determine not to accept the
Offer will increase their proportionate interest in the Company's equity, and
thus in the Company's
16
<PAGE>
future earnings and assets, subject to the Company's right to issue additional
Shares and other equity securities in the future.
THE BOARD OF DIRECTORS OF THE COMPANY HAS APPROVED THE OFFER. HOWEVER,
STOCKHOLDERS MUST MAKE THEIR OWN DECISIONS WHETHER TO TENDER SHARES AND, IF
SO, HOW MANY SHARES TO TENDER. NEITHER THE COMPANY NOR ITS BOARD OF DIRECTORS
MAKES ANY RECOMMENDATION TO ANY STOCKHOLDER AS TO WHETHER TO TENDER OR REFRAIN
FROM TENDERING SHARES AND NEITHER THE COMPANY NOR ITS BOARD OF DIRECTORS HAS
AUTHORIZED ANY PERSON TO MAKE ANY SUCH RECOMMENDATION. THE COMPANY HAS BEEN
ADVISED THAT NONE OF ITS DIRECTORS, SENIOR EXECUTIVE OFFICERS OR PRINCIPAL
STOCKHOLDER INTENDS TO TENDER ANY SHARES PURSUANT TO THE OFFER.
As set forth in the Company's press release dated June 23, 1998 and under
"Certain Information about the Company," the Offer is part of the Company's
program to repurchase an aggregate of 12,000,000 Shares. The Company
anticipates that, depending on market conditions, the remaining Shares in the
repurchase program may be acquired in the open market, in private
transactions, through a tender offer or offers or otherwise. The Company may
in the future also repurchase Shares outside of the repurchase program in the
open market, in private transactions, through tender offers or otherwise,
although no such purchases are presently contemplated. Any such purchases may
be on the same terms as, or on terms that are more or less favorable to
stockholders than, the terms of the Offer. However, Rule 13e-4 promulgated
under the Exchange Act generally prohibits the Company and its affiliates from
purchasing any Shares, other than pursuant to the Offer, until at least ten
business days after the expiration or termination of the Offer. Any possible
future purchases by the Company will depend on many factors, including the
market price of the Shares, the results of the Offer, the Company's business
and financial position and general economic and market conditions.
Shares the Company acquires pursuant to the Offer will be retained as
treasury stock by the Company (unless and until the Company determines to
retire such Shares) and will be available for the Company to issue without
further stockholder action (except as required by applicable law or, if
retired, the rules of any securities exchange on which Shares are listed) for
purposes including, but not limited to, the acquisition of other businesses,
the raising of additional capital for use in the Company's business and the
satisfaction of obligations under existing or future employee benefit plans.
The Company has no current plans for issuance of the Shares repurchased
pursuant to the Offer.
As a result of the Offer, on June 23, 1998, Standard & Poor's revised its
outlook on the Company to negative from stable, but reaffirmed the Company's
corporate credit, bank loan and first mortgage note ratings at triple-"B'-
minus. On June 24, 1998, Moody's Investors Service downgraded the Company's
debt ratings to Ba1 from Baa3 and indicated that the rating outlook is stable.
9. INTERESTS OF DIRECTORS AND EXECUTIVE OFFICERS; TRANSACTIONS AND
ARRANGEMENTS CONCERNING THE SHARES
As of June 30, 1998, there were 58,001,480 Shares outstanding and 4,426,786
Shares issuable upon exercise of all outstanding options. As of June 30, 1998,
the Company's directors and executive officers as a group (15 persons)
beneficially owned 37,173,389 Shares (including 788,400 Shares issuable to
such persons upon exercise of Options exercisable within sixty days of such
date ("Exercisable Options")) which constituted approximately 63.2% of the
outstanding Shares (including Shares issuable if all Exercisable Options held
by directors and executive officers were exercised) at such time. Included in
the foregoing is an aggregate of 36,239,822 Shares which are held by Kirk
Kerkorian and Tracinda Corporation, which is wholly owned by Mr. Kerkorian,
representing approximately 62.5% of the outstanding Shares.
17
<PAGE>
If the Company purchases 6,000,000 Shares pursuant to the Offer (10.3% of
the outstanding Shares as of June 30, 1998) and no director or executive
officer tenders Shares pursuant to the Offer, then after the purchase of
Shares pursuant to the Offer, the Company's directors and executive officers
as a group would beneficially own approximately 70.4% of the outstanding
Shares (including Shares issuable on exercise of Exercisable Options held by
directors and executive officers), and Mr. Kerkorian and Tracinda Corporation
would beneficially own approximately 69.7% of the outstanding Shares.
Based upon a recommendation from management in early June 1998 and, in light
of the current competitive environment in Las Vegas and in order to retain
qualified and talented personnel, the Compensation Committee of the Board of
Directors of the Company approved an offer to employees to reprice their out-
of-the-money options (covering an aggregate of 1,973,077 Shares, including
options to purchase 494,500 Shares held by the Company's officers and
directors). The original options had exercise prices ranging from $29.375 to
$44.00, and the new options have an exercise price of $26.625. Such repricing
offer will be made, subject to stockholder approval of an increase in the
Shares subject to the Company's 1997 Employee Stock Option Plan, only to
option holders who agree to accept the new price and certain conditions
including (1) commencement of a new holding period for vesting of options
(whether or not the initial options had vested) and (2) a one-year extension
of employee employment contracts, at the Company's option, where applicable.
The repricing offer will not be made to the Company's outside directors. Such
repricing does not affect options held by the Chairman or the President of the
Company.
Except as set forth in this Offer to Purchase and in Schedule I hereto,
based upon the Company's records and upon information provided to the Company
by its directors, executive officers, associates and subsidiaries, neither the
Company nor any of its associates or subsidiaries or persons controlling the
Company nor, to the best of the Company's knowledge, any of the directors or
executive officers of the Company or any of its subsidiaries, nor any
associates or subsidiaries of any of the foregoing, has effected any
transactions in the Shares during the 40 business days prior to the date
hereof.
Except as set forth in this Offer to Purchase, neither the Company or any
person controlling the Company nor, to the Company's knowledge, any of its
directors or executive officers, is a party to any contract, arrangement,
understanding or relationship with any other person relating, directly or
indirectly, to the Offer with respect to any securities of the Company
(including, but not limited to, any contract, arrangement, understanding or
relationship concerning the transfer or the voting of any such securities,
joint ventures, loan or option arrangements, puts or calls, guarantees of
loans, guarantees against loss or the giving or withholding of proxies,
consents or authorizations).
10. SOURCE AND AMOUNT OF FUNDS
Assuming that the Company purchases 6,000,000 Shares pursuant to the Offer
at a purchase price of $35.00 per Share, the Company expects the maximum
aggregate cost, including all fees and expenses applicable to the Offer, to be
approximately $210.6 million. The Company estimates that substantially all of
the funds necessary to pay such amounts will come from available cash, cash
flow from operations and, to the extent necessary, existing credit facilities.
Although the Company currently does not have specific plans, it may,
depending on business and market conditions, refinance or replace all or a
portion of the cash used to purchase Shares in the Offer with proceeds from
sales of debt or equity securities or such other financing as the Company
deems appropriate.
18
<PAGE>
11. CERTAIN INFORMATION ABOUT THE COMPANY
The Company is an entertainment, hotel and gaming company headquartered in
Las Vegas, Nevada. The Company owns and operates the MGM Grand Las Vegas, the
MGM Grand Hotel/Casino in Darwin, Australia, owns a 50% interest in, and is a
joint operator of, the New York-New York Hotel/Casino in Las Vegas and manages
casinos in South Africa. The Company is also planning to construct destination
hotel/casino resorts in Atlantic City, New Jersey and Detroit, Michigan.
On June 23, 1998, the Company announced that while hotel occupancy in the
second quarter of 1998 has been in the high 90th percentile, it anticipates
that a lower than average table games hold percentage at MGM Grand Las Vegas
will result in second quarter earnings in a range of $.25 to $.30 per share.
The table games hold percentage is expected to be in the low teens compared
with an industry average of 18% to 20%.
The Company was incorporated in the State of 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 89193, and its telephone number is (702) 891-3333.
Historical Financial Information. The table below sets forth historical
summary consolidated financial information of the Company and its
subsidiaries. The historical financial information for fiscal years 1996 and
1997 has been derived from, and should be read in conjunction with, the
audited consolidated financial statements of the Company as reported in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1997, and the interim consolidated financial statements of the Company as
reported in the Company's Quarterly Report on Form 10-Q for the period ended
March 31, 1998. Such Form 10-K and Form 10-Q are incorporated herein by
reference. The summary historical financial information should be read in
conjunction with, and is qualified in its entirety by reference to, the
audited financial statements and the related notes thereto from which it has
been derived. Copies of the Company's periodic reports may be inspected or
obtained from the Commission in the manner specified in "Additional
Information" below.
19
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
HISTORICAL SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
---------------------- ----------------------
1996 1997 1997 1998
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Gross revenues............... $ 856,438 $ 891,330 $ 212,597 $195,610
Less: promotional allowances. 56,249 63,733 15,099 15,763
---------- ---------- ---------- ----------
Net Revenue................ 800,189 827,597 197,498 179,847
---------- ---------- ---------- ----------
Expenses:
Operating expenses........... 541,408 540,533 129,002 132,334
Depreciation and
amortization................ 62,196 64,104 15,458 16,904
---------- ---------- ---------- ----------
603,604 604,637 144,460 149,238
---------- ---------- ---------- ----------
Operating Profit Before Master
Plan Asset Disposition,
Preopening and Corporate
Expense....................... 196,585 222,960 53,038 30,609
Master Plan Asset Disposition,
Preopening and Other-
Unconsolidated Affiliate...... 57,269 28,566 -- --
Corporate Expense.............. 10,022 3,424 1,489 2,451
---------- ---------- ---------- ----------
Operating Income............... 129,294 190,970 51,549 28,158
---------- ---------- ---------- ----------
Other Income (Expense):
Interest and other, net...... (30,143) (10,669) (3,472) (2,749)
---------- ---------- ---------- ----------
Income Before Income Taxes and
Extraordinary Item............ 99,151 180,301 48,077 25,409
Provision for income taxes... (24,634) (65,045) (17,927) (9,147)
---------- ---------- ---------- ----------
Income Before Extraordinary
Item.......................... 74,517 115,256 30,150 16,262
Extraordinary Item:
Loss on early extinguishment
of debt, net of income tax
benefits of $17,710 and
$2,333...................... (30,811) (4,238) -- --
---------- ---------- ---------- ----------
Net Income..................... $ 43,706 $ 111,018 $ 30,150 $ 16,262
========== ========== ========== ==========
Basic Income Per Share of
Common Stock:
Income before extraordinary
item........................ $ 1.41 $ 2.00 $ 0.52 $ 0.28
Extraordinary item--loss on
early extinguishment of
debt, net of income tax
benefit..................... (0.58) (0.07) -- --
---------- ---------- ---------- ----------
Net income per share......... $ 0.83 $ 1.93 $ 0.52 $ 0.28
========== ========== ========== ==========
Weighted Average Shares
Outstanding................... 52,759 57,475 57,836 57,990
========== ========== ========== ==========
Diluted Income Per Share of
Common Stock:
Income before extraordinary
item........................ $ 1.38 $ 1.96 $ 0.51 $ 0.28
Extraordinary item--loss on
early extinguishment of
debt, net of income tax
benefit..................... (0.57) (0.07) -- --
---------- ---------- ---------- ----------
Net income per share......... $ 0.81 $ 1.89 $ 0.51 $ 0.28
========== ========== ========== ==========
Weighed Average Shares
Outstanding................... 54,257 58,835 58,772 58,775
========== ========== ========== ==========
HISTORICAL SELECTED BALANCE
SHEET INFORMATION:
<CAPTION>
AT DECEMBER 31, AT MARCH 31,
---------------------- ----------------------
1996 1997 1997 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Working capital................ $ 35,937 $ (10,699) $ 25,584 $ 398,898
Total assets................... 1,287,689 1,398,374 1,242,950 1,872,259
Total assets less excess of
purchase price over fair
market value of net assets
acquired, net................. 1,248,067 1,359,776 1,203,584 1,833,917
Current and long-term
indebtedness.................. 94,022 68,365 103,613 566,037
Stockholders' equity........... 973,382 1,101,622 1,006,548 1,117,248
</TABLE>
20
<PAGE>
Pro Forma Financial Information. The following unaudited pro forma summary
consolidated financial information gives effect to the purchase of 6,000,000
Shares pursuant to the Offer, based on certain assumptions described in the
Notes to Pro Forma Summary Consolidated Financial Information as if such
purchase had occurred on January 1, 1997 and January 1, 1998, with respect to
income statement data, and on December 31, 1997 and March 31, 1998, with
respect to balance sheet data. The pro forma financial information should be
read in conjunction with the historical consolidated financial information
incorporated herein by reference and does not purport to be indicative of the
results that would actually have been obtained had the purchase of such Shares
pursuant to the Offer been completed at the dates indicated or that may be
obtained in the future.
21
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
PRO FORMA SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1997 MARCH 31, 1998
--------------------- ------------------------
AS AS
ACTUAL ADJUSTED(1) ACTUAL ADJUSTED(1)(4)
-------- ----------- -------- --------------
<S> <C> <C> <C> <C>
Revenues:
Gross revenue................. $891,330 $891,330 $195,610 $195,610
Less: promotional allowances.. 63,733 63,733 15,763 15,763
-------- -------- -------- --------
Net Revenue................. 827,597 827,597 179,847 179,847
-------- -------- -------- --------
Expenses:
Operating expenses............ 540,533 540,533 132,334 132,334
Depreciation and amortization. 64,104 64,104 16,904 16,904
-------- -------- -------- --------
604,637 604,637 149,238 149,238
-------- -------- -------- --------
Operating Profit Before Master
Plan Asset
Disposition and Corporate
Expense...................... 222,960 222,960 30,609 30,609
Master Plan Asset Disposition... 28,566 28,566 -- --
Corporate Expense............... 3,424 3,424 2,451 2,451
-------- -------- -------- --------
Operating Income................ 190,970 190,970 28,158 28,158
-------- -------- -------- --------
Other Income (Expense):
Interest and other, net....... (10,669) (16,608) (2,749) (4,679)
-------- -------- -------- --------
Income Before Income Taxes and
Extraordinary Item............. 180,301 174,362 25,409 23,479
Provision for income taxes.... (65,045) (62,907) (9,147) (8,452)
-------- -------- -------- --------
Income Before Extraordinary
Item........................... 115,256 111,455 16,262 15,027
Extraordinary Item:
Loss on early extinguishment
of debt, net of income tax
benefit of $2,333............ (4,238) (4,238) -- --
-------- -------- -------- --------
Net Income...................... $111,018 $107,217 $ 16,262 $ 15,027
======== ======== ======== ========
Basic Income Per Share of Common
Stock:
Income before extraordinary
item......................... $ 2.00 $ 2.17 $ 0.28 $ 0.29
Extraordinary item-loss on
early extinguishment of debt,
net of income tax benefit.... (0.07) (0.08) -- --
-------- -------- -------- --------
Net Income per share.......... $ 1.93 $ 2.09 $ 0.28 $ 0.29
======== ======== ======== ========
Weighted Average Shares
Outstanding.................... 57,475 51,475 57,990 51,990
======== ======== ======== ========
Diluted Income Per Share of
Common Stock:
Income before extraordinary
item......................... $ 1.96 $ 2.11 $ 0.28 $ 0.28
Extraordinary item-loss on
early extinguishment of debt,
net of income tax benefit.... (0.07) (0.08) -- --
-------- -------- -------- --------
Net Income per share.......... $ 1.89 $ 2.03 $ 0.28 $ 0.28
======== ======== ======== ========
Weighted Average Shares
Outstanding.................... 58,835 52,835 58,775 52,775
======== ======== ======== ========
</TABLE>
22
<PAGE>
PRO FORMA SELECTED BALANCE SHEET INFORMATION:
<TABLE>
<CAPTION>
AT DECEMBER 31, 1997 AT MARCH 31, 1998
-------------------------- ----------------------------
ACTUAL AS ADJUSTED(2) ACTUAL AS ADJUSTED(2)(4)
---------- -------------- ---------- -----------------
<S> <C> <C> <C> <C>
Working capital......... $ (10,699) $ (10,699) $ 398,898 $ 188,298
Total assets............ 1,398,374 1,398,374 1,872,259 1,661,659
Total assets less excess
of purchase price over
fair market value of
net assets acquired,
net.................... 1,359,776 1,359,776 1,833,917 1,623,317
Current and long-term
indebtedness........... 68,365 278,965 566,037 566,037
Stockholders' equity.... 1,101,622 891,022 1,117,248 906,648
Other Data:
Book value per share(3). $ 19.00 $ 17.14 $ 19.26 $ 17.44
</TABLE>
- --------
(1) Interest expense, capitalized interest, interest income, and the provision
for income taxes have been adjusted as if the repurchase of 6,000,000
Shares for approximately $210.6 million occurred on January 1, 1997 and
January 1, 1998, respectively, financed by a drawdown under the Company's
Senior Reducing Revolving Credit Facility (the "Credit Facility").
(2) The pro forma balance sheet amounts for both periods were adjusted for the
6,000,000 Share repurchase at an approximate cost of $210.6 million,
including transaction fees. The pro forma balance sheet amount for
December 31, 1997 was adjusted to reflect a drawdown under the Company's
Credit Facility.
(3) Book value per Share was calculated by dividing total stockholders' equity
by the number of Shares outstanding. The pro forma book value per Share
amounts for both periods were adjusted for the 6,000,000 Share repurchase
at an approximate cost of $210.6 million, including transaction fees.
(4) Assumes repayment of the Credit Facility with proceeds from the issuance
of the $500 million Senior Collateralized Notes.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to fixed charges for
the Company for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
---------------------------- ----------------------------
1996 1997 1997 1997 1998 1998
------ ------ -------------- ------ ------ --------------
ACTUAL ACTUAL AS ADJUSTED(2) ACTUAL ACTUAL AS ADJUSTED(2)
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to
Fixed Charges(1)....... 2.78 10.11 5.96 10.39 3.26 2.74
</TABLE>
- --------
(1) For purposes of computing the foregoing ratios: (i) "Earnings" consist of
income from continuing operations before income taxes and fixed charges,
adjusted to exclude capitalized interest, and (ii) "Fixed Charges" consist
of interest, whether expensed or capitalized, amortization of debt
discount and issuance costs, the Company's proportionate share of the
interest cost of 50% owned joint ventures (such as the limited liability
company which owns New York-New York) and the estimated interest component
of rental expense.
(2) Interest expense, capitalized interest, interest income, and the provision
for income taxes have been adjusted as if: (i) the repurchase of 6,000,000
Shares for approximately $210.6 million occurred on January 1, 1997 and
January 1, 1998, respectively; (ii) the repurchase was financed by a
drawdown under the Company's Credit Facility; and (iii) the drawdown under
the Credit Facility was subsequently repaid with proceeds from the $500
million Senior Collateralized Notes.
23
<PAGE>
Additional Information. The Company is subject to the informational filing
requirements of the Exchange Act and, in accordance therewith, is obligated to
file reports and other information with the Commission relating to its
business, financial condition and other matters. Information, as of particular
dates, concerning the Company's directors and officers, their remuneration,
options granted to them, the principal holders of the Company's stockholders
and any material interest of such persons in transactions with the Company is
required to be disclosed in proxy statements distributed to the Company's
stockholders and filed with the Commission. Such 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 2120,
Washington D.C. 20549; at its regional offices located at 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511; and 7 World Trade Center,
New York, New York 10048. Copies of such material may also be obtained by
mail, upon payment of the Commission's customary charges, from the Public
Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Washington D.C. 20549. The Commission also maintains a Web site on the
World Wide Web at http://www.sec.gov that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. Such reports, proxy statements and other
information concerning the Company also can be inspected at the offices of the
NYSE, 20 Broad Street, New York, New York 10005, on which the Shares are
listed.
12. EFFECT OF THE OFFER ON THE MARKET FOR SHARES; REGISTRATION UNDER THE
EXCHANGE ACT
The Company's purchase of Shares pursuant to the Offer will reduce the
number of Shares that might otherwise trade publicly and is likely to reduce
the number of stockholders. Nonetheless, there will still be a sufficient
number of Shares outstanding and publicly traded following the Offer to ensure
a continued trading market in the Shares. Based on the published guidelines of
the NYSE, the Company does not believe that its purchase of Shares pursuant to
the Offer will cause its remaining Shares to be delisted from such exchange.
The Shares are currently "margin securities" under the rules of the Federal
Reserve Board. This has the effect, among other things, of allowing brokers to
extend credit on the collateral of the Shares. The Company believes that,
following the purchase of Shares pursuant to the Offer, the Shares will
continue to be "margin securities" for purposes of the Federal Reserve Board's
margin regulations.
The Shares are registered under the Exchange Act, which requires, among
other things, that the Company furnish certain information to its stockholders
and to the Commission and comply with the Commission's proxy rules in
connection with meetings of the Company's stockholders. The Company believes
that its purchase of Shares pursuant to the Offer will not result in the
Shares becoming subject to deregistration under the Exchange Act.
13. CERTAIN LEGAL MATTERS
The Company is not aware of any license or regulatory permit that appears to
be material to its business that might be adversely affected by its
acquisition of Shares as contemplated in the Offer or of any approval or other
action by any government or governmental, administrative or regulatory
authority or agency, domestic or foreign, that would be required for the
Company's acquisition or ownership of Shares as contemplated by the Offer.
Should any such approval or other action be required, the Company currently
contemplates that it will seek such approval or other action. The Company
cannot predict whether it may determine that it is required to delay the
acceptance for payment of, or payment for, Shares tendered pursuant to the
Offer pending the outcome of any such
24
<PAGE>
matter. There can be no assurance that any such approval or other action, if
needed, would be obtained or would be obtained without substantial conditions
or that the failure to obtain any such approval or other action might not
result in adverse consequences to the Company's business. The Company's
obligations under the Offer to accept for payment and pay for Shares are
subject to certain conditions. See Section 6.
14. CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
In General. The following summary describes certain United States federal
income tax consequences relevant to the Offer. The discussion contained in
this summary is based upon the Internal Revenue Code of 1986, as amended to
the date hereof (the "Code"), existing and proposed United States Treasury
regulations promulgated thereunder, rulings, administrative pronouncements and
judicial decisions, changes to which could materially affect the tax
consequences described herein and could be made on a retroactive basis. As
discussed below, depending upon a stockholder's particular circumstances, the
Company's purchase of such stockholder's Shares pursuant to the Offer may be
treated either as a sale or a dividend for United States federal income tax
purposes. Accordingly, such a purchase generally will be referred to in this
section of the Offer to Purchase as an "exchange" of Shares for cash.
Scope. This summary does not apply to Shares acquired as compensation
(including Shares acquired upon the exercise of Options or which were or are
subject to forfeiture restrictions). The summary discusses only Shares held as
capital assets, within the meaning of Section 1221 of the Code, and does not
address all of the tax consequences that may be relevant to particular
stockholders in light of their personal circumstances, or to certain types of
stockholders (such as certain financial institutions, dealers in securities or
commodities, insurance companies, tax-exempt organizations or persons who hold
Shares as a position in a "straddle" or as a part of a "hedging" or
"conversion" transaction for United States federal income tax purposes). In
particular, the discussion of the consequences of an exchange of Shares for
cash pursuant to the Offer applies only to a United States Holder. For
purposes of this summary, a "Stockholder" is a holder of shares that is (i) a
citizen or resident of the United States, (ii) a corporation, partnership or
other entity created or organized in or under the laws of the United States,
any State or any political subdivision thereof, or (iii) an estate, the income
of which is subject to United States federal income taxation regardless of its
source, or (iv) a trust if a court within the United States is able to
exercise primary supervision of the administration of the trust and one or
more United States persons have the authority to control all substantial
decisions of the trust. This discussion does not address the tax consequences
to foreign stockholders who will be subject to United States federal income
tax on a net basis on the proceeds of their exchange of Shares pursuant to the
Offer because such income is effectively connected with the conduct of a trade
or business within the United States. Such stockholders are generally taxed in
a manner similar to United States Holders; however, certain special rules
apply. Foreign stockholders who are not subject to United States federal
income tax on a net basis should see Section 3 for a discussion of the
applicable United States withholding rules and the potential for obtaining a
refund of all or a portion of the tax withheld.
THE SUMMARY DISCUSSION SET FORTH HEREIN IS INCLUDED FOR GENERAL INFORMATION
ONLY. THE TAX CONSEQUENCES OF A SALE OF SHARES PURSUANT TO THE OFFER MAY VARY
DEPENDING UPON, AMONG OTHER THINGS, THE PARTICULAR SITUATION AND CIRCUMSTANCES
OF THE TENDERING STOCKHOLDER. NO INFORMATION IS PROVIDED HEREIN AS TO THE
STATE, LOCAL OR FOREIGN TAX CONSEQUENCES OF THE TRANSACTION
25
<PAGE>
CONTEMPLATED BY THE OFFER. STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS TO DETERMINE THE SPECIFIC FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX
CONSEQUENCES OF SALES MADE BY THEM PURSUANT TO THE OFFER, INCLUDING THE EFFECT
OF THE STOCK OWNERSHIP ATTRIBUTION RULES MENTIONED HEREIN.
Characterization of the Sale. An exchange of Shares by a Stockholder pursuant
to the Offer will be a taxable transaction for United States federal income tax
purposes. The United States federal income tax consequences of such exchange to
a Stockholder may vary depending upon the Stockholder's particular facts and
circumstances. Under Sections 302 and 304 of the Code, an exchange of Shares by
a Stockholder to the Company pursuant to the Offer will be treated as a "sale
or exchange" of such Shares for United States federal income tax purposes
(rather than as a deemed distribution by the Company with respect to Shares
continued to be held (or deemed to be held) by the tendering Stockholder) if
the receipt of cash upon such exchange (i) is "substantially disproportionate"
with respect to the Stockholder, (ii) results in a "complete termination" of
the Stockholder's interest in the Company, or (iii) is "not essentially
equivalent to a dividend" with respect to the Stockholder. These tests (the
"Section 302 tests") are explained more fully below.
If any of the Section 302 tests is satisfied, and the sale of the tendered
Shares is therefore treated as a "sale or exchange" of such Shares for United
States federal income tax purposes, the tendering Stockholder will recognize
capital gain or loss equal to the difference between the amount of cash
received by the Stockholder pursuant to the Offer and the Stockholder's
adjusted tax basis in the Shares sold pursuant to the Offer. Such capital gain
or loss will generally be long-term capital gain or loss if the tendering
Stockholder held the tendered Shares for more than 12 months. Under current
law, any such gain or loss recognized by individuals, trusts or estates will be
subject to a maximum 20% tax rate, if the Shares have been held for more than
eighteen months. Any such gain will be subject to a maximum 28% tax rate, if
the Shares have been held for more than one year but not more than eighteen
months (the "mid-term rate").
