<PAGE>
UNITED STATES
SECURITIES & EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
--------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition period from - to -
-------------- --------------
Commission File Number: 0-16760
-------
MGM GRAND, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 88-0215232
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3799 Las Vegas Boulevard South, Las Vegas, Nevada 89109
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(702) 891-3333
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at May 8, 1998
----- --------------------------
Common Stock, $.01 par value 58,000,280 shares
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
FORM 10-Q
I N D E X
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Operations for the Three Months Ended
March 31, 1998 and March 31, 1997............................................... 1
Condensed Consolidated Balance Sheets at March 31, 1998 and
December 31, 1997............................................................... 2
Condensed Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 1998 and March 31, 1997............................................... 3
Notes to Condensed Consolidated Financial Statements............................ 4-9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................................... 10-13
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on 8-K..................................................... 14
Signatures...................................................................... 15
</TABLE>
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------
1998 1997
------- --------
<S> <C> <C>
REVENUES:
Casino $ 95,722 $107,096
Room 40,749 43,336
Food and beverage 24,983 21,569
Entertainment, retail and other 23,947 25,874
Income from unconsolidated affiliate 10,209 14,722
-------- --------
195,610 212,597
Less promotional allowances 15,763 15,099
-------- --------
179,847 197,498
-------- --------
EXPENSES:
Casino 54,600 53,157
Room 11,373 11,116
Food and beverage 15,533 12,239
Entertainment, retail and other 18,117 18,642
Provision for doubtful accounts and discounts 8,187 8,413
General and administrative 24,524 25,435
Depreciation and amortization 16,904 15,458
-------- --------
149,238 144,460
-------- --------
OPERATING PROFIT BEFORE CORPORATE EXPENSE 30,609 53,038
CORPORATE EXPENSE 2,451 1,489
-------- --------
OPERATING INCOME 28,158 51,549
-------- --------
OTHER INCOME (EXPENSE):
Interest Income 3,797 199
Interest expense, net of amounts capitalized (3,772) (974)
Interest expense from unconsolidated affiliate (2,171) (2,465)
Other, net (603) (232)
-------- --------
(2,749) (3,472)
-------- --------
INCOME BEFORE PROVISION FOR INCOME TAXES 25,409 48,077
Provision for income taxes (9,147) (17,927)
-------- --------
NET INCOME $ 16,262 $ 30,150
======== ========
PER SHARE OF COMMON STOCK:
Basic:
Net income per share $ 0.28 $ 0.52
======== ========
Weighted Average Shares Outstanding (000's) 57,990 57,836
======== ========
Diluted:
Net income per share $ 0.28 0.51
======== ========
Weighted Average Shares Outstanding (000's) 58,775 58,772
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
-1-
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
March 31, December 31,
1998 1997
---------- ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 437,333 $ 34,606
Accounts receivable, net 47,747 78,977
Prepaid expenses and other 11,645 10,452
Inventories 13,882 16,462
Deferred tax asset 28,986 30,294
---------- ----------
Total current assets 539,593 170,791
---------- ----------
PROPERTY AND EQUIPMENT, NET 1,122,017 1,032,708
OTHER ASSETS:
Investments in unconsolidated affiliates 115,951 108,121
Excess of purchase price over fair market value
of net assets acquired, net 38,342 38,598
Deposits and other assets, net 56,356 48,156
---------- ----------
Total other assets 210,649 194,875
---------- ----------
$1,872,259 $1,398,374
========== ==========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 18,323 $ 20,484
Construction payable 28,786 33,376
Current obligation, capital leases 5,935 6,088
Current obligation, long term debt 11,606 10,589
Accrued interest on long term debt 5,441 -
Other accrued liabilities 70,604 110,953
---------- ----------
Total current liabilities 140,695 181,490
---------- ----------
DEFERRED REVENUES 5,721 4,743
DEFERRED INCOME TAXES 60,099 58,831
LONG TERM OBLIGATION, CAPITAL LEASES 3,937 4,447
LONG TERM DEBT 544,559 47,241
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock ($.01 par value, 75,000,000 shares
authorized, 58,000,280 and 57,984,873 shares
issued and outstanding) 580 580
Capital in excess of par value 966,953 966,487
Retained earnings 140,501 124,239
Other comprehensive income 9,214 10,316
---------- ----------
Total stockholders' equity 1,117,248 1,101,622
---------- ----------
