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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997.
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-16760
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MGM GRAND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C>
DELAWARE 88-0215232
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
3799 LAS VEGAS BOULEVARD SOUTH, LAS VEGAS, NEVADA 89109
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
(702) 891-3333
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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<S> <C>
COMMON STOCK, $.01 PAR VALUE NEW YORK STOCK EXCHANGE
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 Regulation S-K ((S)229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of Registrant's Common Stock held by non-
affiliates (based on the closing price on the New York Stock Exchange--
Composite Transactions on March 12, 1998) was approximately $779.2 million. As
of March 12, 1998, 57,990,640 shares of Registrant's Common Stock, $.01 par
value, were outstanding.
Portions of the Registrant's Annual Report to Stockholders for the fiscal
year ended December 31, 1997 and Proxy Statement dated April 15, 1998 are
incorporated by reference into Part III of this Form 10-K.
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PART I
ITEM 1. BUSINESS
SAFE HARBOR PROVISIONS
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 Form 10-K 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).
GENERAL
MGM Grand, Inc. (the "Company") was organized as a Delaware corporation on
January 29, 1986.
Through its wholly-owned subsidiary, MGM Grand Hotel, Inc., the Company owns
and operates the MGM Grand Hotel and Casino ("MGM Grand Las Vegas"), a
hotel/casino entertainment complex offering a full range of destination resort
amenities. The resort is located on approximately 114 acres at the northeast
corner of Las Vegas Boulevard South (the "Strip") and Tropicana Avenue (the
"New Four Corners") in Las Vegas, Nevada, across the street from New York-New
York Hotel and Casino. MGM Grand Hotel Finance Corp. ("MGM Finance"), a
wholly-owned subsidiary of the Company, was formed to issue First Mortgage
Notes to the public, to incur bank debt, and to lend the aggregate proceeds
thereof to MGM Grand Hotel to finance the construction and opening of MGM
Grand Las Vegas. The MGM Finance First Mortgage Notes were defeased on July 3,
1996, in accordance with the terms of the bond indenture, and on October 29,
1996, all Company asset liens related thereto were released and the defeasance
was finalized.
Through its wholly-owned subsidiary, MGM Grand Australia Pty Ltd., the
Company owns and operates the MGM Grand Australia, a hotel/casino resort in
Darwin, 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 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 architecturally distinctive, themed destination resort New
York-New York Hotel and Casino ("NYNY") in December 1996. NYNY opened on
January 3, 1997, and is located on approximately 20 acres at the northwest
side of the New Four Corners, across from MGM Grand Las Vegas. NYNY features a
2,033-room hotel, an 84,000 square foot casino, themed entertainment
attractions, restaurants, and retail outlets.
Through its wholly-owned subsidiary, MGM Grand South Africa, Inc., the
Company manages casinos in Nelspruit and Witbank, in the Mpumalanga Province
of the Republic of South Africa, which began operations on October 15, 1997
and March 10, 1998, respectively. A third license was granted in the city of
Johannesburg for which a temporary casino could open by late 1998. On July 30,
1996, the Company entered into an agreement with Tsogo Sun Holdings (Pty)
Limited ("Tsogo Sun"), a joint venture company formed by the Southern Sun
Group and Tsogo Investment Holding Company (Pty) Limited, to act as the
exclusive casino project developer and manager for the joint venture company,
which contemplates applying for up to 15 casino licenses in the
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Republic of South Africa. Under the agreement, the Company will earn fees for
the development and management of all casino operations of Tsogo Sun. Tsogo
Sun will provide or procure all of the financing necessary for the
hotel/casino projects. The National Gambling Act was approved and assented to
by the President of the government of South Africa on June 27, 1996.
Through its wholly-owned subsidiary, MGM Grand Atlantic City, Inc., the
Company intends to construct 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.
On June 26, 1997, the Company, through its wholly-owned subsidiary MGM Grand
Detroit, Inc., and its partners in Detroit formed a joint venture, MGM Grand
Detroit, LLC, to develop a hotel/casino and entertainment complex at a minimum
approximate cost of $700 million. On November 20, 1997, MGM Grand Detroit,
L.L.C. was chosen as one of the three finalists to develop, 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 the project call for an 800 room hotel and casino,
exciting signature restaurant/retail outlets, a showroom and other
entertainment venues. On March 12, 1998, MGM Grand Detroit, LLC entered into a
development agreement with the City of Detroit and its Economic Development
Corporation with respect to such project. The agreement is subject to a number
of conditions. See "Buisness--Detroit Project."
For certain information about the Company's industry segments, see Note 20
to the Company's Consolidated Financial Statements contained in Exhibit 13,
which is incorporated herein by this reference.
The Company's principal executive offices are located at 3799 Las Vegas
Boulevard South, Las Vegas, Nevada 89109. The Company's telephone number is
(702) 891-3333.
LAS VEGAS HOTELS AND GAMING
MGM Grand Las Vegas
MGM Grand Las Vegas, the Company's flagship property, is a multi-themed
destination resort, located on approximately 114 acres, which management
believes is a "must see" attraction for visitors to Las Vegas. The resort
opened on December 18, 1993, and has over 350 feet of frontage on the Strip
and 1,450 feet of frontage on Tropicana Avenue. The complex is easily
accessible from McCarran International Airport and from Interstate 15 via
Tropicana Avenue.
MGM Grand Las Vegas creates an exciting and unique gaming and entertainment
experience which is intended to appeal to all segments of the Las Vegas
market.
The casino is approximately 171,500 square feet in size, which management
believes is one of the largest casinos in the world. The casino has 3,669 slot
machines and 157 table games, a state of the art baccarat room, including
private premium play facilities, a poker room, a race and sports book, and a
keno lounge. The casino features four separate themed areas: Entertainment,
Hollywood, Monte Carlo, and Sports which enhance the entertainment experience
of the casino patron.
The hotel/casino, which management believes is one of the largest in the
world, has 5,005 rooms, including approximately 4,254 typical guest rooms
decorated in five different themes: Deep South, Hollywood, Monte Carlo,
Emerald, and Casablanca. The hotel also has 751 luxury suites, ranging in size
from 650 to 6,000 square feet, representing a suite-to-room ratio which
management believes is one of the highest among the Strip properties.
In an effort to continue a legacy of providing exceptional entertainment
through the leveraging of its highly recognizable brand name, on May 6, 1996,
the Company embarked on an extensive transformation of MGM Grand Las Vegas
into "The City of Entertainment." The $250 million, 30-month Master Plan
program was designed to enhance the quality of the entertainment experience,
through a series of substantive improvements and additions throughout the 114
acre destination resort. The Master Plan was enhanced and increased during
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1997 to more than $700 million, calling for a new 1,500 room "Marriott
Marquis," expansion of the resort's casino capacity by nearly 20 percent 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 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, adjoining a re-themed Entertainment Casino that includes a
Rainforest Cafe and a Studio 54 nightclub. The completed "Studio Walk"
portrays a Hollywood sound stage and reflects an appearance that is inspired
by a number of Hollywood landmarks, including the Brown Derby restaurant, the
Farmers Market food court, and Griffith Park Observatory retail facilities.
The Company also announced that by the year 2000, it may construct a 500 room
Ritz-Carlton Hotel at MGM Grand Las Vegas. On December 22, 1997, the Company
announced the signing of a definitive agreement to develop the 1,500 room
Marriott Marquis.
Other entertainment facilities include: a theme park with thrill rides such
as the 250 foot high SkyScreamer Skycoaster; an 11,700 square foot arcade
containing carnival games of skill and an extensive video arcade including
virtual reality simulators; a 660 seat showroom providing celebrity
entertainment; a 1,774 seat showroom specifically designed for the EFX
production show, the Company's original grand spectacle special effects stage
production; eleven restaurants and a food court; 36 retail shopping outlets,
including 19 owned and 17 leased facilities; and a special events center,
which seats a maximum of 16,766 patrons, providing mega entertainment such as
Barbra Streisand, Bette Midler, the Rolling Stones, Rod Stewart, Neil Diamond,
Elton John, Phil Collins, and Luther Vandross, as well as championship boxing
events and various other sporting events.
MGM Grand Las Vegas uses the unique characteristics of the property to
target the following segments of the Las Vegas market: (i) free and
independent travelers; (ii) tour and travel; (iii) special events/conventions;
(iv) high-end gaming; and (v) locals.
New York-New York
The Company's 50% joint venture, NYNY LLC, completed construction of NYNY in
December 1996, and opened NYNY on January 3, 1997. The 47-story destination
resort, which management believes is architecturally the most distinctive
property ever built in Las Vegas, replicates many of Manhattan's landmark
buildings and icons, including the Statue of Liberty, the Empire State
Building, Central Park, the Brooklyn Bridge, and a Coney Island-style roller
coaster.
The casino is approximately 84,000 square feet in size and has approximately
2,400 slot machines and 70 table games. The casino features numerous themed
interiors including: Park Avenue with retail shops; The Financial District
consisting of the cashiers' cage; Central Park setting in the central casino
area; and Little Italy with its traditional food court set inside a typical
residential neighborhood.
Las Vegas Market
MGM Grand Las Vegas and NYNY operate in the Las Vegas market and are located
on the Strip. Las Vegas is the largest city in Nevada, with a metropolitan
area population in excess of one million and is one of the most traveled
resort destinations in the world.
Gaming has continued to be a strong and growing business in Las Vegas. Las
Vegas Strip gaming revenues have increased at a compound annual growth rate of
8.9% from $1.6 billion in 1987 to $3.8 billion in 1997.
The hotel/casino industry in Las Vegas is highly competitive. Currently,
several new resorts are under construction and several other existing resorts
are undergoing major expansion and renovation. The Company's MGM Grand Las
Vegas, as well as Bellagio, Project Paradise, Caesars, Venetian, Paris and
other hotel/casino properties are in various stages of expansion, construction
or remodeling. While some of the large themed resorts pose direct competition
with MGM Grand Las Vegas and NYNY, the Las Vegas Convention and Visitors
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Authority ("LVCVA") statistics show that visitor volume for 1997 increased
2.8% over 1996. Total visitors for 1997 exceeded 30.4 million. The Company's
future operating results could be adversely affected by excess room and gaming
capacity.
MGM Grand Las Vegas and NYNY compete with gaming and resort facilities in
Las Vegas as well as gaming and resort facilities elsewhere in the world. To
some extent, state lotteries and state-authorized and locally approved card
rooms, such as those operating in California compete with the gaming and
resort facilities in Las Vegas. Gambling, with various limitations and
conditions, is currently legal in numerous locations throughout the United
States. The proliferation of such gaming facilities on riverboats and
elsewhere is increasing. Also, as a result of certain legislative and court
decisions, casino-type operations are being established at various Native
American reservations throughout the country. The development of full service
casinos in California would likely have a negative effect on MGM Grand Las
Vegas and NYNY's operations. Furthermore, pursuant to recent reports,
including a California State Assembly Legislative report, it is estimated that
as many as approximately 15,000 slot machines are operating in various
jurisdictions in California, the legality of which is the subject of dispute
between the State of California and various Native American tribes. See
"Competition."
Insurance
MGM Grand Las Vegas and NYNY carry insurance of the type customary in the
hotel and casino industry and in amounts deemed adequate by management to
protect the properties. The policies provide business and commercial
coverages, including workers' compensation, third party liability, property
damage, boiler and machinery, and business interruption.
Nevada Government Regulation
The ownership and operation of casino gaming facilities in Clark County,
Nevada are subject to: (i) the Nevada Gaming Control Act and the regulations
promulgated thereunder (collectively, the "Nevada Act"); and (ii) various
local regulations. The Company's gaming operations are subject to the
licensing and regulatory control of the Nevada Gaming Commission (the "Nevada
Commission"), the Nevada State Gaming Control Board (the "Nevada Board"), and
the Clark County Liquor and Gaming Licensing Board (the "CCLGLB"). The Nevada
Commission, the Nevada Board, and the CCLGLB are collectively referred to as
the "Nevada Gaming Authorities."
The laws, regulations and supervisory procedures of the Nevada Gaming
Authorities are based upon declarations of public policy that are concerned
with, among other things: (i) the prevention of unsavory or unsuitable persons
from having a direct or indirect involvement with gaming at any time or in any
capacity; (ii) the establishment and maintenance of responsible accounting
practices of licensees, including the establishment of minimum procedures for
internal fiscal affairs and the safeguarding of assets and revenues;
(iii) providing reliable record keeping and requiring the filing of periodic
reports with the Nevada Gaming Authorities; (iv) the prevention of cheating
and fraudulent practices; and (v) providing a source of state and local
revenues through taxation and licensing fees. Any change in such laws,
regulations and procedures could have an adverse effect on the Company's
gaming operations.
MGM Grand Las Vegas operates a casino and is required to be licensed by the
Nevada Gaming Authorities. The gaming license requires the periodic payment of
fees and taxes and is not transferable. MGM Grand Las Vegas is also licensed
as a manufacturer and distributor of gaming devices, as the operator of the
racebook and sportspool at NYNY, and the Company is licensed as one of the two
managers of NYNY. The Company is also required to be registered by the Nevada
Commission as a publicly traded corporation ("Registered Corporation") and as
such, it is required periodically to submit detailed financial and operating
reports to the Nevada Commission and furnish any other information that the
Nevada Commission may require. No person may become a stockholder or member
of, or receive any percentage of profits from, MGM Grand Las Vegas or NYNY
without first obtaining licenses and approvals from the Nevada Gaming
Authorities. The Company, MGM Grand Las Vegas and NYNY have obtained from the
Nevada Gaming Authorities the various registrations, approval permits and
licenses required in order to engage in gaming activities in Nevada.
The Nevada Gaming Authorities may investigate any individual who has a
material relationship to, or material involvement with, the Company, MGM Grand
Las Vegas or NYNY to determine whether such
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individual is suitable or should be licensed as a business associate of a
gaming licensee. Officers, directors and certain key employees of MGM Grand
Las Vegas and NYNY must file applications with the Nevada Gaming Authorities
and may be required to be licensed or found suitable by the Nevada Gaming
Authorities. Officers, directors and key employees of the Company who are
actively and directly involved in the gaming activities of MGM Grand Las Vegas
or NYNY may be required to be licensed or found suitable by the Nevada Gaming
Authorities. The Nevada Gaming Authorities may deny an application for
licensing for any cause they deem reasonable. A finding of suitability is
comparable to licensing, and both require submission of detailed personal and
financial information followed by a thorough investigation. The applicant for
licensing or a finding of suitability, or the gaming licensee by whom the
applicant is employed or for whom the applicant serves, must pay all the costs
of the investigation. Changes in licensed positions must be reported to the
Nevada Gaming Authorities, and in addition to their authority to deny an
application for a finding of suitability or licensure, the Nevada Gaming
Authorities have jurisdiction to disapprove a change in a corporate position.
If the Nevada Gaming Authorities were to find an officer, director or key
employee unsuitable for licensing or unsuitable to continue having a
relationship with the Company, MGM Grand Las Vegas or NYNY, such company or
companies would have to sever all relationships with such person. In addition,
the Nevada Commission may require the Company, MGM Grand Las Vegas or NYNY to
terminate the employment of any person who refuses to file appropriate
applications. Determinations of suitability or of questions pertaining to
licensing are not subject to judicial review in Nevada.
The Company, MGM Grand Las Vegas and NYNY are required to submit detailed
financial and operating reports to the Nevada Commission. Substantially all
material loans, leases, sales or securities and similar financing transactions
by the Company, MGM Grand Las Vegas and NYNY must be reported to or approved
by the Nevada Commission.
If it were determined that the Nevada Act was violated by MGM Grand Las
Vegas or NYNY, the gaming licenses they hold could be limited, conditioned,
suspended or revoked, subject to compliance with certain statutory and
regulatory procedures. In addition, MGM Grand Las Vegas, NYNY, the Company and
the persons involved could be subject to substantial fines for each separate
violation of the Nevada Act at the discretion of the Nevada Commission.
Further, a supervisor could be appointed by the Nevada Commission to operate
the Company's gaming properties and, under certain circumstances, earnings
generated during the supervisor's appointment (except for the reasonable
rental value of the gaming properties) could be forfeited to the State of
Nevada. Limitation, conditioning or suspension of any gaming license or the
appointment of a supervisor could (and revocation of any gaming license would)
materially adversely affect the Company's gaming operations.
Any beneficial holder of the Company's voting securities, regardless of the
number of shares owned, may be required to file an application, be
investigated, and have their suitability as a beneficial holder of the
Company's voting securities determined if the Nevada Commission has reason to
believe that such ownership would otherwise be inconsistent with the declared
policies of the State of Nevada. The applicant must pay all costs of
investigation incurred by the Nevada Gaming Authorities in conducting any such
investigation.
The Nevada Act requires any person who acquires more than 5% of the
Company's voting securities to report the acquisition to the Nevada
Commission. The Nevada Act requires that beneficial owners of more than 10% of
the Company's voting securities apply to the Nevada Commission for a finding
of suitability within thirty days after the Chairman of the Nevada Board mails
the written notice requiring such filing. Under certain circumstances, an
"institutional investor" as defined in the Nevada Act, which acquires more
than 10% but not more than 15% of the Company's voting securities, may apply
to the Nevada Commission for a waiver of such finding of suitability if such
institutional investor holds the voting securities for investment purposes
only. An institutional investor shall not be deemed to hold voting securities
for investment purposes unless the voting securities were acquired and are
held in the ordinary course of business as an institutional investor and not
for the purpose of causing, directly or indirectly, the election of a majority
of the members of the board of directors of the Company, any change in the
Company's corporate charter, bylaws, management, policies or operations of the
Company or any of its gaming affiliates, or any other action which the Nevada
Commission finds to be
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inconsistent with holding the Company's voting securities for investment
purposes only. Activities that are not deemed to be inconsistent with holding
voting securities for investment purposes only include: (i) voting on all
matters voted on by stockholders; (ii) making financial and other inquiries of
management of the type normally made by securities analysts for informational
purposes and not to cause a change in its management, policies or operations;
and (iii) such other activities as the Nevada Commission may determine to be
consistent with such investment intent. If the beneficial holder of voting
securities who must be found suitable is a corporation, partnership or trust,
it must submit detailed business and financial information including a list of
beneficial owners. The applicant is required to pay all costs of the
investigation.
Any person who fails or refuses to apply for a finding of suitability or a
license within thirty days after being ordered to do so by the Nevada
Commission or the Chairman of the Nevada Board, may be found unsuitable. The
same restrictions apply to a record owner if the record owner, after request,
fails to identify the beneficial owner. Any stockholder found unsuitable and
who holds, directly or indirectly, any beneficial ownership of the common
stock of a Registered Corporation beyond such period of time as may be
prescribed by the Nevada Commission may be guilty of a criminal offense. The
Company is subject to disciplinary action if, after it receives notice that a
person is unsuitable to be a stockholder or to have any other relationship
with the Company, MGM Grand Las Vegas or NYNY, and subsequently the Company,
MGM Grand Las Vegas or NYNY (i) pays that person any dividend or interest upon
voting securities of the Company; (ii) allows that person to exercise,
directly or indirectly, any voting right conferred through securities held by
that person; (iii) pays remuneration in any form to that person for services
rendered or otherwise; or (iv) fails to pursue all lawful efforts to require
such unsuitable person to relinquish his voting securities for cash at fair
market value. Additionally, the CCLGLB has taken the position that it has the
authority to approve all persons owning or controlling the stock of any
corporation controlling a gaming license.
The Nevada Commission may, in its discretion, require the holder of any debt
security of a registered Corporation to file an application, be investigated
and be found suitable to own the debt security of a Registered Corporation. If
the Nevada Commission determines that a person is unsuitable to own such
security, then pursuant to the Nevada Act, the Registered Corporation can be
sanctioned, including through the loss of its approvals, if without the prior
approval of the Nevada Commission, it: (i) pays to the unsuitable person any
dividend, interest, or any distribution whatsoever; (ii) recognizes any voting
right by such unsuitable person in connection with such securities; (iii) pays
the unsuitable person remuneration in any form; or (iv) makes any payment to
the unsuitable person by way of principal, redemption, conversion, exchange,
liquidation, or similar transaction.
The Company is required to maintain a current stock ledger in Nevada that
may be examined by the Nevada Gaming Authorities at any time. If any
securities are held in trust by an agent or by a nominee, the record holder
may be required to disclose the identity of the beneficial owner to the Nevada
Gaming Authorities. A failure to make such disclosure may be grounds for
finding the record holder unsuitable. The Company is also required to disclose
the identity of the beneficial owner to the Nevada Gaming Authorities. A
failure to make such disclosure may be grounds for finding the record holder
unsuitable. The Company is also required to render maximum assistance in
determining the identity of the beneficial owner. The Nevada Commission has
the power to require the Company's stock certificates to bear a legend
indicating that such securities are subject to the Nevada Act. However, to
date, the Nevada Commission has not imposed such a requirement on the Company.
The Company may not make offerings of any securities without the prior
approval of the Nevada Commission if the securities or the proceeds therefrom
are intended to be used to construct, acquire or finance gaming facilities in
Nevada, or to retire or extend obligations incurred for such purposes. Such
approval, if given, does not constitute a finding, recommendation or approval
by the Nevada Commission or the Nevada Board as to the accuracy or adequacy of
the prospectus or the investment merits of the securities. Any representation
to the contrary is unlawful.
On July 24, 1997, the Nevada Commission granted the Company prior approval
to make public offerings for a period of two years, subject to certain
conditions (the "Shelf Approval"). However, the Shelf Approval
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may be rescinded for good cause without prior notice upon the issuance of an
interlocutory stop order by the Chairman of the Nevada Board. The Shelf
Approval does not constitute a finding, recommendation or approval by the
Nevada Commission or the Nevada Board as to the accuracy or adequacy of the
prospectus or the investment merits of the securities offered. Any
representation to the contrary is unlawful.
Changes in control of the Company through merger, consolidation, stock or
asset acquisitions, management or consulting agreements, or any act or conduct
by any person whereby he or she obtains control, may not occur without the
prior approval of the Nevada Commission. Entities seeking to acquire control
of a Registered Corporation must satisfy the Nevada Board and the Nevada
Commission concerning a variety of stringent standards prior to assuming
control of such Registered Corporation. The Nevada Commission may also require
controlling stockholders, officers, directors and other persons having a
material relationship or involvement with the entity proposing to acquire
control, to be investigated and licensed as part of the approval process of
the transaction.