On June 25, 1998, the House of Representatives passed the IRS Restructuring
and Reform Act of 1998 (the "IRS Reform Act") which contains a provision that
would eliminate the mid-term rate and apply the 20% maximum rate to all gains
recognized by individual taxpayers on the sale of capital assets held for more
than 12 months. The Senate is expected to vote on the IRS Reform Act in early
July. This provision would apply retroactively to the sale or disposition of a
capital asset occuring after December 31, 1997. In addition, Representative
Newt Gingrich has introduced separate proposed legislation (the "Proposed
Legislation") that is not part of the IRS Reform Act which would additionally
lower the maximum tax rate on sales of capital assets held for more than 12
months by individuals to 15% effective June 24, 1998. No assurance can be given
as to whether or not either the IRS Reform Act or the Proposed Legislation will
be enacted into law and what their respective effective dates will be, if
enacted. Prospective investors are urged to consult their own tax advisors
regarding the IRS Reform Act and the Proposed Legislation.
If none of the Section 302 tests is satisfied, then, to the extent the
Company's current and accumulated earnings and profits, the tendering
Shareholder will be treated as having received a dividend taxable as ordinary
income in an amount equal to the entire amount of cash received by the
Stockholder pursuant to the Offer (without reduction for the adjusted tax basis
of the Shares sold pursuant to the Offer), no loss will be recognized, and
(subject to reduction as described below for corporate Stockholders eligible
for the dividends-received deduction) the tendering Stockholder's adjusted tax
basis in the Shares exchanged pursuant to the Offer will be added to such
Stockholder's
26
<PAGE>
adjusted tax basis in its remaining Shares, if any. No assurance can be given
that any of the Section 302 tests will be satisfied as to any particular
Stockholder, and thus no assurance can be given that any particular Stockholder
will not be treated as having received a dividend taxable as ordinary income.
If the exchange of Shares by a Stockholder is not treated as a sale or exchange
for federal income tax purposes, any cash received for Shares pursuant to the
Offer in excess of the current and accumulated earnings and profits of the
Company will be treated, first, as a nontaxable return of capital to the extent
of the Stockholder's Shares, and thereafter, as taxable capital gain, to the
extent the cash received exceeds such basis.
Constructive Ownership of Stock. In determining whether any of the Section
302 tests is satisfied, Stockholder must take into account not only the Shares
which are actually owned by the Stockholder, but also Shares which are
constructively owned by the Stockholder by reason of the attribution rules
contained in Section 318 of the Code, as modified by Section 304 of the Code.
Under Section 318 of the Code, as so modified, a Stockholder may be treated as
owning (i) Shares that are actually owned, and in some cases constructively
owned, by certain related individuals or entities in which the Stockholder owns
an interest, or, in the case of Stockholders that are entities, by certain
individuals or entities that own an interest in the Stockholder, and (ii)
Shares which the Stockholder has the right to acquire by exercise of an option
or a conversion right contained in another instrument held by the Stockholder.
Contemporaneous dispositions or acquisitions of Shares by a Stockholder or
related individuals or entities may be deemed to be part of a single integrated
transaction which will be taken into account in determining whether any of the
Section 302 tests has been satisfied in connection with Shares sold pursuant to
the Offer. EACH STOCKHOLDER SHOULD BE AWARE THAT BECAUSE PRORATION MAY OCCUR IN
THE OFFER, EVEN IF ALL THE SHARES ACTUALLY AND CONSTRUCTIVELY OWNED BY A
STOCKHOLDER ARE TENDERED PURSUANT TO THE OFFER, FEWER THAN ALL OF SUCH SHARES
MAY BE PURCHASED BY THE COMPANY. THUS, PRORATION MAY AFFECT WHETHER A SALE BY A
STOCKHOLDER PURSUANT TO THE OFFER WILL MEET ANY OF THE SECTION 302 TESTS.
Section 302 Tests. One of the following tests must be satisfied in order for
the exchange of Shares pursuant to the Offer to be treated as a sale or
exchange for federal income tax purposes.
a. Substantially Disproportionate Test. The receipt of cash by a Stockholder
will be "substantially disproportionate" if the percentage of the
outstanding Shares actually and constructively owned by the Stockholder
immediately following the exchange of Shares pursuant to the Offer (treating
as not being outstanding all Shares purchased pursuant to the Offer) is less
than 80% of the percentage of the outstanding Shares actually and
constructively owned by such Stockholder immediately before the exchange of
Shares pursuant to the Offer (treating as outstanding all Shares purchased
pursuant to the Offer). Stockholder should consult their own tax advisors
with respect to the application of the "substantially disproportionate" test
to their particular situation and circumstances.
b. Complete Termination Test. The receipt of cash by Stockholder will be a
"complete termination" of the Stockholder's interest in the Company if
either (i) all of the Shares actually and constructively owned by the
Stockholder are exchanged pursuant to the Offer, or (ii) all of the Shares
actually owned by the Stockholder are exchanged pursuant to the Offer and,
with respect to the Shares constructively owned by the Stockholder which are
not exchanged pursuant to the Offer, the Stockholder is eligible to waive
(and effectively waives) constructive ownership of all such Shares under
procedures described in Section 302(c) of the Code. Stockholders considering
making such a waiver should do so in consultation with their own tax
advisors.
27
<PAGE>
c. Not Essentially Equivalent to a Dividend Test. Even if the receipt of cash
by a Stockholder fails to satisfy the "substantially disproportionate" test
and the "complete termination" test, a Stockholder may nevertheless satisfy
the "not essentially equivalent to a dividend" test if the Stockholder's
exchange of Shares pursuant to the Offer results in a "meaningful reduction"
in the Stockholder's proportionate interest in the Company. Whether the
receipt of cash by a Stockholder who exchanges shares pursuant to the offer
will be "not essentially equivalent to a dividend" will depend upon the
Stockholder's particular facts and circumstances. The IRS has indicated in
published Revenue Rulings that even a small reduction in the proportionate
interest of a small minority Stockholder in a publicly held corporation who
exercises no control over corporate affairs may constitute such a
"meaningful reduction." The IRS held, for example, in Rev. Rul. 76-385,
1976-2 C.B. 92, that a reduction in the percentage ownership interest of a
Stockholder in a publicly held corporation from .0001118% to .0001081% (a
reduction of only 3.3% in the Stockholder's prior percentage ownership
interest) would constitute a "meaningful reduction." Stockholders expecting
to rely on the "not essentially equivalent to a dividend" test should
consult their own tax advisors as to its application to their particular
situation and circumstances.
If a United States Holder sells Shares to persons other than the Company at
or about the time such holder also exchanges Shares pursuant to the Offer, and
the various sales effected by the holder are part of an overall plan to reduce
or terminate such holder's proportionate interest in the Company, then the
sales to persons other than the Company may, for United States federal income
tax purposes, be integrated with the holder's exchange of Shares pursuant to
the Offer and, if integrated, should be taken into account in determining
whether the holder satisfies any of the three tests described below.
Corporate Shareholder Dividend Treatment. If an exchange of Shares pursuant
to the Offer by a corporate Stockholder is treated as a dividend, the corporate
Stockholder may be entitled to claim a deduction in an amount equal to 70% of
the gross dividend under Section 243 of the Code, subject to applicable
limitations. Corporate Stockholder s should consider the effect of Section
246(c) of the Code, which disallows the 70% dividends-received deduction with
respect to any dividend on any share of stock that is held for 45 days or less
during the 90-day period beginning on the date which is 45 days before the date
on which such share becomes ex-dividend with respect to such dividend. For this
purpose, the length of time a taxpayer is deemed to have held stock may be
reduced by periods during which the taxpayer's risk of loss with respect to the
stock is diminished by reason of the existence of certain options or other
hedging transactions. Moreover, under Section 246A of the Code, if a corporate
Stockholder has incurred indebtedness directly attributable to an investment in
Shares, the 70% dividends-received deduction may be reduced by a percentage
generally computed based on the amount of such indebtedness and the
Stockholder's total adjusted tax basis in the Shares.
In addition, as a result of changes made by the Taxpayer Relief Act of 1997,
any amount received by a corporate Stockholder pursuant to the Offer that is
treated as a dividend will constitute an "extraordinary dividend" under Section
1059 of the Code (except as may otherwise be provided in regulations yet to be
promulgated by the Treasury Department). Accordingly, a corporate Stockholder
would be required under Section 1059(a) of the Code to reduce its adjusted tax
basis (but not below zero) in its Shares by the non-taxed portion of the
extraordinary dividend (i.e., the portion of the dividend for which a deduction
is allowed), and, if such portion exceeds the Stockholder's adjusted tax basis
in its Shares, to treat the excess as gain from the sale of such Shares in the
year in which the dividend is received. These basis reduction and gain
recognition rules would be applied by taking account only of the Stockholder's
adjusted tax basis in the Shares that were sold, without regard to other Shares
that the Stockholder may continue to own. Corporate Stockholders should consult
their
28
<PAGE>
own tax advisors as to the application of Section 1059 of the Code to the
Offer, and to any dividends which may be treated as paid with respect to Shares
sold pursuant to the offer.
The Company cannot predict whether or to what extent the Offer will be over-
subscribed. If the Offer is oversubscribed, proration of the tenders pursuant
to the Offer will cause the Company to accept fewer Shares than are tendered.
Therefore, a Stockholder can be given no assurance that a sufficient number of
such Stockholder's Shares will be exchanged pursuant to the Offer to ensure
that such exchange will be treated as a sale, rather than as a dividend, for
United States federal income tax purposes pursuant to the rules discussed
above.
If a Stockholder who exchanges Shares pursuant to the Offer is not treated
under Section 302 as having sold such holder's Shares for cash, the entire
amount of cash received by such Stockholder will be treated as a dividend to
the extent of the Company's current and accumulated earnings and profits, which
the Company anticipates will be sufficient to cover the amount of any such
dividend and will be includible in the Stockholder's gross income as ordinary
income in its entirety, without reduction for the tax basis of the Shares
exchanged. No loss will be recognized. The Stockholder's tax basis in the
Shares exchanged generally will be added to such holder's tax basis in such
holder's remaining Shares. To the extent that cash received in exchange for
Shares is treated as a dividend to a corporate Stockholder, such Stockholder
will be, (i) eligible for a dividends-received deduction (subject to applicable
limitations) and (ii) subject to the "extraordinary dividend" provisions of the
Code. To the extent, if any, that the cash received by a Stockholder exceeds
the Company's current and accumulated earnings and profits, it will be treated
first as a tax-free return of such holder's tax basis in the Shares and
thereafter as capital gain.
Foreign Stockholders. The Company will withhold United States federal income
tax at a rate of 30% from the gross proceeds paid pursuant to the Offer to a
foreign stockholder or his agent, unless the Company determines that such
foreign stockholder is entitled to a reduced rate of withholding is pursuant to
an applicable income tax treaty or to an exemption from withholding because
such gross proceeds are effectively connected with the conduct of a trade or
business by the foreign Shareholder within the United States. For this purpose,
a foreign stockholder is any stockholder of the Company that is not (i) a
citizen or resident alien individual of the United States, (ii) a corporation,
partnership or other entity created or organized in or under the laws of the
United States, any State or any political subdivision thereof, (iii) an estate,
the income of which is subject to United States federal income taxation
regardless of its source, or (iv) a trust if a court within the United States
is able to exercise primary supervision over the administration of the trust,
and one or more United States persons have the authority to control all
substantial decisions relating to the trust.
Generally, the determination of whether a reduced rate of withholding is
available pursuant to an applicable income tax treaty is made by reference to a
foreign stockholder's address or to a properly completed IRS Form 1001
furnished by the stockholder, and the determination of whether an exemption
from withholding is available on the ground that gross proceeds paid to a
foreign stockholder are effectively connected with a United States trade or
business is made on the basis of a properly completed IRS Form 4224 furnished
by the stockholder. The Company will determine a foreign stockholder's
eligibility for a reduced rate of, or exemption from, withholding by reference
to the stockholder's address and any IRS Forms 1001 or 4224 submitted to the
Company by the stockholder unless facts and circumstances indicate that such
reliance is not warranted or unless applicable law requires some other method
for determining whether a reduced rate of withholding is applicable. These
forms can be obtained from the Company.
29
<PAGE>
A foreign stockholder with respect to whom tax has been withheld may be
eligible for a refund from the IRS of all or a portion of the withheld tax if
the stockholder satisfies one of the Section 302 tests for capital gain
treatment or is otherwise able to establish that no tax or a reduced amount of
tax is due. Foreign stockholder s are urged to consult their own tax advisors
regarding the application of United States federal income tax withholding,
including eligibility for a withholding tax reduction or exemption and details
of the refund procedure.
Backup Withholding. See Section 3 with respect to the application of United
States federal income tax backup withholding.
15. EXTENSION OF THE OFFER; TERMINATION; AMENDMENT
The Company expressly reserves the right, in its sole discretion, at any time
and from time to time, and regardless of whether or not any of the events set
forth in Section 6 shall have occurred or shall be deemed by the Company to
have occurred, to extend the period of time during which the Offer is open and
thereby delay acceptance for payment of, and payment for, any Shares by giving
oral or written notice of such extension to the Depositary and making a public
announcement thereof. The Company also expressly reserves the right, in its
sole discretion, to terminate the Offer and not accept for payment or pay for
any Shares not theretofore accepted for payment or paid for or, subject to
applicable law, to postpone payment for Shares upon the occurrence of any of
the conditions specified in Section 6 hereof by giving oral or written notice
of such termination or postponement to the Depositary and making a public
announcement thereof. The Company's reservation of the right to delay payment
for Shares which it has accepted for payment is limited by Rule 13e-4(f)(5)
promulgated under the Exchange Act, which requires that the Company must pay
the consideration offered or return the Shares tendered promptly after
termination or withdrawal of a tender offer. Subject to compliance with
applicable law, the Company further reserves the right, in its sole discretion,
and regardless of whether any of the events set forth in Section 6 shall have
occurred or shall be deemed by the Company to have occurred, to amend the Offer
in any respect (including, without limitation, by decreasing or increasing the
consideration offered in the Offer to holders of Shares or by decreasing or
increasing the number of Shares being sought in the Offer). Amendments to the
Offer may be made at any time and from time to time effected by public
announcement thereof, such announcement, in the case of an extension, to be
issued no later than 9:00 a.m., New York City time, on the next business day
after the last previously scheduled or announced Expiration Date. Any public
announcement made pursuant to the Offer will be disseminated promptly to
stockholders in a manner reasonably designated to inform stockholders of such
change. Without limiting the manner in which the Company may choose to make any
public announcement, except as provided by applicable law (including Rule 13e-
4(e)(2) promulgated under the Exchange Act), the Company shall have no
obligation to publish, advertise or otherwise communicate any such public
announcement other than by making a release to the Dow Jones News Service.
If the Company makes a material change in the terms of the Offer or the
information concerning the Offer, or if it waives a material condition of the
Offer, the Company will extend the Offer to the extent required by Rules 13e-
4(d)(2) and 13e-4(e)(2) promulgated under the Exchange Act, which require that
the minimum period during which an offer must remain open following material
changes in the terms of the offer or information concerning the Offer (other
than a change in price or a change in percentage of securities sought) will
depend upon the facts and circumstances, including the relative materiality of
such terms or information. If (i) the Company increases or decreases the price
to be paid for Shares, the Company increases or decreases the Dealer Manager's
fee, the Company increases the number of Shares being sought and such increase
in the number of Shares being sought exceeds 2%
30
<PAGE>
of the outstanding Shares, or the Company decreases the number of Shares being
sought, and (ii) the Offer is scheduled to expire at any time earlier than the
expiration of a period ending on the tenth business day from, and including,
the date that notice of such increase or decrease is first published, sent or
given, the Offer will be extended until the expiration of such period of ten
business days.
16. FEES AND EXPENSES
The Company has retained Merrill Lynch & Co. ("Merrill Lynch") to act as the
Dealer Manager in connection with the Offer. Merrill Lynch will receive pre-
determined compensation for its services as Dealer Manager. Merrill Lynch has
agreed to cover all of its reasonable expenses incurred in connection with the
Offer. The Company has agreed to indemnify Merrill Lynch against certain
liabilities in connection with the Offer, including certain liabilities under
the federal securities laws. Merrill Lynch has rendered various investment
banking and other advisory services to the Company in the past, for which they
have received customary compensation, and can be expected to render similar
services to the Company in the future. The Company has retained ChaseMellon
Shareholder Services, LLC as Information Agent and as Depositary in connection
with the Offer, and will pay reasonable and customary compensation for its
services in such capacities. The Company will also reimburse the Information
Agent and the Depositary for out-of-pocket expenses and has agreed to indemnify
the Information Agent and the Depositary against certain liabilities in
connection with the Offer, including certain liabilities under the federal
securities laws. The Dealer Manager and Information Agent may contact
stockholders by mail, telephone, telex, telegraph and personal interviews, and
may request brokers, dealers and other nominee stockholders to forward
materials relating to the Offer to beneficial owners. Neither the Information
Agent nor the Depositary has been retained to make solicitations or
recommendations in connection with the Offer.
The Company will not pay fees or commissions to any broker, dealer,
commercial bank, trust company or other person (other than the Dealer Manager)
for soliciting any Shares pursuant to the Offer. The Company will, however, on
request, reimburse such persons for customary handling and mailing expenses
incurred in forwarding materials in respect of the Offer to the beneficial
owners for which they act as nominees. No such broker, dealer, commercial bank
or trust company has been authorized to act as the Company's agent for purposes
of the Offer. The Company will pay (or cause to be paid) any stock transfer
taxes on its purchase of Shares, except as otherwise provided in Instruction 7
of the Letter of Transmittal.
17. MISCELLANEOUS
The Company is not aware of any jurisdiction where the making of the Offer is
not in compliance with applicable law. If the Company becomes aware of any
jurisdiction where the making of the Offer is not in compliance with any
applicable law, the Company will make a good faith effort to comply with such
law. If, after such good faith effort, the Company cannot comply with such law,
the Offer will not be made to (nor will tenders be accepted from or on behalf
of) the holders of Shares residing in such jurisdiction. In any jurisdiction
the securities or blue sky laws of which require the
31
<PAGE>
Offer to be made by a licensed broker or dealer, the Offer is being made on
the Company's behalf by the Dealer Manager or one or more registered brokers
or dealers licensed under the laws of such jurisdiction.
Pursuant to Rule 13e-4 promulgated under the Exchange Act, the Company has
filed with the Commission an Issuer Tender Offer Statement on Schedule 13E-4
(the "Schedule 13E-4") which contains additional information with respect to
the Offer. The Schedule 13E-4, including the exhibits and any amendments
thereto, may be examined, and copies may be obtained, at the same places and
in the same manner as is set forth in Section 11 with respect to information
concerning the Company.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION ON BEHALF OF THE COMPANY OR THE DEALER MANAGER IN CONNECTION
WITH THE OFFER OTHER THAN THOSE CONTAINED IN THIS OFFER TO PURCHASE OR IN THE
RELATED LETTER OF TRANSMITTAL. IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR THE DEALER MANAGER.
MGM Grand, Inc.
July 2, 1998
32
<PAGE>
SCHEDULE I
CERTAIN TRANSACTIONS INVOLVING SHARES
Except as set forth below, based upon the Company's records and upon
information provided to the Company by its directors, executive officers,
associates and subsidiaries, neither the Company nor any of its associates or
subsidiaries or persons controlling the Company nor, to the best of the
Company's knowledge, any of the directors or executive officers of the Company
or any of its subsidiaries, nor any associates or subsidiary of any of the
foregoing, has effected any transactions in the Shares during the 40 business
days prior to July 2, 1998.
1. James J. Murren, Executive Vice President and Chief Financial Officer of
the Company purchased 3,000 Shares in the open market on May 5, 1998, for
$34.00 per Share.
33
<PAGE>
A properly completed Letter of Transmittal (or a manually signed facsimile
thereof) and certificates for the Shares and any other required documents
should be sent or delivered by each stockholder or such stockholder's broker,
dealer, commercial bank, trust company or other nominee to the Depositary at
one of its addresses set forth below:
THE DEPOSITARY FOR THE OFFER IS:
CHASEMELLON SHAREHOLDER SERVICES, LLC
<TABLE>
<S> <C> <C>
By Mail: By Overnight Courier: By Hand:
P.O. Box 3301 85 Challenger Road 120 Broadway, 13th Floor
South Hackensack, N.J. 07606 Mail Drop-Reorg New York, N.Y. 10271
Attn: Reorganization Dept. Ridgefield Park, N.J. 07660 Attn: Reorganization Dept.
Attn: Reorganization Dept.
</TABLE>
By Facsimile Transmission: (201) 296-4293
Confirm Receipt of Notice of Guaranteed Delivery by Telephone:
(201) 296-4860
Any questions or requests for assistance or for additional copies of this
Offer to Purchase, the Letter of Transmittal or the Notice of Guaranteed
Delivery may be directed to the Information Agent, at the telephone number and
address below. Stockholders may also contact their broker, dealer, commercial
bank or trust company for assistance concerning the Offer. To confirm delivery
of Shares, stockholders are directed to contact the Depositary.
THE INFORMATION AGENT FOR THE OFFER IS:
CHASEMELLON SHAREHOLDER SERVICES, LLC
450 West 33rd Street
14th Floor
New York, New York 10001
(800) 953-2497
Banks and Brokers Call Collect: (212) 273-8080
THE DEALER MANAGER FOR THE OFFER IS:
MERRILL LYNCH & CO.
World Financial Center
North Tower
New York, New York 10281-1305
(212) 449-8971 (call collect)
July 2, 1998
34
<PAGE>
EXHIBIT (a)(2)
MGM GRAND, INC.
LETTER OF TRANSMITTAL
FOR
TENDER OF SHARES OF COMMON STOCK
PURSUANT TO OFFER TO PURCHASE DATED JULY 2, 1998
THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00
P.M., NEW YORK CITY TIME, ON JULY 31, 1998, UNLESS THE OFFER IS EXTENDED
BY THE COMPANY IN ITS SOLE DISCRETION (THE "EXPIRATION DATE").
The Depositary For The Offer Is:
CHASEMELLON SHAREHOLDER SERVICES, LLC
By Mail: By Overnight Courier: By Hand:
P.O. Box 3301 85 Challenger Road-- 120 Broadway, 13th Floor
South Hackensack, Mail Drop--Reorg. New York, NY 10271
NJ 07606 Ridgefield Park, NJ 07660 Attn: Reorganization
Attn: Reorganization Attn: Reorganization Dept. Dept.
Dept.
Facsimile Transmissions
(Eligible Institutions Only):
(201) 296-4293
To Confirm Receipt
of Facsimile Only:
(201) 296-4860
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF THIS LETTER OF TRANSMITTAL VIA FACSIMILE TO A NUMBER
OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY. DELIVERIES
TO THE COMPANY WILL NOT BE FORWARDED TO THE DEPOSITARY AND THEREFORE WILL NOT
CONSTITUTE VALID DELIVERY. DELIVERIES TO THE BOOK-ENTRY TRANSFER FACILITY WILL
NOT CONSTITUTE VALID DELIVERY TO THE DEPOSITARY.
THE INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY BEFORE THIS
LETTER OF TRANSMITTAL IS COMPLETED. FOR ASSISTANCE COMPLETING THIS LETTER OF
TRANSMITTAL, PLEASE CALL THE INFORMATION AGENT AT (800) 953-2497.
<PAGE>
NOTE: SIGNATURES MUST BE PROVIDED BELOW. PLEASE READ
THE INSTRUCTIONS SET FORTH IN THIS LETTER OF TRANSMITTAL CAREFULLY.
This Letter of Transmittal is to be used only if certificates are to be
forwarded herewith or if delivery of Shares (as defined below) is to be made
by book-entry transfer to the Depository Trust Company (the "Book Entry
Transfer Facility") pursuant to the procedures set forth in Section 3 of the
Offer to Purchase (as defined below).
Stockholders who cannot deliver their Share certificates and any other
required documents to the Depositary by the Expiration Date must tender their
Shares using the guaranteed delivery procedure set forth in Section 3 of the
Offer to Purchase. See Instruction 2.
ALL TENDERING HOLDERS COMPLETE THIS BOX IF ANY OF THE INFORMATION IS LEFT
BLANK:
DESCRIPTION OF SHARES TENDERED
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NAME(S) AND
ADDRESS(ES)
OF
REGISTERED
HOLDER(S)
(PLEASE
FILL IN IF CERTIFICATE(S) ENCLOSED
BLANK) (ATTACH SIGNED LIST IF NECESSARY)
- ---------------------------------------------------------------
<S> <C> <C> <C>
NUMBER OF
SHARES NUMBER OF
CERTIFICATE REPRESENTED BY SHARES
NUMBER(S)(1) CERTIFICATE(S)(1) TENDERED(2)
-----------------------------------------------
-----------------------------------------------
-----------------------------------------------
-----------------------------------------------
-----------------------------------------------
-----------------------------------------------
TOTAL SHARES
</TABLE>
- -------------------------------------------------------------------------------
Indicate in this box the order (by certificate number) in which Shares are
to be purchased in the event of proration. (3) (Attach additional signed
list if necessary.)
1st: 2nd: 3rd: 4th: 5th:
- -------------------------------------------------------------------------------
(1) Need not be completed by stockholders tendering by book-entry transfer.
(2) Unless otherwise indicated, it will be assumed that all Shares
described above are being tendered. See Instruction 4.
(3) If you do not designate an order, then in the event less than all
Shares tendered are purchased due to proration, Shares will be selected
for purchase by the Depositary. See Instruction 13.
(BOXES BELOW FOR USE BY ELIGIBLE INSTITUTIONS ONLY)
[ ] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER TO THE DEPOSITARY'S ACCOUNT AT THE BOOK-ENTRY TRANSFER
FACILITY AND COMPLETE THE FOLLOWING:
DTC Account No. ____________________________________________________
Transaction Code No. _______________________________________________
[ ] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND
COMPLETE THE FOLLOWING:
Name(s) of Registered Holder(s) ____________________________________
Date of Execution of Notice of Guaranteed Delivery _________________
Name of Institution that Guaranteed Delivery _______________________
If delivery is by book-entry transfer:
Name of Tendering Institution ______________________________________
DTC Account No. ____________________________________________________
Transaction Code No. _______________________________________________
2
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to MGM Grand, Inc., a Delaware corporation
(the "Company"), the above-described shares of its common stock, par value
$.01 per share (the "Shares"), at $35.00 per Share (the "Purchase Price"), net
to the seller in cash, upon the terms and subject to the conditions set forth
in the Offer to Purchase, dated July 2, 1998 (the "Offer to Purchase"),
receipt of which is hereby acknowledged, and in this Letter of Transmittal
(which together constitute the "Offer").