$1,872,259 $1,398,374
========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
-2-
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------
1998 1997
--------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 16,262 $ 30,150
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation and amortization 16,942 15,493
Amortization of debt offering costs 377 431
Provision for doubtful accounts and discounts 8,187 8,413
Earnings in excess of distributions-unconsolidated affiliate (8,038) (12,257)
Change in assets and liabilities:
Accounts receivable 23,043 25,116
Inventories 2,339 (342)
Prepaid expenses and other (1,193) 1,135
Income taxes payable and deferred income taxes 2,575 (8,493)
Accounts payable, accrued liabilities and other (36,754) (50,069)
Currency translation adjustment (71) 48
--------- --------
Net cash from operating activities 23,669 9,625
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (104,092) (23,760)
Disposition of property and equipment, net 402 113
Investments in unconsolidated affiliates - (7,160)
Change in construction payables (4,590) (45)
Change in deposits and other assets, net (10,434) (8,503)
--------- --------
Net cash from investing activities (118,714) (39,355)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments to banks and others (2,694) (3,192)
Issuance of long term debt 500,000 -
Borrowings under bank line of credit 31,000 15,000
Repayments of bank line of credit (31,000) -
Issuance of common stock 466 1,883
--------- --------
Net cash from financing activities 497,772 13,691
--------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 402,727 (16,039)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 34,606 61,412
--------- --------
CASH AND CASH EQUIVALENTS AS END OF PERIOD $ 437,333 $ 45,373
========= ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
-3-
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION
MGM Grand, Inc. (the "Company") is a Delaware corporation,
incorporated on January 29, 1986. As of March 31, 1998, approximately 62.5%
of the outstanding shares of the Company's common stock were owned by Kirk
Kerkorian and Tracinda Corporation ("Tracinda"), a Nevada corporation
wholly-owned by Kirk Kerkorian.
Through its wholly-owned subsidiary, MGM Grand Hotel, Inc., the
Company owns and operates MGM Grand Hotel/Casino ("MGM Grand Las Vegas"),
a hotel/casino and entertainment complex in Las Vegas, Nevada.
Through its wholly-owned subsidiary, MGM Grand Australia Pty Ltd., the
Company owns and operates the MGM Grand Hotel/Casino in Darwin, Australia
("MGM Grand Australia").
The Company and Primadonna Resorts, Inc. ("Primadonna") each owns 50%
of New York-New York Hotel and Casino, LLC ("NYNY LLC"), which completed
development of the $460 million themed destination resort called New York-
New York Hotel and Casino ("NYNY") in Las Vegas, Nevada in December 1996.
NYNY commenced operations on January 3, 1997, and is located on
approximately 20 acres at the northwest corner of Tropicana Avenue and Las
Vegas Boulevard, across from MGM Grand Las Vegas.
Through its wholly-owned subsidiary, MGM Grand South Africa, Inc., the
Company manages two casinos in the Mpumalanga Province of the Republic of
South Africa. The casino in Nelspruit began operations on October 15,
1997, while the casino in Witbank began operations on March 10, 1998. The
Company receives development and management fees from its partner, Tsogo
Sun Gaming & Entertainment, who is responsible for providing all project
costs.
Through its wholly-owned subsidiary, MGM Grand Detroit, Inc., the
Company and its local partners in Detroit, Michigan, formed MGM Grand
Detroit, LLC ("MGM Grand Detroit") to develop a hotel/casino and
entertainment complex at a minimum approximate cost of $700 million. On
November 20, 1997, MGM Grand Detroit was chosen as a finalist for a
development agreement to construct, own and operate one of Detroit's three
new casinos. On April 9, 1998, the Detroit City Council approved MGM Grand
Detroit's development agreement with the City. Construction of the project
is subject to the receipt of various governmental approvals. The plans for
MGM Grand Detroit call for an 800-room hotel, a 100,000-square-foot casino,
signature restaurants and retail outlets, a showroom and other
entertainment venues.
Through its wholly-owned subsidiary, MGM Grand Atlantic City, Inc.,
the Company intends to construct, own and operate a destination resort
hotel/casino, entertainment and retail facility in Atlantic City, New
Jersey, at a minimum approximate cost of $700 million, on approximately 35
acres of land on the Atlantic City Boardwalk. Construction of the project
is subject to the receipt of various governmental approvals. On July 24,
1996, the Company was found suitable for licensing by the New Jersey Casino
Control Commission.