The Nevada legislature has declared that some corporate acquisitions opposed
by management, repurchases of voting securities and corporate defense tactics
affecting Nevada gaming licensees, and Registered Corporations that are
affiliated with those operations, may be injurious to stable and productive
corporate gaming. The Nevada Commission has established a regulatory scheme to
ameliorate the potentially adverse effects of these business practices upon
Nevada's gaming industry and to further Nevada's policy to: (i) assure the
financial stability of corporate gaming operators and their affiliates; (ii)
preserve the beneficial aspects of conducting business in the corporate form;
and (iii) promote a neutral environment for the orderly governance of
corporate affairs. Approvals are, in certain circumstances, required from the
Nevada Commission before the Company can make exceptional repurchases of
voting securities above the current market price thereof and before a
corporate acquisition opposed by management can be consummated.
The Nevada Act also requires prior approval of a plan of recapitalization
proposed by the Company's board of directors in response to a tender offer
made directly to the Registered Corporation's stockholders for the purposes of
acquiring control of the Registered Corporation.
License fees and taxes, computed in various ways depending on the type of
gaming or activity involved, are payable to the State of Nevada and to Clark
County, Nevada. Depending upon the particular fee or tax involved, these fees
and taxes are payable either monthly, quarterly or annually and are based upon
either: (i) a percentage of the gross revenues received; (ii) the number of
gaming devices operated; or (iii) the number of table games operated. A casino
entertainment tax is also paid by MGM Grand Las Vegas and NYNY where certain
entertainment is provided in a cabaret, nightclub, cocktail lounge or casino
showroom in connection with the serving or selling of food, refreshments, or
merchandise. Casino entertainment tax is also paid for admission, food and
refreshments at a bar located adjacent to a cabaret nightclub, cocktail lounge
or casino showroom if portions of the bar can clearly see and hear the
entertainment, or at a location adjacent to those venues if such locations'
primary purpose is to provide refreshment to patrons viewing entertainment in
the cabaret, nightclub, cocktail lounge or casino showroom. Nevada licensees
that hold a license as a manufacturer or a distributor, such as MGM Grand Las
Vegas and NYNY, also pay certain fees and taxes to the State of Nevada.
Any person who is licensed, required to be licensed, registered, required to
be registered, or is under common control with such persons (collectively,
"Licensees"), and who proposes to become involved in a gaming venture outside
of Nevada, is required to deposit with the Nevada Board, and thereafter
maintain, a revolving fund in the amount of $10,000 to pay the expenses of
investigation of the Nevada Board of their participation in such foreign
gaming. The revolving fund is subject to increase or decrease at the
discretion of the Nevada Commission. Thereafter, Licensees are also required
to comply with certain reporting requirements imposed by the Nevada Act.
Licensees are also subject to disciplinary action by the Nevada Commission if
they knowingly violate any laws of the foreign jurisdiction pertaining to
foreign gaming operation, fail to conduct the foreign gaming operation in
accordance with the standards of honesty and integrity required of Nevada
gaming operations, engage in activities that are harmful to the State of
Nevada or its ability to collect gaming taxes and
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fees, or employ a person in a foreign operation who has been denied a license
or a finding of suitability in Nevada on the ground of personal unsuitability.
The sale of alcoholic beverages by MGM Grand Las Vegas and NYNY are subject
to licensing, control and regulation by the applicable local authorities. All
licenses are revocable and are not transferable. The agencies involved have
full power to limit, condition, suspend or revoke any such license, and any
such disciplinary action could (and revocation would) have a material adverse
effect upon the Company's operations.
Pursuant to a 1985 agreement between the state of Nevada and the United
States Department of the Treasury (the "Treasury"), the Nevada Commission and
the Nevada Board have authority, under Regulation 6A of the Nevada Act, to
enforce their own cash transaction reporting laws applicable to casinos which
substantially parallel the federal Bank Secrecy Act. Under the Money
Laundering Suppression Act of 1994 which was passed by Congress, the Secretary
of the Treasury retained the ability to permit states, including Nevada, to
continue to enforce their own cash transaction reporting laws applicable to
casinos. The Nevada Act requires gaming licensees to file reports related to
cash purchases of chips, cash wagers, cash deposits or cash payment of gaming
debts, if any such transactions aggregate more than $10,000 in a 24-hour
period. Casinos are required to monitor receipts and disbursements of currency
in excess of $10,000 and until November 1, 1997, were required to report them
to the Nevada Board, who in turn reported them to the Treasury. As of November
1, 1997, the casinos were required to submit such reports directly to the
Treasury. Pursuant to amendments to the Nevada Act that became effective on
October 1, 1997, casinos also are required under certain circumstances to file
suspicious activity reports directly with an office of the Treasury and
provide copies thereof to the Nevada Board. Although it is not possible to
quantify the full impact of these requirements on the Company's business, the
changes are believed to have had some adverse effect on results of operations
since inception.
Regulation and Taxes
As stated above, the Company is subject to extensive regulation by the
Nevada Gaming Authorities. The Company will also be subject to regulation,
which may or may not be similar to that in Nevada, by the appropriate
authorities in any other jurisdiction where the Company may conduct gaming
activities in the future. Changes in applicable laws or regulations could have
an adverse effect on the Company.
The gaming industry represents a significant source of tax revenues to the
State of Nevada and Clark County. From time to time, federal and state
legislators and officials have proposed changes in tax law, or in the
administration of such law, affecting the gaming industry. Recent proposals
have included a federal gaming tax and increases in state or local gaming
taxes. They have also included limitations on the federal income tax
deductibility of the cost of furnishing certain complimentary promotional
items to customers, as well as various measures which would require tax
withholding on amounts won by customers. It is not possible to determine with
certainty the likelihood of possible changes in tax law or in the
administration of such law. Such changes, if adopted, could have a material
adverse effect on the Company's financial results.
Competition
The hotel industry is highly competitive. Hotels located on or near the
strip ("Strip Hotels") compete primarily with other Strip Hotels and with a
few major hotels in downtown Las Vegas. Strip Hotels offering similar prices
compete with each other primarily on the basis of quality of rooms,
restaurants and facilities, entertainment offered, complimentary goods and
services given, credit limits and quality of personal attention offered to
guests and casino customers. The Company's hotel/casino operations also
compete with a large number of hotels and motels, and gaming facilities not
related to hotels or motels, located in and near Las Vegas. Some of the
Company's competitors may have greater resources, and as such place the
Company at a competitive disadvantage.
According to the LVCVA, as of December 31, 1997, there were approximately
105,000 hotel and motel rooms in the Las Vegas area. In addition, the LVCVA
reports projects under construction and/or proposed for future development of
approximately 21,000 more hotel and motel rooms, including three themed
hotel/casino
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properties currently under construction on the Strip north of Tropicana Avenue
and one major facility south of Tropicana Avenue. The Company cannot make any
prediction as to how many additional rooms will be constructed in Las Vegas.
The Company's future operating results could be adversely affected by excess
Las Vegas rooms and gaming capacity.
In addition to competing with hotel/casino facilities elsewhere in Nevada
(i.e., the Reno/Lake Tahoe areas and the Laughlin area) and in Atlantic City,
the Company competes with hotel/casino facilities elsewhere in the world and
with state lotteries. Certain states are currently considering legalizing
casino gaming in specific geographic areas, and several other states have
recently legalized casino gaming. This growth has been driven by the expansion
of traditional land-based casino destinations and the continued development of
new riverboat and Native American reservation casinos throughout the United
States. Currently, some form of casino gaming is operating or is approved in
approximately 32 states. Elsewhere in North America, nearly all of the
Canadian provinces and territories offer some form of casino gaming. Legalized
casino gaming in other states could adversely affect the Company's activities
in Las Vegas, particularly if such legalization were to occur in areas close
to Nevada, such as California. Additionally, certain gaming operations are
conducted or have been proposed on federal Native American reservations,
including those located in the primary market to be served by MGM Grand Las
Vegas. In addition, with respect to group bookings, the Company's hotel/casino
facilities in Las Vegas also compete with hotels and resorts, which do not
include casinos, throughout the United States. See "Las Vegas Market."
AUSTRALIA OPERATIONS
MGM Grand Australia
On September 7, 1995, the Company, through its wholly-owned subsidiary, MGM
Grand Australia Pty Ltd., completed the acquisition of the MGM Grand Australia
in Darwin, Northern Territory, Australia. MGM Grand Australia is located on 18
acres of beachfront property next to the Arafura Sea on the north central
coast. The resort includes a public and private casino, 96 rooms, restaurants
and other facilities. Casino operations include approximately 32 table games,
360 slots and a keno lounge. The Company has positioned MGM Grand Australia as
a multi-faceted gaming/entertainment facility for the local market and as an
exclusive destination resort for international table game customers.
Two casinos operate in the Northern Territory, including MGM Grand, Inc's
property in Darwin on the northern coast, and a small casino in Alice Springs
in the southern part of the Territory. Unlike the U.S., Australia has granted,
for the most part, regional casino monopolies in its provinces. Gaming
machines (i.e., slots or "poker machines") were installed in clubs and hotels
in the Northern Territory during 1996, and MGM Grand Australia will
effectively receive 22.0% of the revenues from these machines through 2005 in
the form of a tax rebate. Northern Territory Keno machines ("NT Keno") are
also being installed in pubs, hotels and clubs in the Northern Territory. NT
Keno is a territory-wide keno game that the Northern Territory Government has
licensed to MGM Grand Australia, whereby keno tickets are sold in pubs, hotels
and clubs throughout the Northern Territory. The pubs, hotels and clubs act as
agents on behalf of MGM Grand Australia and sell keno tickets in return for a
commission paid by MGM Grand Australia. NT Keno commenced operations on
October 30, 1996.
The success of MGM Grand Australia will depend in part upon a balance of (i)
its ability to effectively serve the local community as well as (ii) its
ability to make efficient use of its strategic location to the South East
Asian gaming market. The Darwin International Airport is an average of 5.5
hours away from the major Asian cities. However, frequency of scheduled air
service is a limiting factor.
There exist 12 casinos in Australia competing for the Far East Market.
Australian casinos operate under exclusive arrangements, which create a
regional monopoly for a fixed term. As such, Australian casinos do not compete
among themselves for the regional middle to low end players. However, Far East
premium players have become an increasingly important source of revenues. In
an effort to attract premium players, MGM Grand Australia completed a $15
million capital improvement program in June 1996, which included renovation of
all 96 rooms (including 16 suites), enhanced casino facilities, and additional
dining, entertainment and retail
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amenities. Competition for the Far East premium player is increasing, as
evidenced by the gaming activity in Kuala Lumpur and Macao, the recent growth
in the number of casinos operating in Australia, and an increase in the
quantity of casino cruise ships. Due to the increasing competition and the
limitations on scheduled air service, the desired mixture of premium players
has not been attained at MGM Grand Australia, and as a result, the operating
margins have been lower than anticipated. MGM Grand Australia has therefore
revisited and revised its marketing efforts with an emphasis on the local
population and commenced a cost reduction program in an effort to strengthen
operating results.
Australia Government Regulation
The Northern Territory of Australia, like Nevada, has comprehensive laws and
regulations governing the conduct of gaming. MGM Grand Australia's operations
are subject to the Gaming Control Act of 1993 and regulations promulgated
thereunder (the "Northern Territory Law") and to the licensing and general
control of the Minister for Racing and Gaming (the "Minister"). MGM Grand
Australia Pty. Ltd. has entered into a Casino Operator's Agreement with the
Minister pursuant to which MGM Grand Australia was granted a license (the
"License") to conduct casino gaming on an exclusive basis through June 30,
2005, in the northern half of the Northern Territory (which includes Darwin,
its largest city, where MGM Grand Australia is located). The License provides
for good faith negotiations to reach agreement on an extension of the License.
The License provides for a tax payable to the Northern Territory Government on
gross profits derived from gaming, including gaming devices. The License is
not exclusive with respect to gaming devices, and the Minister may permit such
devices to be placed in limited numbers in locations not operated by MGM Grand
Australia. However, under the License, a portion of the operators' win on such
gaming devices is to be offset against gaming tax otherwise payable by MGM
Grand Australia.
The License may be terminated if MGM Grand Australia breaches the Casino
Operator's Agreement or the Northern Territory Law or fails to operate in
accordance with the requirements of the License. The Northern Territory
authorities have the right under the Northern Territory Law, the Casino
Operator's Agreement and the License to monitor and approve virtually all
aspects of the conduct of gaming by MGM Grand Australia.
Additionally, under the terms of the License, the Minister has the right to
approve the directors and corporate secretary of the Company and its
subsidiaries which own or operate MGM Grand Australia, as well as changes in
the ownership or corporate structure of such subsidiaries. The Company is
required to file with the Northern Territory authorities copies of all
documents required to be filed by the Company or any of its subsidiaries with
the Nevada Gaming Authorities. In the event of any person becoming the
beneficial owner of 10% or more of the outstanding stock of the Company, the
Minister must be so notified and may investigate the suitability of such
person. If the Minister determines such person to be unsuitable and following
such determination such person remains the beneficial owner of 10% or more of
the Company's stock, that would constitute a default under the License.
NEW JERSEY PROJECT
MGM Grand Atlantic City
The Company, through its wholly-owned subsidiary, MGM Grand Atlantic City,
Inc., intends to create a destination resort hotel/casino in Atlantic City
("MGM Grand Atlantic City"), that management believes will be larger and more
elaborate than any other facility currently in existence in that market. The
Company intends to use similar entertainment themes from MGM Grand Las Vegas
at MGM Grand Atlantic City, and plans to offer a wide array of gaming and non-
gaming amenities to its prospective customers. The Company's plans for MGM
Grand Atlantic City also include the development of retail and food and
beverage facilities. The Company believes that the development of MGM Grand
Atlantic City could cost in excess of $700 million, and that the development
could take up to three years following the successful acquisition of land
necessary to complete the project. The design, budget and schedule for
development of the project are at a preliminary stage, and will be subject to
the risks attendant to large-scale projects and may be subject to additional
costs and delays beyond
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preliminary estimates. No assurance can be given that the Company will develop
a hotel/casino in Atlantic City, or if it does, as to its ultimate size,
configuration or cost. Any development or operation in Atlantic City will be
subject to the receipt of regulatory approvals. On July 24, 1996, the Company
was found suitable for licensing by the New Jersey Casino Control Commission.
Atlantic City Market
Atlantic City is, after Las Vegas, the second largest gaming destination in
the United States. The Company believes that it has the potential to
successfully expand its domestic base through developing and operating a
destination resort in Atlantic City. Management believes that Atlantic City
represents an attractive market for additional development due to its
proximity to areas with favorable demographics, including a large population
base with a high level of disposable income. The Atlantic City market
currently consists of 12 hotel/casinos which as of December 31, 1997 had
11,360 rooms, 1,036,705 square feet of casino space, 35,206 slot machines and
1,484 table games. According to the Atlantic City Department of Planning and
Development (the "ACDPD"), more than 58 million people (approximately 23.5% of
the United States population) live within 300 miles of Atlantic City, and more
than 17.8 million people live within 100 miles of Atlantic City. Most of the
Atlantic City visitors are "day-trippers," but there are a substantial number
of overnight visitors, who are believed to have a higher gaming budget. The
Company believes that the overnight visitor component will increase
substantially as destination resorts and "must see" attractions such as the
proposed MGM Grand Atlantic City make Atlantic City a more exciting and
appealing attraction for the middle and high-end gaming customer.
The Atlantic City gaming market has demonstrated continued growth despite
the recent proliferation of new gaming venues across the country. The 12
hotel/casinos in Atlantic City generated approximately $3.91 billion in gaming
revenues in 1997, a 2.6% increase over 1996 gaming revenues of approximately
$3.81 billion. From 1990 to 1997, total annual gaming revenues in Atlantic
City increased 32.1%, while hotel rooms increased only approximately 28.9%
during this period.
The regulatory environment in Atlantic City has improved significantly over
the last several years. New games, such as poker and keno, have been approved,
24-hour gaming has been permitted, registration of hotel employees has been
eliminated, license terms have been extended, and various operational
requirements have been relaxed. These regulatory changes have resulted in
reduced costs for the operators and created a more varied and attractive
environment for the gaming customer. Management believes that the reforms will
serve to permit future reductions in operating expenses of casinos in Atlantic
City and to increase the funds available for additional infrastructure
development through the New Jersey Casino Redevelopment Authority ("CRDA").
Due principally to an improved regulatory environment, general improvements of
economic conditions and high occupancy rates, a majority of the Atlantic City
hotel/casinos have recently expanded, are in the process of expanding or have
announced plans to expand their facilities. In late 1996, other gaming
companies entered the Atlantic City market by acquiring hotel/casino
facilities. In addition, some companies have entered into an agreement with
Atlantic City for the development of the "H-Tract," a 170-acre site in the
Atlantic City Marina. Management believes that these increases in hotel/casino
capacity, together with infrastructure improvements, and community
revitalization programs, will be instrumental in stimulating future revenue
growth in the Atlantic City market and increasing its appeal as a destination
resort.
In addition to the planned casino expansions, major infrastructure
improvements have been proposed or have begun. These improvements include,
among other projects, new housing and retail development, a tunnel connecting
the Atlantic City Expressway to the Marina, and a new $254 million Convention
Center which opened in May 1997. The CRDA is currently overseeing the
development of the "tourist corridor" that will link the Convention Center
with the Boardwalk and will, when completed, feature approximately 500,000
square feet of exhibit and pre-function space, meeting rooms, food-service
facilities and a 1,600 car underground parking garage. The new convention
center will be the largest exhibition space between New York and Washington
D.C.
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New Jersey Government Regulation
The ownership and operation of hotel/casino facilities and gaming activities
in Atlantic City, New Jersey are subject to extensive state regulation under
the New Jersey Control Act (the "New Jersey Act") and the regulations
("Regulations") of the New Jersey Casino Control Commission (the "New Jersey
Commission") and other applicable laws. In order to operate a hotel/casino
facility in New Jersey, MGM Grand Atlantic City, Inc. must obtain a license
from the New Jersey Commission and obtain numerous other licenses, permits or
approvals from other state as well as local governmental authorities. The New
Jersey Act also established the New Jersey Division of Gaming Enforcement (the
"New Jersey Division") to investigate all license applications, enforce the
provisions of the New Jersey Act and Regulations and prosecute all proceedings
for violations of the New Jersey Act and Regulations before the New Jersey
Commission.
The New Jersey Commission has broad discretion regarding the issuance,
renewal, revocation and suspension of casino licenses. The New Jersey Act and
Regulations concern primarily the good character, honesty, integrity and
financial stability of casino licenses, their intermediary and holding
companies, their employees, their security holders and others financially
interested in casino operations; financial and accounting practices used in
connection with casino operations; rules of games, levels of supervision of
games and methods of selling and redeeming chips; manner of granting credit,
duration of credit and enforceability of gaming debts; and distribution of
alcoholic beverages.
The Company's wholly-owned subsidiary, MGM Grand Atlantic City, Inc., has
applied to be licensed by the New Jersey Commission to operate a casino, and
the Company has applied to be approved as a qualified holding company. On July
24, 1996, the Company and MGM Grand Atlantic City, Inc., and their then
officers, directors, and 5% or greater shareholders were found suitable for
licensing by the New Jersey Commission. These findings of suitability are
subject to review and revision by the New Jersey Commission based upon a
change in any material fact that is relevant to the findings.
The New Jersey Act further provides that each person who directly or
indirectly holds any beneficial interest or ownership of the securities issued
by a casino licensee or any of its intermediary or holding companies, those
persons who, in the opinion of the New Jersey Commission, have the ability to
control the casino licensee or its intermediary or holding companies or elect
a majority of the board of directors of said companies, other than a banking
or other licensed lending institution which makes a loan or holds a mortgage
or other lien acquired in the ordinary course of business, lenders and
underwriters of said companies are required to be qualified by the New Jersey
Commission. However, with respect to a publicly traded holding company such as
the Company, a waiver of qualification may be granted by the New Jersey
Commission, with the concurrence of the Director of the New Jersey Division,
if the New Jersey Commission determines that said persons or entities are not
significantly involved in the activities of MGM Grand Atlantic City, Inc. and
in the case of security holders, do not have the ability to control the
Company or elect one or more of its directors. There exists a rebuttable
presumption that any person holding 5% or more of the equity securities of a
casino licensee's intermediary or holding company or a person having the
ability to elect one or more of the directors of such a company has the
ability to control the company and thus must obtain qualification from the New
Jersey Commission.
Notwithstanding this presumption of control, the New Jersey Act provides for
a waiver of qualification for passive "institutional investors," as defined by
the New Jersey Act, if the institutional investor purchased publicly traded
securities for investment purposes only and where such securities constitute
(i) less than 10% of the equity securities of a casino licensee's holding or
intermediary company or (ii) debt securities of a casino not exceeding 20% or
(iii) a percentage of any issue of the outstanding debt of such company not
exceeding 50%. The waiver of qualification is subject to certain conditions
including, upon request of the New Jersey Commission, filing a certified
statement that the institutional investor has no intention of influencing or
affecting the affairs of the issuer, except that an institutional investor
holding voting securities shall be permitted to vote on matters put to a vote
of the holders outstanding voting securities. Additionally, a waiver of
qualifications may also be granted to institutional investors holding a higher
percentage of securities of a casino licensee's holding or intermediary
company upon a showing of good cause.
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The New Jersey Act requires the certificate of incorporation of a publicly
traded holding company to provide that any securities of such corporation are
held subject to the condition that if a holder is found to be disqualified by
the New Jersey Commission pursuant to the New Jersey Act, such holder shall
dispose of his interest in such company. Accordingly, the Company amended its
Certificate of Incorporation to provide that a holder of the Company's
securities must dispose of such securities if the holder is found disqualified
under the New Jersey Act. In addition, the Company amended its Certificate of
Incorporation to provide that the Company may redeem the stock of any holder
found to be disqualified.