Subject to, and effective upon, acceptance for payment of and payment for
the Shares tendered herewith in accordance with the terms and subject to the
conditions of the Offer (including, if the Offer is extended or amended, the
terms and conditions of any such extension or amendment), the undersigned
hereby sells, assigns and transfers to, or upon the order of, the Company all
right, title and interest in and to all the Shares that are being tendered
hereby or orders the registration of such Shares tendered by book-entry
transfer that are purchased pursuant to the Offer to or upon the order of the
Company and hereby irrevocably constitutes and appoints the Depositary the
true and lawful agent and attorney-in-fact of the undersigned with respect to
such Shares, with full power of substitution (such power of attorney being
deemed to be irrevocable power coupled with an interest), to:
(i) deliver certificates for such Shares, or transfer ownership of such
Shares on the account books maintained by the Book-Entry Transfer Facility,
together, in any such case, with all accompanying evidences of transfer and
authenticity, to or upon the order of the Company upon receipt by the
Depositary, as the undersigned's agent, of the Purchase Price with respect
to such Shares;
(ii) present certificates for such Shares for cancellation and transfer
on the books of the Company; and
(iii) receive all benefits and otherwise exercise all rights of
beneficial ownership of such Shares, all in accordance with the terms of
the Offer.
The undersigned hereby represents and warrants to the Company that the
undersigned has full power and authority to tender, sell, assign and transfer
the Shares tendered hereby and that, when and to the extent the same are
accepted for payment by the Company, the Company will acquire good, marketable
and unencumbered title thereto, free and clear of all liens, restrictions,
charges, encumbrances, conditional sales agreements or other obligations
relating to the sale or transfer thereof, and the same will not be subject to
any adverse claims. The undersigned will, upon request, execute and deliver
any additional documents deemed by the Depositary or the Company to be
necessary or desirable to complete the sale, assignment and transfer of the
Shares tendered hereby.
The undersigned represents and warrants to the Company that the undersigned
has read and agrees to all of the terms of the Offer. All authority herein
conferred or agreed to be conferred shall not be affected by and shall survive
the death or incapacity of the undersigned, and any obligation of the
undersigned hereunder shall be binding upon the heirs, personal
representatives, successors and assigns of the undersigned. Except as stated
in the Offer, this tender is irrevocable.
The undersigned understands that tenders of Shares pursuant to any one of
the procedures described in Section 3 of the Offer to Purchase and in the
Instructions will constitute the undersigned's representation and warranty to
the Company that (i) the undersigned has a net long position in the Shares or
equivalent securities being tendered within the meaning of Rule 14e-4
promulgated under the Securities Exchange Act of 1934, as amended, and (ii)
the tender of such Shares complies with Rule 14e-4. The Company's acceptance
for payment of Shares tendered pursuant to the Offer will constitute a binding
agreement between the undersigned and the Company upon the terms and subject
to the conditions of the Offer.
The names and addresses of the registered holders should be printed, if they
are not already printed above, exactly as they appear on the certificates
representing Shares tendered hereby. The certificate numbers, the number of
Shares represented by such certificates and the number of Shares that the
undersigned wishes to tender should be indicated in the appropriate boxes on
this Letter of Transmittal.
The undersigned recognizes that, under certain circumstances set forth in
the Offer to Purchase, the Company may terminate or amend the Offer or may,
subject to applicable law, postpone the acceptance for payment of, or the
payment for,
3
<PAGE>
Shares tendered or may not be required to purchase any of the Shares tendered
hereby or may accept for payment fewer than all of the Shares tendered hereby.
Unless otherwise indicated under "Special Payment Instructions," please
issue the check for the Purchase Price of any Shares purchased, and/or return
any Shares not tendered or not purchased, in the name(s) of the undersigned
(and, in the case of Shares tendered by book-entry transfer, by credit to the
account at the Book-Entry Transfer Facility). Similarly, unless otherwise
indicated under "Special Delivery Instructions," please mail the check for the
Purchase Price of any Shares purchased and/or any certificates for Shares not
tendered or not purchased (and accompanying documents, as appropriate) to the
undersigned at the address shown below the undersigned's signature(s). In the
event that both "Special Payment Instructions" and "Special Delivery
Instructions" are completed, please issue the check for the Purchase Price of
any Shares purchased and/or return any Shares not tendered or not purchased in
the name(s) of, and mail such check and/or any certificates to, the person(s)
so indicated. The undersigned recognizes that the Company has no obligation,
pursuant to the "Special Payment Instructions," to transfer any Shares from
the name of the registered holder(s) thereof if the Company does not accept
for payment any of the Shares so tendered.
The undersigned understands that acceptance of Shares by the Company for
payment will constitute a binding agreement between the undersigned and the
Company upon the terms and subject to the conditions of the Offer.
- --------------------------------------------------------------------------------
STOCK PURCHASE PLAN
(SEE INSTRUCTION 14)
This section is to be completed ONLY if Shares held in the Company's
Employee Stock Purchase Plan (the "Stock Purchase Plan") are to be tendered.
[ ] By checking this box, the undersigned represents that the undersigned is
a participant in the Stock Purchase Plan and hereby instructs ChaseMellon
Shareholder Services, LLC, the administrator of the Stock Purchase Plan,
to tender on behalf of the undersigned the following number of Shares
credited to the Stock Purchase Plan account of the undersigned. (1)
Number of Shares to be tendered: .
(1) The undersigned understands and agrees that all Shares held in the
undersigned's Stock Purchase Plan account will be tendered if the above
box is checked and the space above is left blank. If the box captioned
"Odd Lots" in this Letter of Transmittal is completed, all Shares held in
the Odd Lot Owner's account will be tendered regardless of whether this
section is otherwise completed.
- -------------------------------------------------------------------------------
4
<PAGE>
---------------------------------- ----------------------------------
SPECIAL PAYMENT INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 2, 5 AND 7) (SEE INSTRUCTIONS 2, 5 AND 7)
To be completed ONLY if the To be completed ONLY if the
check for the aggregate Purchase check for the aggregate Purchase
Price of Shares purchased and/or Price of Shares purchased and/or
certificates for Shares not certificates for Shares not
tendered or not purchased are to tendered or not purchased are to
be issued in the name of someone be mailed to someone other than
other than the undersigned. the undersigned or to the
undersigned at an address other
than that shown below the
undersigned's signature(s).
Issue [_] Check and/or Mail [_] Check and/or
[_] Certificate(s) to: [_] Certificate(s) to:
Name _____________________________ Name______________________________
(PLEASE PRINT) (PLEASE PRINT)
Address __________________________ Address __________________________
__________________________________ __________________________________
(INCLUDE ZIP CODE) (INCLUDE ZIP CODE)
__________________________________ __________________________________
(TAX IDENTIFICATION OR SOCIAL (TAX IDENTIFICATION OR SOCIAL
SECURITY NUMBER(S)) SECURITY NUMBER(S))
---------------------------------- ----------------------------------
- --------------------------------------------------------------------------------
ODD LOTS
(SEE INSTRUCTION 8)
This section is to be completed ONLY if Shares are being tendered by or on
behalf of a person who owned beneficially, as of the close of business on June
30, 1998, and who continues to own beneficially as of the Expiration Date, an
aggregate of fewer than 100 Shares.
The undersigned either (check one box):
[_] owned beneficially, as of the close of business on June 30, 1998 and
continues to own beneficially as of the Expiration Date, an aggregate of
fewer than 100 Shares, all of which are being tendered, or
[_] is a broker, dealer, commercial bank, trust company or other nominee that
(i) is tendering, for the beneficial owners thereof, Shares with respect to
which it is the record owner, and (ii) believes, based upon representations
made to it by each such beneficial owner, that such beneficial owner owned
beneficially, as of the close of business on June 30, 1998, and continues
to own beneficially as of the Expiration Date, an aggregate of fewer than
100 Shares and is tendering all of such Shares.
- --------------------------------------------------------------------------------
5
<PAGE>
HOLDER(S) SIGN HERE
(SEE INSTRUCTIONS 1, 5 AND 7)
(PLEASE COMPLETE SUBSTITUTE FORM W-9 ON PAGE 11)
(NOTE: SIGNATURE(S) MUST BE GUARANTEED IF REQUIRED BY INSTRUCTION 1)
............................................................................
............................................................................
(SIGNATURE(S) OF HOLDER(S))
Date: , 1998
Name(s): ...................................................................
............................................................................
(PLEASE PRINT)
Capacity (full title): .....................................................
Address: ...................................................................
............................................................................
(INCLUDE ZIP CODE)
Area Code and Telephone Number: ............................................
............................................................................
(TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER(S))
(Must be signed by registered holder(s) exactly as name(s) appear(s) on
Share certificate(s) or on a security position listing or by person(s)
authorized to become registered holder(s) by certificates and documents
transmitted herewith. If signature is by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation or
other person acting in a fiduciary or representative capacity, please set
forth full title and see Instruction 5.)
GUARANTEE OF SIGNATURE(S)
(SEE INSTRUCTIONS)
............................................................................
(AUTHORIZED SIGNATURE)
Date: , 1998
Name of Firm: ..............................................................
Capacity (full title): .....................................................
(PLEASE PRINT)
Address: ...................................................................
............................................................................
............................................................................
(INCLUDE ZIP CODE)
Area Code and Telephone Number: ............................................
6
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. GUARANTEE OF SIGNATURES. Except as otherwise provided below, all
signatures on this Letter of Transmittal must be guaranteed by a firm that is
a recognized member of an Eligible Institution (as defined in the Offer to
Purchase), unless (i) this Letter of Transmittal is signed by the registered
holder(s) of the Shares (which term, for purposes of this document, shall
include any participant in the Book-Entry Transfer Facility) tendered herewith
and such holder(s) have not completed the box entitled "Special Payment
Instructions" or the box entitled "Special Delivery Instructions" on this
Letter of Transmittal, or (ii) such Shares are tendered for the account of an
Eligible Institution. See Instruction 5.
2. DELIVERY OF LETTER OF TRANSMITTAL AND SHARE CERTIFICATES; GUARANTEED
DELIVERY PROCEDURES. This Letter of Transmittal is to be used either if Share
certificates are to be forwarded herewith or if delivery of Shares is to be
made by book-entry transfer pursuant to the procedures set forth in Section 3
of the Offer to Purchase. Certificates for all physically delivered Shares, or
a confirmation of a book-entry transfer into the Depositary's account at the
Book-Entry Transfer Facility of all Shares delivered electronically, as well
as a properly completed and duly executed Letter of Transmittal (or manually
signed facsimile thereof) and any other documents required by this Letter of
Transmittal, must be received by the Depositary at one of its addresses set
forth on the front page of this Letter of Transmittal prior to the Expiration
Date. If certificates are forwarded to the Depositary in multiple deliveries,
a properly completed and duly executed Letter of Transmittal must accompany
each such delivery.
Stockholders whose Share certificates are not immediately available, who
cannot deliver their Shares and all other required documents to the Depositary
or who cannot complete the procedure for delivery by book-entry transfer prior
to the Expiration Date may tender their Shares pursuant to the guaranteed
delivery procedure set forth in Section 3 of the Offer to Purchase. Pursuant
to such procedure: (i) such tender must be made by or through an Eligible
Institution; (ii) a properly completed and duly executed Notice of Guaranteed
Delivery substantially in the form provided by the Company (with any required
signature guarantees) must be received by the Depositary prior to the
Expiration Date; and (iii) the certificates for all physically delivered
Shares in proper form for transfer by delivery, or a confirmation of a book-
entry transfer into the Depositary's account at the Book-Entry Transfer
Facility of all Shares delivered electronically, in each case together with a
properly completed and duly executed Letter of Transmittal (or manually signed
facsimile thereof) and any other documents required by this Letter of
Transmittal, must be received by the Depositary within three New York Stock
Exchange, Inc. trading days after the date the Depositary receives such Notice
of Guaranteed Delivery, all as provided in Section 3 of the Offer to Purchase.
THE METHOD OF DELIVERY OF ALL DOCUMENTS, INCLUDING SHARE CERTIFICATES, THE
LETTER OF TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS, IS AT THE ELECTION AND
RISK OF THE TENDERING STOCKHOLDER, AND THE DELIVERY WILL BE DEEMED MADE ONLY
WHEN ACTUALLY RECEIVED BY THE DEPOSITARY. IF DELIVERY IS BY MAIL, REGISTERED
MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL
CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
No alternative or contingent tenders will be accepted. By executing this
Letter of Transmittal (or facsimile thereof), the tendering stockholder waives
any right to receive any notice of the acceptance for payment of the Shares.
3. INADEQUATE SPACE. If the space provided herein is inadequate, the
certificate numbers and/or the number of Shares should be listed on a separate
signed schedule and attached to this Letter of Transmittal.
4. PARTIAL TENDERS (NOT APPLICABLE TO STOCKHOLDERS WHO TENDER BY BOOK-ENTRY
TRANSFER). If fewer than all the Shares represented by any certificate
delivered to the Depositary are to be tendered, fill in the number of Shares
that are to be tendered in the box entitled "Number of Shares Tendered." In
such case, a new certificate for the remainder of the Shares represented by
the old certificate will be sent to the person(s) signing this Letter of
Transmittal, unless otherwise provided in the "Special Payment Instructions"
or "Special Delivery Instructions" boxes on this Letter of Transmittal, as
promptly as practicable following the expiration or termination of the Offer.
All Shares represented by certificates delivered to the Depositary will be
deemed to have been tendered unless otherwise indicated.
7
<PAGE>
5. SIGNATURES ON LETTER OF TRANSMITTAL; STOCK POWERS AND ENDORSEMENTS. If
this Letter of Transmittal is signed by the registered holder(s) of the Shares
tendered hereby, the signatures(s) must correspond with the name(s) as written
on the face of the certificates without alteration, enlargement or any change
whatsoever.
If any of the Shares tendered hereby are held of record by two or more
persons, all such persons must sign this Letter of Transmittal.
If any of the Shares tendered hereby are registered in different names on
different certificates, it will be necessary to complete, sign and submit as
many separate Letters of Transmittal (or manually signed facsimiles thereof)
as there are different registrations of certificates.
If this Letter of Transmittal is signed by the registered holder(s) of the
Shares tendered hereby, no endorsements of certificates or separate stock
powers are required unless payment of the Purchase Price is to be made to, or
Shares not tendered or not purchased are to be registered in the name of, any
person other than the registered holder(s), in which case the certificate(s)
evidencing the Shares tendered hereby must be endorsed or accompanied by
appropriate stock powers, in either case signed exactly as the name(s) of the
registered holder(s) appear(s) on such certificates. Signatures on any such
certificates or stock powers must be guaranteed by an Eligible Institution.
See Instruction 1.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of the Shares tendered hereby, certificates evidencing
the Shares tendered hereby must be endorsed or accompanied by appropriate
stock powers, in either case, signed exactly as the name(s) of the registered
holder(s) appear(s) on such certificate(s). Signature(s) on any such
certificates or stock powers must be guaranteed by an Eligible Institution.
See Instruction 1.
If this Letter of Transmittal or any certificate or stock power is signed by
a trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
such person should so indicate when signing, and proper evidence satisfactory
to the Company of the authority of such person so to act must be submitted.
6. STOCK TRANSFER TAXES. The Company will pay or cause to be paid any stock
transfer taxes with respect to the sale and transfer of any Shares to it or
its order pursuant to the Offer. If, however, payment of the aggregate
Purchase Price is to be made to, or Shares not tendered or not purchased are
to be registered in the name of, any person other than the registered
holder(s), or if tendered Shares are registered in the name of any person
other than the person(s) signing this Letter of Transmittal, the amount of any
stock transfer taxes (whether imposed on the registered holder(s), such other
person or otherwise) payable on account of the transfer to such person will be
deducted from the purchase price unless satisfactory evidence of the payment
of such taxes, or exemption therefrom, is submitted. See Section 5 of the
Offer to Purchase. Except as provided in this Instruction 6, it will not be
necessary to affix transfer tax stamps to the certificates representing Shares
tendered hereby.
7. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If a check for the Purchase
Price of any Shares tendered herby is to be issued in the name of, and/or any
Shares not tendered or not purchased are to be returned to, a person other
than the person(s) signing this Letter of Transmittal, or if the check and/or
any certificates for Shares not tendered or not purchased are to be mailed to
someone other than the person(s) signing this Letter of Transmittal or to an
address other than that shown above in the box captioned "Description of
Shares Tendered," then the boxes captioned "Special Payment Instructions"
and/or "Special Delivery Instructions" on this Letter of Transmittal should be
completed. Stockholders tendering Shares by book-entry transfer will have any
Shares not accepted for payment returned by crediting the account maintained
by such shareowner at the Book-Entry Transfer Facility.
8. ODD LOTS. As described in Section 1 and Section 2 of the Offer to
Purchase, if fewer than all Shares validly tendered at and not withdrawn prior
to the Expiration Date are to be purchased, the Shares purchased first will
consist of all Shares tendered by any stockholder who owned beneficially, as
of the close of business on June 30, 1998, and continues to own beneficially
as of the Expiration Date, an aggregate of fewer than 100 Shares and who
validly tendered all such Shares. Partial tenders of Shares will not qualify
for this preference and this preference will not be available unless the box
captioned "Odd Lots" in this Letter of Transmittal and the Notice of
Guaranteed Delivery, if any, is completed.
8
<PAGE>
9. SUBSTITUTE FORM W-9 AND FORM W-8. Under the United States federal income
tax backup withholding rules, unless an exemption applies under the applicable
law and regulations, 31% of the gross proceeds payable to a stockholder or
other payee pursuant to the Offer must be withheld and remitted to the United
States Treasury, unless the stockholder or other payee provides such person's
taxpayer identification number (employer identification number or social
security number) to the Depositary and certifies that such number is correct.
Therefore, each tendering stockholder should complete and sign the Substitute
Form W-9 included as part of this Letter of Transmittal so as to provide the
information and certification necessary to avoid backup withholding, unless
such stockholder otherwise establishes to the satisfaction of the Depositary
that it is not subject to backup withholding. Certain stockholders, including,
among others, all corporations and certain foreign stockholders (in addition
to foreign corporations), are not subject to these backup withholding and
reporting requirements. In order for a foreign stockholder to qualify as an
exempt recipient, that stockholder must submit an IRS Form W-8 or a Substitute
Form W-8, signed under penalties of perjury, attesting to that stockholder's
exempt status. Such statements may be obtained from the Depositary.
10. WITHHOLDING ON FOREIGN STOCKHOLDERS. Even if a foreign stockholder has
provided the required certification to avoid backup withholding, the
Depositary will withhold United States federal income taxes equal to 30% of
the gross payments payable to a foreign stockholder or his or her agent unless
the Depositary determines that a reduced rate of withholding is available
pursuant to a tax treaty or that an exemption from withholding is applicable
because such gross proceeds are effectively connected with the conduct of a
trade or business in the United States. For this purpose, a foreign
stockholder is any stockholder that is not (i) a citizen or resident of the
United States, (ii) a corporation, partnership or other entity created or
organized in or under the laws of the United States, any State or any
political subdivision thereof, (iii) an estate, the income of which is subject
to United States federal income taxation regardless of the source of such
income or (iv) a trust if a court within the United States is able to exercise
primary supervision of the administration of the trust and one or more United
States persons have the authority to control all substantial decisions of the
trust. In order to obtain a reduced rate of withholding pursuant to a tax
treaty, a foreign stockholder must deliver to the Depositary a properly
completed IRS Form 1001. In order to obtain an exemption from withholding on
the grounds that the gross proceeds paid pursuant to the Offer are effectively
connected with the conduct of a trade or business within the United States, a
foreign stockholder must deliver to the Depositary a properly completed IRS
From 4224. The Depositary will determine a stockholder's status as a foreign
stockholder and eligibility for a reduced rate of, or an exemption from,
withholding by reference to outstanding certificates or statements concerning
eligibility for a reduced rate of, or exemption from, withholding (e.g., IRS
Form 1001 or IRS From 4224) unless facts and circumstances indicate that such
reliance is not warranted. A foreign stockholder may be eligible to obtain a
refund of all or a portion of any tax withheld if such stockholder meets the
"complete redemption," "substantially disproportionate" or "not essentially
equivalent to a dividend" test described in Section 14 of the Offer to
Purchase or is otherwise able to establish that no tax or a reduced amount of
tax is due. Backup withholding generally will not apply to amounts subject to
the 30% or treaty-reduced rate of withholding. Foreign stockholders are urged
to consult their tax advisors regarding the application of United States
federal income tax withholding, including eligibility for a withholding tax
reduction or exemption and refund procedures.
11. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Any questions or requests
for assistance may be directed to the Information Agent at its telephone
number and address listed below. Requests for additional copies of the Offer
to Purchase, this Letter of Transmittal or other tender offer materials may be
directed to the Information Agent, and such copies will be furnished promptly
at the Company's expense. Stockholders may also contact their local broker,
dealer, commercial bank or trust company for documents relating to, or
assistance concerning, the Offer.
12. IRREGULARITIES. All questions as to the number of Shares to be accepted,
the price to be paid therefor and the validity, form, eligibility (including
time of receipt) and acceptance for payment of any tender of Shares will be
determined by the Company, in its sole discretion, which determination shall
be final and binding on all parties. The Company reserves the absolute right
to reject any or all tenders it determines not to be in proper form or the
acceptance of or payment for which may, in the opinion of the Company's
counsel, be unlawful. The Company also reserves the absolute right to waive
any of the conditions of the Offer and any defect or irregularity in the
tender of any particular Shares or any particular shareowner. No tender of
Shares will be deemed to be validly made until all defects or irregularities
have been cured or waived. None of the Company, the Dealer Manager, the
Depositary, the Information Agent or any other person is or will be obligated
to give notice of any defects or irregularities in tenders, and none of them
will incur any liability for failure to give any such notice.
9
<PAGE>
13. ORDER OF PURCHASE IN EVENT OF PRORATION. As described in Section 1 of the
Offer to Purchase, stockholders may designate the order in which their Shares
are to be purchased in the event of proration. The order of purchase may have
an effect on the United States federal income tax classification of any gain
or loss on the Shares purchased. See Sections 1 and 14 of the Offer to
Purchase.
14. STOCK PURCHASE PLAN. If a stockholder desires to have tendered pursuant
to the Offer Shares credited to the stockholder's account under the Stock
Purchase Plan, the box captioned "Stock Purchase Plan" in this Letter of
Transmittal should be completed. If a stockholder authorizes a tender of
Shares held in the Stock Purchase Plan, all such Shares credited to such
stockholder's account, including fractional Shares, will be tendered, unless
otherwise specified in the appropriate space in the box captioned "Stock
Purchase Plan." In the event that the box captioned "Stock Purchase Plan" is
not completed, no Shares held in the tendering stockholder's Stock Purchase
Plan account will be tendered unless the stockholder has otherwise completed
the box captioned "Odd Lots" in this Letter of Transmittal, in which case, all
Shares held in the Odd Lot Owner's Stock Purchase Plan account will be
tendered regardless of whether the box captioned "Stock Purchase Plan" is
completed.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A MANUALLY SIGNED FACSIMILE
THEREOF) TOGETHER WITH SHARE CERTIFICATES OR CONFIRMATION OF BOOK-ENTRY
TRANSFER AND ALL OTHER REQUIRED DOCUMENTS MUST BE RECEIVED BY THE DEPOSITARY,
OR THE NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE DEPOSITARY, PRIOR
TO THE EXPIRATION DATE. STOCKHOLDERS ARE ENCOURAGED TO RETURN A COMPLETED
SUBSTITUTE FORM W-9 WITH THEIR LETTER OF TRANSMITTAL.
10
<PAGE>
TO BE COMPLETED BY ALL TENDERING STOCKHOLDERS
(SEE INSTRUCTION 8)
PAYOR'S NAME: CHASEMELLON SHAREHOLDER SERVICES, LLC
PART 1--PLEASE PROVIDE YOUR
SUBSTITUTE TIN IN THE BOX AT RIGHT AND ----------------------
FORM W-9 CERTIFY BY SIGNING AND Social security number
DATING BELOW.
OR
----------------------
Employer identification
number
--------------------------------------------------------
DEPARTMENT OF PART 2--Certification--Under penalties of perjury, I
THE TREASURY certify that:
INTERNAL (1) The number shown on this form is my correct
REVENUE taxpayer identification number (or I am waiting
SERVICE for a number to be issued to me);
(2) I am not subject to backup withholding either
because (i) I am exempt from backup withholding,
(ii) I have not been notified by the Internal
Revenue Service ("IRS") that I am subject to
backup withholding as a result of a failure to
report all interest or dividends, or (iii) the
IRS has notified me that I am no longer subject
to backup withholding; and
(3) any other information provided on this form is
true and correct.
---------------------------------------------------------
PAYER'S REQUEST FOR Certification Instructions-- You must
TAXPAYER cross out all of Part 2 above if you
IDENTIFICATION NUMBER have been notified by the IRS that
(TIN) AND you are subject to backup withholding
CERTIFICATION because of underreporting interest or
dividends on your tax return and you
have not been notified by the IRS
that you are no longer subject to
backup withholding. PART 3
Awaiting TIN
[_]
Signature: _____________ Date: ______
Name (Please Print):
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY IN CERTAIN CIRCUMSTANCES
RESULT IN BACKUP WITHHOLDING OF 31% OF ANY AMOUNTS PAID TO YOU PURSUANT
TO THE OFFER.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN
PART 3 ("AWAITING TIN") OF THE SUBSTITUTE FORM W-9
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (1) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or
(2) I intend to mail or deliver an application in the near future. I
understand that if I do not provide a taxpayer identification number by the
time of payment, 31% of all payments made to me on account of the Shares shall
be retained until I provide a taxpayer identification number to the Depositary
and that, if I do not provide my taxpayer identification number within 60
days, such retained amounts shall be remitted to the Internal Revenue Service
as backup withholding and 31% of all reportable payments made to me thereafter
will be withheld and remitted to the Internal Revenue Service until I provide
a taxpayer identification number.
Signature(s): ____________________________ Date: ____________________________
11
<PAGE>
The Information Agent for the Offer is:
CHASEMELLON SHAREHOLDER SERVICES, LLC
450 WEST 33RD STREET
14TH FLOOR
NEW YORK, NEW YORK 10001
(800) 953-2497
BANKS AND BROKERS CALL: (212) 273-8080
The Dealer Manager for the Offer is:
MERRILL LYNCH & CO.
WORLD FINANCIAL CENTER
NORTH TOWER
NEW YORK, NEW YORK 10281-1305
(212) 449-8971 (CALL COLLECT)
12
<PAGE>
EXHIBIT (a)(3)
MGM GRAND, INC.