Certain information and footnote disclosures normally included in the
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. These condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the 1997
Annual Report included on Form 10-K.
-4-
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (which include
only normal recurring adjustments) necessary to present fairly the
financial position as of March 31, 1998, and the results of operations for
the three month periods ended March 31, 1998 and 1997. The results of
operations for such periods are not necessarily indicative of the results
to be expected for the full year.
Recently issued Statement of Position - In April 1998, the American
Institute of Certified Public Accountants issued SOP 98-5, "Reporting on
the Costs of Start-up Activities." The new standard requires that all
companies expense costs of start-up activities as those costs are incurred.
The term "start-up" includes pre-opening, pre-operating and organization
activities. Previously, the company had capitalized these items until the
property opened at which time these cumulative costs would be expensed. As
of March 31, 1998, the Company capitalized "start-up" costs of $.6 million
related to Atlantic City. The Company will adopt SOP 98-5 in the first
quarter of fiscal year 1999.
Certain reclassifications have been made to prior period financial
statements to conform with the 1998 presentation, which have no effect on
previously reported net income.
NOTE 2. STATEMENTS OF CASH FLOWS
For the three months ended March 31, 1998 and 1997, cash payments made
for interest were $1.6 million and $2.0 million, respectively.
No cash payments were made for state and federal taxes for the three
months ended March 31, 1998. Cash payments made for state and federal
taxes for the three months ended March 31, 1997 were $25 million.
NOTE 3. LONG TERM DEBT AND NOTES PAYABLE
Long term debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
--------- ------------
<S> <C> <C>
Australian Hotel/Casino Loan, due December 1, 2000 $ 56,165 $ 57,830
6.95% Senior Collateralized Notes, due February 1, 2005 300,000 -
6.875% Senior Collateralized Notes, due February 6, 2008 200,000 -
Bank Credit Facility - -
-------- ------------
556,165 57,830
Less: Current Maturities (11,606) (10,589)
-------- ------------
$544,559 $ 47,241
======== ============
</TABLE>
Total interest incurred for the first three months of 1998 and 1997
was $7.5 million and $2.5 million, respectively, of which $3.7 million and
$1.5 million were capitalized in the 1998 and 1997 periods, respectively.
During the first three months of 1998 and 1997, the Company recognized
interest expense from its unconsolidated affiliate of $2.2 million and $2.5
million, respectively.
-5-
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 3. LONG TERM DEBT AND NOTES PAYABLE (CONTINUED)
On July 1, 1996, the Company secured a $500 million Senior Reducing
Revolving Credit Facility with BA Securities (the "Facility"), an affiliate
of Bank of America NT&SA. In August 1996, the Facility was increased to
$600 million. In July 1997, the Facility was amended, extended and
increased to $1.25 billion (the "New Facility"), with provisions to allow
an increase of the New Facility to $1.5 billion as well as to allow
additional pari passu debt financing up to $500 million. As a result of
the New Facility, the Company recognized an extraordinary loss of
approximately $4.2 million, net of tax benefits, of unamortized debt costs
from the Facility during the third quarter of 1997. The New Facility
contains various restrictive covenants on the Company which include the
maintenance of certain financial ratios and limitations on additional debt,
dividends, capital expenditures and disposition of assets. The New
Facility also restricts certain acquisitions and similar transactions.
Interest on the New Facility is based on the bank reference rate or
Eurodollar rate. The New Facility matures in December 2002, with the
opportunity to extend the maturity for successive one year periods. During
the three months ended March 31, 1998, $31 million was drawn down and
repaid against the New Facility, and no amounts remained outstanding as of
March 31, 1998.
The Company filed a Shelf Registration Statement with the Securities
and Exchange Commission which became effective on August 4, 1997. The Shelf
Registration Statement allows the Company to issue up to $600 million of
debt and equity securities. On February 2 and February 6, 1998, the Company
completed public offerings totaling $500 million of Senior Collateralized
Notes in tranches of 7 and 10 years. The 7-year tranche of $300 million
carries a coupon of 6.95%, while the 10-year tranche of $200 million
carries a coupon of 6.875%. Both tranches are initially secured equally and
ratably with the New Facility, and the security may be removed equally with
the New Facility at the Company's option upon the occurrence of certain
events, including the maintenance of investment grade ratings.
