<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 September 30, 1999
------------------------------------------------
[ ] 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 Identification No.)
incorporation or organization)
3799 Las Vegas Boulevard South, Las Vegas, Nevada 89109
- -------------------------------------------------------------------------------
(Address of principal executive officers) (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 November 5, 1999
- -------------------------------- -------------------------------
Common Stock, $.01 par value 56,884,582 shares
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
FORM 10-Q
I N D E X
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Operations
for the Three Months and Nine Months Ended
September 30, 1999 and September 30, 1998.............. 1-2
Condensed Consolidated Balance Sheets
at September 30, 1999 and December 31, 1998............ 3
Condensed Consolidated Statements of Cash
Flows for the Nine Months Ended
September 30, 1999 and September 30, 1998.............. 4
Notes to Condensed Consolidated Financial
Statements............................................. 5-9
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations....... 10-15
PART II. OTHER INFORMATION.......................................... 16
Signatures............................................. 17
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -------------------------
1999 1998 1999 1998
-------- -------- ---------- --------
<S> <C> <C> <C> <C>
REVENUES:
Casino $265,897 $ 99,506 $ 586,556 $291,655
Rooms 63,802 42,575 186,067 126,668
Food and beverage 43,043 27,087 117,522 75,630
Entertainment, retail and other 58,056 31,757 153,146 83,117
Income from unconsolidated affiliate - 9,849 6,084 29,526
-------- -------- ---------- --------
430,798 210,774 1,049,375 606,596
Less: promotional allowances 30,463 17,067 78,613 47,677
-------- -------- ---------- --------
400,335 193,707 970,762 558,919
-------- -------- ---------- --------
EXPENSES:
Casino 120,822 54,063 276,404 163,304
Rooms 20,614 12,265 56,559 36,066
Food and beverage 27,454 17,692 73,721 48,212
Entertainment, retail and other 31,276 18,237 85,932 55,011
Provision for doubtful accounts and discounts 11,156 8,378 35,439 26,151
General and administrative 64,868 27,606 147,924 78,316
Depreciation and amortization 37,187 20,570 87,148 56,314
-------- -------- ---------- --------
313,377 158,811 763,127 463,374
-------- -------- ---------- --------
OPERATING PROFIT BEFORE PREOPENING, OTHER NON-
RECURRING CHARGES AND CORPORATE EXPENSE 86,958 34,896 207,635 95,545
Preopening and other non-recurring expenses 45,863 - 68,780 -
Corporate expense 2,469 714 12,096 6,102
-------- -------- ---------- --------
OPERATING INCOME 38,626 34,182 126,759 89,443
-------- -------- ---------- --------
OTHER INCOME (EXPENSE):
Interest income 750 2,910 1,447 12,120
Interest expense, net of amounts capitalized (19,476) (7,691) (39,627) (17,735)
Interest expense from unconsolidated affiliate - (2,117) (1,058) (6,473)
Other, net (205) (641) (738) (1,788)
-------- -------- ---------- --------
(18,931) (7,539) (39,976) (13,876)
-------- -------- ---------- --------
INCOME BEFORE PROVISION FOR INCOME TAXES,
EXTRAORDINARY ITEM AND CUMULATIVE EFFECT
OF ACCOUNTING CHANGE 19,695 26,643 86,783 75,567
Provision for income taxes (7,090) (9,591) (31,581) (27,854)
-------- -------- ---------- --------
NET INCOME BEFORE EXTRAORDINARY ITEM AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE 12,605 17,052 55,202 47,713
Extraordinary loss on early extinguishment of debt,
net of $484 tax benefit - - (898) -
Cumulative effect of accounting change for preopening,
net of $4,399 tax benefit - - (8,168) -
-------- -------- ---------- --------
NET INCOME $ 12,605 $ 17,052 $ 46,136 $ 47,713
======== ======== ========== ========
</TABLE>
-1-
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
PER SHARE OF COMMON STOCK
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -------------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
PER SHARE OF COMMON STOCK:
Basic:
Net income per share before extraordinary item
and cumulative effect of accounting change $ 0.21 $ 0.31 $ 0.95 $ 0.84
Extraordinary item, net - - (0.02) -
Cumulative effect of accounting change, net - - (0.14) -
-------- -------- -------- --------
Net income per share $ 0.21 $ 0.31 $ 0.79 $ 0.84
======== ======== ======== ========
Weighted Average Shares Outstanding (000's) 58,806 54,765 58,762 56,907
======== ======== ======== ========
Diluted:
Net income per share before extraordinary item
and cumulative effect of accounting change $ 0.21 $ 0.31 $ 0.90 $ 0.83
Extraordinary item, net - - (0.01) -
Cumulative effect of accounting change, net - - (0.13) -
-------- -------- -------- --------
Net income per share $ 0.21 $ 0.31 $ 0.76 $ 0.83
======== ======== ======== ========
Weighted Average Shares Outstanding (000's) 60,683 55,390 60,505 57,659
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
-2-
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
September 30, December 31,
1999 1998
------------- ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 107,753 $ 81,956
Accounts receivable, net 59,975 69,116
Prepaid expenses and other 49,809 11,829
Inventories 12,585 11,081
Deferred tax asset 31,934 34,098
---------- ----------
Total current assets 262,056 208,080
---------- ----------
PROPERTY AND EQUIPMENT, NET 2,348,105 1,327,722
OTHER ASSETS:
Investments in unconsolidated affiliates, net 11,783 134,025
Excess of purchase price over fair market value
of net assets acquired, net 36,806 37,574
Deposits and other assets, net 52,409 66,393
---------- ----------
Total other assets 100,998 237,992
---------- ----------
$2,711,159 $1,773,794
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 45,715 $ 23,931
Construction payable 7,244 17,403
Income taxes payable 6,682 2,457
Current obligation, capital leases 5,751 5,086
Current obligation, long term debt 10,721 10,077
Accrued interest on long term debt 10,014 14,630
Other accrued liabilities 162,962 115,781
---------- ----------