If the New Jersey Commission should find a security holder to be unqualified
to be a holder of securities of a casino licensee or holding company, not only
must the disqualified holder dispose of such securities but in addition,
commencing on the date the New Jersey Commission serves notice upon such a
company of the determination of disqualification, it shall be unlawful for the
disqualified holder (i) to receive any dividends or interest upon any such
securities, (ii) to exercise, directly or through any trustee or nominee, any
right conferred by such securities, or (iii) to receive any remuneration in
any form from the licensee for services rendered or otherwise. If the New
Jersey Commission should find a security holder to be unqualified to be a
holder of securities of a casino licensee or holding company, the New Jersey
Commission shall take any necessary action to protect the public interest
including the suspension or revocation of the casino license except that if
the disqualified person is the holder of securities of a publicly traded
holding company, the New Jersey Commission shall not take action against the
casino license if (i) the holding company has the corporate charter provisions
concerning divestiture of securities by disqualified owners required by the
New Jersey Act, (ii) the holding company has made good faith efforts including
the pursuit of legal remedies to comply with any order of the New Jersey
Commission, and (iii) the disqualified holder does not have the ability to
control the company or elect one or more members of the company's board of
directors.
If, after licensure, the New Jersey Commission determines that the MGM Grand
Atlantic City, Inc. has violated the New Jersey Act or Regulations, or if any
security holder of the Company or MGM Grand Atlantic City, Inc. who is
required to be qualified under the New Jersey Act is found to be disqualified
but does not dispose of the securities, MGM Grand Atlantic City, Inc. could be
subject to fines or its license could be suspended or revoked. If MGM Grand
Atlantic City, Inc.'s license is revoked after issuance, the New Jersey
Commission could appoint a conservator to operate and to dispose of any
hotel/casino facilities of MGM Grand Atlantic City, Inc. Net proceeds of a
sale by a conservator and net profits of operations by a conservator (at least
up to an amount equal to a fair return on MGM Grand Atlantic City, Inc.'s
investment which is reasonable for casinos or hotels) would be paid to the
Company.
The New Jersey Act imposes an annual tax of eight percent on gross casino
revenues (as defined in the New Jersey Act). In addition, casino licensees are
required to invest one and one-quarter percent of gross casino revenues for
the purchase of bonds to be issued by the Casino Reinvestment Development
Authority or make other approved investments equal to that amount. In the
event the investment requirement is not met, the casino licensee is subject to
a tax in the amount of two and one-half percent on gross casino revenues. The
New Jersey Commission has established fees for the issuance or renewal of
casino licenses and casino hotel alcoholic beverage licenses and an annual
license fee on each slot machine.
In addition to compliance with the New Jersey Act and Regulations relating
to gaming, any facility built in Atlantic City by MGM Grand Atlantic City,
Inc. or any other subsidiary of the Company must comply with the New Jersey
and Atlantic City laws and regulations relating to, among other things, the
Coastal Area Facilities Review Act, construction of buildings, environmental
considerations, and the operation of hotels.
DETROIT PROJECT
MGM Grand Detroit
The recently enacted Michigan Gaming Control and Revenue Act (the "Michigan
Act") provides that not more than three casinos may be licensed by the State
of Michigan ("Michigan") and that they be located only in the City of Detroit
("Detroit"). In November 1997, at the conclusion of a competitive selection
process, the Mayor of Detroit, Dennis Archer, designated MGM Grand Detroit,
L.L.C. ("MGM Grand Detroit") to develop
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one of the three authorized hotel and casino complexes. MGM Grand Detroit,
Inc., a wholly-owned subsidiary of the Company, will hold a controlling
interest in MGM Grand Detroit and plans to provide a majority of the equity
capital. A minority interest will be held by Partners Detroit, LLC, a Michigan
limited liability company owned by ten individual residents of the Detroit
metropolitan area. As planned, the Detroit project is expected to include a
100,000 square foot casino, an 800 room hotel with ballroom, convention and
meeting rooms, restaurants, bars, entertainment and retail facilities. The
total project cost could exceed $700 million and development could take up to
three years following issuance of building permits. On March 12, 1998, MGM
Grand Detroit, LLC entered into a development agreement with the City of
Detroit and its Economic Development Corporation. The agreement is subject to
a number of conditions, including: (i) approval of the development agreement
by the Detroit City Council and adoption of an ordinance approving casino
gaming; (ii) acquisition by MGM Grand Detroit of a suitable development site;
and (iii) a finding by the Michigan Gaming Control Board that MGM Grand
Detroit is suitable for licensing. The design, budget and schedule for
development of the project are at a preliminary stage, and will be subject to
the risks attendant to large-scale projects and may be subject to additional
costs and delays beyond preliminary estimates. No assurance can be given that
the Company will develop a hotel/casino in Detroit, or if it does, as to its
ultimate size, configuration or costs.
Detroit Market
An assessment prepared by third party consultants for the Company concludes
that the Detroit, Michigan and Windsor, Ontario casino gaming markets are
effectively one market, and that aggregate annual revenues of approximately
$1.1 billion will be generated by patrons living within 150 miles of downtown
Detroit. It is anticipated that the market will be divided among the three
casinos to be licensed under the Michigan Act and a fourth casino which is
currently under construction in Windsor, Ontario. The Company anticipates that
all four casinos will have roughly comparable gaming areas.
Michigan Government Regulation and Taxation
The Michigan Act subjects the ownership and operation of casino gaming
facilities to extensive state licensing and regulatory requirements. The
Michigan Act also authorizes local regulation of casino gaming facilities by
Detroit, provided that any such local ordinances regulating casino gaming are
consistent with the Michigan Act and rules promulgated to implement it.
The Michigan Act creates the Michigan Gaming Control Board (the "MGCB") and
authorizes it to grant casino licenses to not more than three applicants who
have entered into development agreements with Detroit. The MGCB is granted
extensive authority to conduct background investigations and determine the
suitability of casino license applicants, affiliated companies, officers,
directors, or managerial employees of applicants and affiliated companies and
persons or entities holding a one percent or greater direct or indirect
interest in an applicant or affiliated company. Institutional investors
holding less than certain specified amounts of debt or equity securities are
exempted from meeting the suitability requirements of the Michigan Act,
provided such securities are issued by a publicly traded corporation, such as
the Company, and the securities were purchased for investment purposes only
and not for the purpose of influencing or affecting the affairs of the issuer.
The Michigan Act imposes the burden of proof on the applicant for a casino
license to establish its suitability to receive and hold the license. The
applicant must establish its suitability as to integrity, moral character and
reputation, business probity, financial ability and experience,
responsibility, and other criteria deemed appropriate by the MGCB. A casino
license is valid for a period of one year and the MGCB may refuse to renew it
upon a determination that the licensee no longer meets the requirements for
licensure.
The MGCB may, among other things, revoke, suspend or restrict a casino
license. Substantial fines or forfeiture of assets for violations of gaming
laws or rules may also be levied against a casino licensee. In the event that
a casino license is revoked or suspended for more than 120 days, the Michigan
Act provides for the appointment of a conservator who, among other things, is
required to sell or otherwise transfer the assets of the
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casino licensee or former licensee to another person or entity who meets the
requirements of the Michigan Act for licensure.
The MGCB recently approved administrative rules (the "Proposed Rules") to
implement the terms of the Michigan Act. The Proposed Rules are currently
being reviewed by the Governor's Office of Regulatory Reform and the
Legislative Services Bureau of the Michigan Legislature for certification.
After certification, they were submitted to the Joint Rules Committee of the
Michigan Legislature for review and approval. The Proposed Rules are subject
to modification at any time prior to their final adoption by the MGCB.
The Detroit City Council is considering the adoption of an ordinance which
would provide for periodic reporting by the three licensed casino operators to
the City Council and procedures whereby the City Council would determine
compliance by the operators with various commitments made by them in their
respective development agreements and report its findings to the MGCB in
connection with the annual license renewal process. While the legal effect of
any such determination is unclear, it is anticipated that certain material
breaches by an operator of its development agreement could ultimately result
in revocation or non-renewal of its casino license by the MGCB.
The Michigan Act effectively provides that each of the three casinos in
Detroit shall pay a wagering tax equal to 18% of its adjusted gross receipts,
to be paid 8.1% to Michigan and 9.9% to Detroit, a municipal services fee
equal to the greater of $4 million or 1.25% of adjusted gross receipts of each
casino to be paid to Detroit to defray its cost of hosting casinos and an
annual assessment (as adjusted based upon a consumer price index) in the
initial amount of approximately $8.3 million to be paid by each casino to
Michigan to defray its regulatory enforcement and other casino-related costs.
These are in addition to the taxes, fees, and assessments customarily paid by
business entities situated in Detroit.
EMPLOYEES
As of December 31, 1997, the Company and its subsidiaries employed
approximately 6,555 full-time equivalent employees at the MGM Grand Las Vegas
and its corporate offices. Effective December 1, 1996, MGM Grand Las Vegas and
the International Union of Operating Engineers Local 501 finalized a
collective bargaining agreement, running through December 1, 2001, covering
approximately 90 facilities and maintenance employees. On November 13, 1997,
MGM Grand Las Vegas finalized a collective bargaining agreement with the Local
Joint Executive Board of Las Vegas, on behalf of the Hotel Employees
Restaurant Employee International Union, Local 226 and the Bartenders Union,
Local 165 as the exclusive bargaining representative of approximately 2,800
employees, running through December 12, 2000.
As of December 31, 1997, MGM Grand Australia employed approximately 350
full-time equivalent employees. Hourly employees are covered by collective
bargaining agreements.
As of December 31, 1997, NYNY employed approximately 2,060 full-time
equivalent employees; operations of NYNY commenced on January 3, 1997. As of
December 31, 1997, approximately 830 of NYNY's employees were covered by
collective bargaining agreements.
ITEM 2. PROPERTIES
The Company's principal executive offices are located at 3799 Las Vegas
Boulevard South, Las Vegas, Nevada 89109, where it rents approximately 8,800
square feet from MGM Grand Las Vegas.
MGM Grand Las Vegas' principal executive offices are also located at 3799
Las Vegas Boulevard South, Las Vegas, Nevada, 89109. Certain other office and
warehouse space is leased by MGM Grand Las Vegas consisting of approximately
132,000 square feet located in Las Vegas, Nevada, for an annual rent of
approximately $525,000.
15
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MGM Grand Las Vegas is located on approximately 114 acres on the Strip in
Las Vegas, Nevada. The property is subject to a first priority deed of trust
securing bank financing of up to $1.25 billion, on which there were no amounts
outstanding as of December 31, 1997, which bears interest based on LIBOR or
the bank reference rate, and which is due December 2002. The property is also
subject to a first priority deed of trust with respect to $500 million in
senior collateralized notes (secured on a pari passu basis with the bank
financing) issued on February 2, 1998 and February 6, 1998, in tranches of
$300 million and $200 million and are due February 1, 2005 and February 6,
2008, respectively.
In January 1995, the Company contributed an 18-acre site, located at the
intersection of the Strip and Tropicana Avenue to the Company's New York-New
York joint venture (See Item 1. Business). This property, together with an
adjacent two-acre parcel, are subject to a first priority deed of trust
securing bank financing up to $285 million, of which $245.1 million was
outstanding as of December 31, 1997, and which bears interest based on the
bank prime rate, federal funds rate or LIBOR rate, and is due December 2001.
MGM Grand Australia's principal executive offices are located at Gilruth
Avenue, Mindil Beach, Darwin, Northern Territory 0801 Australia. In September
1995, the Company acquired MGM Grand Australia which is located on an 18-acre
beach front site on the north central coast of Australia (See Item 1.
Business). This property is subject to a first priority deed of trust securing
bank financing of up to approximately $58 million, which bears interest based
on the Australian bank bill rate and is due December 2000.
ITEM 3. LEGAL PROCEEDINGS
On April 5, 1996, a lawsuit was filed in the Superior Court of California,
County of Los Angeles by Sheldon Gordon and Randy Brant against the Company.
The suit alleges that the Company breached an oral joint venture agreement to
have real estate developers Gordon/Brant design and develop a retail and
entertainment center at the portion of MGM Grand Las Vegas which fronts the
Strip. Plaintiffs claim the alleged oral agreement was formed on essentially
the terms set forth in an earlier letter which provided it could not be relied
upon for any reason, and that no binding agreement would exist until an
Operating Agreement had been duly executed by the Company. They are suing for
$350,000 in costs advanced in anticipation of the project being constructed,
as well as damages of approximately $100 million from lost profits that would
have resulted upon completion, and damage to their reputations. Management
believes that the claims are wholly without merit and does not expect that the
lawsuit will have a material adverse effect on the Company's financial
condition or results of operations. On July 8, 1996, the jurisdiction of the
lawsuit was transferred to the U.S. District Court for the District of Nevada.
On June 13, 1997, the Company filed a motion for summary judgment on the
grounds that no enforceable contract exists between the parties. As of
December 31, 1997, the motion for summary judgment still was pending before
the court.
A subsidiary of the Company is a defendant in an adversary proceeding
against MGM Dist. Inc., (formerly MGM Desert Inn, Inc.), pending in the United
States Bankruptcy Court for the Central District of California. The adversary
complaint, which was filed on December 12, 1997, alleges that the debtor, Ken
Mizuno, transferred approximately $1.1 million to MGM Desert Inn, Inc. in 1988
and 1989, in payment of casino debts of various individuals. The complaint
alleges these transfers were fraudulent conveyances and seeks damages against
the Company in an amount not less than approximately $1.1 million. The Company
answered the complaint on January 30, 1998, denying the allegations thereof
and asserting the complaint failed to state a claim upon which relief could be
granted. Also on January 30, 1998, the Company filed a motion to transfer
venue to the United States Bankruptcy Court in the District of Nevada. On
February 12, 1998, the Plaintiff indicated his intent to file an amended
adversary complaint asserting that Mr. Mizuno's payment of his own casino debt
at the Desert Inn in the approximate amount of $20 million also constituted a
fraudulent conveyance. The Company intends to vigorously defend this action.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
16
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
J. TERRENCE LANNI (age 55) has served as Chairman of the Company since July
1995, Chairman of the Executive Committee and Chief Executive Officer of the
Company since June 1995. He also served as President of the Company from June
1995 to July 1995. Prior thereto, he was President and Chief Operating Officer
of Caesars World, Inc. from April 1981 to February 1995.
ALEX YEMENIDJIAN (age 42) has served as President of the Company since July
1995, as Chief Operating Officer of the Company since June 1995, and as Chief
Financial Officer of the Company from May 1994 to January 1998. He also served
as Executive Vice President of the Company from June 1992 to July 1995, as
Chairman of the Executive Committee of the Company from January 1991 to June
1992, and as President and Chief Operating Officer of the Company from March
1990 to January 1991. He also served as an executive of Tracinda from January
1990 to January 1997.
FRED BENNINGER (age 81) has served as Vice Chairman of the Board of the
Company since April 1995. He was Chairman of the Board of the Company from
August 1987 to April 1995. He also served as President of the Company from
August 1987 to March 1990 and as Chief Executive Officer of the Company from
August 1987 to January 1991.
JAMES J. MURREN (age 36) has served as Executive Vice President and Chief
Financial Officer of the Company since January 1998. For the five years prior
thereto, most recently serving as Managing Director and Co-Director of
research for Deutsche Morgan Grenfell.
SCOTT LANGSNER (age 44) has served as Secretary/Treasurer of the Company
since July 1987.
EDWARD J. JENKINS (age 53) has served as Vice President of the Company since
October 1995. From July 1992 to October 1995, he served as Vice President,
Security, for Caesars World, Inc. He previously was a 30-year veteran of the
FBI, holding various management positions at Bureau offices throughout the
United States.
17
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is listed on the New York Stock Exchange.
For price information with respect to such Common Stock, see Exhibit
13 hereto, which is incorporated herein by this reference.
As of March 12, 1998, there were approximately 3,063 record holders of
the Company's Common Stock.
The Company has not paid any dividends to date on the Common Stock.
The declaration of dividends (which is within the discretion of the
Company's Board of Directors) will depend on the earnings, financial
position and capital requirements of the Company and other relevant
factors existing at the time. See Exhibit 13 hereto, which is
incorporated herein by this reference.
ITEM 6. SELECTED FINANCIAL DATA
The information is set forth in Exhibit 13 hereto, which is
incorporated herein by this reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information is set forth in Exhibit 13 hereto, which is
incorporated herein by this reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated balance sheets as of December 31, 1997 and 1996 and
the consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended December
31, 1997, together with the Report of Independent Public Accountants,
are contained in Exhibit 13 hereto and are incorporated herein by this
reference.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
18
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information called for by PART III (Items 10, 11, 12, and 13) has
been omitted, as the Company intends to file with the Securities and
Exchange Commission not later than 120 days after the end of its
fiscal year, a definitive Proxy Statement pursuant to regulation 14A,
except that the information regarding the Company's executive
officers called for by Item 10 of PART III has been included in PART
I of this Form 10-K under the heading "Executive Officers of the
Registrant."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The financial statements for the Company are set forth in Exhibit
13 hereto, which are incorporated herein by this reference. The
financial schedule listed in the accompanying Index to Financial
Statements at page 22 herein is filed as part of this Form 10-K.
(b) Form 8-K filed on February 23, 1998.
(c) Exhibits.
The exhibits listed in the accompanying Exhibit Index on Pages 25-26
are filed as part of this Form 10-K.
(d) The financial statements for the Company's Unconsolidated
Affiliate are set forth in Exhibit 99 hereto and incorporated herein
by this reference.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
MGM GRAND, INC.
By: /s/ J. Terrence Lanni
-----------------------------------
J. Terrence Lanni
Chairman and Chief Executive
Officer
(Principal Executive Officer)
By: /s/ Alex Yemenidjian
-----------------------------------
Alex Yemenidjian
President and Chief Operating
Officer
Dated: March 27, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ J. Terrence Lanni Chairman of the Board, Chief March 27, 1998
____________________________________ Executive Officer, and
J. Terrence Lanni Director
/s/ Alex Yemenidjian President, Chief Operating March 27, 1998
____________________________________ Officer, and Director
Alex Yemenidjian
/s/ Fred Benninger Vice-Chairman of the Board March 27, 1998
____________________________________
Fred Benninger
/s/ James J. Murren Executive Vice President, March 27, 1998
____________________________________ Chief Financial Officer,
James J. Murren and Director
/s/ James D. Aljian Director March 27, 1998
____________________________________
James D. Aljian
/s/ Terry N. Christensen Director March 27, 1998
____________________________________
Terry N. Christensen
Director March , 1998
____________________________________
Glenn A. Cramer
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
Director March , 1998
____________________________________
Willie D. Davis
Director March , 1998
____________________________________
Alexander M. Haig, Jr.
Director March , 1998
____________________________________
Kirk Kerkorian
Director March , 1998
____________________________________
Frank G. Mancuso
Director March , 1998
____________________________________
Walter M. Sharp
/s/ Jerome B. York Director March 27, 1998
____________________________________
Jerome B. York
</TABLE>
21
<PAGE>
INDEX TO FINANCIAL STATEMENTS
(ITEM 14(a))
<TABLE>
<CAPTION>
FORM 10-K
PAGE
---------
<S> <C>
Schedule II--Valuation and Qualifying Accounts........................ 24
</TABLE>
All other schedules have been omitted either as inapplicable or not required
under the instructions contained in Regulation S-X, or because the information
is included in the financial statements or the notes thereto.
22
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SUPPLEMENTAL SCHEDULE
To The Board of Directors and Stockholders of MGM Grand, Inc.:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements included in MGM Grand, Inc.'s Annual
Report to stockholders incorporated by reference in this Form 10-K, and have
issued our report thereon dated January 28, 1998. Our audits were made for the
purpose of forming an opinion on those statements taken as a whole. The
supplemental Schedule II as shown on page 24 is the responsibility of the
Company's management and is presented for purposes of complying with the
Securities and Exchange Commission rules and is not part of the basic
consolidated financial statements. This schedule has been subjected to the
auditing procedures applied in the audits of the basic consolidated financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
Arthur Andersen LLP
Las Vegas, Nevada
January 28, 1998
23
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
CHARGED
BALANCE AT TO COSTS AMOUNTS BALANCE
BEGINNING AND WRITTEN AT END
DESCRIPTION OF PERIOD EXPENSES OFF OF PERIOD
----------- ---------- --------- ------- ---------
<S> <C> <C> <C> <C>
FOR THE YEAR ENDED DECEMBER 31, 1997:
Allowance for doubtful accounts and
discounts............................. $35,432 $31,814 $40,223 $27,023
======= ======= ======= =======
FOR THE YEAR ENDED DECEMBER 31, 1996:
Allowance for doubtful accounts and
discounts............................. $33,072 $38,635 $36,275 $35,432
======= ======= ======= =======
FOR THE YEAR ENDED DECEMBER 31, 1995:
Allowance for doubtful accounts and
discounts............................. $17,624 $57,683 $42,235 $33,072
======= ======= ======= =======
</TABLE>
24
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3(1) Certificate of Incorporation of Company, as amended (incorporated by
reference to Exhibit 3(1) to Registration Statement No. 33-3305).
3(a) Amendment to Certificate of Incorporation dated July 17, 1997.
3(2) Bylaws of Company, as amended (incorporated by reference to Exhibit
3(2) to Registration Statement No. 33-30337).
4(1) Indenture, dated as of February 2, 1998, among the Company, as
issuer, the Guarantor Parties thereto, as guarantors, and PNC Bank,
National Association, as Trustee (incorporated by reference to
Exhibit 4(1) to the Company's Current Report on Form 8-K, dated
February 23, 1998 (the "Form 8-K")).
4(2) Schedule setting forth material details of the Indenture, among MGM
Grand, Inc., as Issuer, the Guarantors Parties thereto and U.S.
Trust Company of California, N.A., dated as of February 6, 1998
(incorporated by reference to Exhibit 4(2) to the Form 8-K).
*10(1) MGM Grand, Inc. Nonqualified Stock Option Plan (incorporated by
reference to Exhibit 10(1) to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1996 (the "1996 10-
K")).
*10(2) MGM Grand, Inc. Incentive Stock Option Plan (incorporated by
reference to Exhibit 10(2) to the 1996 10-K).