The Australian bank facility originally provided a total availability
of approximately $69.6 million (AUD $105 million), which has been reduced
by principal payments totaling $14.5 million (AUD $20.3 million) made in
accordance with the terms of the bank facility, including $2.7 million (AUD
$4.1 million) during the three months ended March 31, 1998. As of March
31, 1998, $56.2 million (AUD $84.7 million) remained outstanding. The bank
facility includes funding for general corporate purposes. Interest on the
bank facility is based on the Australian Bank Bill rate. The indebtedness,
which matures in December 2000, has been wholly guaranteed by the Company.
MGM Grand Australia has a $13.3 million (AUD $20 million) uncommitted
standby line of credit, with a funding period of 91 days for working
capital purposes. No amount was outstanding during the three months ended
March 31, 1998 and December 31, 1997.
Upon commencement of operations of NYNY on January 3, 1997 (see Note
1), the $285 million non-revolving construction line of credit converted to
a five-year reducing revolver. The Company and Primadonna (the "Partners")
have executed a joint and several unlimited Keep-Well Agreement, which
provides that in the event of insufficient cash flow from NYNY to comply
with financial covenants, the Partners will make cash infusions which are
sufficient to bring NYNY LLC into compliance with the financial covenants.
During the first three months of 1998, $17.6
-6-
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 3. LONG TERM DEBT AND NOTES PAYABLE (CONTINUED)
million in voluntary principal repayments were made by NYNY LLC. As of
March 31, 1998 and December 31, 1997, a total of $227.5 million and $245.1
million was outstanding, respectively. On January 21, 1997, NYNY LLC
completed an additional $20 million equipment financing with a financial
institution. As of March 31, 1998 and December 31, 1997, $16.7 million and
$17.5 million were outstanding related to the equipment financing,
respectively.
NOTE 4. ISSUANCE OF COMMON STOCK
On May 7, 1996, the Company made a commitment to grant 15 shares of
Company Common Stock to each of its employees in exchange for continued
active employment through the one year anniversary date of the commitment.
As a result of the stock grant commitment, deferred compensation was
charged to stockholders' equity and amortized monthly to compensation
expense over the one year commitment period. On May 7, 1997, 99,045 shares
were issued to employees as a result of the commitment. Over the life of
the commitment, approximately $4 million was amortized to expense, of which
$.9 million of such expense was recognized during the three months ended
March 31, 1997.
On May 24, 1995, and as amended, the Company entered into an agreement
with Don King Productions, Inc. ("DKP"), to present six of Mike Tyson's
fights. Pursuant to the agreement, the Company made a non-interest bearing
working capital advance of $15 million to DKP, sold to DKP 618,557 treasury
shares of the Company's Common Stock (the "Shares") for $15 million in
exchange for a non-interest bearing promissory note which was repaid, and
provided a guaranteed future share price of $48.50. The original agreement
was amended by a Trust Agreement dated October 23, 1996, in which the
Shares were placed in the name of, and held by, an independent trustee,
pending disposition at the direction of the Company. The Company and DKP
determined to terminate the agreement, and on September 25, 1997, after
solicitation of competitive bids, the Shares held by the Trustee were sold
to Tracinda at the price of $44.50 per share for an aggregate consideration
of $27.5 million, the Company was repaid the $15 million working capital
advance and the remaining consideration in the amount of $12.5 million was
paid to DKP. As a result of this transaction, the Company reversed
approximately $5.9 million of previously expensed stock price guarantee
amortization during 1997.
NOTE 5. COMPREHENSIVE INCOME
Statement of Financial Accounting Standards No. 130, ("SFAS 130")
"Reporting Comprehensive Income", requires that the Company disclose
comprehensive income and its components. The objective of SFAS 130 is to
report a measure of all changes in equity of a company that result from
transactions and other economic events of the period other than
transactions with stockholders. Comprehensive income is the total of net
income and all other non-stockholder changes in equity ("Other
Comprehensive Income").
The Company has recorded currency translation adjustments as Other
Comprehensive Income in the accompanying financial statements.