NOTICE OF GUARANTEED DELIVERY
OF SHARES OF COMMON STOCK
This form, or a form substantially equivalent to this form, must be used to
accept the Offer (as defined below) if certificates for the Shares (as defined
below) are not immediately available, if the procedure for book-entry transfer
cannot be completed on a timely basis, or if time will not permit all other
documents required by the Letter of Transmittal to be delivered to the
Depositary (as defined below) prior to the Expiration Date (as defined in
Section 1 of the Offer to Purchase defined below). This form may be delivered
by hand or transmitted by mail or overnight courier, or (for Eligible
Institutions only) by facsimile transmission, to the Depositary. See Section 3
of the Offer to Purchase. THE ELIGIBLE INSTITUTION WHICH COMPLETES THIS FORM
MUST COMMUNICATE THE GUARANTEE TO THE DEPOSITARY AND MUST DELIVER THE LETTER
OF TRANSMITTAL AND CERTIFICATES FOR SHARES TO THE DEPOSITARY WITHIN THE TIME
SHOWN HEREIN. FAILURE TO DO SO COULD RESULT IN A FINANCIAL LOSS TO SUCH
ELIGIBLE INSTITUTION.
THE DEPOSITARY FOR THE OFFER IS:
CHASEMELLON SHAREHOLDER SERVICES, LLC
<TABLE>
<S> <C> <C>
By Mail: By Overnight Courier: By Hand:
P.O. Box 3301 85 Challenger Road-Mail Drop-Reorg. 120 Broadway, 13th Floor
South Hackensack, N.J. 07606 Ridgefield Park, N.J. 07660 New York, N.Y. 10271
Attn: Reorganization Dept. Attn: Reorganization Dept. Attn: Reorganization Dept.
</TABLE>
Facsimile Transmissions (Eligible Institutions Only): (201) 296-4293
To Confirm Receipt of Facsimile Only: (201) 296-4860
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER
THAN AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA A
FACSIMILE NUMBER OTHER THAN THE ONE LISTED ABOVE WILL
NOT CONSTITUTE A VALID DELIVERY.
Ladies and Gentlemen:
The undersigned hereby tenders to MGM Grand, Inc., a Delaware corporation
(the "Company"), upon the terms and subject to the conditions set forth in the
Offer to Purchase, dated July 2, 1998 (the "Offer to Purchase"), and the
related Letter of Transmittal (which together constitute the "Offer"), receipt
of which is hereby acknowledged, the number of shares of common stock, par
value $.01 per share (the "Shares"), of the Company listed below, pursuant to
the guaranteed delivery procedure set forth in Section 3 of the Offer to
Purchase.
<TABLE>
<S> <C>
Number of Shares: SIGN HERE:
________________________________________________ ________________________________________________
CERTIFICATE NOS.: (IF AVAILABLE) NAME(S) (PLEASE PRINT)
<S> <C>
________________________________________________ ________________________________________________
________________________________________________ ________________________________________________
AREA CODE AND TELEPHONE NUMBER (ADDRESS)
<S> <C>
Account No. ____________________________________ ________________________________________________
at The Depository Trust Company SIGNATURE(S)
</TABLE>
<PAGE>
- ----------------------------------------------------------------------------
ODD LOTS
This section is to be completed ONLY if Shares are being tendered by or on
behalf of a person who owned beneficially, as of the close of business on
June 30, 1998, and who continues to own beneficially as of the Expiration
Date, an aggregate of fewer than 100 Shares.
The undersigned either (check one box):
[_] owned beneficially, as of the close of business on June 30, 1998 and
continues to own beneficially as of the Expiration Date, an aggregate of
fewer than 100 Shares, all of which are being tendered, or
[_] is a broker, dealer, commercial bank, trust company or other nominee that
(i) is tendering, for the beneficial owners thereof, Shares with respect
to which it is the record owner, and (ii) believes, based upon
representations made to it by each such beneficial owner, that such
beneficial owner owned beneficially, as of the close of business on June
30, 1998, and continues to own beneficially as of the Expiration Date, an
aggregate of fewer than 100 Shares and is tendering all of such Shares.
- ----------------------------------------------------------------------------
GUARANTEE (NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm that is a member of a registered national securities
exchange or the National Association of Securities Dealers, Inc. or a
commercial bank or trust company (not a savings bank or savings and loan
association) having an office, branch or agency in the United States hereby
guarantees (i) that the above-named person(s) has a net long position in the
Shares being tendered within the meaning of Rule 14e-4 promulgated under the
Securities Exchange Act of 1934, as amended, (ii) that such tender of Shares
complies with Rule 14e-4, and (iii) to deliver to the Depositary at one of its
addresses set forth above certificate(s) for the Shares tendered hereby, in
proper form for transfer, or a confirmation of the book-entry transfer of the
Shares tendered hereby into the Depositary's account at The Depository Trust
Company in each case together with a properly completed and duly executed
Letter(s) of Transmittal (or facsimile(s) thereof), with any required
signature guarantee(s) and any other required documents, all within three New
York Stock Exchange, Inc. trading days after the date hereof.
<TABLE>
<S> <C>
________________________________________________ ________________________________________________
NAME OF FIRM AUTHORIZED SIGNATURE
<S> <C>
________________________________________________ ________________________________________________
ADDRESS NAME
<S> <C>
________________________________________________ ________________________________________________
CITY, STATE, ZIP CODE TITLE
<S> <C>
Dated: ___________________________________, 1998 ________________________________________________
AREA CODE AND TELEPHONE NUMBER
</TABLE>
THIS FORM IS NOT TO BE USED TO GUARANTEE SIGNATURES. IF A SIGNATURE ON A
LETTER OF TRANSMITTAL IS REQUIRED TO BE GUARANTEED BY AN ELIGIBLE INSTITUTION
UNDER THE INSTRUCTIONS THERETO, SUCH SIGNATURE GUARANTEE MUST APPEAR IN THE
APPLICABLE SPACE PROVIDED IN THE SIGNATURE BOX ON THE LETTER OF TRANSMITTAL.
DO NOT SEND SHARE CERTIFICATES WITH THIS FORM. YOUR SHARE CERTIFICATES MUST
BE SENT WITH THE LETTER OF TRANSMITTAL.
2
<PAGE>
EXHIBIT (a)(4)
MERRILL LYNCH & CO.
WORLD FINANCIAL CENTER
NORTH TOWER
NEW YORK, NEW YORK 10281
OFFER TO PURCHASE FOR CASH
UP TO 6,000,000 SHARES OF COMMON STOCK
OF
MGM GRAND, INC.
AT
$35.00 NET PER SHARE
- -------------------------------------------------------------------------------
THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON FRIDAY, JULY 31, 1998, UNLESS EXTENDED.
- -------------------------------------------------------------------------------
To Brokers, Dealers, Commercial Banks,
Trust Companies and other Nominees:
We are enclosing the material listed below relating to the offer by MGM
Grand, Inc., a Delaware corporation (the "Company"), to purchase up to
6,000,000 shares of its Common Stock, par value $.01 per share (the "Shares")
at $35.00 per Share, net to the seller in cash, upon the terms and subject to
the conditions set forth in the Offer to Purchase dated July 2, 1998 and the
related Letter of Transmittal (which together constitute the "Offer").
We have been engaged by the Company to act as Dealer Manager with respect to
the Offer. We are asking you to contact your clients for whom you hold Shares
registered in your name (or in the name of your nominee) or who hold Shares
registered in their own names. Please bring the Offer to their attention as
promptly as possible. No fees or commissions will be payable to brokers,
dealers or other persons for soliciting tenders of Shares pursuant to the
Offer. The Company will, however, upon request, reimburse you for customary
mailing and handling expenses incurred by you in forwarding any of the
enclosed materials to your clients. The Company will pay all transfer taxes on
its purchase of Shares, subject to Instruction 6 of the Letter of Transmittal.
Enclosed herewith are copies of the following documents:
1. Offer to Purchase dated July 2, 1998;
2. Letter of Transmittal;
3. Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9;
4. Notice of Guaranteed Delivery;
5. Form of letter which may be sent to your clients for whose account you
hold Shares in your name or in the name of your nominee, with space
provided for obtaining such clients' instructions with regard to the Offer;
and
6. Return envelope addressed to the Depositary.
We urge you to contact your clients promptly. Please note that, unless
extended, the Offer, the proration period and withdrawal rights will expire at
5:00 p.m., New York City time, on Friday, July 31, 1998.
The Offer is not being made to, nor will tenders be accepted from, or on
behalf of, holders of Shares residing in any jurisdiction in which the making
or acceptance thereof would not be in compliance with the laws of such
jurisdiction.
As described in the Offer to Purchase, if more than 6,000,000 Shares have
been validly tendered and not withdrawn prior to the Expiration Date, as
defined in Section 1 of the Offer to Purchase, the Company will accept Shares
for purchase in the following order of priority: (i) all Shares validly
tendered and not withdrawn prior to the Expiration Date by any stockholder who
owned beneficially, as of the close of business on June 30, 1998, and who
continues to own beneficially as of the Expiration Date, an aggregate of fewer
than 100 Shares and who validly tenders all of such Shares (partial tenders
will not qualify for this preference) and completes the box captioned "Odd
Lots" in the Letter of Transmittal and, if applicable, the Notice of
Guaranteed Delivery; and (ii) after purchase of all of the foregoing Shares,
all other Shares validly tendered and not withdrawn prior to the Expiration
Date on a pro rata basis.
<PAGE>
THE BOARD OF DIRECTORS OF THE COMPANY HAS APPROVED THE OFFER. HOWEVER,
STOCKHOLDERS MUST MAKE THEIR OWN DECISIONS WHETHER TO TENDER SHARES AND, IF
SO, HOW MANY SHARES TO TENDER. NEITHER THE COMPANY NOR ITS BOARD OF DIRECTORS
MAKES ANY RECOMMENDATION TO ANY STOCKHOLDER AS TO WHETHER TO TENDER OR REFRAIN
FROM TENDERING SHARES. THE COMPANY HAS BEEN ADVISED THAT NONE OF ITS
DIRECTORS, SENIOR EXECUTIVE OFFICERS OR PRINCIPAL STOCKHOLDER INTENDS TO
TENDER ANY SHARES PURSUANT TO THE OFFER.
Additional copies of the enclosed material may be obtained from the
undersigned or the Information Agent. Any questions you may have with respect
to the Offer should be directed to the Information Agent or the undersigned at
their respective addresses and telephone numbers set forth on the back cover
of the enclosed Offer to Purchase.
Very truly yours,
Merrill Lynch & Co.
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU
AS THE AGENT OF THE COMPANY, THE DEALER MANAGER, THE INFORMATION AGENT OR THE
DEPOSITARY, OR AUTHORIZE YOU TO USE ANY DOCUMENT OR MAKE ANY STATEMENT ON
THEIR BEHALF IN CONNECTION WITH THE OFFER OTHER THAN THE DOCUMENTS ENCLOSED
HEREWITH AND THE STATEMENTS CONTAINED THEREIN.
2
<PAGE>
EXHIBIT (a)(5)
OFFER TO PURCHASE FOR CASH
UP TO 6,000,000 SHARES OF COMMON STOCK
OF
MGM GRAND, INC.
AT
$35.00 NET PER SHARE
- --------------------------------------------------------------------------------
THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00
P.M., NEW YORK CITY TIME, ON FRIDAY, JULY 31, 1998, UNLESS EXTENDED.
- --------------------------------------------------------------------------------
To Our Clients:
Enclosed for your consideration is an Offer to Purchase dated July 2, 1998
and the related Letter of Transmittal (which together constitute the "Offer")
relating to an offer by MGM Grand, Inc., a Delaware corporation (the
"Company"), to purchase up to 6,000,000 shares of its Common Stock, par value
$.01 per share (the "Shares"). We are the holder of record of Shares held by
us for your account. A tender of any such Shares can be made only by us as the
holder of record and pursuant to your instructions. THE LETTER OF TRANSMITTAL
IS FURNISHED TO YOU FOR YOUR INFORMATION ONLY AND CANNOT BE USED BY YOU TO
TENDER SHARES HELD BY US FOR YOUR ACCOUNT.
We request instructions as to whether you wish to tender any or all such
shares held by us for your account, pursuant to the terms and conditions set
forth in the Offer.
Your attention is invited to the following:
1. The tender price is $35.00 per Share, net to you in cash.
2. The Offer is being made for up to 6,000,000 Shares. The Company
reserves the right to purchase additional shares of Common Stock in the
Offer.
3. The Offer is not conditioned upon any minimum number of shares of
Common Stock being tendered.
4. Tendering stockholders will not be obligated to pay brokerage fees or
commission or, subject to Instruction 6 of the Letter of Transmittal,
transfer taxes in connection with the purchase of Shares by the Company.
5. As described in the Offer to Purchase, if more than 6,000,000 Shares
have been validly tendered and not withdrawn prior to the Expiration Date,
as defined in Section 1 of the Offer to Purchase, the Company will accept
Shares for purchase in the following order of priority: (i) all Shares
validly tendered and not withdrawn prior to the Expiration Date by any
stockholder who owned beneficially, as of the close of business on June 30,
1998, and who continues to own beneficially as of the Expiration Date, an
aggregate of fewer than 100 Shares and who validly tenders all of such
Shares (partial tenders will not qualify for this preference) and completes
the box captioned "Odd Lots" in the Letter of Transmittal and, if
applicable, the Notice of Guaranteed Delivery; and (ii) after purchase of
all of the foregoing Shares, all other Shares validly tendered and not
withdrawn prior to the Expiration Date on a pro rata basis.
6. In the event that proration of tendered Shares is required, because of
the difficulty of determining the precise number of Shares properly
tendered (due in part to the guaranteed delivery procedure described in the
Offer), the Company does not expect to be able to announce the final
results of such proration or pay for any Shares which are accepted for
payment until approximately seven business days after the Expiration Date.
Preliminary results of proration will be announced by a press release as
soon as practicable after the Expiration Date. Holders of Shares may obtain
preliminary information from the Dealer Manager or the Information Agent
and may be able to obtain such information from their brokers.
<PAGE>
7. The Offer proration period and withdrawal rights will expire at 5:00
p.m., New York City time, on Friday, July 31, 1998, unless extended.
Accordingly, your instructions should be forwarded to us in ample time to
permit us to submit a tender on your behalf by the Expiration Date.
If you wish to have us tender any or all of your Shares, please so instruct
us by completing, executing and returning to us the instruction form set forth
below. An envelope to return your instructions to us is enclosed.
The Offer is not being made to, nor will tenders be accepted from, or on
behalf of, holders of Shares residing in any jurisdiction in which the making
or acceptance thereof would not be in compliance with the laws of such
jurisdiction.
INSTRUCTIONS
The undersigned acknowledges receipt of your letter enclosing the Offer to
Purchase dated July 2, 1998 of MGM Grand, Inc. and the related Letter of
Transmittal, relating to shares of its Common stock, par value $.01 per share
(the "Shares").
This will instruct you to tender the number of Shares indicated below held
by you for the account of the undersigned, pursuant to the terms and
conditions set forth in the Offer to Purchase and the related Letter of
Transmittal.
DATED: , 1998
---------
_____________________________________
_____________________________________
SIGNATURE(S)
_____________________________________
(PLEASE PRINT NAME(S) AND
ADDRESS(ES) HERE)
_____________________________________
_____________________________________
--------------------------------
Number of Shares of Common Stock
to Be Tendered*
------------------
*Unless otherwise indicated, it
will be assumed that all your
shares are to be tendered.
Account No.
-----------------
--------------------------------
2
<PAGE>
EXHIBIT (a)(6)
[LETTERHEAD OF MGM GRAND, INC.]
FOR IMMEDIATE RELEASE CONTACT: James J. Murren
- --------------------- Chief Financial Officer
(702) 891-3344
MGM GRAND, INC. ANNOUNCES $35 PER SHARE CASH TENDER OFFER FOR
-------------------------------------------------------------
UP TO 6 MILLION SHARES AS PART OF A 12 MILLION SHARE STOCK
----------------------------------------------------------
REPURCHASE PROGRAM
------------------
LAS VEGAS, NEVADA, June 23, 1998 - MGM Grand, Inc. (NYSE.MGG) announced today
that its Board of Directors has authorized the Company to purchase up to
12,000,000 shares of its common stock, representing approximately 20% of the
outstanding shares. The Board authorized the acquisition of up to 6,000,000
shares through a $35.00 per share cash tender offer, which would be the first
step of the 12,000,000 share repurchase program. The offer is expected to
commence on Thursday, July 2, 1998 and to expire at midnight, New York City
time, Friday, July 31, 1998, unless extended by MGM Grand. On March 31, 1998,
MGM Grand had 58,000,280 shares outstanding. The New York Stock Exchange closing
price for MGM Grand stock on June 22, 1998 was $26 5/8 per share.
MGM Grand will finance the repurchase program, including the tender offer,
through available cash, cash flow from operations and, to the extent necessary,
existing credit facilities.
It is anticipated that, depending on market conditions, the remaining 6,000,000
shares in the repurchase program would be acquired through an additional tender
offer or offers.
The tender offer will be subject to various terms and conditions described in
the offering materials to be distributed to MGM Grand's stockholders. Under the
terms of the tender offer, MGM Grand's stockholders will be given the
opportunity to sell up to 6,000,000 shares of MGM Grand, Inc. common stock at
$35.00 per share.
If more than 6,000,000 shares are tendered, and MGM Grand does not elect to
acquire such additional shares, there will be a proration. The tender offer will
not be contingent upon any minimum number of shares being tendered.
The Board of Directors of MGM Grand is not making any recommendation to
stockholders as to whether or not they should tender any shares pursuant to the
offer. MGM Grand has been informed that none of its directors or senior
executive officers nor Tracinda Corporation, the Company's principal
stockholder, intends to tender any shares pursuant to the tender offer.
<PAGE>
MGM Grand concurrently announced that hotel occupancy, casino volume and
customer counts remain strong at MGM Grand Las Vegas-"The City of
Entertainment". Second quarter hotel occupancy has been in the high 90%'s, above
last year, and 99% thus far in June. Table game drop is up year to date and in
the second quarter, while slot handle is flat year to year.
The Company anticipates that lower than average table games hold percentage at
MGM Grand Las Vegas will result in second quarter earnings in a range of $0.25
to $0.30 per share. The table game hold percentage is expected to be in the low
teens compared with an historical average of approximately 20%. This lower hold
percentage obscures the material improvements at the flagship property as it is
transformed into the City of Entertainment.
Terry Lanni, Chairman and Chief Executive Officer, said: "Our volumes remain
strong and above citywide averages, underpinning our business momentum as we
have dramatically upgraded our flagship property and added our state-of-the-art
conference center and pool complex. Further enhancements include our soon to be
completed luxury spa and our MGM Grand Mansion due to open in February 1999."
Alex Yemenidjian, President and Chief Operating Officer, said: "Our Board of
Directors concluded that, in light of MGM Grand's strong financial position,
investing in the Company's own stock represents a high return on investment and
an efficient way of providing value to our stockholders. Our balance sheet
affords us ample room to reinvest in our company while executing our aggressive
growth strategy. Share repurchases further reduce our already low cost of
capital and increase the returns to our shareholders."
###
MGM Grand, Inc. is an entertainment, hotel and gaming company headquartered in
Las Vegas, Nevada. The Company owns and operates the MGM Grand Hotel/Casino in
Las Vegas, the MGM Grand Hotel/Casino in Darwin, Australia, owns a 50% interest
in New York-New York Hotel and Casino in Las Vegas and manages casinos in South
Africa. The Company is also planning to construct destination hotel/casino
resorts in Atlantic City, New Jersey and Detroit, Michigan.
Statements in this release which are not historical facts are "forward looking"
statements and "safe harbor statements" under the Private Securities Litigation
Reform Act of 1995 that involve risks and/or uncertainties as described in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1997.
<PAGE>
EXHIBIT (a)(7)
This announcement is neither an offer to purchase nor a solicitation of an
offer to sell Shares. The Offer is made solely by the Offer to Purchase, dated
July 2, 1998, and the related Letter of Transmittal. Capitalized terms not
defined in this announcement have the respective meanings ascribed to such
terms in the Offer to Purchase. The Offer is not being made to, nor will the
Company accept tenders from, holders of Shares in any jurisdiction in which
the Offer or its acceptance would violate that jurisdiction's laws. The
Company is not aware of any jurisdiction in which the making of the Offer or
the tender of Shares would not be in compliance with the laws of such
jurisdiction. In jurisdictions whose laws require that the Offer be made by a
licensed broker or dealer, the Offer shall be deemed to be made on the
Company's behalf by Merrill Lynch & Co., or by one or more registered brokers
or dealers licensed under the laws of such jurisdiction.
NOTICE OF OFFER TO PURCHASE FOR CASH BY
MGM GRAND, INC.
UP TO 6,000,000 SHARES OF ITS COMMON STOCK
AT A PURCHASE PRICE OF $35.00 PER SHARE
MGM Grand, Inc., a Delaware corporation (the "Company"), invites its
stockholders to tender up to 6,000,000 shares of its common stock, par value
$.01 per share (the "Shares"), to the Company at $35.00 per Share, net to the
seller in cash (the "Purchase Price"), upon the terms and subject to the
conditions set forth in the Offer to Purchase dated July 2, 1998 (the "Offer
to Purchase"), and the related Letter of Transmittal (which together
constitute the "Offer"). The Offer is not conditioned on any minimum number of
Shares being tendered. The Offer is, however, subject to certain other
conditions set forth in the Offer to Purchase.
- -------------------------------------------------------------------------------
THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON FRIDAY, JULY 31, 1998, UNLESS THE OFFER IS EXTENDED.
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS OF THE COMPANY HAS APPROVED THE OFFER. HOWEVER,
STOCKHOLDERS MUST MAKE THEIR OWN DECISIONS WHETHER TO TENDER SHARES AND, IF
SO, HOW MANY SHARES TO TENDER. NEITHER THE COMPANY NOR ITS BOARD OF DIRECTORS
MAKES ANY RECOMMENDATION TO ANY STOCKHOLDER AS TO WHETHER TO TENDER OR REFRAIN
FROM TENDERING SHARES. THE COMPANY HAS BEEN ADVISED THAT NONE OF ITS
DIRECTORS, SENIOR EXECUTIVE OFFICERS OR PRINCIPAL STOCKHOLDER INTENDS TO
TENDER ANY SHARES PURSUANT TO THE OFFER.
The Company will pay the Purchase Price for all Shares validly tendered
prior to the Expiration Date (as defined below) and not withdrawn, upon the
terms and subject to the conditions of the Offer, including the proration
terms described below. The term "Expiration Date" means 5:00 P.M., New York
City time, on Friday, July 31, 1998, unless and until the Company in its sole
discretion shall have extended the period of time during which the Offer is
open, in which event the term "Expiration Date" shall refer to the latest time
and date at which the Offer, as so extended by the Company, shall expire. The
Company reserves the right, in its sole discretion, to purchase more than
6,000,000 Shares pursuant to the Offer. For purposes of the Offer, the Company
will be deemed to have accepted for payment (and therefore purchased), subject
to proration, Shares that are validly tendered and not withdrawn when, as and
if it gives oral or written notice to ChaseMellon Stockholder Services, LLC
(the "Depositary") of its acceptance of such Shares for payment pursuant to
the Offer. In all cases, payment for Shares tendered and accepted for payment
pursuant to the Offer will be made promptly (subject to possible delay in the
event of proration) but only after timely receipt by the Depositary of
certificates for such Shares (or a timely confirmation of a book-entry
transfer of such Shares into the Depositary's account at The Depository Trust
Company (the "Book-Entry Transfer Facility")), a properly completed and duly
executed Letter of Transmittal (or manually signed facsimile thereof) and any
other required documents.
Upon the terms and subject to the conditions of the Offer, in the event that
prior to the Expiration Date more than 6,000,000 Shares (or such greater
number of Shares as the Company may elect to purchase pursuant to the Offer)
are validly tendered and not withdrawn, the Company will purchase such validly
tendered Shares in the following order of priority: (i) all Shares validly
tendered and not withdrawn prior to the Expiration Date by any Odd Lot Owner
who tenders all such Shares beneficially owned by such Odd Lot Owner (partial
tenders will not qualify for this preference) and who completes the box
captioned "Odd Lots" on the Letter of Transmittal and, if applicable, on the
Notice of Guaranteed Delivery, and (ii) after purchase of all of the foregoing
Shares, all other Shares validly tendered and not withdrawn on a pro rata
basis.
<PAGE>
The Company is making the Offer because it believes: (i) the Shares to be
significantly undervalued in the public market; (ii) in light of the Company's
strong financial position and excess cash balances due to slower than expected
expenditures related to the Atlantic City and Detroit developments, investing
in the Company's Shares represents an attractive use of the Company's capital
and an efficient way to provide value to the Company's stockholders; and
(iii) the Offer will afford to those stockholders who desire liquidity an
opportunity to sell all or a portion of their Shares without the usual
transaction costs associated with open market sales. After the Offer is
completed, the Company expects to have sufficient cash flow and access to
other sources of capital to fund its operations and capital projects,
including the ongoing transformation of the MGM Grand Hotel/Casino in Las
Vegas, Nevada into the City of Entertainment and the proposed hotel/casino
developments in Atlantic City, New Jersey and Detroit, Michigan.
The Company expressly reserves the right, at any time or from time to time,
in its sole discretion, to extend the period of time during which the Offer is
open by giving notice of such extension to the Depositary and making a public
announcement thereof. Subject to certain conditions set forth in the Offer to
Purchase, the Company also expressly reserves the right to terminate the Offer
and not accept for payment any Shares not theretofore accepted for payment.
Shares tendered pursuant to the Offer may be withdrawn at any time before
the Expiration Date and, unless accepted for payment by the Company as
provided in the Offer to Purchase, may also be withdrawn after 12:00 Midnight,
New York City time, on Thursday, August 27, 1998. For a withdrawal to be
effective, the Depositary must receive a notice of withdrawal in written,
telegraphic or facsimile transmission form on a timely basis. Such notice of
withdrawal must specify the name of the person who tendered the Shares to be
withdrawn, the number of Shares tendered, the number of Shares to be withdrawn
and the name of the registered holder, if different from that of the person
who tendered such Shares. If the certificates have been delivered or otherwise
identified to the Depositary, then, prior to the release of such certificates,
the tendering stockholder must also submit the serial numbers shown on the
particular certificates evidencing the Shares and the signature on the notice
of withdrawal must be guaranteed by an Eligible Institution (except in the
case of Shares tendered by an Eligible Institution). If Shares have been
tendered pursuant to the procedure for book-entry transfer, the notice of
withdrawal must specify the name and the number of the account at the Book-
Entry Transfer Facility to be credited with the withdrawn Shares and otherwise
comply with the procedures of such facility.
THE OFFER TO PURCHASE AND THE LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION WHICH SHOULD BE READ CAREFULLY BEFORE STOCKHOLDERS DECIDE WHETHER
TO ACCEPT OR REJECT THE OFFER. These materials are being mailed to record
holders of Shares and are being furnished to brokers, banks and similar
persons whose names, or the names of whose nominees, appear on the Company's
stockholder list or, if applicable, who are listed as participants in a
clearing agency's security position listing for transmittal to beneficial
owners of Shares.
The information required to be disclosed by Rule 13e-4(d)(1) under the
Securities Exchange Act of 1934, as amended, is contained in the Offer to
Purchase and is incorporated by reference herein.