10(3) Amended and Restated Loan Agreement, dated as of July 17, 1997,
between the Company, as Borrower, MGM Grand Atlantic City, Inc., as
Co-Borrower, Bank of America NT&SA, as Administrative Agent, and
the banks named therein (incorporated by reference to Exhibit 10 to
the Company's Current Report on Form 8-K dated July 23, 1997).
10(3)(a) Amendment No. 1 to Amended and Restated Loan Agreement.
10(3)(b) Amendment No. 2 to Amended and Restated Loan Agreement.
*10(4) Letter Agreements, dated January 3, 1991 and February 9, 1993,
between the Company and Alex Yemenidjian (incorporated by reference
to Exhibit 10(19) of the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1992 (the "1992 10-K")).
*10(5) Letter Agreement, dated February 9, 1993, between the Company and
Fred Benninger (incorporated by reference to Exhibit 10(20) of the
1992 10-K).
10(6) Operating Agreement of New York-New York Hotel, LLC by and between
MGM Grand, Inc. and PRMA Las Vegas, Inc. dated as of December 26,
1994 (incorporated by reference to Exhibit 10(16) to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1994 (the "1994 10-K")).
10(7) Contribution Agreement with Joint Escrow instructions by and among
PRMA Las Vegas, Inc. and the Company and New York-New York Hotel,
LLC dated as of December 26, 1994 (incorporated by reference to the
1994 Form 10-K).
10(8) Construction/Revolving Loan Agreement dated as of September 15, 1995
among New York-New York Hotel, LLC and the banks named therein
(incorporated by reference to Exhibit 10(18) to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1995 (the "1995 10-K")).
10(9) Completion Guaranty dated as of September 15, 1995 by the Company
and Primadonna Resorts, Inc. (incorporated by reference to Exhibit
10(19) to the 1995 10-K).
10(10) Keep Well Agreement dated as of September 15, 1995 by the Company
and Primadonna Resorts, Inc. (incorporated by reference to Exhibit
10(20) to the 1995 10-K).
</TABLE>
25
<PAGE>
EXHIBIT INDEX--(CONTINUED)
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10(11) Agreement for Purchase of Shares between MGM Grand Australia PTY LTD
("MGM Grand Australia"), the Company and the Vendors (as defined
therein) dated as of June 30, 1995 (incorporated by reference to
Exhibit 10(21) to the 1995 10-K).
10(12) Loan Agreement between MGM Grand Australia and the banks named
therein dated September 6, 1995 (incorporated by reference to
Exhibit 10(22) to the 1995 10-K).
10(13) MGM Grand, Inc. Continuing Guaranty dated as of September 1, 1995
(incorporated by reference to Exhibit 10(23) to the 1995 10-K).
10(14) Option Deed dated as of June 30, 1995 between the Shareholders named
therein, the Company and the persons named therein (incorporated by
reference to Exhibit 10(24) to the 1995 10-K).
*10(26) Letter Agreement dated April 13, 1995 between the Company and J.
Terrence Lanni (incorporated by reference to Exhibit 10(26) to the
1995 10-K).
*10(27) Letter Agreement dated October 10, 1995 between the Company and
Edward Jenkins (incorporated by reference to Exhibit 10(27) to the
1996 10-K).
*10(28) MGM Grand, Inc. 1997 Nonqualified Stock Option Plan (incorporated by
reference to Exhibit 4.1 to the Company's Registration Statement on
Form S-8 (File No. 333-42729) (the "Form S-8")).
*10(29) MGM Grand, Inc. 1997 Incentive Stock Option Plan (incorporated by
reference to Exhibit 4.2 to the Form S-8).
*10(30) Annual Performance Based Incentive Plan for Executive Officers
(incorporated by reference to Appendix 1 to the Company's Proxy
Statement dated March 28, 1997).
*10(31) Letter Agreement dated April 22, 1997, between the Company and
Alejandro Yemenidjian.
*10(32) Letter Agreement dated January 16, 1998, between the Company and
James Murren.
13 Portions of the Company's 1997 Annual Report to Stockholders.
21 List of Subsidiaries.
23(1) Consent of Independent Public Accountants.
27 Financial Data Schedule for period ending December 31st.
27(1) Financial Data Schedule for period ending September 30th.
27(2) Financial Data Schedule for period ending June 30th.
27(3) Financial Data Schedule for period ending March 31st.
99 Unconsolidated Affiliate Financial Statements.
</TABLE>
- --------
* Management contract or compensatory plan.
26
<PAGE>
Exhibit 3(a)
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION
OF
MGM GRAND, INC.
MGM Grand, Inc., a corporation organized and existing under and by virtue of
the General Corporation Law of the State of Delaware (the "Corporation"), DOES
HEREBY CERTIFY:
FIRST:
That pursuant to a Unanimous Written Consent of the Board of Directors of
the Corporation, resolutions were duly adopted setting forth a proposed
amendment of the corporation's Certificate of Incorporation as amended (the
"Certificate of Incorporation"), declaring said amendment to be advisable and
providing that the amendment be presented to the stockholders for consideration
at the next annual meeting of stockholders. The resolution setting forth the
proposed amendment is as follows:
RESOLVED, that it is advisable to amend the Certificate of Incorporation and
that the Corporation's Certificate of Incorporation be amended to add a new
Article 12 and a new Article 13 as follows:
"12. (A). Except as is otherwise expressly provided in instruments
containing the terms of the Corporation's securities, which instruments
have been approved by the New Jersey Casino Control Commission
(hereinafter "Commission"), if and when the Corporation shall become,
and so long as the Corporation shall remain, a publicly traded holding
company as defined in the New Jersey Casino Control Act, N.J.S.A. 5:12-
--------
1 et seq. (hereinafter "Act"), in accordance with section 82d(7) and
-------
(9) of the Act, all securities of the Corporation shall be held subject
to the condition that if a holder thereof is disqualified by the
Commission pursuant to the Act ("Disqualified Holder"), such
Disqualified Holder shall dispose of his interest in the Corporation's
securities within 120 days or such other time period required by the
Commission following the Corporation's receipt of notice (the "Notice
Date") of such Disqualified Holder. Promptly following the Notice Date,
the Corporation
<PAGE>
shall personally deliver a copy of such written notice to the
Disqualified Holder, mail it to such Disqualified Holder at the address
shown on the Corporation's books and records, or use any other
reasonable means of delivering a copy of such written notice to the
Disqualified Holder. Failure of the Corporation to provide notice to a
Disqualified Holder after making reasonable efforts to do so shall not
preclude the Corporation from exercising its rights under this Article
12. Failure of the Corporation to exercise its rights under this
Article 12 shall not preclude the Corporation from exercising its
rights under Article 13.
(B). A Disqualified Holder shall reimburse the Corporation for
all expenses incurred by the Corporation in performing its obligations
and exercising its right under this Article 12 or Article 13.
13. So long as the Corporation holds (directly or indirectly) a
license or franchise from a governmental agency to conduct its
business, which license or franchise is conditioned upon some or all of
the holders of the Corporation's stock possessing prescribed
qualifications, any and all shares of the Corporation's stock shall be
subject to redemption by the Corporation, at its sole option and in its
sole discretion, to the extent necessary to prevent the loss of such
license or franchise or to reinstate it.
Any shares of the Corporation's stock redeemable pursuant to
this Article 13 may be called for redemption immediately for cash,
property or rights, including securities of the Corporation or another
corporation, on not less than five (5) days notice to the holder(s)
thereof at a redemption price equal to the average closing price of
such stock on a national securities exchange for the 45 trading days
immediately preceding the date of the redemption notice; or if such
stock is not so traded, then the average of the high and low closing
bid price of the stock as quoted by the National Association of
Securities Dealers Automated Quotation system for such 45 trading day
period; or if such stock is not so quoted, the redemption price shall
be determined in good faith by the Corporation's Board of Directors."
2
<PAGE>
SECOND:
That thereafter, the annual meeting of stockholders of the Corporation
was duly called and held on May 6, 1997, upon notice in accordance with Section
222 of the General Corporation Law of the State of Delaware at which meeting the
necessary number of shares as required by statute were voted in favor of the
amendment.
THIRD:
That said amendment was duly adopted in accordance with the provisions
of Section 242 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, MGM Grand, Inc. has caused this certificate to be
signed by Scott Langsner, it Secretary/Treasurer, this 17th day of July, 1997.
MGM GRAND, INC.
By: /s/ Scott Langsner
------------------
Scott Langsner
Secretary/Treasurer
<PAGE>
EXHIBIT 10(3)(a)
AMENDMENT NO 1. TO AMENDED AND RESTATED LOAN AGREEMENT
This Amendment No. 1 to Amended and Restated Loan Agreement
("Amendment") is entered into with reference to the Amended and Restated Loan
Agreement dated as of July 17, 1997, by and among MGM Grand, Inc., a Delaware
corporation ("Borrower"), MGM Grand Atlantic City, Inc., a New Jersey
corporation ("Atlantic City"), as initial Co-Borrower, the Banks named therein,
Societe Generale, The Bank of Nova Scotia, Bank of Scotland, Bankers Trust
Company, CIBC Inc., Commerzbank AG, Los Angeles Branch, The Long-Term Credit
Bank of Japan, Ltd., Los Angeles Agency, PNC Bank, National Association, and
Wells Fargo Bank, N.A., as Managing Agents, Fleet Bank, N.A., as Co-Agent, and
Bank of America National Trust and Savings Association, as Administrative Agent,
with reference to the following facts:
A. Pursuant to Section 2.7 of the Loan Agreement, Borrower is entitled to
designate Guarantors as additional Co-Borrowers under the Loan Agreement.
B. By this Amendment, Borrower designates MGM Grand Detroit, LLC. as an
additional Co-Borrower.
C. It is intended that Loans and Letters of Credit provided to MGM Grand
Detroit, LLC for the purpose of construction of the Detroit Project not be
subject to the condition precedent that no Material Adverse Effect has
occurred.
D. Capitalized terms used herein are used with the meanings set forth for
those terms in the Loan Agreement.
NOW THEREFORE, Borrower, Atlantic City and Detroit hereby agree to amend the
Loan Agreement as follows:
1. Amendment to Section 8.3. The preamble and clause (a) of Section
------------------------
8.3 of the Loan Agreement are hereby amended to read in full as follows:
"8.3 Any Advance. The obligation of each Bank to make any Advance, and
-----------
the obligation of the Issuing Bank to issue a Letter of Credit, is subject
to the
-1-
<PAGE>
following conditions precedent (unless the Requisite Banks, in their
sole and absolute discretion, shall agree otherwise):
(a) except (i) for representations and warranties which expressly
------
speak as of a particular date or are no longer true and correct as a
result of a change which is permitted by this Agreement or (ii) as
disclosed by Borrower and the Co-Borrowers and approved in writing by
the Requisite Banks, the representations and warranties contained in
Article 4 (other than Sections 4.4(a), 4.6 (first sentence), 4.10,
----------
4.17 and 4.18 (but only if Borrower and its Restricted Subsidiaries
are diligently engaged in measures that will result in compliance with
all Hazardous Materials Laws)) shall be true and correct on and as of
the date of the Advance as though made on that date, PROVIDED THAT IT
-------- ----
IS EXPRESSLY UNDERSTOOD AND AGREED THAT THE TRUTH AND ACCURACY OF THE
REPRESENTATION SET FORTH IN SECTION 4.6 SHALL NOT BE A CONDITION
PRECEDENT TO ANY LOAN OR LETTER OF CREDIT MADE OR ISSUED TO DETROIT
FOR THE PURPOSE OF FINANCING, DIRECTLY OR INDIRECTLY, THE DESIGN,
DEVELOPMENT, CONSTRUCTION OR OPERATION OF THE DETROIT PROJECT;"
2. Appointment as Co-Borrower. Subject to the fulfillment of the
--------------------------
conditions thereto set forth in Section 2.7 of the Loan Agreement, Detroit is
hereby designated as a Co-Borrower, and accepts appointment as a Co-Borrower.
3. Conditions Precedent. The effectiveness of this Amendment shall be
--------------------
conditioned upon the receipt by the Administrative Agent of the following:
(a) Counterparts of this Amendment executed by Borrower, Atlantic
City, Detroit, and the Administrative Agent, acting on behalf of the Banks;
(b) Written consents to the execution, delivery and performance hereof
from each of the Banks;
(c) Written consents to the execution, delivery and performance hereof
from each of the Guarantors; and
(d) Borrower, Atlantic City and Detroit shall have fulfilled each of
the conditions precedent to the appointment of Detroit as a Co-Borrower
described in Section 2.7 of the Loan Agreement.
-2-
<PAGE>
4. Representation and Warranty. Borrower represents and warrants to the
---------------------------
Administrative Agent and the Banks that no Default or Event of Default has
occurred and remains continuing.
5. Confirmation. In all other respects, the terms of the Loan Agreement
------------
and the other Loan Documents are hereby confirmed.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed as of the date first above written.
MGM GRAND, INC., a Delaware corporation
/s/ Scott Langsner
By: ______________________________________
Scott Langsner, Secretary and Treasurer
MGM GRAND ATLANTIC CITY, INC., a New Jersey corporation
/s/ Scott Langsner
By: ______________________________________
Scott Langsner, Secretary and Treasurer
MGM GRAND DETROIT, LLC, a Delaware limited liability company
/s/ Scott Langsner
By: ______________________________________
Scott Langsner, Secretary and Treasurer
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Administrative Agent
/s/ Janice Hammond
By: _______________________________________
Janice Hammond, Vice President
-3-
<PAGE>
CONSENT OF BANK
This Consent of Bank is delivered with reference to the Amended and
Restated Loan Agreement dated as of July 17, 1997, among MGM Grand, Inc., a
Delaware corporation ("Borrower"), MGM Grand Atlantic City, Inc., a New Jersey
corporation ("Atlantic City"), as initial Co-Borrower, the Banks named therein,
Societe Generale, The Bank of Nova Scotia, Bank of Scotland, Bankers Trust
Company, CIBC Inc., Commerzbank AG, Los Angeles Branch, The Long-Term Credit
Bank of Japan, Ltd., Los Angeles Agency, PNC Bank, National Association, and
Wells Fargo Bank, N.A., as Managing Agents, Fleet Bank, N.A., as Co-Agent, and
Bank of America National Trust and Savings Association, as Administrative Agent,
Capitalized terms used but not defined herein are used with the meanings set
forth for those terms in the Loan Agreement.
The undersigned Bank hereby consents to the execution, delivery and
performance of the proposed Amendment No. 1 to Loan Agreement by the
Administrative Agent on behalf of the Banks, substantially in the form presented
to the undersigned as a draft.
______________________________
[Typed/Printed Name of Bank]
By: __________________________
Title: _________________________
Date: _________________________
-4-
<PAGE>
EXHIBIT 10(3)(b)
AMENDMENT NO 2. TO AMENDED AND RESTATED LOAN AGREEMENT
This Amendment No. 2 to Amended and Restated Loan Agreement dated as
of January 30, 1998, ("Amendment") is entered into with reference to the Amended
and Restated Loan Agreement dated as of July 17, 1997, by and among MGM Grand,
Inc., a Delaware corporation ("Borrower"), MGM Grand Atlantic City, Inc., a New
Jersey corporation ("Atlantic City"), as initial Co-Borrower, the Banks named
therein, Societe Generale, The Bank of Nova Scotia, Bank of Scotland, Bankers
Trust Company, CIBC Inc., Commerzbank AG, Los Angeles Branch, The Long-Term
Credit Bank of Japan, Ltd., Los Angeles Agency, PNC Bank, National Association,
and Wells Fargo Bank, N.A., as Managing Agents, Fleet Bank, N.A., as Co-Agent,
and Bank of America National Trust and Savings Association, as Administrative
Agent, as previously amended by an Amendment No. 1 thereto (the "Loan
Agreement"). Pursuant to an Amendment No. 1 to the Loan Agreement, Borrower has
among other things designated MGM Grand Detroit, LLC ("Detroit") as an
additional Co-Borrower thereunder.
The Administrative Agent, acting with the consent of the Requisite
Banks in accordance with the terms of the Loan Agreement, Borrower, Atlantic
City and Detroit hereby agree to amend the Loan Agreement as follows:
1. Definitions. Capitalized terms used herein are used with the meanings
-----------
set forth for those terms in the Loan Agreement. Section 1.1 of the Loan
Agreement is hereby amended to add the following defined terms:
"Collateral Event" means the occurrence of (a) any reduction in
----------------
the credit rating assigned by S&P to any Pari Passu Notes (or, if S&P does
not rate the Pari Passu Notes, its corporate rating of Borrower) to an
unsecured credit rating which is below BBB- or (b) any reduction in the
--
credit rating assigned by Moody's to any Pari Passu Notes (or, if Moody's
does not rate the Pari Passu Notes, its corporate rating of Borrower) to an
unsecured credit rating which is below Baa3.
"Pari Passu Notes" means (a) Borrower's $300,000,000 6.75% Senior
----------------
Collateralized Notes due 2005 to be issued pursuant to the Indenture dated
as of February 2, 1998 between Borrower and PNC Bank, National Association,
as Trustee, and (b) any other Indebtedness of Borrower of the type
contemplated in Section 6.9(m).
-1-
<PAGE>
2. Section 2.14 - Collateral Release and Reattachment. Section 2.14 of
--------------------------------------------------
the Loan Agreement is hereby amended to read in full as follows:
"Release of Collateral; Subsequent Reattachment of Collateral.
------------------------------------------------------------
(a) Provided that no Default or Event of Default has then occurred and
remains continuing, Borrower and the Co-Borrowers may in their sole
discretion request that the Administrative Agent release the Liens created
by the Collateral Documents in accordance with this Section if, as of the
date of their request, the credit facilities governed by this Agreement
have unsecured ratings of BBB- from S&P and Baa3 from Moody's and Borrower
--------- ---
concurrently delivers each of the documents described in this clause (a) to
the Administrative Agent. In the event that either S&P or Moody's do not
rate the credit facilities governed hereby, the corporate rating of
Borrower issued by such rating agency shall be deemed the equivalent of a
rating of this credit facility. Borrower and the Co-Borrowers shall submit
any request under this Section in the form of a Certificate, in form and
substance acceptable to the Administrative Agent, signed by a Senior
Officer of Borrower and each Co-Borrower certifying that no Default or
Event of Default exists and setting forth the ratings granted by S&P and
Moody's, together with (i) a written consent to the release of Collateral
executed by each Guarantor, (ii) letters addressed to the Administrative
Agent from both Moody's and S&P indicating that, following the release of
the Collateral Documents, both the Pari Passu Notes and the credit
facilities governed by this Agreement will receive unsecured ratings of
BBB- from S&P and Baa3 from Moody's and that such release will not result
in a reduction in the credit ratings issued by either Moody's or S&P below
the respective ratings in effect on February 2, 1998, and (iii) and such
other supporting information as the Administrative Agent may request,
including evidence reasonably satisfactory to the Administrative Agent that
the creditors holding all Indebtedness of the type described in Section
6.9(m) shall concurrently release any Liens held by such creditors.
(b) Promptly upon receipt of such a Certificate, the Administrative
Agent shall provide a copy thereof to the Banks and, unless the Requisite
Banks contest the accuracy thereof within five Banking Days, shall,
concurrently with the release of any Liens incurred under Section 6.8(g),
(i) execute and deliver to Borrower and its Subsidiaries reconveyances and
releases of the Collateral Documents, and (ii) return to the Persons
legally entitled thereto, all Collateral pledged thereunder, all at the
sole expense of Borrower and the Co-Borrowers (a "Collateral Release"),
provided that the Administrative Agent shall not be
-------- ----
-2-
<PAGE>
obligated to effectuate a Collateral Release at any time when a Collateral
Event exists.
(c) A Collateral Release shall not constitute or be construed as a
release (or to require the release) of the Subsidiary Guarantees or the
Borrower Guaranty.
(d) If following a Collateral Release, a Collateral Event occurs,
Borrower and the Co-Borrowers shall, and shall cause each of their
Restricted Subsidiaries to, promptly and in any event within thirty days
following the occurrence of such Collateral Event and in any event not
later than the granting of any Liens in such collateral to the Pari Passu
Notes (but only if the Collateral Event is continuing), grant perfected
Liens in substantially all of the Property of Borrower and its Restricted
Subsidiaries to secure the Obligations, provided that Borrower and its
--------
Restricted Subsidiaries shall not be obligated to provide Liens in any
Property to the extent that Gaming Laws prohibit the granting of Liens in
such Property to the Administrative Agent and the Pari Passu Notes unless
and until all required approvals of Gaming Boards thereto are obtained. In
such event, Borrower shall, and shall cause each Restricted Subsidiary to,
use its best efforts to obtain all necessary consents from the applicable
Gaming Boards to grant a perfected Lien on such Property securing the
Obligations and, upon receipt of all consents needed to grant such a
perfected Lien, shall promptly take all action (or cause the Restricted
Subsidiaries to take all action) reasonably necessary (including without
limitation execution and delivery of Collateral Documents) in order to
grant and perfect such a Lien. The Liens granted pursuant to this clause
(d) shall be (i) equal, ratable and pari passu with any Liens securing the
Pari Passu Notes, (ii) granted concurrently with the granting of any Liens
in favor of the Pari Passu Notes, and (iii) granted pursuant to
instruments, documents and agreements which are reasonably acceptable to
the Administrative Agent and no less favorable to the Administrative Agent
and the other Creditors than those granted to the Pari Passu Notes. In
connection with the granting of any such Liens, Borrower and its Restricted
Subsidiaries shall provide to the Administrative Agent (y) policies of
title insurance on customary terms and conditions, to the extent that
policies of title insurance on the corresponding Property are provided to
the holders of the Pari Passu Notes (and in an insured amount that bears
the same proportion to the principal amount of the Commitment as the
insured amount in the policies provided to the holders of the Pari Passu
Notes bears to the aggregate amount of the Pari Passu Notes), and (z) legal
opinions and other assurances as the Administrative Agent may reasonably
request."