Comprehensive income is calculated as follows (in thousands):
-7-
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5. COMPREHENSIVE INCOME (CONTINUED)
<TABLE>
<CAPTION>
For Three Months Ended March 31,
1998 1997
------- -------
<S> <C> <C>
Net income $16,262 $30,150
Currency translation adjustment (1,102) 1,133
------- -------
Comprehensive income $15,160 $31,283
======= =======
</TABLE>
NOTE 6. EARNINGS PER SHARE
The Company calculates earnings per share ("EPS") in accordance with
the Statement of Financial Accounting Standards No. 128, "Earnings per
Share" ("SFAS 128"). SFAS 128 presents two EPS calculations: (i) basic
earnings per common share which is computed by dividing net income by the
weighted average number of shares of common stock outstanding during the
periods presented, and (ii) diluted earnings per common share which is
determined on the assumptions that options issued to employees are
exercised and repurchased at the average price for the periods presented
(in thousands except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------
1998 1997
------- -------
<S> <C> <C>
Net Income $16,262 $30,150
======= =======
Weighted Average Basic Shares 57,990 57,836
======= =======
Basic Earnings per Share $ 0.28 $ 0.52
======= =======
Weighted Average Diluted Shares 58,775 58,772
======= =======
Diluted Earnings per Share $ 0.28 $ 0.51
======= =======
</TABLE>
Weighted average diluted shares include the following: options to purchase
785,000 and 858,000 shares issued to employees for the three month periods
ended March 31, 1998 and 1997, respectively, and 78,000 employee grant
shares (see Note 4) for the period ended March 31, 1997.
NOTE 7. INVESTMENT IN UNCONSOLIDATED AFFILIATE
On December 28, 1994, the Company and Primadonna formed a joint
venture to construct, own and operate the New York-New York Hotel and
Casino (see Note 1). The hotel/casino opened to the public on January 3,
1997. The Company holds a 50% interest in the joint venture. The Company
has contributed land on which the property is located and cash totaling
$70.7 million. The joint venture secured bank financing of $285 million and
term loan financing of $20 million (see Note 3), and the joint venture
Partners' executed a Keep-Well Agreement in conjunction with the financing.
-8-
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7. INVESTMENT IN UNCONSOLIDATED AFFILIATE (CONTINUED)
Summary condensed financial information for New York-New York Hotel and
Casino, LLC is as follows (In thousands):
<TABLE>
<CAPTION>
Three Months Ended March 31,
1998 1997
-------- --------
<S> <C> <C>
Net Revenues $ 54,035 $ 67,868
======== ========
Operating Income $ 20,406 $ 29,261
======== ========
Interest Expense, net $ 4,342 $ 4,930
======== ========
Net Income $ 16,064 $ 24,331
======== ========
<CAPTION>
As of As of
March 31, 1998 December 31, 1997
-------------- -----------------
<S> <C> <C>
Total Assets $467,444 $470,252
======== ========
Long-term Debt $241,813 $246,403
======== ========
Members' Equity $199,414 $183,350
======== ========
</TABLE>
-9-
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company, through its wholly-owned subsidiaries, owns and operates
MGM Grand Las Vegas and MGM Grand Australia (see Note 1). The Company also
owns 50% of New York-New York Hotel and Casino, which commenced operations
on January 3, 1997 (see Note 1).
<TABLE>
<CAPTION>
(in thousands)
Three Months Ended
March 31,
------------------------
1998 1997
-------- --------
<S> <C> <C>
Net Revenues:
MGM Grand Las Vegas $161,613 $175,295
MGM Grand Australia 7,525 7,766
MGM Grand South Africa 672 -
Income from unconsolidated affiliate 10,209 14,722
Eliminations and other (172) (285)
-------- --------
$179,847 $197,498
======== ========
Operating profit (loss):
MGM Grand Las Vegas $ 18,885 $ 38,574
MGM Grand Australia 1,233 (258)
MGM Grand South Africa 282 -
Income from unconsolidated affiliate 10,209 14,722
-------- --------
30,609 53,038
Corporate expense (2,451) (1,489)
-------- --------
Operating income 28,158 51,549
Interest income 3,797 199
Interest expense, net of amounts capitalized (3,772) (974)
Interest expense - unconsolidated affiliate (2,171) (2,465)
Other, net (603) (232)
-------- --------
Income before provision for income taxes 25,409 48,077
Provision for income taxes (9,147) (17,927)
-------- --------
Net income $ 16,262 $ 30,150
======== ========
</TABLE>
-10-
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
QUARTER VERSUS QUARTER
Net revenues for the first quarter of 1998 were $179.8 million,
representing a decrease of $17.7 million (9.0%) when compared with $197.5
million during the same period last year. The decrease in net revenues was
largely due to lower casino revenue and lower earnings from the Company's
50% ownership in NYNY (see Note 1).