Additional copies of the Offer to Purchase and the Letter of Transmittal may
be obtained from the Information Agent and will be furnished at the Company's
expense. Questions and requests for assistance may be directed to the
Information Agent as set forth below:
THE INFORMATION AGENT FOR THE OFFER IS:
CHASEMELLON SHAREHOLDER SERVICES
BANKS AND BROKERS CALL COLLECT: (212) 273-8080
ALL OTHERS CALL TOLL FREE: (800) 953-2497
THE DEPOSITARY FOR THE OFFER IS:
CHASEMELLON SHAREHOLDER SERVICES
P.O. BOX 3301
SOUTH HACKENSACK, NJ 07606
THE DEALER MANAGER FOR THE OFFER IS:
MERRILL LYNCH & CO.
WORLD FINANCIAL CENTER
NORTH TOWER
NEW YORK, NEW YORK 10281-1305
July 2, 1998 (212) 449-8971 (CALL COLLECT)
<PAGE>
EXHIBIT (a)(8)
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE PAYER.
Social security numbers have nine digits separated by two hyphens: i.e. 000-
00-0000. Employer identification numbers have nine digits separated by only
one hyphen: i.e. 00-0000000. The table below will help determine the number to
give the payer.
<TABLE>
- ---------------------------------------------
<CAPTION>
GIVE THE
FOR THIS TYPE OF ACCOUNT: SOCIAL SECURITY
NUMBER OF--
- ---------------------------------------------
<S> <C>
1. An individual's account The individual
2. Two or more individuals The actual owner
(joint account) of the account
or, if combined
funds, the first
individual on
the account(1)
3. Custodian account of a The minor(2)
minor (Uniform Gift to
Minors Act)
4.a. The usual revocable The grantor-
savings trust account trustee(1)
(grantor is also
trustee)
b. So-called trust The actual
account that is not a owner(1)
legal or valid trust
under State law
5. Sole proprietorship The owner(3)
account
- ----------------------------------------------
<CAPTION>
- ----------------------------------------------
GIVE THE EMPLOYER
FOR THIS TYPE OF ACCOUNT: IDENTIFICATION
NUMBER OF--
- ----------------------------------------------
<S> <C>
6. Sole proprietorship The owner
account
7. A valid trust, estate, The legal entity
or pension trust (Do not furnish
the identifying
number of the
personal
representative
or trustee
unless the legal
entity itself is
not designated
in the account
title.)(4)
8. Corporate account The corporation
9. Partnership account The partnership
held in the name of
the business
10. Association, club, The organization
religious, charitable,
or other tax-exempt
organization
11. A broker or registered The broker or
nominee nominee
12. Account with the The public
Department of entity
Agriculture in the
name of a public
entity (such as a
State or local
government, school
district, or prison)
that receives
agricultural program
payments
- ----------------------------------------------
</TABLE>
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Show the name of the owner. The name of the business or the "doing
business as" name may also be entered. Either the social security number
or the employer identification number may be used.
(4) List first and circle the name of the legal trust, estate, or pension
trust.
NOTE: If no name is circled when there is more than one name, the number will
be considered to be that of the first name listed.
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER OF SUBSTITUTE FORM W-9
PAGE 2
OBTAINING A NUMBER
If you don't have a taxpayer identification number ("TIN") or you don't know
your number, obtain Form SS-5, Application for a Social Security Number Card,
or Form SS-4, Application for Employer Identification Number, at the local
office of the Social Security Administration or the Internal Revenue Service
and apply for a number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on all dividend and
interest payments and on broker transactions include the following:
. A corporation.
. A financial institution.
. An organization exempt from tax under section 501(a), or an individual
retirement plan, or a custodian account under Section 403(b)(7).
. The United States or any agency or instrumentality thereof.
. A State, the District of Columbia, a possession of the United States, or
any subdivision or instrumentality thereof.
. A foreign government, a political subdivision of a foreign government, or
any agency or instrumentality thereof.
. An international organization or any agency, or instrumentality thereof.
. A registered dealer in securities or commodities registered in the U.S. or
a possession of the U.S.
. A real estate investment trust.
. A common trust fund operated by a bank under section 584(a).
. An exempt charitable remainder trust, or a non-exempt trust described in
section 4947(a)(1).
. An entity registered at all times under the Investment Company Act of 1940.
. A foreign central bank of issue.
Payments of dividends and patronage dividends not generally subject to backup
withholding including the following:
. Payments to nonresident aliens subject to withholding under section 1441.
. Payments to partnerships not engaged in a trade or business in the U.S. and
which have at least one nonresident partner.
. Payments of patronage dividends where the amount received is not paid in
money.
. Payments made by certain foreign organizations.
. Payments made to a nominee.
Payments of interest not generally subject to backup withholding include the
following:
. Payments of interest on obligations issued by individuals. Note: You may be
subject to backup withholding if this interest is $600 or more and is paid
in the course of the payer's trade or business and you have not provided
your correct taxpayer identification number to the payer.
. Payments of tax-exempt interest (including the exempt-interest dividends
under section 852).
. Payments described in section 6049(b)(5) to nonresident aliens.
. Payments on tax-free covenant bonds under section 1451.
. Payments made by certain foreign organizations.
. Payments described in section 6049(b)(6) to nonresident aliens.
. Payments of tax-exempt interest (including the exempt-interest dividends
under section 859).
. Payments described in section 6049(b)(7) to resident aliens.
. Payments on tax-free covenant bonds under section 1466.
. Payments made to a nominee.
Exempt payees described above should file the Substitute Form W-9 to avoid
possible erroneous backup withholding. Complete the Substitute Form W-9 as
follows:
ENTER YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ACROSS THE FACE OF
THE FORM, SIGN, DATE, AND RETURN THE FORM TO THE PAYER.
Certain payments other than interest, dividends, and patronage dividends that
are not subject to information reporting are also not subject to backup with-
holding. For details, see the sections 6041, 6041A(a), 6042, 6044, 6045, 6049,
6050A and 6050N and the regulations thereunder.
PRIVACY ACT NOTICE.--Section 6109 requires most recipients of dividend,
interest, or other payments to give taxpayer identification numbers to payers
who must report the payments to IRS. IRS uses the numbers for identification
purposes and to help verify the accuracy of tax reforms. Payers must be given
the numbers whether or not recipients are required to file tax returns. Payers
must generally withhold 31% of taxable interest, dividend, and certain other
payments to a payee who does not furnish a taxpayer identification number to a
payer. Certain penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you
fail to furnish your correct taxpayer identification number to a payer, you
are subject to a penalty of $50 for each such failure unless your failure is
due to reasonable cause and not to willful neglect.
(2) PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you make a
false statement with no reasonable basis which results in no imposition of
backup withholding, you are subject to a penalty of $500.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Willfully falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
(4) MISUSE OF TAXPAYER IDENTIFICATION NUMBERS.--If the payer discloses or uses
taxpayer identification numbers in violation of Federal law, the payer may be
subject to civil and criminal penalties.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE.
<PAGE>
EXHIBIT (g)(1)
FINANCIAL HIGHLIGHTS
(In thousands except share data)
<TABLE>
<CAPTION>
For the Years Ended 1997 1996 1995 1994 1993
December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET REVENUES $827,597 $800,189 $718,781 $739,676 $ 37,016
Operating profit before non-recurring
items and corporate expense 222,960 196,585 113,905 137,147 6,124
Operating income (loss) 190,970 129,294 103,823 129,715 (44,546)
Income (loss) before income taxes,
discontinued operations and
extraordinary item 180,301 99,151 46,565 73,540 (38,895)
Net income (loss) 111,018 43,706 46,565 74,576 (117,586)
BASIC EARNINGS (LOSS) PER SHARE:
Income (loss) before
discontinued operations and
extraordinary item $ 2.00 $ 1.41 $ 0.97 $ 1.53 $ (0.82)
Discontinued operations - - - 0.02 (1.65)
Extraordinary item - loss on
early extinguishment of debt,
net of income tax benefit (0.07) (0.58) - - -
-------------------------------------------------------------------------------------------
Net income (loss) per share $ 1.93 $ 0.83 $ 0.97 $ 1.55 $ (2.47)
-------------------------------------------------------------------------------------------
Weighted average number of shares 57,475,000 52,759,000 48,076,000 48,232,000 47,587,000
DILUTED EARNINGS (LOSS) PER SHARE:
Income (loss) before
discontinued operations and
extraordinary item $ 1.96 $ 1.38 $ 0.96 $ 1.50 $ (0.82)
Discontinued operations - - - 0.02 (1.65)
Extraordinary item - loss on
early extinguishment of debt,
net of income tax benefit (0.07) (0.57) - - -
-------------------------------------------------------------------------------------------
Net income (loss) per share $ 1.89 $ 0.81 $ 0.96 $ 1.52 $ (2.47)
-------------------------------------------------------------------------------------------
Weighted average number of shares 58,835,000 54,257,000 48,544,000 48,988,000 47,587,000
AT YEAR END
Total assets $ 1,398,374 $ 1,287,689 $ 1,282,222 $ 1,153,511 $ 1,160,123
Total debt 57,830 83,391 551,099 473,000 483,000
Stockholders' equity 1,101,622 973,382 584,548 529,379 481,755
Stockholders' equity per share $ 19.00 $ 16.82 $ 11.98 $ 11.05 $ 9.86
Number of shares at year end 57,985,000 57,884,000 48,775,000 47,925,000 48,845,000
</TABLE>
The selected financial data above includes information for New York-New York
which is 50% owned and commenced operations on January 3, 1997, MGM Grand Las
Vegas which commenced operations on December 18, 1993, MGM Australia, which was
acquired on September 7, 1995, and MGM Grand Air until December 31, 1994, when
the company was sold.
1
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The Company, through its wholly-owned subsidiaries, owns and operates MGM Grand
Hotel/Casino in Las Vegas, Nevada ("MGM Grand Las Vegas"), which commenced
operations on December 18, 1993, and MGM Grand Hotel/Casino in Darwin, Australia
("MGM Grand Australia"), which was acquired on September 7, 1995, and manages a
casino in Nelspruit, in the Mpumalanga Province of the Republic of South Africa,
which began operations on October 15, 1997 (see Notes 1 and 18). The Company
also owns a 50% interest in New York-New York Hotel and Casino, LLC ("NYNY
LLC"), which owns and operates New York-New York Hotel and Casino in Las Vegas,
Nevada ("NYNY"), which commenced operations on January 3, 1997 (see Note 1).
Additionally, the Company's wholly-owned subsidiaries, MGM Grand Detroit and MGM
Grand Atlantic City are in the development stage, with plans to construct
hotel/casino and entertainment facilities in Detroit, Michigan and Atlantic
City, New Jersey, respectively (see Note 1).
1997 COMPARED WITH 1996
Net revenues for the year ended December 31, 1997 were $827.6 million,
representing an increase of $27.4 million (3.4%) when compared with $800.2
million during the prior year. The increase in net revenues was largely due to
income from the Company's 50% ownership in NYNY (see Note 1) and higher food and
beverage revenues partially offset by decreased casino, room, entertainment,
retail and other revenues and increased promotional allowances.
Consolidated casino revenues for the year ended December 31, 1997 were $457.2
million, representing a decrease of $19.5 million (4.1%) when compared with
$476.7 million during the prior year. MGM Grand Las Vegas casino revenues were
$429.9 million, representing a decrease of $15.5 million (3.5%) when compared
with $445.4 million during 1996. The reduction in casino revenues at MGM Grand
Las Vegas was a result of lower table games win percentages despite an
increase in volume, partially offset by higher slot volume and win. MGM Grand
Australia reported casino revenues of $27.3 million, which decreased $4 million
(12.8%) when compared with $31.3 million during the prior year, primarily
attributable to lower baccarat volume and win partially offset by an increase in
slot volume and win along with the addition of Northern Territory Keno, a
territory-wide keno game in local pubs, hotels and clubs, which was not
operational in the prior year.
Consolidated room revenues for 1997 were $171.3 million compared with $174.4
million for 1996, representing a decrease of $3.1 million (1.8%). MGM Grand Las
Vegas room revenues were $169.3 million in 1997, representing a decrease of $3.1
million (1.8%) when compared with $172.4 million in the prior year. The decrease
was due to a lower occupancy of 94.5% for 1997 when compared with 94.7% in 1996,
as well as a lower average daily room rate for 1997 of $100 compared with $101
for 1996. MGM Grand Australia room revenues were $2.2 million for the year ended
December 31, 1997, representing an increase of $.1 million (4.8%) when compared
with $2.1 million for the prior year.
Consolidated food and beverage revenues for 1997 were $92.6 million,
representing an increase of $14.2 million (18.1%) when compared with $78.4
million for the prior year. The increase was attributable to MGM Grand Las
Vegas which had food and beverage revenues of $86.1 million during 1997,
representing an increase of $14.1 million (19.6%) when compared with $72 million
in 1996. This
2
<PAGE>
increase reflects the Company's decision to operate the previously leased Studio
Cafe coffee shop. MGM Grand Australia reported food and beverage revenues of
$6.6 million, representing an increase of $.1 million (1.5%) when compared with
$6.5 million during the prior year.
Consolidated entertainment, retail and other revenues decreased $10.4 million
(8.2%) from $126.9 million in 1996 to $116.5 million in 1997. The decrease was
attributable to MGM Grand Las Vegas which had lower theme park and midway/arcade
revenues due to the downsizing of the facilities. These decreases were
partially offset by increases in MGM Grand Garden Arena revenues and increased
revenues from the SkyScreamer thrill ride which opened in September 1996.
Income from unconsolidated affiliate was $53.8 million for the year ended
December 31, 1997, representing the Company's 50% share of NYNY's operating
income.
Consolidated operating expenses (before Master Plan asset disposition,
preopening and Corporate expense) for 1997 were $604.6 million, which were
consistent when compared with $603.6 million for 1996. The increase was
attributable to MGM Grand Las Vegas, offset by decreases at MGM Grand Australia.
The increases at MGM Grand Las Vegas were due primarily to increased casino,
food and beverage, advertising and depreciation expenses offset by lower
expenses related to EFX and midway/arcade operations. Additionally, the
provision for doubtful accounts and discounts decreased by $6.7 million at MGM
Grand Las Vegas as a result of reduced casino revenues, changes in anticipated
collectibility, and collections made on previously reserved receivable balances.
Management anticipates the impact from recent worldwide financial conditions,
particularly throughout Asia, although not currently measurable, will not have a
material adverse effect on the Company's future operations or its ability to
collect current receivables. MGM Grand Australia operating expenses decreased
$6.9 million (18.5%) from $37.3 million in 1996 to $30.4 million in 1997 as a
result of continuing cost containment efforts.
Consolidating operating profit (before Master Plan asset disposition, preopening
and corporate expense) was $223 million for the year ended December 31, 1997,
reflecting an increase of $26.4 million (13.4%) over 1996 of $196.6 million. The
increase was primarily attributable to the Company's 50% share of NYNY's
operating income and higher operating profit at MGM Grand Australia offset by
lower operating profit at MGM Las Vegas.
Master Plan asset disposition relates to the write-off of various assets related
to the transformation of MGM Grand Las Vegas into "The City of Entertainment."
The prior year charge of $49.4 million (pre-tax) was recognized when the plan
was announced, and the current year charge of $28.6 million (pre-tax) resulted
from the increase in the transformation scope from $250 million to over $700
million (see Note 15).
Corporate expense decreased from $10 million in 1996 to $3.4 million in 1997,
primarily due to the reversal of $5.9 million in previously expensed stock price
guarantee amortization under the agreement with Don King Productions (see Note
11).
Interest income of $1.3 million for the year ended December 31, 1997 decreased
by $2.9 million from $4.2 million in 1996. The decrease was attributable to
lower invested cash balances at MGM Grand Las Vegas during 1997.
Interest expense for the year ended December 31, 1997 of $1.2 million (net of
amounts capitalized) decreased by $32.6 million when compared with $33.8 million
in 1996. The decrease in 1997 was primarily due to the defeasance of the MGM
Grand Hotel Finance Corp. First Mortgage Notes ("FMN") (see Note 9) in the prior
year, along with greater capitalization of interest in the current year from
continuing construction and development projects. Also, the Company recognized
interest expense from its unconsolidated affiliate of $9.9 million during 1997,
which had been capitalized in the prior year as a result of the NYNY
construction project.
3
<PAGE>
Income tax provision of $65 million has been recorded at a rate of 36.1% for the
year ended December 31, 1997, compared with $24.6 million in 1996 at a rate of
24.8%. The 1996 rate was lower than 1997, reflecting no provision in the first
quarter of 1996. During 1996, the Company determined that it was more likely
than not that it would fully realize its deferred tax assets.
Extraordinary loss of $4.2 million, net of income tax benefit, reflects the
write-off of unamortized debt costs from the previous $600 million credit
facility (see Note 9) in 1997. The extraordinary loss of $30.8 million, net of
income tax benefit, in the prior year represented the loss on defeasance of the
FMN (see Note 9).
1996 COMPARED WITH 1995
Consolidated net revenues for the year ended December 31, 1996, were $800.2
million, representing an increase of $81.4 million (11.3%) when compared with
$718.8 million for 1995. MGM Grand Las Vegas accounted for a majority of the
improved 1996 revenues with growth in every revenue segment over the prior year,
excluding food and beverage, which was a result of the Company's 1995
restructuring plan that included the conversion of three Company operated
restaurants into leased facilities (see Note 16). MGM Grand Australia revenues
for the year ended December 31, 1996 were significantly higher than the prior
year due to a full year operating period in 1996, compared with an abbreviated
1995 operating period from the acquisition of the property on September 7, 1995
through December 31, 1995 (see Note 18). Promotional allowances remained
consistent between years, reflecting management's focus on diversifying its
customer mix.
Consolidated casino revenues were $476.7 million for the year ended December 31,
1996, reflecting an increase of $75 million (18.7%) compared with $401.7 million
for the prior year. MGM Grand Las Vegas primarily accounted for the increase,
where casino revenues of $445.4 million were $51.1 million (13%) above the prior
year of $394.3 million, reflecting improved win and win percentages in table
games, baccarat and slots. MGM Grand Australia casino revenues were $31.3
million for 1996, reflecting a significant increase of $24 million above the
prior year due to the shortened operating period in 1995 from the acquisition on
September 7, 1995 (see Note 18).
Consolidated room revenues were $174.4 million for 1996, reflecting an increase
of $13.9 million (8.7%) above the prior year of $160.5 million. MGM Grand Las
Vegas reported room revenues of $172.4 million for 1996, which were $12.3
million (7.7%) above the prior year of $160.1 million. This increase reflected
higher occupancy and average daily room rate of 94.7% and $101, respectively,
when compared with 90.6% and $98 for the prior year. MGM Grand Australia
reported room revenues for 1996 of $2.1 million, which were above the prior year
by $1.5 million, reflecting the shortened 1995 operating period.
Consolidated food and beverage revenues of $78.4 million for the year ended
December 31, 1996 were $10.9 million (12.2%) below the prior year of $89.3
million. MGM Grand Las Vegas accounted for the reduction, where revenues of $72
million for the 1996 year were $15.4 million (17.6%) below the prior year of
$87.4 million, reflecting the effect of the conversion of three Company operated
restaurants to tenancies during the last half of 1995. MGM Grand Australia
revenues of $6.5 million for the year ended December 31, 1996 were above the
1995 year by $4.4 million, reflecting the shortened prior year operating period.
4
<PAGE>
Consolidated entertainment, retail and other revenues for 1996 were $126.9
million, representing an increase of $3.6 million (2.9%) above the prior year of
$123.3 million. The increase was attributable to MGM Grand Las Vegas,
reflecting a full year of operations for the EFX production show (which opened
during March 1995) and the Star Lane Shops retail mall (which opened during
September 1995), as well as higher rental income from added restaurant and
retail tenancies. Additionally, the MGM Grand Garden arena revenues for 1996
were higher than 1995, reflecting the increased number of entertainment events
held. Such improvements were partially offset by reduced revenues at the theme
park due to decreased overall attendance for the year and lower average ticket
prices, and lower midway/arcade revenues in 1996 which reflects the relocation
of the midway/arcade to a smaller facility.
Consolidated operating expenses (before Master Plan Asset disposition,
preopening and Corporate expense) of $603.6 million for the year ended December
31, 1996 decreased $1.3 million (0.2%) when compared with the prior year of
$604.9 million. MGM Grand Las Vegas operating expenses for 1996 were $570.9
million, or $25.2 million (4.2%) below the prior year of $596.1 million.
Operating expenses as a percentage of net revenues were reduced from 84.2% in
1995 to 75.4% in 1996. This reduction was primarily attributable to the
continued cost containment efforts at MGM Grand Las Vegas, lower food and
beverage expenses in 1996 due to the conversion of three of the Company operated
restaurants to tenancies as part of the prior year restructuring plan, and a
lower provision for doubtful accounts and discounts reflecting changes in
anticipated collectibility and payments on fully reserved casino receivables.
Additionally, 1995 contained a one-time charge of $5.9 million related to the
restructuring program. Such decreases were partially offset by higher casino
operating costs for gaming taxes (based upon the improved gaming revenues) and
increased marketing programs, increased room expenses due to the higher average
occupancy throughout the 1996 year, and higher depreciation and amortization
expense as a result of additional property and equipment placed in service
during 1996. MGM Grand Australia operating expenses were $37.4 million for the
year ended December 31, 1996, representing a $28.7 million increase above the
prior year of $8.7 million as a result of the abbreviated 1995 operating period.
Consolidated operating profit (before Master Plan asset disposition, preopening
and Corporate expense) was $196.6 million for the year ended December 31, 1996,
reflecting an increase of $82.7 million (72.6%) over $113.9 million for 1995.
The increase was primarily attributable to MGM Grand Las Vegas, where continued
operating efficiencies and the impact of the 1995 restructuring plan boosted
operating profit (before Master Plan asset disposition) to $195.6 million,
representing an increase of $82 million (72.2%) over $113.6 million in 1995. MGM
Grand Australia had operating income of $1.3 million for the 1996 period,
representing an increase when compared with the prior year operating income of
$. 9 million, reflecting the property acquisition on September 7, 1995 and the
subsequent construction and remodeling program which was completed in June 1996.
Master Plan asset disposition represented the write-off of various assets as a
result of the transformation of MGM Grand Las Vegas into "The City of
Entertainment," which resulted in a pre-tax charge of $49.4 million in the 1996
period (see Note 15).
Preopening and other - unconsolidated affiliate represented the Company's 50%
share of NYNY preopening expenses, which included direct salaries, marketing and
other costs incurred during the period prior to the hotel/casino being
substantially complete. NYNY commenced operations on January 3, 1997 (see Note
1).
5
<PAGE>
Interest income and other was $3.6 million for the year ended December 31, 1996,
reflecting an increase of $1.5 million (71.4%) from $2.1 million in 1995. The
increase was attributable to higher average invested cash balances at MGM Grand
Las Vegas in the first half of the 1996 year (prior to the defeasance of the
FMN-see Note 9), reflecting higher operating cash flow when compared with the
prior year.
Interest expense (net of amounts capitalized) for the year ended December 31,
1996 was $33.8 million, reflecting a decrease of $25.5 million (43%) when
compared with $59.3 million for 1995. The significant decrease resulted from a
combination of the defeasance of the FMN (see Note 9) and increased
capitalization of interest expense during 1996 related to various new and
ongoing construction projects, including the MGM Grand Las Vegas Master Plan,
MGM Grand Atlantic City land acquisition and pre-construction activities, and
the NYNY construction project. The reduction in interest expense was partially
offset by the effect of the MGM Grand Australia bank loan which was outstanding
for the entire 1996 year, compared with the period from the acquisition on
September 7, 1995 to December 31, 1995.
The Company recorded an income tax provision of $24.6 million at a rate of 24.8%
for the year ended December 31, 1996, compared with the prior year period when
there was no provision due to the benefit resulting from the reduction of the
valuation allowance (see Note 17).
The Company recorded an extraordinary loss of $30.8 million, net of income tax
benefit of $17.7 million reflecting the defeasance of the FMN (see Note 9).
IMPACT OF THE YEAR 2000 ISSUE
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year, which may result in
systems failures and disruptions to operations at January 1, 2000. During 1996,
the Company established a remediation plan and a timetable to complete this
plan. The Company has incurred immaterial costs during 1996 and 1997 to modify
its existing computer systems and applications. All available Year 2000
compliant systems have been obtained and tested by the Company, excluding
certain systems that are non-critical to operations, which are scheduled to be
upgraded during 1998. For those Year 2000 systems which are still in the
developmental stage, the Company has initiated formal communications with its
suppliers to determine the timing of the necessary upgrades and the extent to
which the Company is vulnerable to those third parties' failure to remediate
their own Year 2000 Issue. The Company does not anticipate any material costs
in the future relating to the Year 2000 Issue.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1997 and 1996, the Company held cash and cash equivalents of
$34.6 million and $61.4 million, respectively. Cash provided by operating
activities for 1997 was $184 million, compared with $245.2 million for 1996.
On May 6, 1996, MGM Grand Las Vegas announced details of a 30-month, $250
million Master Plan designed to transform the facility into "The City of
Entertainment." The Master Plan, which on June 3, 1997 was enhanced and
increased to more than $700 million, calls for a new 1,500-room "Marriott
Marquis"; expansion of the resort's casino capacity by nearly 20% to more than
200,000 square feet; a new "Mansion at the MGM Grand" offering 30 exclusive
suites and villas; a new 380,000 square foot state-of-the-art conference center;
a new 6.6 acre pool and spa complex; significantly expanded and
6
<PAGE>
improved parking facilities; and an approximately 50-foot tall new polished
bronze lion sculpture on a 25-foot pedestal, which is the resort's signature
lion, adjoining a re-themed entertainment casino that includes a Rainforest Cafe
and Studio 54 nightclub. The Company also announced that by the year 2000, it
plans to begin construction of a 500-room Ritz-Carlton Hotel at MGM Grand Las
Vegas.
During the year ended December 31, 1997, capital expenditures totaled $227.8
million, consisting of $174.1 million related to the Master Plan project and
$35.3 million related to general property and equipment improvements at MGM
Grand Las Vegas. These improvements included new rooftop signage as well as the
recarpeting of the casino areas. MGM Grand Australia expended $1.9 million for
general property and equipment improvements. MGM Grand Atlantic City continued
the development of its planned new destination resort by expending $16.5 million
for land acquisitions and pre-construction activities.
The Company made a capital contribution of $7 million to NYNY LLC during 1997.
As a lender requirement for the project financing, both the Company and its
joint venture partner, Primadonna Resorts, Inc. ("Primadonna") were required to
enter into a joint and several Keep-Well Agreement (see Note 9). The Company
also received $15.2 million in distributions from NYNY LLC during 1997 to pay
taxes on its allocated share of income.