-3-
<PAGE>
3. Section 6.8 - Negative Pledge. Section 6.8(g) of the Loan Agreement
-----------------------------
is hereby amended to read in full as follows:
"(g) Until a Collateral Release occurs, or if a Collateral Event
occurs, Liens securing pari passu Indebtedness described in Section 6.9(m)
---- -----
in an aggregate principal amount which does not exceed $500,000,000 at any
time (plus interest, fees, premium, indemnities, expenses and other amounts
which are not principal relating or payable with respect to such principal
amount), on collateral which is not, as of any date of determination, more
extensive than the collateral encumbered by the Collateral Documents, and
Negative Pledges which are not more extensive than the Negative Pledge
contained in this Section relating to such pari passu Indebtedness, and
---- -----
which in any event allow the Liens in favor of the Administrative Agent and
the other Creditors contemplated herein;"
4. Section 6.9 - Permitted Indebtedness. Section 6.9(m) of the Loan
------------------------------------
Agreement is hereby amended to read in full as follows:
"(m) Other senior Indebtedness of Borrower incurred when no Default
or Event of Default has occurred and remains continuing which is pari passu
---- -----
to the Obligations (and guarantees thereof issued by the Guarantors which
are not more extensive or favorable to the holders thereof than the
Subsidiary Guarantees) in priority of payment in any insolvency case
involving Borrower or the Guarantors, provided that Borrower and the Co-
--------
Borrowers shall not incur any Indebtedness which results in the aggregate
principal Indebtedness outstanding pursuant to this clause (m) being in
excess of $500,000,000 at any time when (i) Borrower and the Co-Borrowers
are not then entitled to request a Collateral Release pursuant to Section
2.14 or (ii) a Collateral Event has occurred and is continuing and no
Collateral Release has thereafter occurred. This clause (m) shall not be
construed to require Borrower to repay any Indebtedness incurred under this
clause (m) by reason of the later occurrence of any Collateral Event to the
extent such Indebtedness was permitted hereunder when incurred."
5. Conditions Precedent. The effectiveness of this Amendment shall be
--------------------
conditioned upon the receipt by the Administrative Agent of the following:
(a) Counterparts of this Amendment executed by Borrower, Atlantic
City, Detroit, and the Administrative Agent, acting on behalf of the Banks;
-4-
<PAGE>
(b) Written consents to the execution, delivery and performance hereof
from the Requisite Banks; and
(c) Written consents to the execution, delivery and performance hereof
from each of the Guarantors.
6. Representation and Warranty. Borrower and each Co-Borrower represent
---------------------------
and warrant to the Administrative Agent and the Banks that no Default or Event
of Default has occurred and remains continuing.
-5-
<PAGE>
7. Confirmation. In all other respects, the terms of the Loan Agreement
------------
and the other Loan Documents are hereby confirmed.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed as of the date first above written.
MGM GRAND, INC., a Delaware corporation
/s/ Scott Langsner
By: ______________________________________
Scott Langsner, Secretary and Treasurer
MGM GRAND ATLANTIC CITY, INC., a New Jersey corporation
/s/ Scott Langsner
By: ______________________________________
Scott Langsner, Secretary and Treasurer
MGM GRAND DETROIT, LLC, a Delaware limited liability company
/s/ Scott Langsner
By: ______________________________________
Scott Langsner, Secretary and Treasurer
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as
Administrative Agent
/s/ Janice Hammond
By: _______________________________________
Janice Hammond, Vice President
-6-
<PAGE>
CONSENT OF BANK
This Consent of Bank is delivered with reference to the Amended and
Restated Loan Agreement dated as of July 17, 1997, among MGM Grand, Inc., a
Delaware corporation ("Borrower"), MGM Grand Atlantic City, Inc., a New Jersey
corporation ("Atlantic City"), as initial Co-Borrower, the Banks named therein,
Societe Generale, The Bank of Nova Scotia, Bank of Scotland, Bankers Trust
Company, CIBC Inc., Commerzbank AG, Los Angeles Branch, The Long-Term Credit
Bank of Japan, Ltd., Los Angeles Agency, PNC Bank, National Association, and
Wells Fargo Bank, N.A., as Managing Agents, Fleet Bank, N.A., as Co-Agent, and
Bank of America National Trust and Savings Association, as Administrative Agent.
Capitalized terms used but not defined herein are used with the meanings set
forth for those terms in the Loan Agreement.
The undersigned Bank hereby consents to the execution, delivery and
performance of the proposed Amendment No. 2 to Loan Agreement by the
Administrative Agent on behalf of the Banks, substantially in the form presented
to the undersigned as a draft.
______________________________
[Typed/Printed Name of Bank]
By: __________________________
Title: _________________________
Date: _________________________
-7-
<PAGE>
CONSENT OF GUARANTORS
This Consent of Guarantors is delivered with reference to the Amended
and Restated Loan Agreement dated as of July 17, 1997, among MGM Grand, Inc., a
Delaware corporation ("Borrower"), MGM Grand Atlantic City, Inc., a New Jersey
corporation ("Atlantic City"), as initial Co-Borrower, the Banks named therein,
Societe Generale, The Bank of Nova Scotia, Bank of Scotland, Bankers Trust
Company, CIBC Inc., Commerzbank AG, Los Angeles Branch, The Long-Term Credit
Bank of Japan, Ltd., Los Angeles Agency, PNC Bank, National Association, and
Wells Fargo Bank, N.A., as Managing Agents, Fleet Bank, N.A., as Co-Agent, and
Bank of America National Trust and Savings Association, as Administrative Agent.
Capitalized terms used but not defined herein are used with the meanings set
forth for those terms in the Loan Agreement.
The undersigned hereby consents to the execution delivery and
performance of the foregoing Amendment No. 2 to Loan Agreement, and agree to
take any and all actions necessary or reasonably requested to cause the Borrower
and the Co-Borrowers to remain in compliance with the terms thereof.
MGM GRAND HOTEL, INC.
MGM GRAND MOVIEWORLD, INC.
GRAND LAUNDRY, INC.
MGM GRAND MONORAIL, INC.
MGM DIST., INC.
DESTRON, INC.
DESTRON MARKETING, INC.
MGM GRAND MERCHANDISING, INC.
MGMG TRADING CO.
MGM GRAND DEVELOPMENT, INC.
MGM GRAND DETROIT, INC.
By: ________________________________
Scott Langsner, Authorized Signatory
-8-
<PAGE>
EXHIBIT 10.31
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into on April 22, 97, by and
------------
between MGM GRAND, INC. a Delaware corporation ("Employer"), and ALEJANDRO
YEMENIDJIAN, ("Employee")
1. Employment. Employer hereby employs Employee, and Employee hereby accepts
----------
employment by the Employer, as Employer's Pres., COO & CFO (which title
----------------
may be changed by Employer in its sole discretion) to perform such
executive, managerial or administrative duties as Employer may specify from
time to time. In construing the provisions of this Agreement, "Employer"
shall include all of Employer's subsidiary, parent and affiliated
corporations and entities.
2. Term. This Agreement shall commence on April 22, 97, and continue for a
---- ------------
period of four (4) years until it terminates on April 22, 2001 ("Specified
Term"). --------------
3. Compensation. Employee shall receive a minimum annual salary of $750,000,
------------
effective January 1, 1997. Employee shall also be eligible to receive
fringe benefits commensurate with Employer's other employees in comparable
executive positions, and reimbursement for all reasonable business and
travel expenses incurred by Employee in performing the duties hereunder,
payable in accordance with Employer's customary practices. Employee's
performance may be reviewed periodically. Employee is eligible for
consideration for a discretionary raise, annual bonus and/or promotion by
Employer in its sole and absolute discretion.
4. Extent of Services. The Employee agrees that the duties and services to be
------------------
performed by Employee shall be performed exclusively for Employer. Employee
further agrees to perform such duties in an efficient, trustworthy and
businesslike manner. The Employee agrees not to render to others any
service of any kind whether or not for compensation, or to engage in any
other business activity whether or not for compensation, that is similar to
or conflicts with the performance of Employee's duties under this
Agreement, without the approval of the Executive Committee of the Board of
Directors of MGM Grand, Inc.
5. Policies and Procedures. In addition to the terms herein, Employee agrees
-----------------------
to be bound by Employer's policies and procedures as they may be amended by
Employer from time to time. In the event the terms in this Agreement
conflict with Employer's policies and procedures, the terms herein shall
take precedence. Employer recognizes that it has a responsibility to see
that its employees understand the adverse effects that problem gambling and
underage gambling can have on individuals and the gaming industry as a
whole. Employee acknowledges having read Employer's policies, procedures
and manuals and agrees to abide by the same, including but not limited to
Employer's policy of prohibiting underage gaming and supporting programs
to treat compulsive gambling.
<PAGE>
6. Licensing Requirements. Employee acknowledges that Employer is engaged in
----------------------
a business that is or may be subject to and exists because of privileged
licenses issued by governmental authorities in Nevada, Australia, New
Jersey and other jurisdictions in which Employer is engaged or has applied
or during the Specified Term may apply to engage in the gaming business. If
requested to do so by Employer, Employee shall apply for and obtain any
license, qualification, clearance or the like which shall be requested or
required of Employee by any regulatory authority having jurisdiction over
Employer. If Employee fails to satisfy such requirement, or if Employer is
directed to cease business with Employee by any such authority, or if
Employer shall determine, in Employer's sole and exclusive judgment, that
Employee was, is or might be involved in, or is about to be involved in,
any activity, relationship(s) or circumstance which could or does
jeopardize Employer's business, reputation or such licenses, or if any
such license is threatened to be, or is, denied, curtailed, suspended or
revoked, this Agreement may be terminated by Employer and the parties'
obligations and responsibilities shall be determined by the provisions of
Paragraph 10(a).
7. Additional Consideration. Employee has received as consideration for this
------------------------
Agreement, in addition to the Compensation stated in Paragraph 3 above, the
sum of $40,000.00. Employee represents and warrants that such consideration
is reasonable, adequate and sufficient for Employee's agreement to the
terms contained herein, including but not limited to the undertakings
stated in Paragraphs 4, 6 and 8.
8. Restrictive Covenants
---------------------
a. Competition. Employee acknowledges that, in the course of Employee's
------------
responsibilities hereunder, Employee will form relationships and become
acquainted with certain confidential and proprietary information as
further defined in Paragraph 8 (b). Employee further acknowledges that
such relationships and information are valuable to the Employer and
that the restrictions on future employment, if any, are reasonably
necessary in order for Employer to remain competitive in the gaming
industry. In consideration for the Compensation and Additional
Consideration hereunder, and in recognition of Employer's heightened
need for protection from abuse of relationships formed or information
garnered before and during the Specified Term of the Employee's
employment hereunder, Employee covenants and agrees that, except as set
forth in subparagraphs 10(b)(ii)[b], 10(e)(v)[ii] and Paragraph 10(c),
in the event Employee is not employed by Employer for the entire
Specified Term, then for the twelve (12) month period immediately
following separation from active employment, or for such shorter period
remaining in the Specified Term should Employee separate from active
employment with less than twelve (12) months remaining in the Specified
Term (the "Restrictive Period"). Employee shall not directly or
indirectly be employed by, provide consultation or other services to,
engage in, participate in or otherwise be connected in any way with any
firm, person, corporation or other entity which is either directly,
indirectly or through an affiliated company, engaged in non-restricted
gaming in the State of Nevada, or in or within a 150 mile radius of any
other jurisdiction in which Employer during the Restrictive Period is
operating or has applied for a gaming license
2
<PAGE>
("Competitor"). The covenants under this Paragraph
include but are not limited to Employee's covenant not
to:
i. Make known to any third party the names and
addresses of any of the customers of the Employer,
or any other information pertaining to those
customers.
ii. Call on, solicit and/or take away, or attempt to
call on, solicit and/or take away, any of the
customers of the Employer, either for Employee's own
account or for any third party.
iii. Call on, solicit and/or take away, any potential or
prospective customer of the Employer, on whom the
Employee called or with whom Employee became
acquainted during employment (either before or
during the Specified Term) by the Employer, either
for Employee's own account or for any third party.
iv. Approach or solicit any employee of the Employer
with a view towards enticing such employee to leave
the employ of the Employer to work for the Employee
or for any third party, or hire any employee of the
Employer, without the prior written consent of the
Employer, such consent to be within Employer's sole
discretion.
b. Confidentiality. Employee further covenants and agrees
---------------
that Employee shall not at any time during the Specified
Term or thereafter, without Employer's prior written
consent, disclose to any other person or business
entities any trade secret (as that term is defined on
Exhibit A attached hereto) proprietary or other
confidential information concerning Employer, including
without limitation, Employer's customers and its casino,
hotel and marketing practices, procedures, management
policies or any other information regarding the Employer
which is not already and generally known to the public.
Employee further covenants and agrees that Employee
shall not at any time during the Specified Term, or
thereafter, without the Employer's prior written consent,
utilize any such trade secrets, proprietary or
confidential information in any way, including
communications with or contact with any such customer
other than in connection with employment hereunder. Not
by way of limitation but by way of illustration, Employee
agrees that such trade secrets, proprietary or
confidential information specifically include but are not
limited to those documents and reports set forth on
Exhibit B.
c. Employer's Property. Employee hereby confirms that such
-------------------
trade secrets, proprietary or confidential information
and all information concerning customers who utilize the
goods, services or facilities of the MGM Grand
Hotel/Casino and any other hotel and/or casino owned,
operated or managed by Employer constitute Employer's
exclusive property (regardless of whether Employee
possessed or claims to have possessed such information
prior to the date hereof). Employee agrees that upon
termination of active employment, Employee shall promptly
return to the Employer all notes, notebooks, memoranda,
computer disks, and any
3
<PAGE>
other similar repositories of information (regardless of
whether Employee possessed such information prior to the
date hereof) containing or relating in any way to the
trade or business secrets or proprietary and
confidential information of the Employer, including but
not limited to the documents referred to in Paragraph
8(b). Such repositories of information also include but
are not limited to any so-called personal files or other
personal data compilations in any form, which in any
manner contain any trade secrets or proprietary or
confidential information of the Employer.
d. Notice to Employer. Employee agrees to notify Employer
------------------
immediately of any employers for whom Employee works
during the Specified Term or within the Restrictive
Period. Employee further agrees to promptly notify
Employer, during Employee's employment with Employer, of
any contacts made by non-restricted gaming licensees
which concern or relate to an offer of future employment
(or consulting services) to Employee.
9. Representations. Employee hereby represents, warrants and
---------------
agrees with Employer that:
a. The covenants and agreements contained in Paragraphs 4
and 8 above are reasonable in their geographic scope,
duration and content; the Employer's agreement to employ
the Employee and a portion of the compensation and
consideration to be paid to Employee under Paragraphs 3
and 7 hereof, are in partial consideration for such
covenants; the Employee shall not raise any issue of the
reasonableness of the geographic scope, duration or
content of such covenants in any proceeding to enforce
such covenants; and such covenants shall survive the
termination of this Agreement, in accordance with its
terms;
b. The enforcement of any remedy under this Agreement will
not prevent Employee from earning a livelihood, because
Employee's past work history and abilities are such
that Employee can reasonably expect to find work in
other areas and lines of business;
c. The covenants and undertakings stated in Paragraphs 4, 6
and 8 above are essential for the Employer's reasonable
protection; and
d. Employer has reasonably relied on these representations,
warranties and agreements by Employee.
Additionally, the Employee agrees that in the event of
Employee's breach of any covenants set forth in Paragraphs 4
and 8 above, the Employer may seek to enforce such covenants
through any equitable remedy, including specific performance
or injunction, without waving any claim for damages. In any
such event, the Employee waives any claim that the Employer
has an adequate remedy at law.
10. Termination.
-----------
a. This Agreement may be terminated by Employer at any time
during the Specified Term hereof for good cause. Upon
any such termination, Employer shall have no
4
<PAGE>
further liability or obligations whatsoever to Employee hereunder
except as provided under 10(a)(1)[a] and 10(a)(1)[b] and except that
Employee shall be entitled to receive so much of the stock from the
Executive Stock Option Plan as had been vested but unexercised as of
the date of termination upon compliance by the Employee with all the
terms and conditions required to exercise such options. Good cause
shall be defined as:
i. Employee's death or disability, which is hereby defined to
include incapacity for medial reasons certified to by a licensed
physician which precludes the Employee from performing the
essential functions of Employee's duties hereunder for a
substantially consecutive period of six (6) months or more;
[a] In the event of Employee's death during the term of this
Agreement, Employee's beneficiary (as designated by Employee
on the Employer's benefit records) shall be entitled to
receive Employee's salary for a three (3) month period
following Employee's death, such amount to be paid at
regular payroll intervals.
[b] In the event that this Agreement is terminated by Employer
due to Employee's disability, as provided under subparagraph
10(a)(i), Employer shall pay to Employee an amount equal to
Employee's salary for an additional period of three (3)
months such amount to be paid at regular payroll intervals,
net of payments received by Employee from any Short Term
Disability Policy which is either self-insured by Employer
or the premiums of which were paid by Employer.
ii. Employee's failure to abide by Employer's policies and
procedures, misconduct, insubordination, inattention to
Employer's business, failure to perform the duties required of
Employee up to the standards established by the Employer's Board
of Directors, or other material breach of this Agreement; or
iii. Employee's failure or inability to satisfy the requirements
stated in Paragraph 6 above.
b. Except as set forth in subparagraph 10(e)(iv), this Agreement may be
terminated by Employer at any time during the Specified Term hereof,
for any or no cause deemed sufficient by Employer upon written notice
to Employee. Upon such termination, as its sole liability to Employee,
Employer shall:
i. Treat Employee as an inactive employee, pay Employee's salary and
continue Employee's benefits (excluding eligibility for flex
time, discretionary bonus and new stock option grants, but
including the continued vesting or previously granted stock
options, if any, for a period
5
<PAGE>
of up to twelve (12) months from the date
Employee is in an inactive employee status, if
Employee remains in such inactive status for such
period) for the period remaining in the Specified
Term; and
ii. Provide for Employee to receive so much stock
from the Executive Stock Option Plan as had been
vested but unexercised as of the date of
termination of Employee's inactive employee
status upon compliance by the Employee with all
the terms and conditions required to exercise
such options.
Employee shall continue to be bound by the restrictions
Paragraph 8 above, as modified by subparagraph 10(f).
Notwithstanding anything herein to the contrary:
[a] While Employee is in an inactive status
Employee may be employed by or provide
consultation services to a non-Competitor of
Employer, provided that Employer shall be
entitled to offset the salary being paid by
Employer during the Specified Term by the
compensation and/or consultant's fee being
paid to Employee by the non-Competitor of
Employer, and provided further, that
Employer shall not be required to continue
to provide benefits from and after the time
that Employee is entitled to receive
benefits from the non-Competitor of
Employer; and
[b] At any time after the end of the Restricted
Period, if the Employee is in an inactive
status, Employee may notify Employer in
writing that Employee desires to terminate
Employee's inactive status and immediately
thereafter Employer shall have no further
liability or obligations to Employee
hereunder, except that Employee shall be
entitled to receive so much stock from the
Executive Stock Option Plan as is vested but
unexercised as of the date of termination of
Employee's inactive status upon compliance
by the Employee with all the terms and
conditions required to exercise such
options.
For clarification, upon a Change of Control (as
described in Paragraph 10(e), below), Employer may no
longer terminate this Agreement pursuant to this
Paragraph 10(b).
c. Employee may terminate this Agreement for good cause.
For purposes of this Paragraph 10(c), good cause shall
mean:
i the failure of Employer to pay Employee
any compensation when due, save and
except a "Disputed Claim" to
compensation; or
6
<PAGE>
ii. material reduction in the scope of duties or
responsibilities of Employee or any reduction in Employee's
salary save and except a "Disputed Claim".
For any termination under this Paragraph 10(c), Employee shall give
Employer thirty (30) days advance written notice specifying the facts
and circumstances of Employer's breach. During such thirty (30) day
period, Employer may either cure the breach or declare that a dispute
exists with the breach claimed, in either of which case this Agreement
continues in full force until the dispute is resolved in accordance
with Paragraph 11. As a result of any termination under this Paragraph
10(c), Employee shall be entitled to receive so much of the stock from
the Executive Stock Option Plan as had been vested but unexercised as
of the date of termination, upon compliance by the Employee with all
the terms and conditions required to exercise such option. Employee
shall have no further claim against Employer arising out of such
breach.
d. Employee shall also have the right to terminate Employee's employment
without cause upon thirty (30) days advance written notice to
Employer. Upon any such termination Employer shall have no further
liability or obligations whatsoever to Employee hereunder, except that
Employee shall be entitled to receive so much of the stock from the
Executive Stock Option Plan as had been vested but unexercised as of
the date of termination, upon compliance by the Employee with all the
terms and conditions required to exercise such option. Upon any such
termination, Employee shall be subject to the undertakings contained
in Paragraph 8.
c. In the event that there is a change in control of MGM Grand, Inc.