Consolidated casino revenues for the first quarter of 1998 were $95.7
million, representing a decrease of $11.4 million (10.6%) when compared
with $107.1 million during the same period in the prior year. MGM GRAND
LAS VEGAS casino revenues were $89.6 million, representing a decrease of
$11.3 million (11.2%) when compared with $100.9 million during the same
period in the prior year. The reduction in casino revenues at MGM Grand
Las Vegas was a result of lower table game and baccarat win percentages, as
well as lower baccarat volume. MGM GRAND AUSTRALIA reported casino
revenues of $6.1 million which was flat overall when compared with the same
period in the prior year, primarily reflecting lower volume and win
percentages in table games offset by an increase in slot win.
Consolidated room revenues were $40.7 million for the first quarter of
1998 compared with $43.3 million in the prior year's first quarter,
representing a decrease of $2.6 million (6.0%). MGM GRAND LAS VEGAS room
revenues were $40.4 million representing a decrease of $2.6 million (6.0%)
when compared with $43 million in the same period of the prior year. The
decrease was primarily due to a lower occupancy of 90.5% for the first
quarter of 1998 when compared with 92.1% in the same period of the prior
year, and a decrease in the average room rate for the first quarter to $100
from $104 for the 1997 first quarter. MGM GRAND AUSTRALIA room revenues
were flat quarter over quarter.
Consolidated food and beverage revenues were $25 million in the first
quarter of 1998, representing an increase of $3.4 million (15.7%) when
compared with $21.6 million in the first quarter of the prior year. The
increase was attributable to MGM GRAND LAS VEGAS which had food and
beverage revenues of $23.7 million during the first quarter of 1998, an
increase of $3.7 million (18.5%) when compared with $20 million in the
first quarter of 1997. This increase resulted from the Company's decision
to operate the Studio Cafe coffee shop which during the 1997 period had
been a leased facility until March 1997, and the opening of the Studio 54
night club in late December 1997. MGM GRAND AUSTRALIA reported food and
beverage revenues of $1.3 million, representing a decrease of $.3 million
(18.8%) when compared with $1.6 million during the same period in the prior
year.
Consolidated entertainment, retail and other revenues decreased $2
million (7.7%) from $25.9 million in the 1997 period to $23.9 million in
the 1998 period. The decrease in entertainment, retail and other revenues
is a result of lower MGM GRAND LAS VEGAS theme park revenues, lower retail
revenues, and the downsizing of the spa to a smaller facility. These
decreases were partially offset by increases in entertainment revenues from
events in the Grand Garden Arena and Grand Theatre, increased occupancy of
EFX, and addition of Company management fees from MGM Grand South Africa.
Income from unconsolidated affiliate was $10.2 million for the first
quarter of 1998, compared with $14.7 million in 1997, representing the
Company's 50% share of NYNY's operating income. The reduction of earnings
from NYNY is a result of the unprecedented public response in the first
year.
-11-
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
QUARTER VERSUS QUARTER (CONTINUED)
Consolidated operating expenses (before Corporate expenses) were
$149.2 million in the first quarter of 1998, representing an increase of
$4.7 million (3.3%) when compared with $144.5 million for the same period
last year. The overall increase was attributable to MGM GRAND LAS VEGAS
which had higher operating expenses in the 1998 period as a result of
casino marketing costs associated with special events, and higher food and
beverage costs as a result of a full quarter of operation of the Studio
Cafe coffee shop and the addition of the Studio 54 night club. MGM GRAND
AUSTRALIA operating expenses decreased from $8 million in the 1997 period
to $6.3 million in the 1998 period as a result of continuing cost
containment efforts.
Corporate expense for 1998 was $2.5 million compared with $1.5 million
in 1997, an increase of $1.0 million. In the 1997 period, corporate
expense was reduced by a $.6 million reversal of previously expensed stock
price guarantee amortization (see Note 4).
Interest income of $3.8 million for the period ended March 31, 1998
increased by $3.6 million from $.2 million in the first quarter of 1997.
The increase was attributable to higher invested cash balances primarily
from the proceeds of the Senior Collateralized Notes (See Note 3).