During the year ended December 31, 1996, the Company utilized operating cash
flow to fund capital expenditures of $84.8 million, including $16.1 million
related to the Master Plan project and $25.7 million for general property
enhancements and expansions at MGM Grand Las Vegas. Such property improvements
included suite and restaurant remodeling (Gatsby's and Brown Derby), various new
property signage, the acquisition of two land parcels, and the new "SkyScreamer"
thrill ride theme park attraction.
MGM Grand Australia expended $13.1 million related to its renovation program
which was completed on June 5, 1996, and which included substantive improvements
throughout the property, such as enhanced guest accommodations, casino and
restaurant remodels, and other upgrades to public areas. MGM Grand Atlantic
City commenced the assemblage of acreage for its new destination resort by
expending $29.7 million for land acquisitions and pre-construction activities.
Also during 1996, the Company contributed additional capital investment of $22.5
million to the NYNY project (see Note 9).
Capital expenditures are expected to significantly increase in 1998 to
approximately $616.1 million as a result of the continuing transformation of MGM
Grand Las Vegas into "The City of Entertainment," as well as the Company's
development of premier, emotionally engaging destination resorts in Detroit and
Atlantic City. MGM Grand Las Vegas expenditures for 1998 are expected to be
approximately $444.3 million, consisting of $391.3 million related to the Master
Plan project, and approximately $53 million for general property improvements
including room refurbishments. MGM Grand Australia plans to expend
approximately $2 million for general property and equipment improvements.
Approximately $169.7 million is anticipated to be expended for land acquisition
and pre-construction activities relating to the Company's planned development of
hotel/casino and entertainment facilities, including $154 million for the MGM
Grand Detroit project and $15.7 million for the MGM Grand Atlantic City project.
On July 1, 1996, the Company secured a $500 million Senior Reducing Revolving
Credit Facility with BA Securities (the "Facility"), an affiliate of Bank of
America NT&SA. In August 1996, the Facility was increased to $600 million. In
July 1997, the Facility was amended, extended and increased to $1.25 billion
(the "New Facility"), with provisions to allow an increase of the New Facility
to $1.5 billion as well as to allow additional pari passu debt financing up to
$500 million. As a result of the New Facility,
7
<PAGE>
the Company recognized an extraordinary loss of approximately $4.2 million, net
of tax benefits, due to the write-off of unamortized debt costs from the
Facility during 1997. The New Facility contains various restrictive covenants on
the Company which include the maintenance of certain financial ratios and
limitations on additional debt, dividends, capital expenditures and disposition
of assets. The New Facility also restricts certain acquisitions and similar
transactions. Interest on the New Facility is based on the bank reference rate
or Eurodollar rate, and as of December 31, 1997, the Company's borrowing rate
was approximately 6.1%. The New Facility matures in December 2002, with the
opportunity to extend the maturity for successive one year periods. During 1997,
$15 million was drawn down and repaid against the Facility, $10.5 million was
drawn down and repaid against the New Facility, and no amounts remained
outstanding under the New Facility as of December 31, 1997.
During July 1997, the Company filed a Shelf Registration Statement with the
Securities and Exchange Commission which became effective on August 4, 1997,
allowing the Company to issue up to $600 million of debt and/or equity
securities. On February 2 and February 6, 1998, the Company completed public
offerings totaling $500 million of Senior Collateralized Notes in tranches of 7
and 10 years. The 7-year tranche of $300 million carries a coupon of 6.95%,
while the 10-year tranche of $200 million carries a coupon of 6.875% (see Note
9). The Company received net proceeds of approximately $294.1 million and
$197.1 million on the 7-year and 10-year tranches, respectively, after the
underwriters' discount and issuance costs.
On July 2, 1996, the Company completed a public offering (the "Offering") of 8.6
million shares of common stock (including an underwriters' over allotment option
to purchase 1.1 million shares of common stock). Based upon the Offering price
of $39.50 per share and associated costs incurred, the net proceeds were
approximately $327 million. On July 3, 1996, the Company drew down $40 million
(including loan origination fees) on the Facility (see Note 9), and used the net
proceeds of the Offering together with cash on hand of $161 million to fund the
defeasance of the MGM Grand Hotel Finance Corp FMN (see Note 9).
On September 15, 1995, NYNY LLC (see Note 1) completed its bank financing for up
to $225 million, which was increased to $285 million during September 1996. The
non-revolving construction line of credit converted to a five-year reducing
revolver upon completion of construction and commencement of operations of NYNY
on January 3, 1997. The Company and Primadonna (the "Partners") 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 cash flow from NYNY to comply with financial
covenants, the Partners will make cash infusions which are sufficient to bring
NYNY LLC into compliance with the financial covenants. During the year, $39.9
million in voluntary principal repayments were made by NYNY LLC. The first draw
down occurred on September 30, 1995, and as of December 31, 1997, $245.1 million
was outstanding under the Facility. On January 21, 1997, NYNY LLC completed an
additional $20 million equipment financing with a financial institution. As of
December 31, 1997, $17.5 million remained outstanding related to equipment
financing.
On September 7, 1995, the Company completed the acquisition of MGM Grand
Australia (formerly the Diamond Beach Hotel/Casino) in Darwin, Australia (see
Note 18). The acquisition cost was financed by an Australian bank facility which
provides a total availability of approximately $68.4 million (AUD$105 million)
and includes funding for general corporate purposes. The facility was reduced by
principal payments totaling $11.8 million (AUD$16.3 million) made in accordance
with the terms of the bank facility, and as of December 31, 1997, $57.8 million
(AUD$88.8 million) remained outstanding. Interest on the Australian facility is
based on the bank bill rate and was approximately 5.8% and 7.5% as of December
31, 1997 and 1996, respectively. The facility matures in December 2000, and the
indebtedness has been guaranteed by the Company.
MGM Grand Australia has a $13 million (AUD$20 million) uncommitted standby line
of credit, with a funding period of 91 days for working capital purposes. During
the year ended December 31, 1997, no amounts were borrowed under the line of
credit and no amounts were outstanding as of December 31, 1997, and 1996,
respectively.
The Company expects to finance capital expenditures and existing debt
obligations through cash flow from operations, cash on hand, the bank line of
credit, and the Shelf Registration Statement (see Note 9).
8
<PAGE>
SAFE HARBOR PROVISION
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. Certain information included in this Annual
Report and in the Company's Annual Report on Form 10-K for the year ended
December 31, 1997 contains statements that are forward-looking, such as
statements relating to plans for future expansion and other business development
activities, as well as other capital spending, financing sources, the effects of
regulation (including gaming and tax regulations) and competition. Such
forward-looking information involves important risks and uncertainties that
could significantly affect anticipated results in the future and, accordingly,
such results may differ from those expressed in any forward-looking statements
made by or on behalf of the Company. These risks and uncertainties include, but
are not limited to, those relating to development and construction activities,
dependence on existing management, leverage and debt service (including
sensitivity to fluctuations in interest rates), domestic or global economic
conditions (including sensitivity to fluctuations in foreign currencies),
changes in federal or state tax laws or the administration of such laws, changes
in gaming laws or regulations (including the legalization of gaming in certain
jurisdictions) and application for licenses and approvals under applicable
jurisdictional laws and regulations (including gaming laws and regulations).
9
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(In thousands, except share data)
For the years ended December 31, 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Casino $ 457,206 $ 476,685 $ 401,680
Rooms 171,272 174,440 160,470
Food and beverage 92,594 78,438 89,299
Entertainment, retail and other 116,458 126,875 123,307
Income from unconsolidated affiliate 53,800 - -
-----------------------------------------
891,330 856,438 774,756
Less: Promotional allowances 63,733 56,249 55,975
-----------------------------------------
827,597 800,189 718,781
=========================================
EXPENSES:
Casino 225,896 221,268 196,665
Rooms 45,848 46,639 42,816
Food and beverage 55,124 46,590 57,516
Entertainment, retail and other 79,605 88,214 89,820
Provision for doubtful accounts and discounts 31,814 38,635 57,683
General and administrative 102,246 100,062 99,119
Restructuring costs - - 5,942
Depreciation and amortization 64,104 62,196 55,315
-----------------------------------------
604,637 603,604 604,876
=========================================
Operating Profit Before Master Plan Asset Disposition,
Preopening and Corporate Expense 222,960 196,585 113,905
Master Plan asset disposition 28,566 49,401 -
Preopening and other - unconsolidated affiliate - 7,868 -
Corporate expense 3,424 10,022 10,082
-----------------------------------------
Operating Income 190,970 129,294 103,823
=========================================
NONOPERATING INCOME (EXPENSE):
Interest income 1,268 4,247 2,896
Interest expense, net of amounts capitalized (1,242) (33,778) (59,329)
Interest expense from unconsolidated affiliate (9,891) - -
Other, net (804) (612) (825)
-----------------------------------------
(10,669) (30,143) (57,258)
-----------------------------------------
Income Before Income Taxes and Extraordinary Item 180,301 99,151 46,565
Provision for income taxes (65,045) (24,634) -
-----------------------------------------
Income Before Extraordinary Item 115,256 74,517 46,565
EXTRAORDINARY ITEM:
Loss on early extinguishment of debt, net of income tax benefits of
$2,333 and $17,710 (4,238) (30,811) -
-----------------------------------------
Net Income $ 111,018 $ 43,706 $ 46,565
=========================================
BASIC INCOME PER SHARE OF COMMON STOCK:
Income before extraordinary item $ 2.00 $ 1.41 $ 0.97
Extraordinary item - loss on early extinguishment of debt, net of
income tax benefit (0.07) (0.58) -
-----------------------------------------
Net Income per share $ 1.93 $ 0.83 $ 0.97
=========================================
WEIGHTED AVERAGE SHARES OUTSTANDING 57,475,000 52,759,000 48,076,000
=========================================
DILUTED INCOME PER SHARE OF COMMON STOCK:
Income before extraordinary item $ 1.96 $ 1.38 $ 0.96
Extraordinary item - loss on early extinguishment of debt, net of
income tax benefit (0.07) (0.57) -
-----------------------------------------
Net Income per share $ 1.89 $ 0.81 $ 0.96
=========================================
WEIGHTED AVERAGE SHARES OUTSTANDING 58,835,000 54,257,000 48,544,000
=========================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
10
<PAGE>
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
As of December 31, 1997 1996
- -------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 34,606 $ 61,412
Accounts receivable, net 78,977 80,529
Prepaid expenses 10,452 13,208
Inventories 16,462 13,520
Deferred tax asset 30,294 58,039
-------------------------------------
Total current assets 170,791 226,708
-------------------------------------
PROPERTY AND EQUIPMENT, NET 1,032,708 884,750
OTHER ASSETS:
Investment in unconsolidated affiliates 108,121 72,896
Deposits 255 15,255
Excess of purchase price over fair 38,598 39,622
market value of net assets acquired, net
Other assets, net 47,901 48,458
-------------------------------------
Total other assets 194,875 176,231
-------------------------------------
$1,398,374 $1,287,689
=====================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 53,860 $ 32,995
Income taxes payable - 23,653
Current obligation, capital leases 6,088 2,769
Current obligation, long term debt 10,589 12,906
Other accrued liabilities 110,953 118,448
-------------------------------------
Total current liabilities 181,490 190,771
-------------------------------------
DEFERRED REVENUES 4,743 6,712
DEFERRED INCOME TAXES 58,831 38,477
LONG TERM OBLIGATION, CAPITAL LEASES 4,447 7,862
LONG TERM DEBT 47,241 70,485
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common Stock ($.01 par value,
75,000,000 shares authorized,
57,984,873 and 57,883,766 shares issued) 580 579
Capital in excess of par value 966,487 963,688
Retained earnings 124,239 13,221
Currency translation adjustment 10,316 (4,106)
-------------------------------------
Total stockholders' equity 1,101,622 973,382
-------------------------------------
$1,398,374 $1,287,689
=====================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
11
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
For the years ended December 31 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 111,018 $ 43,706 $ 46,565
Adjustments to reconcile net income to net cash
from operating activities:
Loss on early extinguishment of debt 6,571 48,521 -
Master Plan asset disposition 28,566 49,401 -
Amortization of debt offering costs 1,127 2,191 3,308
Depreciation and amortization 64,244 62,323 55,419
Provision for doubtful accounts and discounts 31,814 38,635 57,683
Preopening and other - unconsolidated affiliate - 7,868 -
Earnings in excess of distributions - unconsolidated affiliate (28,749) - -
Change in assets and liabilities:
Accounts receivable (30,262) (40,605) (40,395)
Prepaid expenses 2,756 (551) 2,589
Inventories (4,035) (3,283) (3,784)
Income taxes payable (23,653) 21,302 -
Deferred income taxes 48,100 (27,696) (2,034)
Accounts payable, accrued liabilities, and other (24,185) 43,209 (5,863)
Currency translation adjustment 700 130 1,056
----------------------------------------
Net cash from operating activities 184,012 245,151 114,544
----------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (227,756) (84,775) (37,447)
Acquisition of MGM Grand Australia - - (71,942)
Dispositions of property and equipment, net 202 322 488
Change in construction payables 32,418 (809) (3,915)
Note receivable - 529 13,796
Investment in unconsolidated affiliates (7,190) (27,153) (36,500)
Deposits and other assets 548 (8,929) (30,514)
----------------------------------------
Net cash from investing activities (201,778) (120,815) (166,034)
----------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Defeasance of First Mortgage Notes - (523,231) -
Borrowings from (repayments to) banks and others (11,839) - 78,099
Borrowings under lines of credit 25,500 65,262 15,000
Repayments of lines of credit (25,500) (65,262) (15,000)
Issuance of common stock 2,799 350,290 7,549
----------------------------------------
Net cash from financing activities (9,040) (172,941) 85,648
----------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (26,806) (48,605) 34,158
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR 61,412 110,017 75,859
----------------------------------------
CASH AND CASH EQUIVALENTS AT END OF THE YEAR $ 34,606 $ 61,412 $ 110,017
========================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
12
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(Dollar amounts in thousands) COMMON CAPITAL IN RETAINED TOTAL
For the years ended December 31, STOCK COMMON EXCESS OF TREASURY EARNINGS STOCKHOLDERS'
1997, 1996, and 1995 OUTSTANDING STOCK PAR VALUE STOCK (DEFICIT) OTHER EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
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 - (30,485) (8,944) 584,548
Payment received from note
receivable - - - - - 10,000 10,000
Issuance of common stock pursuant
to employee stock options 413,670 4 4,929 - - - 4,933
Issuance of common stock 8,625,000 86 326,735 - - - 326,821
Employee stock incentive accrual 70,240 1 2,817 - - - 2,818
Tax benefit from stock option
exercises - - 5,718 - - - 5,718
Net income - - - - 43,706 43,706
Currency translation adjustment - - - - - (5,162) (5,162)
----------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1996 57,883,766 579 963,688 - 13,221 (4,106) 973,382
Issuance of common stock
Issuance of common stock pursuant
to employee stock options 72,302 1 1,093 - - - 1,094
Employee stock incentive issuance 28,805 - 1,142 - - - 1,142
Tax benefit from stock option
exercises - - 564 - - - 564
Net income - - - - 111,018 - 111,018
Currency translation adjustment - - - - - 14,422 14,422
----------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997 57,984,873 $580 $966,487 $ - $124,239 $ 10,316 $1,101,622
==============================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
13
<PAGE>
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, 1997, approximately 62.5% 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., the Company owns and
operates the MGM Grand Hotel/Casino ("MGM Grand Las Vegas"), a hotel/casino and
entertainment complex in Las Vegas, Nevada. MGM Grand Hotel Finance Corp. ("MGM
Finance"), a wholly-owned subsidiary of the Company, was formed to issue First
Mortgage Notes ("FMN") to the public, to incur bank debt and to lend the
aggregate proceeds thereof to MGM Grand Hotel, Inc. to finance the construction
and opening of MGM Grand Las Vegas. See Note 9 regarding defeasance of the FMN.
Through its wholly-owned subsidiary, MGM Grand Australia Pty Ltd., the Company
owns and operates the MGM Grand Hotel/Casino in Darwin, Australia ("MGM Grand
Australia"), which is located on 18 acres of beachfront property on the north
central coast of Australia. The results of operations of MGM Grand Australia are
included from September 7, 1995, the date of acquisition (see Note 18).
The Company and Primadonna Resorts, Inc. ("Primadonna") each own 50% of New
York-New York Hotel and Casino, LLC ("NYNY LLC"), which completed development of
the $460 million themed destination resort called New York-New York Hotel/Casino
in Las Vegas, Nevada ("NYNY") in December 1996. NYNY commenced operations on
January 3, 1997, and is located on approximately 20 acres at the northwest
corner of Tropicana Avenue and Las Vegas Boulevard, across from MGM Grand Las
Vegas.
Through its wholly-owned subsidiary, MGM Grand South Africa, Inc., the Company
manages a casino in Nelspruit, in the Mpumalanga Province of the Republic of
South Africa, which began operations on October 15, 1997. The Company receives
development and management fees from its partner, Tsogo Sun Gaming &
Entertainment who is responsible for providing all project costs.
Through its wholly-owned subsidiary, MGM Grand Detroit, Inc., the Company and
its local partners in Detroit, Michigan formed MGM Grand Detroit, LLC ("MGM
Grand Detroit"), to develop a hotel/casino and entertainment complex at a
minimum approximate cost of $700 million. On November 20, 1997, MGM Grand
Detroit was chosen as a finalist for a development agreement to construct, own
and operate one of Detroit's three new casinos pending negotiation of a
development agreement with City of Detroit and subject to approval by
governmental authorities. The plans for MGM Grand Detroit call for an 800-room
hotel, a 100,000 square-foot casino, signature restaurants and retail outlets,
showroom and other entertainment venues.
Through its wholly-owned subsidiary, MGM Grand Atlantic City, Inc., the Company
intends to construct, own and operate a destination resort hotel/casino,
entertainment and retail facility in Atlantic City, New Jersey, at a minimum
approximate cost of $700 million, on approximately 35 acres of land on the
Atlantic City Boardwalk. Construction of the project is subject to the receipt
of various governmental approvals. On July 24, 1996, the Company was found
suitable for licensing by the New Jersey Casino Control Commission.
14
<PAGE>
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
a. PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements include
the accounts of the Company and its subsidiaries. Investments in unconsolidated
affiliates which are 50% or less owned are accounted for under the equity
method. All significant intercompany balances and transactions have been
eliminated in consolidation.
b. MANAGEMENT'S USE OF ESTIMATES -- The consolidated financial statements have
been prepared in conformity with generally accepted accounting principles. Those
principles require 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 initial maturities of three months or less. Such investments
are carried at cost which approximate market value.
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. Cost
is determined by the first-in, first-out method.
f. PROPERTY AND EQUIPMENT -- Property and equipment are stated at cost.
Maintenance and repairs that neither materially add to the value of the property
nor appreciably prolong its life are charged to expense as incurred. 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:
Buildings and improvements 15 to 40 years
Equipment, furniture and fixtures 3 to 7 years
Land improvements 10 years
Leasehold improvements 5 to 20 years
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 is
amortized on a straight-line basis over 40 years.
h. OTHER ASSETS -- The cost of normal hotel operating quantities of china,
silverware, glassware, and utensils is recorded as an asset and is depreciated.
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.
15
<PAGE>
i. CASINO REVENUES AND PROMOTIONAL ALLOWANCES -- Casino revenue is the
aggregate of gaming wins and losses. The retail value of accommodations, food
and beverage, 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 $63.7 million, $56.2
million and $56 million for the years ended December 31, 1997, 1996 and 1995,
respectively. The estimated cost of providing such promotional allowances was
included in casino expenses as follows:
<TABLE>
<CAPTION>
PROMOTIONAL ALLOWANCES
(In thousands)
Years Ended December 31, 1997 1996 1995
- --------------------------------------------------------------------
<S> <C> <C> <C>
Rooms $ 9,841 $ 9,487 $ 8,512
Food and beverage 28,436 23,224 23,588
Other 2,235 2,175 3,627
-----------------------------------------
$40,512 $34,886 $35,727
-----------------------------------------
</TABLE>
j. CURRENCY TRANSLATION -- The Company accounts for currency translation in
accordance with Statement of Financial Accounting Standards No. 52, "Foreign
Currency Translation." The Australian results of operations and the balance
sheet are translated from Australian dollars to US dollars. Certain fixed
assets and intangibles are valued at historical exchange rates, while other
balance sheet accounts are translated at the exchange rate in effect at each
year end. Income accounts are translated at the average rate of exchange
prevailing during the year.
k. NET INCOME PER COMMON SHARE -- Basic income per share of common stock is
computed based on the weighted-average number of shares of common stock
outstanding during the period. Diluted income per share of common stock is
computed based on the assumption that options issued to employees are exercised
and repurchased at the average price for the periods presented (see Note 12).
l. CAPITALIZED INTEREST -- The Company capitalizes interest costs associated
with debt incurred in connection with major construction and development
projects. The Company capitalizes interest on amounts expended on the project
at the Company's weighted average cost of the borrowed funds (see Note 9), and
based upon the weighted average amount of the Company's outstanding borrowings.
Capitalization of interest ceases when the project is completed.
m. CORPORATE EXPENSE -- Corporate expense represents unallocated payroll costs,
professional fees, and various other expenses not directly related to the
Company's hotel/casino operations. In addition, corporate expense includes the
costs associated with the Company's evaluation and pursuit of new business
opportunities, which are expensed as incurred until development of a specific
project has become relatively certain.
n. RECENTLY ISSUED ACCOUNTING STANDARDS -- In June 1997, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 130 (SFAS 130), "Reporting Comprehensive Income," which requires the display
of comprehensive income and its components in a financial statement with the
same prominence as the other financial statements. SFAS 130 is effective for
fiscal
16
<PAGE>
years beginning after December 15, 1997, and management believes that the
adoption of SFAS 130 will not have a significant impact on the Company's
financial position or results of operations.
o. RECLASSIFICATIONS -- The consolidated financial statements for prior years
reflect certain reclassifications to conform with the current year presentation,
which have no effect on previously reported net income.
NOTE 3. STATEMENTS OF CASH FLOWS
The following supplemental disclosures are provided for the Consolidated
Statements of Cash Flows:
<TABLE>
<CAPTION>
(In thousands)
Years ended December 31, 1997 1996 1995
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
CASH PAYMENTS MADE FOR:
Interest, net of amounts capitalized $ 7,916 $48,155 $55,750
-----------------------------
State and federal income taxes $43,159 $ 3,660 $ 620
-----------------------------
</TABLE>
During 1997, the Company completed equipment lease financings for approximately
$3.1 million at MGM Grand Las Vegas.
On June 5, 1995, the Company retired all 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 approximately $42.3 million.
NOTE 4. ACCOUNTS RECEIVABLE
Components of accounts receivable were as follows:
<TABLE>
<CAPTION>
(In thousands)
At December 31, 1997 1996
- --------------------------------------------------------------------
<S> <C> <C>
Casino $ 87,442 $102,408
Hotel 11,229 13,286
Income tax receivable 6,776 -
Other 553 267
------------------------
106,000 115,961
Less: Allowance for doubtful accounts
and discounts (27,023) (35,432)
------------------------
$ 78,977 $ 80,529
------------------------
</TABLE>
17
<PAGE>
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, following an evaluation
of credit worthiness, to certain casino patrons, a substantial portion of whom
reside in countries other than the United States. 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, NET
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
(In thousands)
At December 31, 1997 1996
- ----------------------------------------------------------------------
<S> <C> <C>
Land $ 105,813 $ 102,290
Buildings and improvements 663,832 635,238
Equipment, furniture, fixtures and
leasehold improvements 217,723 220,379
Equipment under capital lease 18,053 18,054
Construction in progress 216,898 50,797
----------------------------
1,222,319 1,026,758
Less: Accumulated depreciation and
amortization (189,611) (142,008)
----------------------------
$1,032,708 $ 884,750
----------------------------
</TABLE>
NOTE 6. DEVELOPMENT PROJECTS
The Company, along with its local partners in Detroit, Michigan, plans to
develop a hotel/casino and entertainment complex at a minimum approximate cost
of $700 million. On November 20, 1997, MGM Grand Detroit was chosen as a
finalist for a development agreement to construct, own and operate one of
Detroit's three new casinos pending negotiation of a development agreement with
the City of Detroit and subject to approval by governmental authorities. The
plans for MGM Grand Detroit call for an 800-room hotel, a 100,000 square-foot
casino, signature restaurants and retail outlets, a showroom, and other
entertainment venues. Through December 31, 1997, approximately $3.8 million was
expended and capitalized by the Company for licensing and design costs.
The Company plans to develop a hotel/casino and entertainment complex in
Atlantic City, New Jersey at a minimum approximate cost of $700 million, on
approximately 35 acres of land on the Atlantic City Boardwalk. Construction of
the project is subject to the receipt of various governmental approvals. On
July 24, 1996, the Company was found suitable for licensing by the New Jersey
Casino Control Commission. Through December 31, 1997, the Company has expended
and capitalized approximately $47.6 million, relating primarily to land
acquisition and pre-construction activities.
18
<PAGE>
NOTE 7. INVESTMENTS IN UNCONSOLIDATED AFFILIATES
On December 28, 1994, the Company and Primadonna formed a joint venture to
construct, own and operate the New York-New York Hotel and Casino (see Note 1).
The hotel/casino opened to the public on January 3, 1997. The Company holds a
50% interest in the joint venture. As of December 31, 1997, the Company has
contributed land on which the property is located and cash totaling $70.7
million which includes $7 million in capital contributions made in 1997. During
the year ended December 31, 1997, the Company received distributions of $15.2
million from the joint venture to pay taxes on its allocated share of income.
The joint venture secured bank financing of $285 million and term loan financing
of $20 million (see Note 9), and the joint venture Partners' executed Keep-Well
Agreements in conjunction with the financing.