("Parent"), if such change of control is a result of a sale or
exchange of outstanding common stock of Parent to a third party, and
as a result thereof the ownership by Kirk Kerkorian, Tracinda
Corporation and/or their affiliates of the voting stock of the
acquiring or surviving entity (after completion of the transactions
set forth in the sale or exchange agreement documents, including
without limitation subsequent stock buybacks contemplated in such
transactions), represents in the aggregate less than twenty percent
(20%) of the voting power of the voting stock of such entity, as
distinguished from a change in control resulting from the issuance of
Treasury shares or from any other transaction, ("Change of Control"),
then upon the effective date of the Change of Control ("Effective
Date"):
i. All of Employee's unvested stock options shall become fully
vested, provided that Employee shall have the right to elect (by
notifying the Employer in writing as set forth on Exhibit C)
that all or any portion of Employee's unvested stock options
shall not become fully vested upon a Change of Control.
ii. If the Change of Control results from an exchange of outstanding
common stock as a result of which the Common Stock of Parent is
no longer publicly held, then upon the Effective Date of the
Change of Control all
7
<PAGE>
options held by Employee to purchase common stock of Parent shall be
exercisable at the time or times they would otherwise have been
exercisable for the consideration (cash, stock or otherwise) which the
holders of Parent common stock received in such exchange. For example,
if immediately prior to the Effective Date, Employee has options to
acquire 5,000 shares of Parent's common stock and the exchange of
stock is one share of common stock, of Parent for two shares of
common stock of the acquiring entry, then Employee's options shall
be converted into options to acquire, upon payment of the exercise
price, 10,000 shares of the acquiring entity's common stock.
iii. If the Change of Control results from a sale of Parent's outstanding
common stock for cash with the result that Parent's common stock is no
longer publicly held, then upon the Effective Date all options held by
Employee to purchase common stock of Parent shall be exercisable at
the time or times they would otherwise have been exercisable for cash
equal to the difference between the price per share of common stock
paid by the acquiring entity for Parent's shares of common stock
("Purchase Price") and the price per share at which the options were
granted ("Strike Price"). For example, if immediately prior to the
Effective Date, Employee has options to acquire 2,000 shares of Parent
common stock at a Strike Price of $35, and the Purchase Price was $40,
then upon the vesting of such options Employee would be entitled to
receive $10,000 in full satisfaction of such options (2,000 shares
times $5 per share).
iv. Employer may terminate the Agreement only for good cause pursuant to
Paragraph 10(a) or pursuant to subparagraph 10(e)(v). Employee may
terminate the Agreement only for good cause pursuant to Paragraph
10(c) or pursuant to Paragraph 10(d). and
v. Employer may terminate this Agreement for any or no cause upon written
notice to Employee. In the event of a termination hereunder, as its
sole liability to Employee, Employer shall:
[a] Treat Employee as an inactive employee, pay Employee's salary,
continue Employee's benefits (excluding eligibility for flex
time, discretionary bonus and new stock option grants) and comply
with the provisions of subparagraphs 10(e)(ii) and 10(e)(iii) for
the remainder of the Specified Term.
Employee shall continue to be bound by the restrictions in Paragraph 8 above.
Notwithstanding anything herein to the contrary:
[i] While Employee is in an inactive status Employee may be employed
by or provide consultation services to a non-Competitor of
Employer, provided that Employer shall be entitled to offset the
salary being paid by Employer during the Specified Term by the
8
<PAGE>
compensation and/or consultant's fee
being paid to Employee by the non-
Competitor of Employer, and provided
further, that Employer shall not be
required to continue to provide benefits
from and after the time that Employee is
entitled to receive benefits from the
non-Competitor of Employer; and
[ii] At any time after the end of the
Restrictive Period, if the Employee is
in an inactive status, Employee may be
employed by or provide consultation
services to a Competitor of Employer,
provided that Employer shall be entitled
to offset the salary being paid by
Employer during the Specified Term by
the compensation and/or consultant's fee
being paid to Employee by the Competitor
of Employer, and provided further, that
Employer shall not be required to
continue to provide benefits from and
after the time that Employee is
entitled to receive benefits from the
Competitor of Employer, and provided
further that the obligations and
restrictions on Employee which are set
forth in Paragraphs 8(b) and (c) shall
still apply.
f. Notwithstanding anything contained in this Agreement
to the contrary, the undertakings contained in
Paragraph 8 shall survive a termination of the
Agreement or of the Employee's employment, regardless
of the reason for such termination, except where
termination occurs pursuant to subparagraph 10(b)(ii)
[b] or Paragraph 10(c). In the event the Agreement is
terminated pursuant to subparagraph 10(b)(ii)[b] the
restriction stated in Paragraph 8(a) on Employee
accepting employment elsewhere shall not apply;
however, the obligations and restrictions set forth in
Paragraphs 8(b) and (c) shall still apply. For a
termination under Paragraph 10(c), the restriction
stated in Paragraph 8(a) on Employee accepting
employment elsewhere shall not apply except that the
restrictions under subparagraphs 8(a)(i) - (iv) and
Paragraphs 8(b) - (d) shall still apply.
11. Disputed Claim/Arbitration. A "Disputed Claim" occurs when
--------------------------
Employee maintains pursuant to Paragraph 10(c) that Employer
has breached its duty to Employee and Employer has denied
such breach. In such event, the Disputed Claim shall be
resolved by arbitration administered by the American
Arbitration Association under its National Rules for the
Resolution of Employment Disputes. Any arbitration under
this paragraph shall take place in Las Vegas, Nevada. Until
the arbitration process is finally resolved in the
Employee's favor and Employer fails to satisfy such award
within thirty (30) days of its entry, no "for good cause"
termination within the meaning of Paragraph 10(c) exists
with respect to Employer's breach of a Disputed Claim.
Nothing herein shall preclude or prohibit Employer or
Employee from invoking the provisions of Paragraph 10(b),
or Employer seeking or obtaining injunctive or other
equitable relief, provided that upon a Change of Control
(as described in Paragraph 10(e), above, Employer may no
longer invoke the provisions of Paragraph 10(b), but may
invoke the provisions of subparagraph 10(e)(v).
9
<PAGE>
12. Severability. If any provision hereof is unenforceable,
------------
illegal, or invalid for any reason whatsoever, such fact shall
not affect the remaining provisions hereof, except in the
event a law or court decision, whether on application for
declaration, or preliminary injunction or upon final judgment,
declares one or more of the provisions of this Agreement that
impose restrictions on Employee unenforceable or invalid
because of the geographic scope or time duration of such
restriction. In such event, Employer shall have the option:
(A) To deem the invalidated restrictions
retroactively modified to provide for the
maximum geographic scope and time duration which
would make such provisions enforceable and
valid; or
(B) To terminate this Agreement pursuant to
Paragraph 12, in which event neither party shall
have any further obligation to the other, except
that Employee still shall be subject to the
restrictions contained in Paragraphs 8(b) and
(c).
Exercise of any of these options shall not
affect Employer's right to seek damages or such
additional relief as may be allowed by law in
respect to any breach by Employee of the
enforceable provisions of this Agreement.
13. Attorneys' Fees. In the event suit is brought to enforce, or
---------------
to recover damages suffered as a result of breach of this
Agreement the prevailing party shall be entitled to recover
its reasonable attorneys' fees and costs of suit.
14. No Waiver of Breach or Remedies. No failure or delay on the
-------------------------------
part of Employer or Employee in exercising any right, power or
remedy hereunder shall operate as a waiver thereof nor shall
any single or partial exercise of any such right, power or
remedy preclude any other or further exercise thereof or the
exercise of any other right, power or remedy hereunder. The
remedies herein provided are cumulative and not exclusive of
any remedies provided by law.
15. Amendment or Modification. No amendment, modification,
-------------------------
termination or waiver of any provision of this Agreement shall
be effective unless the same shall be in writing and signed by
the Employer's Chairman of the Board of Directors, and
Employee, nor consent to any departure by the Employee from
any of the terms of this Agreement shall be effective unless
the same is signed by the Employer's Chairman of the Board of
Directors. Any such waiver or consent shall be effective only
in the specific instance and for the specific purpose for
which given.
16. Governing Law. The laws of the State of Nevada shall govern
-------------
the validity, construction and interpretation of this
Agreement, and except for Dispute Claims, the courts of the
State of Nevada shall have exclusive jurisdiction over any
claim with respect to this Agreement.
17. Number and Gender. Where the context of this Agreement
-----------------
requires the singular shall mean the plural and vice versa
and references to males shall apply equally to females and
vice versa.
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18. Headings. The headings in this Agreement have been
--------
included solely for convenience of reference and shall
not be considered in the interpretation or construction
of this Agreement.
19. Assignment. This Agreement is personal to Employee and
----------
may not be assigned.
20. Successors and Assigns. This Agreement shall be binding
----------------------
upon the successors and assigns of Employer.
21. Prior Agreements. This Agreement shall supersede and
----------------
replace any and all other employment agreements which may
have been entered into by and between the parties,
including, but not limited to that certain letter
agreement dated 1/3/91, 2/9/93. Any such prior
employment agreements shall be of no force and effect.
IN WITNESS WHEREOF, Employer and Employee have entered
into this Agreement in Las Vegas, Nevada, on April 22,
1997.
EMPLOYEE EMPLOYER - MGM GRAND, INC.
/s/ Alejandro Yemenidjian ILLEGIBLE
------------------------- By:-----------------------
ALEJANDRO YEMENIDJIAN
-------------------- Chairman and CEO
Case Number Title:--------------------
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EXHIBIT A
Trade secret means information, including a formula, pattern, compilation,
program, device, method, technique or process, that derives economic value,
present or potential, from not being generally known to, and not being readily
ascertainable by proper means by, other persons who can obtain any economic
value from its disclosure or use.
12
<PAGE>
EXHIBIT B
Name of Report Generated By
-------------- ------------
Including, but not limited to:
Baccarat Pit Discrepancy Report Casino Marketing Analyst
Commission Summary Report Casino Marketing Analyst
Customer W/L Discrepancy Report Casino Marketing Analyst
Int'l Marketing Detailed Budget Summaries Casino Marketing Analyst
Arrival Report International Marketing
Departure Report International Marketing
Daily Garning Report Casino Audit
Department Financial Statement Finance
$10K Over High Action Play Report Customer Analysis Dept.
$50K Over High Action Play Report Customer Analysis Dept.
International Market Segment Report Customer Analysis Dept.
Collection Aging Report(s) Collection Department
Accounts Receivable Aging Finance
Marketing Report Finance
Daily Player Action Report Casino Operations
13
<PAGE>
EXHIBIT C
April 22, 1997
Dear Mr. Yemenidjian:
This letter will supplement the employment agreement, dated 4/22/97,
between you and MGM Grand, Inc. (the "Agreement"). Notwithstanding anything
contained in the Agreement to the contrary, if you so elect, all or any portion
of your unvested stock options shall not become fully vested upon a Change of
Control (as defined in the Agreement) of MGM Grand, Inc. Any such election
shall be effective upon written notice to MGM Grand, Inc. at or prior to the
Effective Date (as defined in the Agreement) of any such Change of Control.
Except as specifically modified hereby, the terms and conditions of the
Agreement shall remain in full force and effect.
Sincerely,
MGM GRAND, INC.
By: /s/ J. Terrence Lanni
-------------------------------
J. Terrence Lanni
AGREED TO AND ACKNOWLEDGED
/s/ Alejandro Yemenidjian Dated: April 22, 1997
- --------------------------------- --------
Alejandro Yemenidjian
14
<PAGE>
EXHIBIT 10.32
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into on 1/16/98, by and
between MGM GRAND, INC. a Delaware corporation ("Employer"), and James Murren,
("Employee")
1. Employment. Employer hereby employs Employee, and Employee hereby accepts
----------
employment by the Employer, as Employer's Exec., VP and CFO (which title
may be changed by Employer in its sole discretion) to perform such
executive, managerial or administrative duties as Employer may specify from
time to time. In construing the provisions of this Agreement, "Employer"
shall include all of Employer's subsidiary, parent and affiliated
corporations and entities.
2. Term. This Agreement shall commence on 1/16, 1998, and continue for a
----
period of four (4) years until it terminates on 1/16, 2002 ("Specified
Term").
3. Compensation. Employee shall receive a minimum annual salary of $375,000,
------------
effective 1/16, 1998. Employee shall also be eligible to receive fringe
benefits commensurate with Employer's other employees in comparable
executive positions, and reimbursement for all reasonable business and
travel expenses incurred by Employee in performing the duties hereunder,
payable in accordance with Employer's customary practices. Employee's
performance may be reviewed periodically. Employee is eligible for
consideration for a discretionary raise, annual bonus and/or promotion by
Employer in its sole and absolute discretion.
4. Extent of Services. The Employee agrees that the duties and services to be
------------------
performed by Employee shall be performed exclusively for Employer. Employee
further agrees to perform such duties in an efficient, trustworthy and
businesslike manner. The Employee agrees not to render to others any
service of any kind whether or not for compensation, or to engage in any
other business activity whether or not for compensation, that is similar to
or conflicts with the performance of Employee's duties under this
Agreement, without the approval of the Executive Committee of the Board of
Directors of MGM Grand, Inc.
5. Policies and Procedures. In addition to the terms herein, Employee agrees
-----------------------
to be bound by Employer's policies and procedures as they may be amended by
Employer from time to time. In the event the terms in the Agreement
conflict with Employer's policies and procedures, the terms herein shall
take precedence. Employer recognizes that it has a responsibility to see
that its employees understand the adverse effects that problem gambling and
underage gambling can have on individuals and the gaming industry as a
whole. Employee acknowledges having read Employer's policies, procedures
and manuals and agrees to abide by the same, including but not limited to
Employer's policy of prohibiting underage gaming and supporting programs to
treat compulsive gambling.
6. Licensing Requirements. Employee acknowledges that Employer is engaged in
----------------------
a business that is or may be subject to and exists because of privileged
licenses issued by governmental authorities in Nevada, Australia, New
Jersey and other jurisdictions in which Employer is engaged or has applied
or during the Specified Term may apply to engage in the gaming business. If
requested to do so by Employer, Employee shall apply for and obtain any
license, qualification, clearance or the like which shall be requested or
required of Employee by any regulatory authority having jurisdiction over
Employer. If Employee fails to satisfy such requirement, or if Employer is
directed to cease business
1
<PAGE>
with Employee by any such authority, or if Employer shall determine, in
Employer's sole and exclusive judgment, that Employee was, is or might be
involved in, or is about to be involved in, any activity, relationship(s)
or circumstance which could or does jeopardize Employer's business,
reputation or such licenses, or if any such license is threatened to be,
or is, denied, curtailed, suspended or revoked, this Agreement may be
terminated by Employer and the parties' obligations and responsibilities
shall be determined by the provisions of Paragraph 10(a).
7. Additional Consideration. Employee has received as consideration for this
------------------------
Agreement, in addition to the Compensation stated in Paragraph 3 above,
the sum of $30,000. Employee represents and warrants that such
-------
consideration is reasonable, adequate and sufficient for Employee's
agreement to the terms contained herein, including but not limited to the
undertakings stated in Paragraphs 4, 6 and 8.
8. Restrictive Covenants.
---------------------
a. Competition. Employee acknowledges that, in the course of
-----------
Employee's responsibilities hereunder, Employee will form
relationships and become acquainted with certain confidential and
proprietary information as further defined in Paragraph 8 (b).
Employee further acknowledges that such relationships and
information are valuable to the Employer and that the restrictions
on future employment, if any, are reasonably necessary in order for
Employer to remain competitive in the gaming industry. In
consideration for the Compensation and Additional Consideration
hereunder, and in recognition of Employer's heightened need for
protection from abuse of relationships formed or information
garnered before and during the Specified Term of the Employee's
employment hereunder, Employee covenants and agrees that, except as
set forth in subparagraphs 10(b)(ii)[b], 10(e)(v)[ii] and Paragraph
10(c), in the event Employee is not employed by Employer for the
entire Specified Term, then for the twelve (12) month period
immediately following separation from active employment, or for
such shorter period remaining in the Specified Term should Employee
separate from active employment with less than twelve (12) months
remaining in the Specified Term (the "Restrictive Period"),
Employee shall not directly or indirectly be employed by, provide
consultation or other services to, engage in, participate in or
otherwise be connected in any way with any firm, person,
corporation or other entity which is either directly, indirectly or
through an affiliated company, engaged in non-restricted gaming in
the State of Nevada, or in or within a 150 mile radius of any other
jurisdiction in which Employer during the Restrictive Period is
operating or has applied for a gaming license ("Competitor"). The
covenants under this Paragraph include but are not limited to
Employee's covenant not to:
i. Make known to any third party the names and addresses of any
of the customers of the Employer, or any other information
pertaining to those customers.
ii. Call on, solicit and/or take away, or attempt to call on,
solicit and/or take away, any of the customers of the
Employer, either for Employee's own account or for any third
party.
iii. Call on, solicit and/or take away, any potential or
prospective customer of the Employer, on whom the Employee
called or with whom Employee became acquainted during
employment (either before or during the
2
<PAGE>
Specified Term) by the Employer, either for Employee's own
account or for any third party.
iv. Approach or solicit any employee of the Employer with a view
towards enticing such employee to leave the employ of the
Employer to work for the Employee or for any third party, or
hire any employee of the Employer, without the prior written
consent of the Employer, such consent to be within Employer's
sole discretion.
b. Confidentiality. Employee further covenants and agrees that Employee
---------------
shall not at any time during the Specified Term or thereafter, without
Employer's prior written consent, disclose to any other person or
business entities any trade secret (as that term is defined on Exhibit
A attached hereto) proprietary or other confidential information
concerning Employer, including without limitation, Employer's customers
and its casino, hotel and marketing practices, procedures, management
policies or any other information regarding the Employer which is not
already and generally known to the public. Employee further covenants
and agrees that Employee shall not at any time during the Specified
Term, or thereafter, without the Employer's prior written consent,
utilize any such trade secrets, proprietary or confidential information
in any way, including communications with or contact with any such
customer other than in connection with employment hereunder. Not by way
of limitation but by way of illustration, Employee agrees that such
trade secrets, proprietary or confidential information specifically
include but are not limited to those documents and reports set forth on
Exhibit B.
c. Employer's Property. Employee hereby confirms that such trade secrets,
-------------------
proprietary or confidential information and all information concerning
customers who utilize the goods, services or facilities of the MGM
Grand Hotel/Casino and any other hotel and/or casino owned, operated or
managed by Employer constitute Employer's exclusive property
(regardless of whether Employee possessed or claims to have possessed
such information prior to the date hereof). Employee agrees that upon
termination of active employment, Employee shall promptly return to the
Employer all notes, notebooks, memoranda, computer disks, and any
other similar repositories of information (regardless of whether
Employee possessed such information prior to the date hereof)
containing or relating in any way to the trade or business secrets or
proprietary and confidential information of the Employer, including but
not limited to the documents referred to in Paragraph 8(b). Such
repositories of information also include but are not limited to any so-
called personal files or other personal data compilations in any form,
which in any manner contain any trade secrets or proprietary or
confidential information of the Employer.
d. Notice to Employer. Employee agrees to notify Employer immediately of
------------------
any employers for whom Employee works during the Specified Term or
within the Restrictive Period. Employee further agrees to promptly
notify Employer, during Employee's employment with Employer, of any
contacts made by non-restricted gaming licensees which concern or
relate to an offer of future employment (or consulting services) to
Employee.
9. Representations. Employee hereby represents, warrants and agrees with
---------------
Employer that:
a. The covenants and agreements contained in Paragraphs 4 and 8 above are
3
<PAGE>
reasonable in their geographic scope, duration and content; the
Employer's agreement to employ the Employee and a portion of the
compensation and consideration to be paid to Employee under
Paragraphs 3 and 7 hereof, are in partial consideration for such
covenants; the Employee shall not raise any issue of the
reasonableness of the geographic scope, duration or content of
such covenants in any proceeding to enforce such covenants; and
such covenants shall survive the termination of this Agreement,
in accordance with its terms;
b. The enforcement of any remedy under this Agreement will not
prevent Employee from earning a livelihood, because Employee's
past work history and abilities are such that Employee can
reasonably expect to find work in other areas and lines of
business;
c. The covenants and undertakings stated in Paragraphs 4, 6 and 8
above are essential for the Employer's reasonable protection; and
d. Employer has reasonably relied on these representations,
warranties and agreements by Employee.
Additionally, the Employee agrees that in the event of Employee's breach
of any covenants set forth in Paragraphs 4 and 8 above, the Employer may
seek to enforce such covenants through any equitable remedy, including
specific performance or injunction, without waiving any claim for
damages. In any such event, the Employee waives any claim that the
Employer has an adequate remedy at law.
10. Termination.
-----------
a. This Agreement may be terminated by Employer at any time during
the Specified Term hereof for good cause. Upon any such
termination, Employer shall have no further liability or
obligations whatsoever to Employee hereunder except as provided
under 10(a)(1)[a] and 10(a)(1)[b] and except that Employee shall
be entitled to receive so much of the stock from the Executive
Stock Option Plan as had been vested but unexercised as of the
date of termination upon compliance by the Employee with all the
terms and conditions required to exercise such options. Good
cause shall be defined as:
i. Employee's death or disability, which is hereby defined to
include incapacity for medical reasons certified to by a
licensed physician which precludes the Employee from
performing the essential functions of Employee's duties
hereunder for a substantially consecutive period of six
(6) months or more;
[a] In the event of Employee's death during the term of
this Agreement, Employee's beneficiary (as
designated by Employee on the Employer's benefit
records) shall be entitled to receive Employee's
salary for a three (3) month period following
Employee's death, such amount to be paid at regular
payroll intervals.
[b] In the event that this Agreement is terminated by
Employer due to Employee's disability, as provided
under subparagraph 10(a)(i), Employer shall pay to
Employee an amount equal to Employee's
4
<PAGE>
<PAGE>
salary for an additional period of three (3) months
such amount to be paid at regular payroll intervals,
net of payments received by Employee from any Short
Term Disability Policy which is either self-insured by
Employer or the premiums of which were paid by
Employer.
ii. Employee's failure to abide by Employer's policies and
procedures, misconduct, insubordination, inattention to
Employer's business, failure to perform the duties required
of Employee up to the standards established by the
Employer's Board of Directors, or other material breach of
this Agreement; or
iii. Employee's failure or inability to satisfy the requirements
stated in Paragraph 6 above.
b. Except as set forth in subparagraph 10(e)(iv), this Agreement may
be terminated by Employer at any time during the Specified Term
hereof, for any or no cause deemed sufficient by Employer upon
written notice to Employee. Upon such termination, as its sole
liability to Employee, Employer shall:
i. Treat Employee as an inactive employee, pay Employee's
salary and continue Employee's benefits (excluding
eligibility for flex time, discretionary bonus and new
stock option grants, but including the continued vesting of
previously granted stock options, if any, for a period of
up to twelve (12) months from the date Employee is in an
inactive employee status, if Employee remains in such
inactive status for such period) for the period remaining
in the Specified Term; and
ii. Provide for Employee to receive so much stock from the
Executive Stock Option Plan as had been vested but
unexercised as of the date of termination of Employee's
inactive employee status upon compliance by the Employee
with all the terms and conditions required to exercise such
options.
Employee shall continue to be bound by the restrictions in Paragraph 8
above, as modified by subparagraph 10(f).