Interest expense in the first quarter of 1998 of $3.8 million (net of
amounts capitalized) increased by $2.8 million when compared with $1
million in the same period of 1997. The increase in the first quarter of
1998 was primarily due to the issuance of the Senior Collateralized Notes
(see Note 3). Also, the Company recognized interest expense from
unconsolidated affiliate of $2.2 million during the 1998 period compared
with $2.5 million in 1997 reflecting a reduced outstanding balance on the
NYNY facility (see Note 3).
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1998 and December 31, 1997, the Company held cash and
cash equivalents of $437.3 million and $34.6 million, respectively. Cash
provided by operating activities for the first three months of 1998 was
$23.7 million compared with $9.6 million for the same period of 1997.
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
percent to more than 200,000 square feet; and a "Mansion at the MGM Grand"
offering 29 exclusive suites and villas. The Company also announced that
by the year 2000, it may construct a 500-room Ritz Carlton Hotel at MGM
Grand Las Vegas. The Company's 380,000 square foot state-of-the-art
conference center opened in April, 1998, and the 50 foot tall polished
bronze lion sculpture along with the "Entertainment Casino" (previously
known as the Emerald City casino) were completed during the first quarter
of 1998. Additionally, the new pool and spa complex is partially completed
and open for operations. Approximately $351.3 million is anticipated to be
expended during 1998 related to the Master Plan, of which $94.4 million had
been expended through March 31, 1998.
-12-
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Capital expenditures during the first three months of 1998 were $104.1
million, consisting primarily of $7.8 million related to MGM Grand Las
Vegas for general property improvements, $94.4 million for the Master Plan
project, $.2 million at MGM Grand Australia for general property
improvements and $1.7 million for MGM Grand Atlantic City land acquisition
costs and pre-construction activities. Anticipated capital expenditures
remaining for 1998 are approximately $406.2 million, consisting of
approximately $256.9 million related to the Master Plan, approximately
$55.6 million related to general property improvements for MGM Grand Las
Vegas, approximately $77.8 million for MGM Grand Detroit, approximately
$14.6 million related to land acquisitions and pre-construction activities
for MGM Grand Atlantic City, and approximately $1.3 million for MGM Grand
Australia.
The Company expects to finance operations and capital expenditures
through cash flow from operations, cash on hand, and the bank lines of
credit.
SAFE HARBOR PROVISION
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in
this report 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).
-13-
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
Items 1 through 5 of Part II are not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
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 the Company's Current Report on Form 8-K, dated
February 23, 1998).
4(2) Schedule setting forth material details of the differences
from Exhibit 4(1) of the Indenture, dated as of February 6,
1998, among the Company, as issuer, the Guarantor Parties
thereto, as guarantors, and U.S. Trust Company of California,
N.A., as Trustee (incorporated by reference to Exhibit 4(2) to
the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997).
(b) Reports on Form 8-K
1 Report on Form 8-K, dated February 23, 1998, filed by the
Company with the Commission on February 24, 1998 in which
events under Item 5. Other Events were reported.
-14-
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MGM GRAND, INC.
---------------
(Registrant)
Date: May 8, 1998 /s/ ALEJANDRO YEMENIDJIAN
-------------------------
Alejandro Yemenidjian
President and Chief Operating Officer
Date: May 8, 1998 /s/ JAMES J. MURREN
-------------------
James J. Murren
Executive Vice President and Chief
Financial Officer
(principal accounting officer)
-15-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MGM GRAND
10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 437,333
<SECURITIES> 0
<RECEIVABLES> 74,019
<ALLOWANCES> 26,272
<INVENTORY> 13,882
<CURRENT-ASSETS> 539,593
<PP&E> 1,326,004
<DEPRECIATION> 203,987
<TOTAL-ASSETS> 1,872,259
<CURRENT-LIABILITIES> 140,695
<BONDS> 500,000
0
0
<COMMON> 580
<OTHER-SE> 1,116,668
<TOTAL-LIABILITY-AND-EQUITY> 1,872,259
<SALES> 195,610
<TOTAL-REVENUES> 179,847
<CGS> 0
<TOTAL-COSTS> 141,051
<OTHER-EXPENSES> 2,451
<LOSS-PROVISION> 8,187
<INTEREST-EXPENSE> 5,943
<INCOME-PRETAX> 25,409
<INCOME-TAX> 9,147
<INCOME-CONTINUING> 16,262
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,262
<EPS-PRIMARY> .28
<EPS-DILUTED> .28
</TABLE>