Summary condensed financial information for New York-New York Hotel and Casino,
LLC is as follows:
<TABLE>
<CAPTION>
(In thousands)
Year ended December 31, 1997 1996
- ------------------------------------------------------------------------------------
<S> <C> <C>
Net Revenues $255,253 $ 345
======== ========
Operating Income (Loss) $107,431 $(15,830)
======== ========
Interest Expense, net $(19,425) $ 147
======== ========
Net Income (Loss) $ 88,006 $(15,683)
======== ========
<CAPTION>
(In thousands)
at December 31, 1997 1996
- ------------------------------------------------------------------------------------
Total Assets $470,252 $457,091
======== ========
Long-term Debt $246,403 $285,829
======== ========
Members' Equity $183,350 $111,664
======== ========
</TABLE>
19
<PAGE>
The Company has investments in unconsolidated affiliates that are accounted for
under the equity method. Under the equity method, original investments are
recorded at cost, and are adjusted by the Company's share of earnings, losses
and distributions received from and made to these companies. The investment
balance also includes interest capitalized during construction. Investments in
unconsolidated affiliates consisted of the following:
<TABLE>
<CAPTION>
(In thousands)
At December 31, 1997 1996
- ---------------------------------------------------------------
<S> <C> <C>
New York-New York Hotel and Casino, LLC $ 96,949 $60,943
MGM Grand - Bally's Monorail, LLC 11,172 11,953
-------- -------
$108,121 $72,896
-------- -------
</TABLE>
The changes in the Company's investments in unconsolidated affiliates was as
follows:
<TABLE>
<CAPTION>
(In thousands)
New York-New York Hotel and Casino, LLC 1997 1996
- ---------------------------------------------------------------------
<S> <C> <C>
Investment at January 1 $ 60,943 $40,938
Earnings (losses) 44,003 (7,868)
Distributions received (15,160) -
Additional investments 7,000 22,500
Other, net 163 5,373
-------- -------
Investment at December 31 $ 96,949 $60,943
======== =======
<CAPTION>
(In thousands)
MGM Grand-Bally's Monorail, LLC 1997 1996
- ---------------------------------------------------------------------
<S> <C> <C>
Investment at January 1 $ 11,953 $12,673
Losses (808) (808)
Additional investments 27 88
-------- -------
Investment at December 31 $ 11,172 $11,953
======== =======
</TABLE>
20
<PAGE>
NOTE 8. OTHER ACCRUED LIABILITIES
Other accrued liabilities consisted of the following:
<TABLE>
<CAPTION>
(In thousands)
At December 31, 1997 1996
- ------------------------------------------------------
<S> <C> <C>
Accrued salaries and related $ 35,115 $ 34,944
Casino front money 26,393 24,796
Casino chip liability 17,204 15,524
Other liabilities 32,241 43,184
-------- --------
$110,953 $118,448
-------- --------
</TABLE>
NOTE 9. LONG TERM DEBT
Long term debt consisted of the following:
<TABLE>
<CAPTION>
(In thousands)
At December 31, 1997 1996
- -------------------------------------------------------------------------
<S> <C> <C>
Australian Hotel/Casino Loan due
December 1, 2000 $ 57,830 $ 83,391
Bank Credit Facility - -
-------- --------
57,830 83,391
Less: Current Maturities (10,589) (12,906)
-------- --------
$ 47,241 $ 70,485
-------- --------
</TABLE>
Total interest incurred during 1997, 1996 and 1995 was $9 million, $40.8 million
and $63.6 million, respectively, of which $7.8 million, $7 million and $4.3
million were capitalized in 1997, 1996 and 1995, respectively.
On July 3, 1996, the Company deposited $523.2 million (the "Defeasance Deposit")
with the Trustee, U.S. Trust of California, to fund the defeasance of MGM Grand
Hotel Finance Corp. FMN in accordance with the terms of the bond indenture. The
Defeasance Deposit was made in the form of U.S. Government securities and was
used to fund interest payments on the FMN through May 1, 1997, at which date the
11-3/4% and 12% FMN were called at 101.958% and 105.333% of their outstanding
principal, respectively. On October 29, 1996, the liens on the assets of MGM
Grand Hotel, Inc. were released and accordingly, the defeasance was finalized.
The early extinguishment of the FMN resulted in an extraordinary loss of
approximately $30.8 million, net of income tax benefits.
On July 1, 1996, the Company secured a $500 million Senior Reducing Revolving
Credit Facility with BA Securities (the "Facility"), an affiliate of Bank of
America NT&SA. In August 1996, the Facility was increased to $600 million. In
July 1997, the Facility was amended, extended and increased to $1.25 billion
(the "New Facility"), with provisions to allow an increase of the New Facility
to $1.5 billion as
21
<PAGE>
well as to allow additional pari passu debt financing up to $500 million. As a
result of the New Facility, the Company recognized an extraordinary loss of
approximately $4.2 million, net of tax benefit, due to the write-off of
unamortized debt costs from the Facility during 1997. The New Facility contains
various restrictive covenants on the Company which include the maintenance of
certain financial ratios and limitations on additional debt, dividends, capital
expenditures and disposition of assets. The New Facility also restricts certain
acquisitions and similar transactions. Interest on the New Facility is based on
the bank reference rate or Eurodollar rate and as of December 31, 1997, the
Company's borrowing rate was approximately 6.1%. The New Facility matures in
December 2002, with the opportunity to extend the maturity for successive one
year periods. During the year ended December 31, 1997, $15 million was drawn
down and repaid against the Facility, $10.5 million was drawn down and repaid
against the New Facility, and no amounts remained outstanding under the New
Facility as of December 31, 1997.
The Company filed a Shelf Registration Statement with the Securities and
Exchange Commission which became effective on August 4, 1997. The Shelf
Registration Statement allows the Company to issue up to $600 million of debt
and equity securities. On February 2 and February 6, 1998, the Company completed
public offerings totaling $500 million of Senior Collateralized Notes in
tranches of 7 and 10 years. The 7-year tranche of $300 million carries a coupon
of 6.95%, while the 10-year tranche of $200 million carries a coupon of 6.875%.
Both tranches are initially secured equally and ratably with the New Facility
and security may be removed equally with the New Facility at the Company's
option, and upon the occurrence of certain events, including the maintenance of
investment grade ratings.
On September 7, 1995, the Company completed the acquisition of MGM Grand
Australia (formerly the Diamond Beach Hotel/Casino) in Darwin, Australia (see
Note 18). The acquisition cost was financed by an Australian bank facility which
provides a total availability of approximately $68.4 million (AUD$105 million)
and includes funding for general corporate purposes. The facility was reduced by
principal payments totaling $11.8 million (AUD$16.3 million) made in accordance
with the terms of the bank facility, and as of December 31, 1997, $57.8 million
(AUD$88.8 million) remained outstanding. Interest on the Australian facility is
based on the bank bill rate and was approximately 5.8% and 7.5% as of December
31, 1997 and 1996, respectively. The facility matures in December 2000, and the
indebtedness has been guaranteed by the Company.
MGM Grand Australia has a $13 million (AUD$20 million) uncommitted standby line
of credit, with a funding period of 91 days for working capital purposes. During
the year ended December 31, 1997, no amounts were borrowed under the line of
credit and no amounts were outstanding as of December 31, 1997, and 1996,
respectively.
22
<PAGE>
Maturities of the Company's long term debt are as follows:
<TABLE>
<CAPTION>
(In thousands)
Year ending December 31,
- ----------------------------------
<S> <C>
1998 $10,589
1999 13,847
2000 33,394
2001 -
Thereafter -
-------
Total $57,830
-------
</TABLE>
On September 15, 1995, NYNY LLC (see Note 1) completed its bank financing for up
to $225 million, which was increased to $285 million during September 1996. The
non-revolving construction line of credit converted to a five-year reducing
revolver upon completion of construction and commencement of operations of NYNY
on January 3, 1997. The Company and Primadonna (the "Partners") 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 cash flow from NYNY to comply with financial
covenants, the Partners will make cash infusions which are sufficient to bring
NYNY LLC into compliance with the financial covenants. The first draw down
occurred on September 30, 1995, and as of December 31, 1997, $245.1 million was
outstanding under the facility. During 1997, $39.9 million in voluntary
principal repayments were made by NYNY LLC. On January 21, 1997, NYNY LLC
completed an additional $20 million equipment financing with a financial
institution. As of December 31, 1997, $17.5 million remained outstanding related
to the equipment financing.
The Company's $60 million bank line of credit for MGM Grand Las Vegas terminated
on October 29, 1996. No amounts were outstanding under the line of credit during
1996.
NOTE 10. COMMITMENTS AND CONTINGENCIES
The Company and its subsidiaries lease buildings and equipment under non-
cancelable operating lease agreements which expire through the year 2027. The
leases generally provide that the Company pay taxes, insurance and maintenance
expenses related to the leased assets.
23
<PAGE>
At December 31, 1997, the Company was obligated under non-cancelable operating
leases and capital leases to make future minimum lease payments as follows:
<TABLE>
<CAPTION>
(In thousands) OPERATING CAPITAL
Year ending December 31, LEASES LEASES
- -------------------------------------------------------
<S> <C> <C>
1998 $ 1,653 $ 6,702
1999 604 2,175
2000 506 2,764
2001 416 -
2002 416 -
Thereafter 15,378 -
------- -------
Total Minimum $18,973 11,641
Lease Payment =======
Amount Representing Interest (1,106)
-------
Total Obligation Under Capital Leases 10,535
Less: Amount due within one year (6,088)
-------
Amount due after one year $ 4,447
=======
</TABLE>
Rental expense on the non-cancelable operating leases was $2.5 million, $3.7
million and $3.6 million for the years ended December 31, 1997, 1996 and 1995,
respectively.
NOTE 11. STOCKHOLDERS' EQUITY
On July 2, 1996, the Company completed a public offering (the "Offering") of 8.6
million shares of common stock (including an underwriter's over allotment option
to purchase 1.1 million shares of common stock). Based upon an Offering price of
$39.50 per share and associated costs incurred, the net proceeds were
approximately $327 million. The net proceeds from the Offering were used for the
defeasance of the MGM Grand Hotel Finance Corp. FMN (see Note 9).
On May 7, 1996, the Company made a commitment to grant 15 shares of Company
common stock to each of its employees in exchange for continued active
employment through the one year anniversary date of the commitment. As a result
of the stock grant commitment, deferred compensation was charged to
stockholders' equity and amortized monthly to compensation expense over the one
year commitment period. On May 7, 1997, 99,045 shares were issued to employees
as a result of the commitment. Over the life of the commitment, approximately $4
million was amortized to expense, of which $1.2 million and $2.8 million of such
expense were recognized during the years ended December 31, 1997 and 1996,
respectively.
On May 24, 1995, and as amended, the Company entered into an agreement with Don
King Productions Inc. ("DKP") to present six of Mike Tyson's fights. Pursuant to
the agreement, the Company made a non-interest bearing working capital advance
of $15 million to DKP, sold to DKP 618,557 treasury shares of the Company's
Common Stock (the "Shares") for $15 million in exchange for a non-interest
bearing promissory note which was repaid, and provided a guaranteed future share
price of $48.50. The original agreement was amended by a Trust Agreement dated
October 23, 1996, in which the Shares
24
<PAGE>
were placed in the name of, and held by, an independent trustee, pending
disposition at the direction of the Company. The Company and DKP determined to
terminate the agreement, and on September 25, 1997, after solicitation of
competitive bids, the Shares held by the Trustee were sold to Tracinda at the
price of $44.50 per share for an aggregate consideration of $27.5 million, the
Company was repaid the $15 million working capital advance and the remaining
consideration in the amount of $12.5 million was paid to DKP. As a result of
this transaction, the Company reversed approximately $5.9 million of previously
expensed stock price guarantee amortization during 1997.
NOTE 12. EARNINGS PER SHARE
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"), which
superseded Accounting Principles Board Opinion 15, "Earnings per Share," and was
intended to simplify and harmonize the EPS calculations in the United States
with those common in other countries. SFAS 128 presents two EPS calculations:
(i) basic earnings per common stock which is computed by dividing net income by
the weighted average number of shares of common stock outstanding during the
periods presented, and (ii) diluted earnings per common share which is
determined on the assumption that options issued to employees are exercised and
repurchased at the average price for the periods presented. SFAS 128 became
effective for financial statements for the year ended December 31, 1997, and the
following reflects the effect of the Company's adoption of SFAS 128 for the
periods presented (in thousands except per share amounts):
<TABLE>
<CAPTION>
Year Ended December 31, 1997 1996 1995
- ----------------------------------------------------------
<S> <C> <C> <C>
Net income $111,018 $43,706 $46,565
-------- ------- -------
Weighted Average Basic
Shares 57,475 52,759 48,076
-------- ------- -------
Basic Earnings per Share $ 1.93 $ 0.83 $ 0.97
-------- ------- -------
Weighted Average Diluted
Shares 58,835 54,257 48,544
-------- ------- -------
Diluted Earnings per
Share $ 1.89 $ 0.81 $ 0.96
-------- ------- -------
</TABLE>
Weighted average diluted shares include the following: options to purchase
approximately 877,000, 962,000, and 411,000 shares issued to employees for the
years ended December 31, 1997, 1996 and 1995, respectively; employee grant
shares (see Note 11) of approximately 29,000 and 22,000 for the years ended
December 31, 1997 and 1996, respectively; and DKP shares (see Note 11) of
approximately 454,000, 514,000 and 57,000 for the years ended December 31, 1997,
1996 and 1995, respectively.
25
<PAGE>
NOTE 13. STOCK OPTION PLANS
The Company has adopted nonqualified stock option plans and incentive stock
plans which provide for the granting of stock options pursuant to the applicable
provisions of the Internal Revenue Code and regulations. The aggregate options
available under the plans are 6.5 million. The Company had granted options of
approximately 4.5 million shares through December 31, 1997.
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 have ten-year terms and are exercisable in
four and five annual installments. On March 26, 1996, the Compensation and Stock
Option Committee of the Board of Directors determined to adjust the vesting
provision of the Company's Non-Qualified Stock Option Plan and Incentive Stock
Option Plan to provide for the vesting of future stock option grants under the
plans at 20% on each of the first four anniversary dates of the grant, with full
vesting on the fifth anniversary date of the grant. The Compensation and Stock
Option Committee also determined that pro-rata vesting at times other than
successive anniversary dates of the date of the grant are no longer applicable.
Stock option holders with grants dated prior to March 26, 1996 were given the
opportunity to accept or decline the new vesting provisions with regard to their
existing grants.
Had the Company accounted for these plans under Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123") the Company's net income and earnings per share would have been reduced to
the following pro forma amounts:
<TABLE>
<CAPTION>
(In thousands) 1997 1996 1995
- ------------------------------------------------------------------------
<S> <C> <C> <C>
NET INCOME:
As Reported $111,018 $43,706 $46,565
-------- ------- -------
Pro Forma $110,235 $34,981 $45,751
-------- ------- -------
BASIC EARNINGS PER
SHARE:
As Reported $ 1.93 $ 0.83 $ 0.97
-------- ------- -------
Pro Forma $ 1.92 $ 0.66 $ 0.95
-------- ------- -------
DILUTED EARNINGS
PER SHARE:
As Reported $ 1.89 $ 0.81 $ 0.96
-------- ------- -------
Pro Forma $ 1.87 $ 0.64 $ 0.94
-------- ------- -------
</TABLE>
26
<PAGE>
A summary of the status of the Company's fixed stock option plan for each of the
years in the period ended December 31, 1997, 1996 and 1995 is presented below
(there are no options outstanding under the Incentive Stock Option Plan):
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
SHARES EXERCISE SHARES EXERCISE SHARES EXERCISE
(000's) PRICE (000'S) PRICE (000'S) PRICE
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
Beginning of
the year 3,213 $27.26 3,102 $22.67 1,815 $16.94
Granted 727 $36.26 765 $35.12 3,261 $25.69
Exercised (72) $15.09 (414) $11.92 (232) $11.00
Forfeited (226) $35.19 (240) $26.35 (1,742) $26.32
Expired - $ - - $ - - $ -
Outstanding at End
of the Year 3,642 $28.82 3,213 $27.26 3,102 $22.67
----- ----- -----
Exercisable at End
of the Year 783 $24.24 220 $14.38 493 $11.76
----- ----- -----
Weighted Average
Fair Value
of Options Granted $16.98 $22.89 $13.74
------ ------ ------
</TABLE>
The following table summarizes information about fixed stock options outstanding
at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ------------------------------------------------------------------------------------------
WEIGHTED
AVERAGE WEIGHTED NUMBER WEIGHTED
RANGE OF NUMBER REMAINING AVERAGE EXERCISABLE AVERAGE
EXERCISE OUTSTANDING CONTRACTUAL EXERCISE AT EXERCISE
PRICES AT 12/31/97 LIFE (YEARS) PRICE 12/31/97 PRICE
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$10.25 - $20.00 242,000 3.6 $12.82 193,000 $11.84
$20.01 - $25.00 365,000 7.6 $24.40 72,000 $24.41
$25.00 - $30.00 1,876,000 7.9 $26.19 413,000 $26.16
$30.01 - $35.00 87,000 8.5 $33.87 18,000 $33.87
$35.01 - $40.00 603,000 9.3 $35.70 15,000 $38.66
$40.01 - $45.00 469,000 8.8 $41.26 72,000 $41.03
----------------------------------------------------------------------
3,642,000 8.0 $28.82 783,000 $24.24
----------------------------------------------------------------------
</TABLE>
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1997, 1996 and 1995, respectively: risk-free
interest rates 6%, 6.1%, and 6.4% respectively; no expected dividend yields for
the years presented; expected lives of 6 years for all years; and expected
volatility of 38% for 1997 and 39% for 1996 and 1995.
The Company has agreements with 95 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 3.2
million, of which 3.1 million options become immediately exercisable, and the
remaining .1 million options become exercisable if employment status is
diminished within twelve months following a change in control.
27
<PAGE>
Effective November 1996, the Company and MGM Grand Hotel, Inc. adopted an
Employee Stock Purchase Plan. The plan provides eligible employees the
opportunity to purchase shares of the Company's Common Stock via payroll
deductions. The price for each share of Common Stock is the weighted average
price paid for all shares purchased by the Plan Administrator on behalf of the
participating employees on the last trading day of each month. The Company and
MGM Grand Hotel, Inc. pay the administrative costs of the plan. The plan may be
amended or terminated at any time by the Company's Board of Directors or by a
committee designated by the Board of Directors.
NOTE 14. EMPLOYEE PENSION AND SAVINGS PLANS
Participation in the MGM Grand Hotel, Inc. 401(k) employee savings plan is
available for all full time employees. 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 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, 1997, 1996 and 1995, MGM Grand Hotel, Inc.
contributions under this arrangement were $3.4 million, $3.1 million, and $3.2
million, 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 MGM Grand Australia (see Notes
1 and 18), 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 pre-tax basis, a portion of their salary
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, under certain circumstances or normal retirement.
During 1997, MGM Grand Australia contributed under these arrangements $154,000
and $458,000 for the executive employees and staff, respectively. During 1996,
MGM Grand Australia contributed under these arrangements $196,000 and $617,000
for the executive employees and staff, respectively. For the period from
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.
NOTE 15. MASTER PLAN ASSET DISPOSITION
During 1997, the Company enhanced and increased the Master Plan to more than
$700 million, and wrote off assets with a net book value of $28.6 million (pre-
tax) which included the original swimming
28
<PAGE>
pool facility, to be replaced by the Mansion at the MGM Grand consisting of 30
exclusive suites and villas, and certain theme park assets to make way for a
500-room Ritz-Carlton Hotel. During September 1996, the Company determined to
write off various assets with a net book value of $49.4 million (pre-tax) as a
result of the MGM Grand Las Vegas $250 million Master Plan property construction
enhancements associated with the transformation of the facility into "The City
of Entertainment." The affected areas included certain assets related to the
theme park which totaled approximately $39.6 million to make way for a 380,000
square-foot conference center and a 6.6 acre pool and spa complex; approximately
$8.6 million related to the removal of the lion entrance and Emerald City which
has been replaced with a new mezzanine entry, a Rainforest Cafe, a Studio 54
nightclub and a remodeled Entertainment casino among other attractions; and
approximately $1.2 million representing certain food court and midway/arcade
areas which have been transformed into the Studio Walk, a replica of a sound
stage featuring Hollywood landmarks.
NOTE 16. 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 totaling $5.9 million, primarily related
to employee severance payments.
NOTE 17. INCOME TAXES
The Company accounts for Income Taxes according to Statement of Financial
Accounting Standards 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 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, 1997, the Company believes that it is more
likely than not that its deferred tax assets are fully realizable because of the
future reversal of existing taxable temporary differences and future projected
taxable income. Accordingly, there is no valuation allowance at December 31,
1997.
The provision for income taxes and income from continuing operations before
extraordinary item for the years ended December 31, 1997, 1996 and 1995 is as
follows:
<TABLE>
<CAPTION>
(In thousands)
YEARS ENDED DECEMBER 31, 1997 1996 1995
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current - Federal (net of $9,935 and $18,013
tax benefit of operating loss carryforwards
for 1997 and 1996, respectively) $14,207 $31,014 $ 2,034
Deferred - Federal 50,838 (6,380) (2,034)
------- ------- -------
Provision for income taxes $65,045 24,634 $ -
------- ------- -------
</TABLE>
29
<PAGE>
Reconciliation of the Federal income tax rate and the Company's effective tax
rate is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Federal income tax rate 35.0% 35.0 % 35.0 %
Permanent and other items 1.1 6.2 -
Changes in valuation allowance - (16.4) (35.0)
---- ----- -----
Effective tax rate 36.1% 24.8 % - %
---- ----- -----
</TABLE>
As of December 31, 1997, the major tax effected components of the Company's net
deferred tax liability are as follows:
<TABLE>
<CAPTION>
(In thousands) 1997 1996
- -----------------------------------------------------------------------------
<S> <C> <C>
DEFERRED TAX ASSETS
Net operating loss carryforward $ 1,929 $ 11,864
Bad debt reserve 6,586 9,123
Master Plan asset disposition - 16,639
Hotel preopening expenses 2,781 8,619
Loss on defeasance of debt - 12,180
Accruals, reserves and other - 4,643
Tax credit carryforwards 27,219 31,488
-------- --------
38,515 94,556
-------- --------
DEFERRED TAX LIABILITIES
Depreciation and amortization (65,144) (74,994)
Accruals, reserves and other (1,908) -
-------- --------
(67,052) (74,994)
-------- --------
NET DEFERRED TAX (LIABILITY) ASSET $(28,537) $ 19,562
-------- --------
</TABLE>
The Company has an Australian tax loss of $5.4 million which does not expire.
For U.S. Federal income tax return purposes, the Company has an alternative
minimum tax credit carryforward of $24.3 million which does not expire, and a
general business tax credit carryforward of $2.9 million which expires in
different periods through 2012.
30
<PAGE>
NOTE 18. AUSTRALIAN CASINO ACQUISITION
On September 7, 1995, the Company, through its wholly-owned subsidiary, MGM
Grand Australia, Pty Ltd., completed the acquisition of MGM Grand Australia, for
approximately U.S. $76 million. The acquisition costs include approximately $60
million for the purchase of stock and approximately $14.2 million of debt
assumption, and debt and organization costs of approximately $1.8 million. In
addition, on October 24, 1995, the Company expended approximately $3.8 million
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, 96
rooms and suites, restaurants and other facilities. The Company financed the
acquisition through an Australian bank facility (see Note 9). The acquisition
was accounted for using the purchase method, whereby the assets acquired were
recorded at their fair market values. The purchase price allocation was 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 $14.4 million
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; the Company allowed its option to expire during 1997.
NOTE 19. RELATED-PARTY TRANSACTIONS
In conjunction with the Company's 50% interest in the MGM Grand-Bally's
Monorail, LLC, the Company, through its wholly-owned subsidiary, MGM Grand
Hotel, Inc., contributed approximately $1.5 million, $1.3 million, and $.8
million to the joint venture as part of its operating contribution during 1997,
1996 and 1995, respectively.
In August 1995, the Company made a $5 million working capital advance to NYNY.
The $5 million advance, together with interest, was repaid during September
1995. The Company, through its wholly-owned subsidiary MGM Grand Hotel, Inc.,
has entered into an agreement to lease space in NYNY to operate a race book and
sports pool. The terms of the lease are for ten years from the commencement date
of January 3, 1997, with an option for an additional term of ten years. MGM
Grand Hotel, Inc. is obligated to pay to NYNY the greater of a minimum annual
rent of $.2 million or percentage rent based
31
<PAGE>
upon gross revenue, as defined by the Nevada Gaming Authorities. The percentage
rent is based on a graduated scale of gross revenue at percentages ranging from
12% to 15%. During 1997, approximately $.5 million was paid under this
agreement. Additionally, MGM Grand Hotel, Inc. leased office facilities to NYNY
during 1996 for which it received rental payments of approximately $.1 million,
and provided various other hotel goods and services for which NYNY paid
approximately $.2 million and $.1 million during 1997 and 1996, respectively. On
September 4, 1996, the Company also entered into an agreement with NYNY to
provide exclusive floral services through its wholly-owned subsidiary, MGM Grand
Merchandising, Inc., at rates generally comparable to those offered by third
parties. Payments were made by NYNY totaling $.1 million under the floral
service contract during 1997. The Company and NYNY have entered into various
other transactions and arrangements which, individually and in the aggregate,
are not material.
For the years ended December 31, 1997, and 1996, the Company and its
subsidiaries rented aircraft from Tracinda for various business purposes. The
aggregate amount of rental payments were $.5 million and $1 million,
respectively, and the rent payments were at rates which management believes are
generally below those offered by third parties. During 1995, MGM Grand Las Vegas
leased an aircraft from Tracinda, with total lease payments of approximately $.2
million. MGM Grand Las Vegas also leased Tracinda's Challenger aircraft through
a third party operator for approximately $.2 million during 1995. The Company
and Tracinda have entered into various other transactions and arrangements
which, individually and in the aggregate, are not material.
The Company was granted a no-cost option from Tracinda, with an expiration date
of September 1, 1995, to purchase approximately 18 acres of undeveloped land
across the Las Vegas Strip from MGM Grand Las Vegas. The option, which gave the
Company the right to acquire the property at Tracinda's purchase cost of $31.5
million, 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 $36.5 million. On January 6, 1995, the Company
contributed the property to NYNY as its share of the initial capital
contribution to the hotel/casino construction project (see Notes 1 and 7).
During 1997, the Company contributed an additional $7 million to NYNY LLC along
with $22.5 million during 1996. The Company received approximately $15.2 million
in distributions from NYNY LLC during 1997 to pay taxes on its allocated share
of income.
Pursuant to an agreement dated December 23, 1996, between MGM Grand Hotel, Inc.
and MGM/UA Home Entertainment, Inc. ("MGM/UA"), a California based motion
picture studio in which Tracinda has an approximate 65% ownership interest, MGM
Grand Hotel, Inc. can utilize key art and still photographs from certain Metro-
Goldwyn-Mayer Inc. and United Artists Corporation motion pictures for the period
commencing on December 27, 1996 and ending on July 1, 1997, which was
subsequently extended to December 31, 1997. In exchange, MGM Grand Hotel, Inc.
agreed to promote MGM/UA motion picture video cassettes for availability in one
or more retail venues. During 1997, MGM Grand Hotel, Inc. purchased video
cassettes and other MGM/UA merchandise of approximately $.3 million at rates
which management believes are generally comparable to those offered to third
parties. In addition, MGM Grand Hotel, Inc. provided various goods and services
during 1997 for which MGM/UA paid approximately $.5 million.
Pursuant to a License Agreement between a predecessor in interest to the Company
and Metro-Goldwyn-Mayer Film Co. dated February 29, 1980, the Company has an
exclusive royalty-free license in perpetuity to use certain trademarks, trade
names and logos in and in connection with the Company's hotel/gaming business
and other businesses, excluding the film entertainment business.
32
<PAGE>
During the three year periods ended December 31, 1997, 1996 and 1995, the
Company and MGM/UA have entered into various other transactions and arrangements
which, individually and in the aggregate, are not material.