Notwithstanding anything herein to the contrary:
[a] While Employee is in an inactive status Employee may
be employed by or provide consultation services to a
non-Competitor of Employer, provided that Employer
shall be entitled to offset the salary being paid by
Employer during the Specified Term by the compensation
and/or consultant's fee being paid to Employee by the
non-Competitor of Employer, and provided further, that
Employer shall not be required to continue to provide
benefits from and after the time that Employee is
entitled to receive benefits from the non-Competitor
of Employer; and
[b] At any time after the end of the Restricted Period, if
the Employee is in an inactive status, Employee may
notify Employer in writing that Employee desires to
terminate Employee's inactive status and immediately
thereafter Employer shall have no further liability or
5
<PAGE>
obligations to Employee hereunder, except that Employee shall be
entitled to receive so much stock from the Executive Stock Option
Plan as is vested but unexercised as of the date of termination
of Employee's inactive status upon compliance by the Employee
with all the terms and conditions required to exercise such
options.
For clarification, upon a Change of Control (as described in Paragraph
10(c), below), Employer may no longer terminate this Agreement pursuant to
this Paragraph 10(b).
c. Employee may terminate this Agreement for good cause. For purposes of this
Paragraph 10(c), good cause shall mean:
i. the failure of Employer to pay Employee any compensation
when due, save and except a "Disputed Claim" to
compensation; or
ii. material reduction in the scope of duties or
responsibilities of Employee or any reduction in Employee's
salary save and except a "Disputed Claim".
For any termination under this Paragraph 10(c), Employee shall give
Employer thirty (30) days advance written notice specifying the facts and
circumstances of Employer's breach. During such thirty (30) day period,
Employer may either cure the breach or declare that a dispute exists with
the breach claimed, in either of which case this Agreement continues in
full force until the dispute is resolved in accordance with Paragraph 11.
As a result of any termination under this Paragraph 10(c), Employee shall
be entitled to receive so much of the stock from the Executive Stock
Option Plan as had been vested but unexercised as of the date of
termination, upon compliance by the Employee with all the terms and
conditions required to exercise such option. Employee shall have no
further claim against Employer arising out of such breach.
d. Employee shall also have the right to terminate Employee's employment
without cause upon thirty (30) days advance written notice to Employer.
Upon any such termination Employer shall have no further liability or
obligations whatsoever to Employee hereunder, except that Employee shall
be entitled to receive so much of the stock from the Executive Stock
Option Plan as had been vested but unexercised as of the date of
termination, upon compliance by the Employee with all the terms and
conditions required to exercise such option. Upon any such termination,
Employee shall be subject to the undertakings contained in Paragraph 8.
e. In the event that there is a change in control of MGM Grand, Inc.
("Parent"), if such change of control is a result of a sale or exchange of
outstanding common stock of Parent to a third party, and as a result
thereof the ownership by Kirk Kerkorian, Tracinda Corporation and/or their
affiliates of the voting stock of the acquiring or surviving entity (after
completion of the transactions set forth in the sale or exchange agreement
documents, including without limitation subsequent stock buybacks
contemplated in such transactions), represents in the aggregate less than
twenty percent (20%) of the voting power of the voting stock of such
entity, as distinguished from a change in control resulting from the
issuance of Treasury
6
<PAGE>
shares or from any other transaction ("Change of Control"), then upon the
effective date of the Change of Control ("Effective Date"):
i. All of Employee's unvested stock options shall become fully vested,
provided that Employee shall have the right to elect (by notifying
the Employer in writing as set forth on Exhibit C) that all or any
portion of Employee's unvested stock options shall not become fully
vested upon a Change of Control.
ii. If the Change of Control results from an exchange of outstanding
common stock as a result of which the Common Stock of Parent is no
longer publicly held, then upon the Effective Date of the Change of
Control all options held by Employee to purchase common stock of
Parent shall be exercisable at the time or times they would
otherwise have been exercisable for the consideration (cash, stock
or otherwise) which the holders of Parent common stock received in
such exchange. For example, if immediately prior to the Effective
Date, Employee has options to acquire 5,000 shares of Parent's
common stock and the exchange of stock is one share of common stock
of Parent for two shares of common stock of the acquiring entity,
then Employee's options shall be converted into options to acquire,
upon payment of the exercise price, 10,000 shares of the acquiring
entity's common stock.
iii. If the Change of Control results form a sale of Parent's outstanding
common stock for cash with the result that Parent's common stock is
no longer publicly held, then upon the Effective Date all options
held by Employee to purchase common stock of Parent shall be
exercisable at the time or times they would otherwise have been
exercisable for cash equal to the difference between the price per
share of common stock paid by the acquiring entity for Parent's
shares of common stock ("Purchase Price") and the price per share at
which the options were granted ("Strike Price"). For example, if
immediately prior to the Effective Date, Employee has options to
acquire 2,000 shares of Parent common stock at a Strike Price of
$35, and the Purchase Price was $40, then upon the vesting of such
options Employee would be entitled to receive $10,000 in full
satisfaction of such options (2,000 shares times $5 per share).
iv. Employer may terminate the Agreement only for good cause pursuant to
Paragraph 10(a) or pursuant to subparagraph 10(e)(v). Employee may
terminate the Agreement only for good cause pursuant to Paragraph
10(c) or pursuant to Paragraph 10(d). and
v. Employer may terminate this Agreement for any or no cause upon
written notice to Employee. In the event of a termination hereunder,
as its sole liability to Employee, Employer shall:
[a] Treat Employee as an inactive employee, pay Employee's salary,
continue Employee's benefits (excluding eligibility for flex
time, discretionary bonus and new stock option grants) and
comply with the provisions of subparagraphs 10(e)(ii) and
10(e)(iii) for the remainder of the Specified Term.
Employee shall continue to be bound by the restrictions in Paragraph 8 above.
7
<PAGE>
Notwithstanding anything herein to the contrary:
[i] While Employee is in an inactive status Employee may be
employed by or provide consultation services to a non-
Competitor of Employer, provided that Employer shall be
entitled to offset the salary being paid by Employer during
the Specified Term by the compensation and/or consultant's
fee being paid to Employee by the non-Competitor of
Employer, and provided further, that Employer shall not be
required to continue to provide benefits from and after the
time that Employee is entitled to receive benefits from the
non-Competitor of Employer; and
[ii] At any time after the end of the Restrictive Period, if the
Employee is in an inactive status, Employee may be employed
by or provide consultation services to a Competitor of
Employer, provided that Employer shall be entitled to
offset the salary being paid by Employer during the
Specified Term by the compensation and/or consultant's fee
being paid to Employee by the Competitor of Employer, and
provided further, that Employer shall not be required to
continue to provide benefits from and after the time that
Employee is entitled to receive benefits from the
Competitor of Employer, and provided further that the
obligations and restrictions on Employee which are set
forth in Paragraphs 8(b) and (c) shall still apply.
f. Notwithstanding anything contained in this Agreement to the
contrary, the undertakings contained in Paragraph 8 shall survive
a termination of the Agreement or of the Employee's employment,
regardless of the reason for such termination, except where
termination occurs pursuant to subparagraph 10(b)(ii)[b] or
Paragraph 10(c). In the event the Agreement is terminated pursuant
to subparagraph 10(b)(ii)[b] the restriction stated in Paragraph
8(a) on Employee accepting employment elsewhere shall not apply;
however, the obligations and restrictions set forth in Paragraphs
8(b) and (c) shall still apply. For a termination under Paragraph
10(c), the restriction stated in Paragraph 8(a) on Employee
accepting employment elsewhere shall not apply except that the
restrictions under subparagraphs 8(a)(i) - (iv) and Paragraphs
8(b) -(d) shall still apply.
11. Disputed Claim/Arbitration A "Disputed Claim" occurs when Employee
--------------------------
maintains pursuant to Paragraph 10(c) that Employer has breached its duty
to Employee and Employer has denied such breach. In such event, the
Disputed Claim shall be resolved by arbitration administered by the
American Arbitration Association under its National Rules for the
Resolution of Employment Disputes. Any arbitration under this paragraph
shall take place in Las Vegas, Nevada. Until the arbitration process is
finally resolved in the Employee's favor and Employer fails to satisfy such
award within thirty (30) days of its entry, no "for good cause" termination
within the meaning of Paragraph 10(c) exists with respect to Employer's
breach of a Disputed Claim. Nothing herein shall preclude or prohibit
Employer or Employee from invoking the provisions of Paragraph 10(b), or of
Employer seeking or obtaining injunctive or other equitable relief,
provided that upon a Change of Control (as described in Paragraph 10(c),
above, Employer may no longer invoke the provisions of Paragraph 10(b), but
may invoke the provisions of subparagraph 10(e)(v).
8
<PAGE>
12. Severability. If any provision hereof is unenforceable, illegal, or
------------
invalid for any reason whatsoever, such fact shall not affect the
remaining provisions hereof, except in the event a law or court
decision, whether on application for declaration, or preliminary
injunction or upon final judgment, declares one or more of the
provisions of this Agreement that impose restrictions on Employee
unenforceable or invalid because of the geographic scope or time
duration of such restriction. In such event, Employer shall have the
option:
(A) To deem the invalidated restrictions
retroactively modified to provide for the maximum
geographic scope and time duration which would make such
provisions enforceable and valid; or
(B) To terminate this Agreement pursuant to
Paragraph 12, in which event neither party shall have
any further obligation to the other, except that
Employee still shall be subject to the restrictions
contained in Paragraphs 8(b) and (c).
Exercise of any of these options shall not affect
Employer's right to seek damages or such additional
relief as may be allowed by law in respect to any
breach by Employee of the enforceable provisions of
this Agreement.
13. Attorneys' Fees. In the event suit is brought to enforce, or to
---------------
recover damages suffered as a result of breach of this Agreement the
prevailing party shall be entitled to recover its reasonable attorneys'
fees and costs of suit.
14. No Waiver of Breach or Remedies. No failure or delay on the part of
-------------------------------
Employer or Employee in exercising any right, power or remedy hereunder
shall operate as a waiver thereof nor shall any single or partial
exercise of any such right, power or remedy preclude any other or
further exercise thereof or the exercise of any other right, power or
remedy hereunder. The remedies herein provided are cumulative and not
exclusive of any remedies provided by law.
15. Amendment or Modification. No amendment, modification, termination or
-------------------------
waiver of any provision of this Agreement shall be effective unless the
same shall be in writing and signed by the Employer's Chairman of the
Board of Directors, and Employee, nor consent to any departure by the
Employee from any of the terms of this Agreement shall be effective
unless the same is signed by the Employer's Chairman of the Board of
Directors. Any such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.
16. Governing Law. The laws of the State of Nevada shall govern the
-------------
validity, construction and interpretation of this Agreement, and except
for Dispute Claims, the courts of the State of Nevada shall have
exclusive jurisdiction over any claim with respect to this Agreement.
17. Number and Gender. Where the context of this Agreement requires the
-----------------
singular shall mean the plural and vice versa and references to males
shall apply equally to females and vice versa.
18. Headings. The headings in this Agreement have been included solely for
--------
convenience of reference and shall not be considered in the
interpretation or construction of this Agreement.
19. Assignment. This Agreement is personal to Employee and may not be
----------
assigned.
9
<PAGE>
20. Successors and Assigns. This Agreement shall be binding upon the
----------------------
successors and assigns of Employer.
21. Prior Agreements. This Agreement shall supersede and replace any and all
----------------
other employment agreements which may have been entered into by and
between the parties, including, but not limited to that certain letter
agreement dated N/A . Any such prior employment agreements shall
------------
be of no force and effect.
IN WITNESS WHEREOF, Employer and Employee have entered into this Agreement
in Las Vegas, Nevada, on 1/16 , 1998.
--------------
EMPLOYEE EMPLOYER - MGM GRAND, INC.
/s/ James Murren /s/ Alejandro Yemenidjian
- ------------------------------ ------------------------------
- ------------------------------ Title: President & COO
Cast Number -----------------------
10
<PAGE>
EXHIBIT A
Trade secret means information, including a formula, pattern, compilation,
program, device, method, technique or process, that derives economic value,
present or potential, from not being generally known to, and not being readily
ascertainable by proper means by, other persons who can obtain any economic
value from its disclosure or use.
11
<PAGE>
EXHIBIT B
NAME OF REPORT GENERATED BY
-------------- ------------
Including, but not limited to:
Baccarat Pit Discrepancy Report Casino Marketing Analyst
Commission Summary Report Casino Marketing Analyst
Customer W/L Discrepancy Report Casino Marketing Analyst
Int'l Marketing Detailed Budget Summaries Casino Marketing Analyst
Arrival Report International Marketing
Departure Report International Marketing
Daily Gaming Report Casino Audit
Department Financial Statement Finance
$10K Over High Action Play Report Customer Analysis Dept.
$50K Over High Action Play Report Customer Analysis Dept.
International Market Segment Report Customer Analysis Dept.
Collection Aging Report(s) Collection Department
Accounts Receivable Aging Finance
Marketing Report Finance
Daily Player Action Report Casino Operations
12
<PAGE>
EXHIBIT C
, 1997
-------------
Dear :
--------------
This letter will supplement the employment agreement, dated
----------,
between you and MGM Grand, Inc. (the "Agreement"). Notwithstanding anything
contained in the Agreement to the contrary, if you so elect, all or any portion
of your unvested stock options shall not become fully vested upon a Change of
Control (as defined in the Agreement) of MGM Grand, Inc. Any such election
shall be effective upon written notice to MGM Grand, Inc. at or prior to the
Effective Date (as defined in the Agreement) of any such Change of Control.
Except as specifically modified hereby, the terms and conditions of the
Agreement shall remain in full force and effect.
Sincerely,
MGM GRAND, INC.
By:
-------------------------------
J. Terrence Lanni
AGREED TO AND ACKNOWLEDGED
Dated: , 1997
- --------------------------------- ----------------
13
<PAGE>
EXHIBIT 13
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>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
(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
- ---------------------------------------------------------------------------------------------------------------------
NET REVENUES:
<S> <C> <C> <C>
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>
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
MGM GRAND MARKETING MGM GRAND DEVELOPMENT
- ------------------------------------------------------------------------------------------------------------------------------
Robert V. Moon Kenneth A. Rosevear
President President and
Chief Operating Officer
MGM GRAND AUSTRALIA MGM GRAND MERCHANDISING
- ------------------------------------------------------------------------------------------------------------------------------
J. D. Clayton Bob Bowman
General Manager President
New York-New York Hotel and Casino
- ------------------------------------------------------------------------------------------------------------------------------
David Cacci
President and Chief Operating Officer
</TABLE>
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>
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 South
85 Challenger Road Las Vegas, NV 89109
Ridgefield Park, NJ 07660
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 21
MGM GRAND, INC.
LIST OF SUBSIDIARIES
DECEMBER 31, 1997
STATE OF
NAME INCORPORATION
---------------------------- -------------
PARENT MGM Grand, Inc. Delaware
SUBSIDIARIES: MGM Grand Hotel, Inc. Nevada
MGM Grand Hotel Finance Corp. Nevada
Destron, Inc. Nevada
MGM Grand Australia Pty, Ltd. Australia
MGM Grand Merchandising, Inc. Nevada
MGM Grand Monorail, Inc. Nevada
MGM Grand Atlantic City, Inc. New Jersey
MGM Grand Development, Inc. Nevada
MGM Grand Detroit, Inc. Delaware
MGM Grand Detroit, LLC Delaware
MGM Dist., Inc. Nevada
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in this Form 10-K dated January 28, 1998, included or incorporated
by reference of our reports, into the Company's previously filed Registration
Statements File Nos. 33-35023, 33-38616, 333-00187 and 333-42729.
ARTHUR ANDERSEN LLP
Las Vegas, Nevada
March 26, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MGM GRAND,
INC. 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1997 JAN-01-1996 JAN-01-1995
<PERIOD-END> DEC-31-1997 DEC-31-1996 DEC-31-1995
<CASH> 34,606 61,412 110,017
<SECURITIES> 0 0 0
<RECEIVABLES> 106,000 115,961 111,633
<ALLOWANCES> (27,023) (35,432) (33,074)
<INVENTORY> 16,462 13,520 10,982
<CURRENT-ASSETS> 170,791 226,708 212,744
<PP&E> 1,222,319 1,026,758 996,906
<DEPRECIATION> (189,611) (142,008) (93,062)
<TOTAL-ASSETS> 1,398,374 1,287,689 1,282,222
<CURRENT-LIABILITIES> 181,490 190,771 119,430
<BONDS> 0 0 473,000
0 0 0
0 0 0
<COMMON> 580 579 488
<OTHER-SE> 1,101,042 972,803 584,060
<TOTAL-LIABILITY-AND-EQUITY> 1,398,374 1,287,689 1,282,222
<SALES> 891,330 856,438 774,756
<TOTAL-REVENUES> 827,597 800,189 718,781
<CGS> 0 0 0
<TOTAL-COSTS> 633,203 660,873 604,876
<OTHER-EXPENSES> 3,424 10,022 10,082
<LOSS-PROVISION> 31,814 38,635 57,683
<INTEREST-EXPENSE> 11,133 33,778 59,329
<INCOME-PRETAX> 180,301 99,151 46,565
<INCOME-TAX> 65,045 24,634 0
<INCOME-CONTINUING> 115,256 74,517 46,565
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> (4,238) (30,811) 0
<CHANGES> 0 0 0
<NET-INCOME> 111,018 43,706 46,565
<EPS-PRIMARY> 1.93 0.83 0.97
<EPS-DILUTED> 1.89 0.81 0.96
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM MGM GRAND, INC. 10-Q
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1996 DEC-31-1996
<PERIOD-START> JUL-01-1997 JAN-01-1997 JUL-01-1996 JAN-01-1996
<PERIOD-END> SEP-30-1997 SEP-30-1997 SEP-30-1996 SEP-30-1996
<CASH> 0 58,993 0 63,017
<SECURITIES> 0 0 0 0
<RECEIVABLES> 0 70,464 0 83,909
<ALLOWANCES> 0 (25,626) 0 (37,350)
<INVENTORY> 0 15,910 0 10,713
<CURRENT-ASSETS> 0 170,473 0 196,568
<PP&E> 0 1,114,781 0 1,004,125
<DEPRECIATION> 0 (175,972) 0 (128,105)
<TOTAL-ASSETS> 0 1,298,048 0 1,243,720
<CURRENT-LIABILITIES> 0 127,063 0 117,856
<BONDS> 0 0 0 0
0 0 0 0
0 0 0 0
<COMMON> 0 580 0 578
<OTHER-SE> 0 1,060,301 0 947,627
<TOTAL-LIABILITY-AND-EQUITY> 0 1,298,048 0 1,243,720
<SALES> 223,521 661,232 212,018 635,526
<TOTAL-REVENUES> 208,399 614,982 197,388 594,621
<CGS> 0 0 0 0
<TOTAL-COSTS> 180,546 476,723 200,527 497,048
<OTHER-EXPENSES> (3,466) 1,312 1,669 4,543
<LOSS-PROVISION> 8,405 22,735 9,035 29,202
<INTEREST-EXPENSE> 2,511 8,761 2,269 34,008
<INCOME-PRETAX> 28,984 128,498 (6,804) 62,055
<INCOME-TAX> 10,290 46,655 (2,127) 11,569
<INCOME-CONTINUING> 18,694 81,843 (4,677) 50,486
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> (4,238) (4,238) (30,811) (30,811)
<CHANGES> 0 0 0 0
<NET-INCOME> 14,456 77,605 (35,488) 19,675
<EPS-PRIMARY> 0.25 1.34 (0.62) 0.38
<EPS-DILUTED> 0.25 1.32 (0.62) 0.37
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MGM GRAND,
INC. 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1996 DEC-31-1996
<PERIOD-START> APR-01-1997 JAN-01-1997 APR-01-1996 JAN-01-1996
<PERIOD-END> JUN-30-1997 JUN-30-1997 JUN-30-1996 JUN-30-1996
<CASH> 0 47,413 0 210,194
<SECURITIES> 0 0 0 0
<RECEIVABLES> 0 86,135 0 80,251
<ALLOWANCES> 0 (25,099) 0 (34,904)
<INVENTORY> 0 16,259 0 10,120
<CURRENT-ASSETS> 0 173,930 0 280,343
<PP&E> 0 1,097,065 0 1,019,087
<DEPRECIATION> 0 (168,226) 0 (119,829)
<TOTAL-ASSETS> 0 1,292,700 0 1,347,409
<CURRENT-LIABILITIES> 0 146,807 0 119,443
<BONDS> 0 0 0 473,000
0 0 0 0
0 0 0 0
<COMMON> 0 580 0 491
<OTHER-SE> 0 1,043,138 0 649,505
<TOTAL-LIABILITY-AND-EQUITY> 0 1,292,700 0 1,347,409
<SALES> 225,114 437,711 201,556 423,508
<TOTAL-REVENUES> 209,085 406,583 189,237 397,233
<CGS> 0 0 0 0
<TOTAL-COSTS> 151,717 296,177 139,140 296,521
<OTHER-EXPENSES> 3,289 4,778 1,482 2,874
<LOSS-PROVISION> 5,917 14,330 4,541 20,167
<INTEREST-EXPENSE> 2,811 6,250 15,942 31,739
<INCOME-PRETAX> 51,437 99,514 34,331 68,859
<INCOME-TAX> 18,438 36,365 13,696 13,696
<INCOME-CONTINUING> 32,999 63,149 20,635 55,163
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 32,999 63,149 20,635 55,163
<EPS-PRIMARY> 0.57 1.09 0.43 1.14
<EPS-DILUTED> 0.56 1.07 0.41 1.11
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MGM GRAND,
INC. 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> MAR-31-1997 MAR-31-1996
<CASH> 45,373 183,580
<SECURITIES> 0 0
<RECEIVABLES> 73,283 93,568
<ALLOWANCES> (26,283) (40,849)
<INVENTORY> 13,589 10,662
<CURRENT-ASSETS> 146,051 263,519
<PP&E> 1,050,193 1,010,004
<DEPRECIATION> (154,779) (106,363)
<TOTAL-ASSETS> 1,242,950 1,334,871
<CURRENT-LIABILITIES> 120,467 136,816
<BONDS> 0 473,000
0 0
0 0
<COMMON> 580 491
<OTHER-SE> 1,005,968 623,037
<TOTAL-LIABILITY-AND-EQUITY> 1,242,950 1,334,871
<SALES> 212,597 221,952
<TOTAL-REVENUES> 197,498 207,996
<CGS> 0 0
<TOTAL-COSTS> 144,460 157,381
<OTHER-EXPENSES> 1,489 1,392
<LOSS-PROVISION> 8,413 15,626
<INTEREST-EXPENSE> 3,439 15,797
<INCOME-PRETAX> 48,077 34,528
<INCOME-TAX> 17,927 0
<INCOME-CONTINUING> 30,150 34,528
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 30,150 34,528
<EPS-PRIMARY> 0.52 0.71
<EPS-DILUTED> 0.51 0.70
</TABLE>
<PAGE>
EXHIBIT 99
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the members of New York - New York Hotel & Casino, LLC:
We have audited the accompanying balance sheets of New York - New York Hotel &
Casino, LLC (the "Company") as of December 31, 1997 and 1996, and the related
statements of income, changes in members' 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 New York - New York Hotel &
Casino, LLC as of December 31, 1997 and 1996, and the results of its operations
and cash flows for each of the three years in the period ended December 31,
1997, in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Las Vegas, Nevada
January 28, 1998
<PAGE>
<TABLE>
<CAPTION>
NEW YORK - NEW YORK HOTEL & CASINO, LLC
BALANCE SHEETS
December 31,
(Amounts in Thousands) 1997 1996
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 7,296 $ 6,104
Restricted Cash - 10,868
Accounts receivable, net of allowance for
doubtful accounts of $872 and $0, respective 4,266 370
Inventories 460 350
Prepaid expenses and other 5,999 4,097
--------- ---------
Total current assets 18,021 21,789
--------- ---------
PROPERTY AND EQUIPMENT:
Land 63,223 49,563
Building, fixtures and equipment 405,418 380,989
--------- ---------
468,641 430,552
Accumulated depreciation (21,768) -
--------- ---------
Property and equipment, net 446,873 430,552
OTHER ASSETS 5,358 4,750
--------- ---------
TOTAL ASSETS $ 470,252 $ 457,091
========= =========
CURRENT LIABILITIES:
Current portion of notes payable $ 11,273 $ -
Swing line loan 5,600 -
Current portion of capital lease 179 172
Accounts payable 1,314 12,683
Accrued expenses 21,815 19,522
Construction payable - 12,625
Retention payable 318 14,596
--------- ---------
Total current liabilities 40,499 59,598
--------- ---------
LONG TERM DEBT:
Long-term capital lease 718 829
Notes payable 245,685 285,000
--------- ---------
TOTAL LIABILITIES 286,902 345,427
--------- ---------
MEMBERS' EQUITY
Members' contributions 141,400 127,400
Members' distributions (30,320) -
Retained earnings (deficit) 72,270 (15,736)
--------- ---------
Total members' equity 183,350 111,664
--------- ---------
TOTAL LIABILITIES AND MEMBERS' EQUITY $ 470,252 $ 457,091
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
NEW YORK - NEW YORK HOTEL & CASINO, LLC
STATEMENTS OF INCOME
(Amounts in Thousands)
<TABLE>
<CAPTION>
Years Ended
December 31,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES:
Casino $ 143,953 $ - $ -
Hotel 69,400 - -
Beverage 13,983 - -
Roller Coaster 9,910 - -
Retail and other 28,058 345 149
------------ ------------ ------------
265,304 345 149
Less: promotional allowances (10,051) - -
------------ ------------ ------------
Net revenues 255,253 345 149
------------ ------------ ------------
COSTS AND EXPENSES:
Casino 51,710 - -
Hotel 23,852 - -
Beverage 4,719 - -
Roller Coaster 2,079 - -
Retail and other 6,072 413 481
Selling, general and administrative 24,691 - -
Property costs 12,410 - -
Depreciation and amortization 22,289 - -
Pre-opening expenses - 15,762 -
Abandonment loss - - 642
------------ ------------ ------------
Total costs and expenses 147,822 16,175 1,123
------------ ------------ ------------
OPERATING INCOME/(LOSS) 107,431 (15,830) (974)
INTEREST INCOME (EXPENSE), NET (19,425) 147 921
------------ ------------ ------------
NET INCOME/(LOSS) $ 88,006 $ (15,683) $ ($53)
============= ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
NEW YORK - NEW YORK HOTEL & CASINO, LLC
STATEMENTS OF CHANGES IN MEMBERS' EQUITY
(Amounts in Thousands)
<TABLE>
<CAPTION>
MGM PRMA Las
Grand, Inc. Vegas, Inc. Total
------------ ------------ ------------
<S> <C> <C> <C>
Inception, December 23, 1994 $ - $ - $ -
Members' contributions 41,200 41,200 $82,400
Net loss (27) (26) (53)
------------ ------------ ------------
Balance, December 31, 1995 41,173 41,174 82,347
Members' contributions 22,500 22,500 45,000
Net loss (7,841) (7,842) (15,683)
------------ ------------ ------------
Balance, December, 1996 55,832 55,832 111,664
Members' contributions 7,000 7,000 14,000
Members' distributions (15,160) (15,160) (30,320)
Net income 44,003 44,003 88,006
------------ ------------ ------------
Balance, December 31, 1997 $ 91,675 $ 91,675 $ 183,350
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
NEW YORK - NEW YORK HOTEL & CASINO, LLC
STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
Years Ended
December 31,
1997 1996 1995
---------- ------------ ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss) $ 88,006 $ (15,683) $ (53)
Adjustments to reconcile net income/(loss)
to net cash provided by operating activities:
Depreciation and amortization 21,905 - -
Amortization of debt issuance costs 384 - -
Allowance for doubtful accounts (872) - -
Pre-opening costs - 15,762 -
Change in current assets and liabilities
due to operating activities:
Increase in accounts receivable (3,024) (340) (30)
Increase in inventories (110) (304) (46)
Increase in prepaid expenses and other (1,902) (4,097) -
Increase (decrease) in accounts payable (11,369) 12,496 187
Increase in other accrued expenses 2,293 18,257 1,265
---------- ------------ ----------
Total adjustments 7,305 41,774 1,376
---------- ------------ ----------
Net cash provided by operating activities 95,311 26,091 1,323
---------- ------------ ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, equipment, and land (52,367) (262,211) (111,544)
(Decrease) increase in construction payables (12,625) (2,365) 14,990
Decrease (increase) in restricted cash 10,868 (10,868) -
Increase in other assets (1,628) (1,070) -
Pre-opening expenses - (14,976) (786)
---------- ------------ ----------
Net cash used in investing activities (55,752) (291,490) (97,340)
---------- ------------ ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in deferred financing fees, net 499 - (2,480)
Proceeds from issuance of long-term debt 25,600 225,999 59,001
Members' contributions 14,000 45,000 40,000
Members' distributions (30,320) - -
Proceeds from members' advances - - 10,000
Repayment of members' advances - - (10,000)
Principal payments of long-term debt (48,146) - -
---------- ------------ ----------
Net cash (used in)/provided by financing activities (38,367) 270,999 96,521
---------- ------------ ----------
Net increase in cash and cash equivalents 1,192 5,600 504
Cash and cash equivalents, beginning of year 6,104 504 -
---------- ----------- ----------
Cash and cash equivalents, end of year $ 7,296 $ 6,104 $ 504
========== ============ ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
NEW YORK - NEW YORK HOTEL & CASINO, LLC
NOTES TO FINANCIAL STATEMENTS
-----------------------------
1. ORGANIZATION AND BASIS OF PRESENTATION
--------------------------------------
MGM Grand, Inc. ("MGM"), a Delaware corporation, and PRMA Las Vegas, Inc.
("Primadonna"), a Nevada corporation, entered into an operating agreement
(the "Agreement") dated December 23, 1994 (inception) to establish New
York-New York Hotel & Casino, LLC, a Nevada limited liability company (the
"Company"), which developed and operates New York-New York Hotel & Casino
(the "Hotel-Casino") located on the "Las Vegas Strip." The Agreement will
expire on December 23, 2024. In the prior year the Company was in the
development stage.
New York-New York Hotel & Casino opened to the public on January 3, 1997,
at an approximate cost of $460,000,000. MGM contributed to the Company land
with a fair market value of $41,200,000 to comprise its total initial
equity investment. Primadonna contributed to the Company theme rights with
a fair market value of $1,200,000 and cash of $40,000,000 for a total
initial equity investment of $41,200,000. Each member contributed cash of
$22,500,000 and $7,000,000 during fiscal years 1996 and 1997, respectively.
Each member has a 50% ownership interest in the Company.
Profits and losses, quarterly net cash flow payments, and additional
capital contributions are allocated to each member at their 50% ownership
interest. MGM and Primadonna are not responsible for debts or obligations
of the Company, except as it relates to the Bank Credit Facility (see Note
7).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
a) USE OF ESTIMATES
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
b) CASH AND CASH EQUIVALENTS
-------------------------
Cash and cash equivalents include all cash balances and highly liquid
investments with original maturities of three months or less. Such
investments are counted at cost, which approximates market value.
6
<PAGE>
c) CASINO REVENUES AND PROMOTIONAL ALLOWANCES
------------------------------------------
Casino revenues represent the net win from gaming wins and losses.
The retail value of beverage, hotel rooms and other goods and services
provided to customers without charge is included in gross revenues,
and then deducted as promotional allowances. The estimated
departmental costs of providing such promotional allowances is
included in casino costs and expenses as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31, 1997
<S> <C>
Beverage $ 4,367
Hotel 1,001
Other 197
-------
$ 5,565
=======
</TABLE>
d) INVENTORIES
-----------
Inventories are valued at the lower of cost or market as determined on
the first-in, first-out method. Inventories consist primarily of
beverage and retail products.
e) PROPERTY AND EQUIPMENT
----------------------
Property and equipment are recorded at cost. Depreciation and
amortization are provided for on the straight-line method over the
following estimated useful lives:
Buildings and improvements 10 to 40 years
Furniture, fixtures and equipment 3 to 12 years
Normal repairs and maintenance are charged to expense when incurred.
Expenditures which materially extend the useful life of assets are
capitalized.
f) CAPITALIZED INTEREST
--------------------
The Company capitalized interest costs associated with debt incurred
during the active construction and development as well as in
connection with major renovation projects. Interest capitalized was
$0, $13,951,000 and $759,000 for the years ended December 31, 1997,
1996 and 1995, respectively.
g) PRE-OPENING EXPENSES
--------------------
Pre-opening expenses include direct incremental project salaries and
other expenses incurred during the pre-opening phase of the project.
All pre-opening costs directly related to gaming and hotel operations
are capitalized as incurred and charged to expense in the period the
project is ready for its intended
7
<PAGE>
use. All pre-opening costs were expensed in the year ended December
31, 1996, as the property was ready for use as of December 25, 1996.
h) INCOME TAXES
------------
The Company is not subject to income taxes, therefore no provision for
income taxes has been made as the members include their respective
shares of the Company's income or loss in their income tax returns.
i) VALUATION OF LAND
-----------------
The land contributed by MGM has been included in property and
equipment at a value of $41,200,000 (see Note 1). This amount exceeds
MGM's original cost basis and represents the valuation which has been
agreed upon by the members.
j) FAIR VALUE OF FINANCIAL INSTRUMENTS
-----------------------------------
The fair value of the Company's financial instruments approximates
their recorded value at December 31, 1997 and 1996.
k) RECLASSIFICATIONS
-----------------
The financial statements for prior periods reflect certain
reclassifications to conform with classifications adopted in 1997.
8
<PAGE>
3. STATEMENTS OF CASH FLOWS
------------------------
The following supplemental disclosures are provided as part of the
accompanying financial statements of cash flows:
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Cash payments made for interest (net of amounts
capitalized) $ 17,616 $ - $ -
========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES
Capital lease for equipment $ - $ 1,001 $ -
========== ========== ==========
Retention payable included in construction in progress $ 318 $ 14,596 $ 3,747
========== ========== ==========
Contributed land, at fair market value $ - $ - $ 41,200
========== ========= =========
Contributed intagible asset, at fair market value $ - $ - $ 1,200
========== ========= =========
</TABLE>
4. PREPAID EXPENSES AND OTHER
--------------------------
Prepaid Expenses and other at December 31, 1997 and 1996 consist of the
following (in thousands):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Prepaid taxes and licenses $ 2,885 $ 630
Deposits 148 2,207
Other Prepaids 2,966 1,260
------- -------
$ 5,999 $ 4,097
======= =======
</TABLE>
9
<PAGE>
5. OTHER ASSETS
------------
Other assets at December 31, 1997 and 1996 consist of the following (in
thousands):
<TABLE>
<CAPTION>
1997 1996
---- -----
<S> <C> <C>
Deferred financing fees $ 2,485 $ 2,994
Intangible assets 2,290 1,319
Organization costs 614 461
Cost of chips and tokens 988 513
------- -------
Subtotal 6,377 5,287
Less: amortization (1,019) (537)
------- -------
Other assets, net $ 5,358 $ 4,750
======= =======
</TABLE>
Deferred financing fees relate to the Company's long-term debt facility
being amortized to interest expense on a straight-line basis over the
period of the loan. In accordance with the Company's capitalization of
interest costs during the development phase, the amortized portion of these
fees was included in capitalized interest.
Intangible assets represent certain rights related to the "New York Theme,"
contributed by Primadonna, in accordance with the Agreement. This amount
is being amortized over the life of the Agreement (30 years).
Organization costs consist primarily of professional and legal fees
incurred to establish the Company, and obtain requisite gaming licenses.
These costs are being amortized over 5 years.
Chips and tokens consist of the cost of purchasing the gaming chips and
tokens used in the Hotel-Casino. These costs are being amortized over 3
years.
6. ACCRUED EXPENSES
----------------
Accrued expenses at December 31, 1997 and 1996 consist of the following
(in thousands):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Accrued interest $ 1,809 $ 2,158
Advance deposits 3,393 2,632
Accrued accounts payable 385 10,231
Accrued payroll and related 6,791 1,550
Accrued gaming liability 3,290 -
Accrued taxes 1,866 -
Other accruals 4,281 2,951
-------- --------
$ 21,815 $ 19,522
======== ========
</TABLE>
10
<PAGE>
7. LONG-TERM DEBT
--------------
Long-term debt at December 31, 1997 and 1996 consists of the following (in
thousands):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Amount due under Master Security Agreement for Equipment financing. Interest
rate based on LIBOR plus 1.88%. Interest ranged from 7.35% to 7.75% during
the year. Repayable in 58 monthly installments of $254,000. $ 17,458 $ -
Amount due under Bank Credit Facility at floating interest rates based on
LIBOR plus between .75% to 2.00% depending on the Guarantor Funded Debt
Ratio as defined. Interest on the Bank Credit Facility ranged from 6.28% to
6.71% during 1997, maturing March 31, 2002. 239,500 285,000
Amount due under the Swing Line loan at floating interest rates based on
LIBOR plus between zero and 1.00% depending on the Guarantor Funded Debt
Ratio as defined. Interest on the Swing Line loan ranged from 7.69% to
8.19% during 1997. This loan is payable on demand or in any event will
mature on March 31, 2002 5,600 -
-------- --------
262,558 285,000
Less - current portion of long-term debt (16,873) -
--------- ---------
Total long-term debt $ 245,685 $ 285,000
========= =========
</TABLE>
11
<PAGE>
On September 15, 1995, the Company entered into a secured limited recourse
financing agreement for a $225,000,000 Construction/Revolving Loan (the
"Bank Credit Facility") with a consortium of banks, led by Bank of America.
On September 26, 1996, the Bank Credit Facility was amended to increase the
commitment to $285,000,000. The Bank Credit Facility was a non-revolving
construction line of credit, which converted to a 5 year reducing revolver
upon the commencement of operations of the Hotel-Casino on January 3, 1997.
Interest on the Bank Credit Facility is variable based on a formula defined
in the Bank Credit Facility agreement. An initial payment of $20,000,000
is due on March 31, 1998, which is the Initial Reduction Date. Thereafter,
quarterly installments are due of $9,375,000 for the next four quarters;
$11,250,000 for the next eight quarters; $12,500,000 for the next three
quarters; and the balance maturing four years after the Initial Reduction
Date. Additional principal payments are due one year after operations
commence based on 50% of Available Cash Flow (as defined). The Company has
the ability to apply the payments made ahead of schedule in 1997 against
this minimum payment. Accordingly, $11,273,000 related to the Bank Credit
Facility is shown in the current portion of long-term debt which represents
the additional balance due in 1998. The Bank Credit Facility is secured by
substantially all of the assets of the Company.
The Company incurred commitment fees on a quarterly basis on the unused
portion of the Bank Credit Facility at 0.5%. Commitment fees incurred
during the years ended December 31, 1997, 1996 and 1995 were $51,000,
$284,000 and $228,000, respectively; these amounts are included in
capitalized interest. Substantially all property and equipment of the
Hotel-Casino is pledged as collateral under the Bank Credit Facility.
The Bank Credit Facility contains various restrictive covenants including
the maintenance of certain financial ratios and limitations of additional
debt, distributions, disposition of property, mergers and similar
transactions. The Company is in compliance with these covenants at
December 31, 1997. On March 17, 1997, the Company purchased a contiguous
parcel of land for $13,500,000. This purchase is not subject to the
calculation of the maximum capital expenditures allowable under the Bank
Credit Facility.
As a condition of the Bank Credit Facility, MGM and Primadonna
(collectively, the "Guarantors") guaranteed completion of the Hotel-Casino
and, in addition, entered into a "Keep Well" agreement whereby, if the
Company fails to be in compliance with any of the financial ratio covenants
(as defined), the Guarantors shall contribute Acceptable Cash Equity (as
defined) to the Company.
The Bank Credit Facility allows for the issuance of letters of credit of up
to $20,000,000 and the issuance of swing line loans of up to $10,000,000.
As of December 31, 1997, no amounts were outstanding with respect to the
letter of credit and the outstanding balance on the Swing Line loan was
$5,600,000.
12
<PAGE>
On January 21, 1997, the Company entered into a $20,000,000 Master Security
Agreement for equipment financing with a financial institution (the
"Note"). The Note is payable in 58 monthly installments of $254,000 and
one final installment of $5,000,000. The Note contains a Contract Rate of
interest equal to the sum of 1) one and 88/100 percent (1.88%) per annum,
plus 2) a variable annum interest rate which shall be equal to the one
month LIBOR rate. The Company has the option to convert to a fixed rate,
based on the Treasury Rate, for the remaining length of time on the Note,
plus one and 88/100 percent (1.88%) per annum.
Interest payable at December 31, 1997, 1996 and 1995 was approximately
$1,809,000, $2,158,000 and $175,000 respectively, and is included in
accrued expenses in the accompanying balance sheets.
Scheduled maturities of long-term debt are as follows as of December 31,
1997 (in thousands):
<TABLE>
<S> <C>
1998 $ 16,873
1999 46,173
2000 48,048
2001 51,798
2002 99,666
Thereafter -
---------
$ 262,558
=========
</TABLE>
8. CAPITAL LEASE
-------------
In December 1996, the Company entered into a five-year master equipment
lease agreement to purchase various powered supply carts with a fair market
value of $1,001,000 at an interest rate of 7.46%. The future minimum lease
payments by year under the lease, together with the present value of the
lease payments, consisted of the following at December 31, 1997 (in
thousands):
<TABLE>
<S> <C>
1998 $ 240
1999 240
2000 240
2001 241
2002 -
Thereafter -
-----
Minimum lease payments 961
Less: amounts representing interest (64)
-----
Present value of minimum lease payment $ 897
=====
</TABLE>
13
<PAGE>
9. MINIMUM LEASE INCOME
--------------------
The company has entered into a number of operating leases in relation to
food and beverage and retail outlets. The future minimum lease income
under these leases consisted of the following at December 31, 1997 (in
thousands):
<TABLE>
<S> <C>
1998 $ 6,995
1999 6,959
2000 6,959
2001 6,959
2002 5,713
Thereafter 46,877
--------
$ 80,462
========
</TABLE>
10. ABANDONMENT LOSS
----------------
The Company incurred costs related to the construction of flyover ramps to
divert traffic from the heavily traveled intersection in front of the
Hotel-Casino. Based upon the results of the traffic studies subsequently
performed, management changed their intentions and abandoned construction
of these flyovers; therefore, $642,000 of abandonment loss, the cumulative
costs incurred to date, was charged to expense as of December 31, 1995.
11. RELATED PARTY TRANSACTIONS
--------------------------
During the years ended December 31, 1997, 1996 and 1995, the Company
engaged in certain transactions with MGM and Primadonna. In 1995 MGM and
Primadonna, each, contributed $5,000,000, respectively to the Company,
which amounts were advanced to, and subsequently repaid by the Company,
during the year ended December 31, 1995.
In addition, the Company has reimbursed expenses related to construction
and pre-opening expenses paid for by MGM and Primadonna. These reimbursed
expenses approximated $96,000 and $1,544,000 for 1996 and $414,000 and
$2,279,000 for 1995, for MGM and Primadonna, respectively. Included in
these amounts are interest paid of $4,000 to Primadonna for 1996, and
$44,000 and $40,000 to MGM and Primadonna, respectively for 1995.
During the year ended December 31, 1997, the Company purchased services
valued at $346,000 and $98,000 from MGM and Primadonna, respectively. At
December 31, 1997, $9,000 and $1,000 was payable to MGM and Primadonna,
respectively. In addition, services were provided by the Company valued at
$483,000 and $8,000 to MGM and Primadonna, respectively. At December 31,
1997, balances of $35,000 and $1,000 were receivable from MGM and
Primadonna, respectively.
14
<PAGE>
12. COMMITMENTS AND CONTINGENCIES
-----------------------------
LITIGATION
----------
The Company is party to various litigation arising in the normal course of
business. Management is of the opinion that the ultimate resolution of the
matters will not have a material effect on the financial position or the
results of operations of the Company.
LONG TERM INCENTIVE PLAN
------------------------
During 1997, the Company adopted a long-term incentive plan for senior
executives. The plan is based on performance to motivate management to
remain with the Company over the long term. The plan rewards performance
over and above a predetermined level of earnings before interest, taxes and
depreciation as defined, and established by the compensation committee. A
total of $910,000 was charged to expense under the plan during 1997.
15