Note 20. Industry Segments
The Company operates in the hotel/casino industry segment through the operations
of MGM Grand Las Vegas, which commenced operations on December 18, 1993, MGM
Grand Australia, which was acquired on September 7, 1995 (see Note 18), its 50%
interest in NYNY LLC, which commenced operations on January 3, 1997 (see Note
1), and the management of a casino in Nelspruit, South Africa, which commenced
operations on October 15, 1997 (see Note 1). Sales between industry segments are
immaterial and generally at prices approximately equal to those charged to
unaffiliated customers.
<TABLE>
<CAPTION>
(In thousands)
For the Years Ended December 31, 1997 1996 1995
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET REVENUES:
Hotel/Casino $ 773,797 $ 800,189 $ 718,781
Income from unconsolidated affiliate 53,800 - -
---------- ---------- ----------
$ 827,597 $ 800,189 $ 718,781
========== ========== ==========
OPERATING INCOME (LOSS):
Hotel/Casino $ 169,160 $ 196,585 $ 119,847
Income from unconsolidated affiliate 53,800 - -
Master Plan asset disposition (28,566) (49,401) -
Corporate expense (3,424) (10,022) (10,082)
Restructuring costs - - (5,942)
Preopening and other - unconsolidated affiliate - (7,868) -
---------- ---------- ----------
$ 190,970 $ 129,294 $ 103,823
========== ========== ==========
IDENTIFIABLE ASSETS:
Hotel/Casino $1,390,215 $1,254,602 $1,250,771
Corporate 8,159 33,087 31,451
---------- ---------- ----------
$1,398,374 $1,287,689 $1,282,222
========== ========== ==========
CAPITAL EXPENDITURES:
Hotel/Casino $ 227,658 $ 84,544 $ 37,371
Corporate 98 231 76
---------- ---------- ----------
$ 227,756 $ 84,775 $ 37,447
========== ========== ==========
DEPRECIATION AND AMORTIZATION:
Hotel/Casino $ 64,104 $ 62,196 $ 55,315
Corporate 140 127 104
---------- ---------- ----------
$ 64,244 $ 62,323 $ 55,419
========== ========== ==========
</TABLE>
33
<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, 1997 and 1996, and
the related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1997. 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, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ending
December 31, 1997, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Las Vegas, Nevada
January 28, 1998
34
<PAGE>
<TABLE>
<CAPTION>
SELECTED QUARTERLY FINANCIAL RESULTS
(In thousands except share data)
For the years ended December 31, 1997 and 1996
(Unaudited)
QUARTER
--------------------------------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997
Net revenues $197,498 $209,085 $208,399 $212,615 $827,597
Operating profit before
non-recurring items
and corporate expense 53,038 57,368 56,419 56,135 222,960
Operating income 51,549 54,079 31,319 54,023 190,970
Income before income taxes
and extraordinary item 48,077 51,437 28,984 51,803 180,301
Net income 30,150 32,999 14,456 33,413 111,018
Basic income per share
of common stock:
Income before
extraordinary item $ 0.52 $ 0.57 $ 0.32 $ 0.58 $ 2.00
Extraordinary item - - (0.07) - (0.07)
--------------------------------------------------------------------
Net income $ 0.52 $ 0.57 $ 0.25 $ 0.58 $ 1.93
--------------------------------------------------------------------
Diluted income per share
of common stock:
Income before
extraordinary item $ 0.51 $ 0.56 $ 0.32 $ 0.57 $ 1.96
Extraordinary item - - (0.07) - (0.07)
--------------------------------------------------------------------
Net income $ 0.51 $ 0.56 $ 0.25 $ 0.57 $ 1.89
--------------------------------------------------------------------
1996
Net revenues $207,996 $189,237 $197,388 $205,568 $800,189
Operating profit before
non-recurring items
and corporate expense 50,615 50,097 46,262 49,611 196,585
Operating income (loss) 49,223 48,615 (4,808) 36,264 129,294
Income (loss) before
income taxes and
extraordinary item 34,528 34,331 (6,804) 37,096 99,151
Net income (loss) 34,528 20,635 (35,488) 24,031 43,706
Basic income per share
of common stock:
Income (loss) before
extraordinary item $ 0.71 $ 0.43 $ (0.08) $ 0.42 $ 1.41
Extraordinary item - - (0.54) - (0.58)
--------------------------------------------------------------------
Net income (loss) $ 0.71 $ 0.43 $ (0.62) $ 0.42 $ 0.83
--------------------------------------------------------------------
Diluted income per share
of common stock:
Income (loss) before
extraordinary item $ 0.70 $ 0.41 $ (0.08) $ 0.41 $ 1.38
Extraordinary item - - (0.54) - (0.57)
--------------------------------------------------------------------
Net income (loss) $ 0.70 $ 0.41 $ (0.62) $ 0.41 $ 0.81
--------------------------------------------------------------------
</TABLE>
35
<PAGE>
CORPORATE INFORMATION
DIRECTORS AND OFFICERS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
J. Terrence Lanni Terry N. Christensen Kirk Kerkorian Jerome B. York
Director Director Director Director
Chairman of the Board Partner, Christensen, President and Vice Chairman
and Chief Executive Miller, Fink, Jacobs, Chief Executive Officer Tracinda Corporation
Officer Glaser, Weil & Shapiro, Tracinda Corporation
LLP
Alex Yemenidjian Glenn A. Cramer Frank Mancuso Scott Langsner
Director Director Director Secretary/Treasurer
President and Former Chairman, Chairman
Chief Operating Transamerica Airlines Metro-Goldwyn-Mayer Inc.
Officer Retired
Fred Benninger Willie D. Davis James J. Murren Edward J. Jenkins
Director Director Director Vice President
Vice Chairman President and Director, Executive Vice President and
All-Pro Broadcasting, Inc. Chief Financial Officer
James D. Aljian Alexander M. Haig, Jr. Walter M. Sharp Jim Fox
Director Director Director Vice President
Executive, Tracinda Chairman President,
Corporation Worldwide Associates, Inc. Walter M. Sharp Company
</TABLE>
MGM GRAND HOTEL SENIOR OFFICERS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Daniel M. Wade Lyn H. Baxter Tom Peterman Corey Sanders
President and Senior Vice President Senior Vice President Senior Vice President and
Chief Operating Operations General Counsel Chief Financial Officer
Officer
William Hornbuckle Cynthia Kiser Murphey Greg W. Saunders Richard A. Sturm
Executive Vice Senior Vice President Senior Vice President Senior Vice President
President Human Resources and Hotel Operations Marketing and Entertainment
Operations Administration
</TABLE>
<TABLE>
<CAPTION>
MGM GRAND MARKETING MGM GRAND DEVELOPMENT
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Robert V. Moon Kenneth A. Rosevear
President President and
Chief Operating Officer
</TABLE>
<TABLE>
<CAPTION>
MGM GRAND AUSTRALIA MGM GRAND MERCHANDISING
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
J. D. Clayton Bob Bowman
General Manager President
</TABLE>
New York-New York Hotel and Casino
- -------------------------------------------------------------------------------
David Cacci
President and Chief Operating Officer
36
<PAGE>
Investor Information
- ---------------------
<TABLE>
<CAPTION>
1997 1996
For the year ended December 31, HIGH LOW HIGH LOW
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First Quarter $41 $32 3/8 $39 3/4 $22 3/4
Second Quarter $40 3/8 $32 1/8 $47 7/8 $38 3/8
Third Quarter $44 $32 3/8 $43 1/4 $35 1/2
Fourth Quarter $46 11/16 $34 $45 5/8 $34
</TABLE>
The Company's Common Stock is listed on the New York Stock Exchange. Its symbol
is MGG.
<TABLE>
<CAPTION>
TRANSFER AGENT AND INDEPENDENT PUBLIC
REGISTRAR FOR COMMON STOCK ACCOUNTANTS
- --------------------------------------------------------------------------------
<S> <C>
ChaseMellon Shareholders Services, LLC Arthur Andersen LLP
Overpeck Centre 3773 Howard Hughes Parkway, Suite 500
85 Challenger Road South
Ridgefield Park, NJ 07660 Las Vegas, NV 89109
www.chasemellon.com
</TABLE>
FORM 10-K
A copy of the Company's annual report on Form 10-K, as filed with the Securities
and Exchange Commission, will be furnished without charge to any stockholder
upon written request to: Mr. Scott Langsner, Secretary/Treasurer, MGM Grand,
Inc., 3799 Las Vegas Boulevard South, Las Vegas, Nevada 89109
37
<PAGE>
EXHIBIT (g)(2)
MGM GRAND, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------
1998 1997
------- --------
<S> <C> <C>
REVENUES:
Casino $ 95,722 $107,096
Room 40,749 43,336
Food and beverage 24,983 21,569
Entertainment, retail and other 23,947 25,874
Income from unconsolidated affiliate 10,209 14,722
-------- --------
195,610 212,597
Less promotional allowances 15,763 15,099
-------- --------
179,847 197,498
-------- --------
EXPENSES:
Casino 54,600 53,157
Room 11,373 11,116
Food and beverage 15,533 12,239
Entertainment, retail and other 18,117 18,642
Provision for doubtful accounts and discounts 8,187 8,413
General and administrative 24,524 25,435
Depreciation and amortization 16,904 15,458
-------- --------
149,238 144,460
-------- --------
OPERATING PROFIT BEFORE CORPORATE EXPENSE 30,609 53,038
CORPORATE EXPENSE 2,451 1,489
-------- --------
OPERATING INCOME 28,158 51,549
-------- --------
OTHER INCOME (EXPENSE):
Interest Income 3,797 199
Interest expense, net of amounts capitalized (3,772) (974)
Interest expense from unconsolidated affiliate (2,171) (2,465)
Other, net (603) (232)
-------- --------
(2,749) (3,472)
-------- --------
INCOME BEFORE PROVISION FOR INCOME TAXES 25,409 48,077
Provision for income taxes (9,147) (17,927)
-------- --------
NET INCOME $ 16,262 $ 30,150
======== ========
PER SHARE OF COMMON STOCK:
Basic:
Net income per share $ 0.28 $ 0.52
======== ========
Weighted Average Shares Outstanding (000's) 57,990 57,836
======== ========
Diluted:
Net income per share $ 0.28 0.51
======== ========
Weighted Average Shares Outstanding (000's) 58,775 58,772
======== ========
</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)
<TABLE>
<CAPTION>
ASSETS
March 31, December 31,
1998 1997
---------- ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 437,333 $ 34,606
Accounts receivable, net 47,747 78,977
Prepaid expenses and other 11,645 10,452
Inventories 13,882 16,462
Deferred tax asset 28,986 30,294
---------- ----------
Total current assets 539,593 170,791
---------- ----------
PROPERTY AND EQUIPMENT, NET 1,122,017 1,032,708
OTHER ASSETS:
Investments in unconsolidated affiliates 115,951 108,121
Excess of purchase price over fair market value
of net assets acquired, net 38,342 38,598
Deposits and other assets, net 56,356 48,156
---------- ----------
Total other assets 210,649 194,875
---------- ----------
$1,872,259 $1,398,374
========== ==========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 18,323 $ 20,484
Construction payable 28,786 33,376
Current obligation, capital leases 5,935 6,088
Current obligation, long term debt 11,606 10,589
Accrued interest on long term debt 5,441 -
Other accrued liabilities 70,604 110,953
---------- ----------
Total current liabilities 140,695 181,490
---------- ----------
DEFERRED REVENUES 5,721 4,743
DEFERRED INCOME TAXES 60,099 58,831
LONG TERM OBLIGATION, CAPITAL LEASES 3,937 4,447
LONG TERM DEBT 544,559 47,241
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock ($.01 par value, 75,000,000 shares
authorized, 58,000,280 and 57,984,873 shares
issued and outstanding) 580 580
Capital in excess of par value 966,953 966,487
Retained earnings 140,501 124,239
Other comprehensive income 9,214 10,316
---------- ----------
Total stockholders' equity 1,117,248 1,101,622
---------- ----------
$1,872,259 $1,398,374
========== ==========
</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>
Three Months Ended
March 31,
----------------------
1998 1997
--------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 16,262 $ 30,150
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation and amortization 16,942 15,493
Amortization of debt offering costs 377 431
Provision for doubtful accounts and discounts 8,187 8,413
Earnings in excess of distributions-unconsolidated affiliate (8,038) (12,257)
Change in assets and liabilities:
Accounts receivable 23,043 25,116
Inventories 2,339 (342)
Prepaid expenses and other (1,193) 1,135
Income taxes payable and deferred income taxes 2,575 (8,493)
Accounts payable, accrued liabilities and other (36,754) (50,069)
Currency translation adjustment (71) 48
--------- --------
Net cash from operating activities 23,669 9,625
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (104,092) (23,760)
Disposition of property and equipment, net 402 113
Investments in unconsolidated affiliates - (7,160)
Change in construction payables (4,590) (45)
Change in deposits and other assets, net (10,434) (8,503)
--------- --------
Net cash from investing activities (118,714) (39,355)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments to banks and others (2,694) (3,192)
Issuance of long term debt 500,000 -
Borrowings under bank line of credit 31,000 15,000
Repayments of bank line of credit (31,000) -
Issuance of common stock 466 1,883
--------- --------
Net cash from financing activities 497,772 13,691
--------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 402,727 (16,039)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 34,606 61,412
--------- --------
CASH AND CASH EQUIVALENTS AS END OF PERIOD $ 437,333 $ 45,373
========= ========
</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, 1998, approximately 62.5%
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., the
Company owns and operates MGM Grand Hotel/Casino ("MGM Grand Las Vegas"),
a hotel/casino and entertainment complex in Las Vegas, Nevada.
Through its wholly-owned subsidiary, MGM Grand Australia Pty Ltd., the
Company owns and operates the MGM Grand Hotel/Casino in Darwin, Australia
("MGM Grand Australia").
The Company and Primadonna Resorts, Inc. ("Primadonna") each owns 50%
of New York-New York Hotel and Casino, LLC ("NYNY LLC"), which completed
development of the $460 million themed destination resort called New York-
New York Hotel and Casino ("NYNY") in Las Vegas, Nevada in December 1996.
NYNY commenced operations on January 3, 1997, and is located on
approximately 20 acres at the northwest corner of Tropicana Avenue and Las
Vegas Boulevard, across from MGM Grand Las Vegas.
Through its wholly-owned subsidiary, MGM Grand South Africa, Inc., the
Company manages two casinos in the Mpumalanga Province of the Republic of
South Africa. The casino in Nelspruit began operations on October 15,
1997, while the casino in Witbank began operations on March 10, 1998. The
Company receives development and management fees from its partner, Tsogo
Sun Gaming & Entertainment, who is responsible for providing all project
costs.
Through its wholly-owned subsidiary, MGM Grand Detroit, Inc., the
Company and its local partners in Detroit, Michigan, formed MGM Grand
Detroit, LLC ("MGM Grand Detroit") to develop a hotel/casino and
entertainment complex at a minimum approximate cost of $700 million. On
November 20, 1997, MGM Grand Detroit was chosen as a finalist for a
development agreement to construct, own and operate one of Detroit's three
new casinos. On April 9, 1998, the Detroit City Council approved MGM Grand
Detroit's development agreement with the City. Construction of the project
is subject to the receipt of various governmental approvals. The plans for
MGM Grand Detroit call for an 800-room hotel, a 100,000-square-foot casino,
signature restaurants and retail outlets, a showroom and other
entertainment venues.
Through its wholly-owned subsidiary, MGM Grand Atlantic City, Inc.,
the Company intends to construct, own and operate a destination resort
hotel/casino, entertainment and retail facility in Atlantic City, New
Jersey, at a minimum approximate cost of $700 million, on approximately 35
acres of land on the Atlantic City Boardwalk. Construction of the project
is subject to the receipt of various governmental approvals. On July 24,
1996, the Company was found suitable for licensing by the New Jersey Casino
Control Commission.
Certain information and footnote disclosures normally included in the
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 1997
Annual Report included on Form 10-K.
-4-
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
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, 1998, and the results of operations for
the three month periods ended March 31, 1998 and 1997. The results of
operations for such periods are not necessarily indicative of the results
to be expected for the full year.
Recently issued Statement of Position - In April 1998, the American
Institute of Certified Public Accountants issued SOP 98-5, "Reporting on
the Costs of Start-up Activities." The new standard requires that all
companies expense costs of start-up activities as those costs are incurred.
The term "start-up" includes pre-opening, pre-operating and organization
activities. Previously, the company had capitalized these items until the
property opened at which time these cumulative costs would be expensed. As
of March 31, 1998, the Company capitalized "start-up" costs of $.6 million
related to Atlantic City. The Company will adopt SOP 98-5 in the first
quarter of fiscal year 1999.
Certain reclassifications have been made to prior period financial
statements to conform with the 1998 presentation, which have no effect on
previously reported net income.
NOTE 2. STATEMENTS OF CASH FLOWS
For the three months ended March 31, 1998 and 1997, cash payments made
for interest were $1.6 million and $2.0 million, respectively.
No cash payments were made for state and federal taxes for the three
months ended March 31, 1998. Cash payments made for state and federal
taxes for the three months ended March 31, 1997 were $25 million.
NOTE 3. LONG TERM DEBT AND NOTES PAYABLE
Long term debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
--------- ------------
<S> <C> <C>
Australian Hotel/Casino Loan, due December 1, 2000 $ 56,165 $ 57,830
6.95% Senior Collateralized Notes, due February 1, 2005 300,000 -
6.875% Senior Collateralized Notes, due February 6, 2008 200,000 -
Bank Credit Facility - -
-------- ------------
556,165 57,830
Less: Current Maturities (11,606) (10,589)
-------- ------------
$544,559 $ 47,241
======== ============
</TABLE>
Total interest incurred for the first three months of 1998 and 1997
was $7.5 million and $2.5 million, respectively, of which $3.7 million and
$1.5 million were capitalized in the 1998 and 1997 periods, respectively.
During the first three months of 1998 and 1997, the Company recognized
interest expense from its unconsolidated affiliate of $2.2 million and $2.5
million, respectively.
-5-
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 3. LONG TERM DEBT AND NOTES PAYABLE (CONTINUED)
On July 1, 1996, the Company secured a $500 million Senior Reducing
Revolving Credit Facility with BA Securities (the "Facility"), an affiliate
of Bank of America NT&SA. In August 1996, the Facility was increased to
$600 million. In July 1997, the Facility was amended, extended and
increased to $1.25 billion (the "New Facility"), with provisions to allow
an increase of the New Facility to $1.5 billion as well as to allow
additional pari passu debt financing up to $500 million. As a result of
the New Facility, the Company recognized an extraordinary loss of
approximately $4.2 million, net of tax benefits, of unamortized debt costs
from the Facility during the third quarter of 1997. The New Facility
contains various restrictive covenants on the Company which include the
maintenance of certain financial ratios and limitations on additional debt,
dividends, capital expenditures and disposition of assets. The New
Facility also restricts certain acquisitions and similar transactions.
Interest on the New Facility is based on the bank reference rate or
Eurodollar rate. The New Facility matures in December 2002, with the
opportunity to extend the maturity for successive one year periods. During
the three months ended March 31, 1998, $31 million was drawn down and
repaid against the New Facility, and no amounts remained outstanding as of
March 31, 1998.
The Company filed a Shelf Registration Statement with the Securities
and Exchange Commission which became effective on August 4, 1997. The Shelf
Registration Statement allows the Company to issue up to $600 million of
debt and equity securities. On February 2 and February 6, 1998, the Company
completed public offerings totaling $500 million of Senior Collateralized
Notes in tranches of 7 and 10 years. The 7-year tranche of $300 million
carries a coupon of 6.95%, while the 10-year tranche of $200 million
carries a coupon of 6.875%. Both tranches are initially secured equally and
ratably with the New Facility, and the security may be removed equally with
the New Facility at the Company's option upon the occurrence of certain
events, including the maintenance of investment grade ratings.
The Australian bank facility originally provided a total availability
of approximately $69.6 million (AUD $105 million), which has been reduced
by principal payments totaling $14.5 million (AUD $20.3 million) made in
accordance with the terms of the bank facility, including $2.7 million (AUD
$4.1 million) during the three months ended March 31, 1998. As of March
31, 1998, $56.2 million (AUD $84.7 million) remained outstanding. The bank
facility includes funding for general corporate purposes. Interest on the
bank facility is based on the Australian Bank Bill rate. The indebtedness,
which matures in December 2000, has been wholly guaranteed by the Company.
MGM Grand Australia has a $13.3 million (AUD $20 million) uncommitted
standby line of credit, with a funding period of 91 days for working
capital purposes. No amount was outstanding during the three months ended
March 31, 1998 and December 31, 1997.
Upon commencement of operations of NYNY on January 3, 1997 (see Note
1), the $285 million non-revolving construction line of credit converted to
a five-year reducing revolver. The Company and Primadonna (the "Partners")
have executed a joint and several unlimited Keep-Well Agreement, which
provides that in the event of insufficient cash flow from NYNY to comply
with financial covenants, the Partners will make cash infusions which are
sufficient to bring NYNY LLC into compliance with the financial covenants.
During the first three months of 1998, $17.6
-6-
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 3. LONG TERM DEBT AND NOTES PAYABLE (CONTINUED)
million in voluntary principal repayments were made by NYNY LLC. As of
March 31, 1998 and December 31, 1997, a total of $227.5 million and $245.1
million was outstanding, respectively. On January 21, 1997, NYNY LLC
completed an additional $20 million equipment financing with a financial
institution. As of March 31, 1998 and December 31, 1997, $16.7 million and
$17.5 million were outstanding related to the equipment financing,
respectively.
NOTE 4. ISSUANCE OF COMMON STOCK
On May 7, 1996, the Company made a commitment to grant 15 shares of
Company Common Stock to each of its employees in exchange for continued
active employment through the one year anniversary date of the commitment.
As a result of the stock grant commitment, deferred compensation was
charged to stockholders' equity and amortized monthly to compensation
expense over the one year commitment period. On May 7, 1997, 99,045 shares
were issued to employees as a result of the commitment. Over the life of
the commitment, approximately $4 million was amortized to expense, of which
$.9 million of such expense was recognized during the three months ended
March 31, 1997.
On May 24, 1995, and as amended, the Company entered into an agreement
with Don King Productions, Inc. ("DKP"), to present six of Mike Tyson's
fights. Pursuant to the agreement, the Company made a non-interest bearing
working capital advance of $15 million to DKP, sold to DKP 618,557 treasury
shares of the Company's Common Stock (the "Shares") for $15 million in
exchange for a non-interest bearing promissory note which was repaid, and
provided a guaranteed future share price of $48.50. The original agreement
was amended by a Trust Agreement dated October 23, 1996, in which the
Shares were placed in the name of, and held by, an independent trustee,
pending disposition at the direction of the Company. The Company and DKP
determined to terminate the agreement, and on September 25, 1997, after
solicitation of competitive bids, the Shares held by the Trustee were sold
to Tracinda at the price of $44.50 per share for an aggregate consideration
of $27.5 million, the Company was repaid the $15 million working capital
advance and the remaining consideration in the amount of $12.5 million was
paid to DKP. As a result of this transaction, the Company reversed
approximately $5.9 million of previously expensed stock price guarantee
amortization during 1997.
NOTE 5. COMPREHENSIVE INCOME
Statement of Financial Accounting Standards No. 130, ("SFAS 130")
"Reporting Comprehensive Income", requires that the Company disclose
comprehensive income and its components. The objective of SFAS 130 is to
report a measure of all changes in equity of a company that result from
transactions and other economic events of the period other than
transactions with stockholders. Comprehensive income is the total of net
income and all other non-stockholder changes in equity ("Other
Comprehensive Income").
The Company has recorded currency translation adjustments as Other
Comprehensive Income in the accompanying financial statements.
Comprehensive income is calculated as follows (in thousands):
-7-
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5. COMPREHENSIVE INCOME (CONTINUED)
<TABLE>
<CAPTION>
For Three Months Ended March 31,
1998 1997
------- -------
<S> <C> <C>
Net income $16,262 $30,150
Currency translation adjustment (1,102) 1,133
------- -------
Comprehensive income $15,160 $31,283
======= =======
</TABLE>
NOTE 6. EARNINGS PER SHARE
The Company calculates earnings per share ("EPS") in accordance with
the Statement of Financial Accounting Standards No. 128, "Earnings per
Share" ("SFAS 128"). SFAS 128 presents two EPS calculations: (i) basic
earnings per common share which is computed by dividing net income by the
weighted average number of shares of common stock outstanding during the
periods presented, and (ii) diluted earnings per common share which is
determined on the assumptions that options issued to employees are
exercised and repurchased at the average price for the periods presented
(in thousands except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------
1998 1997
------- -------
<S> <C> <C>
Net Income $16,262 $30,150
======= =======
Weighted Average Basic Shares 57,990 57,836
======= =======
Basic Earnings per Share $ 0.28 $ 0.52
======= =======
Weighted Average Diluted Shares 58,775 58,772
======= =======
Diluted Earnings per Share $ 0.28 $ 0.51
======= =======
</TABLE>
Weighted average diluted shares include the following: options to purchase
785,000 and 858,000 shares issued to employees for the three month periods
ended March 31, 1998 and 1997, respectively, and 78,000 employee grant
shares (see Note 4) for the period ended March 31, 1997.
NOTE 7. INVESTMENT IN UNCONSOLIDATED AFFILIATE
On December 28, 1994, the Company and Primadonna formed a joint
venture to construct, own and operate the New York-New York Hotel and
Casino (see Note 1). The hotel/casino opened to the public on January 3,
1997. The Company holds a 50% interest in the joint venture. The Company
has contributed land on which the property is located and cash totaling
$70.7 million. The joint venture secured bank financing of $285 million and
term loan financing of $20 million (see Note 3), and the joint venture
Partners' executed a Keep-Well Agreement in conjunction with the financing.
-8-
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7. INVESTMENT IN UNCONSOLIDATED AFFILIATE (CONTINUED)
Summary condensed financial information for New York-New York Hotel and
Casino, LLC is as follows (In thousands):
<TABLE>
<CAPTION>
Three Months Ended March 31,
1998 1997
-------- --------
<S> <C> <C>
Net Revenues $ 54,035 $ 67,868
======== ========
Operating Income $ 20,406 $ 29,261
======== ========
Interest Expense, net $ 4,342 $ 4,930
======== ========
Net Income $ 16,064 $ 24,331
======== ========
<CAPTION>
As of As of
March 31, 1998 December 31, 1997
-------------- -----------------
<S> <C> <C>
Total Assets $467,444 $470,252
======== ========
Long-term Debt $241,813 $246,403
======== ========
Members' Equity $199,414 $183,350
======== ========
</TABLE>
-9-
<PAGE>
EXHIBIT (g)(3)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in this Schedule 13E-4 of our reports dated January 28, 1998
included in MGM Grand, Inc.'s Annual Report on Form 10-K for the year ended
December 31, 1997 and to all references to our Firm included in or made a part
of this Schedule 13E-4.
Arthur Andersen LLP
Las Vegas, Nevada
July 1, 1998