Total current liabilities 249,089 189,365
---------- ----------
DEFERRED REVENUES 5,144 5,219
DEFERRED INCOME TAXES 106,872 77,165
LONG TERM OBLIGATION, CAPITAL LEASES 14,226 2,867
LONG TERM DEBT 1,334,979 534,797
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock ($.01 par value, 75,000,000 shares
authorized, 69,077,798 and 58,033,094
shares issued and outstanding) 691 580
Capital in excess of par value 1,255,757 968,199
Treasury stock, at cost (12,262,100 and 6,000,000 shares) (504,761) (210,589)
Retained earnings 239,323 193,187
Other comprehensive income 9,839 13,004
---------- ----------
Total stockholders' equity 1,000,849 964,381
---------- ----------
$2,711,159 $1,773,794
========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
-3-
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------------
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 46,136 $ 47,713
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation and amortization 87,729 56,549
Amortization of debt offering costs 1,469 1,359
Provision for doubtful accounts and discounts 35,439 26,151
Loss on early extinguishment of debt 1,382 -
Cumulative effect of accounting change 12,567 -
Earnings in excess of distributions-unconsolidated affiliate (5,026) (18,933)
Deferred income taxes 11,166 9,601
Change in assets and liabilities:
Accounts receivable (1,722) (3,842)
Inventories (966) 2,947
Prepaid expenses and other (26,543) 679
Income taxes payable (2,581) 741
Accounts payable, accrued liabilities and other 15,100 (18,970)
Currency translation adjustment (345) 246
--------- ---------
Net cash from operating activities 173,805 104,241
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (296,654) (297,524)
Acquisition of Primadonna Resorts, Inc., net (13,346) 533
Disposition of property and equipment, net 6,193 -
Change in construction payable (10,159) (16,100)
Change in deposits and other assets, net 7,419 (18,977)
--------- ---------
Net cash from investing activities (306,547) (332,068)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments to banks and others (7,992) (7,201)
Issuance of long term debt - 500,000
Borrowings under bank line of credit 946,000 31,000
Extinguishment of long term debt (374,500) -
Repayments of bank lines of credit (155,000) (31,000)
Purchase of treasury stock (294,172) (210,459)
Issuance of common stock 44,203 1,653
--------- ---------
Net cash from financing activities 158,539 283,993
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 25,797 56,166
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 81,956 34,606
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 107,753 $ 90,772
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
-4-
<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 September 30, 1999, approximately
66.9% 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 and Casino ("MGM Grand Las
Vegas"), a hotel, casino and entertainment complex in Las Vegas, Nevada.
On March 1, 1999, the Company completed its merger (the "Merger") with
Primadonna Resorts, Inc. ("Primadonna"), and as part of the Merger,
acquired Primadonna's 50% ownership interest in New York-New York Hotel and
Casino LLC ("NYNY, LLC") which owned and operated the New York-New York
Hotel and Casino ("NYNY") in Las Vegas, Nevada (see Note 7). Beginning
March 1, 1999, Primadonna and NYNY LLC are wholly-owned subsidiaries of the
Company. The Merger gave the Company ownership of three hotel and casinos
located in Primm, Nevada at the California/Nevada stateline, which includes
Whiskey Pete's, Buffalo Bill's and the Primm Valley Resort (the "Primm
Properties"), as well as two championship golf courses located 1 mile from
the Primm Properties.
Through its wholly-owned subsidiary, MGM Grand Australia Pty Ltd., the
Company owns and operates the MGM Grand Hotel and Casino in Darwin,
Australia ("MGM Grand Australia").
Through its wholly-owned subsidiary, MGM Grand South Africa, Inc., the
Company manages three casinos throughout various provinces of the Republic
of South Africa. The casino in Nelspruit began operations on October 15,
1997, the casino in Witbank began operations on March 10, 1998 and the
casino in Johannesburg began operations on September 28, 1998. The Company
receives management fees from its partner, Tsogo Sun Gaming &
Entertainment, which 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 to develop a hotel, casino and entertainment complex ("MGM
Grand Detroit"), at an approximate cost of $800 million. On November 20,
1997, the Company 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 of Detroit. Construction of the project is subject
to the receipt of various governmental approvals. The plans for the
permanent facility call for an 800-room hotel, a 100,000 square-foot
casino, signature restaurants and retail outlets, a showroom and other
entertainment venues. On July 22, 1998, the Michigan Gaming Control Board
adopted a resolution which allowed the issuance of casino licenses to
conduct gaming operations in temporary facilities. On July 28, 1999, the
Michigan Gaming Control Board issued a casino license to MGM Grand Detroit,
LLC to conduct gaming operations in it's interim facility ("MGM Grand
Detroit Casino"), which commenced operations on July 29, 1999.
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 an 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 September 30, 1999, approximately $65.7 million
was expended, with $64.9 million capitalized and $.8 million expensed by
the Company for the project.
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 1998
Annual Report included in the Form 10-K.
-5-
<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 September 30, 1999, and the results of operations
for the three month and nine month periods ended September 30, 1999 and
1998. The results of operations for such periods are not necessarily
indicative of the results to be expected for the full year.
Certain reclassifications have been made to prior period financial
statements to conform to the 1999 presentation, which have no effect on
previously reported net income.
Note 2. Statements of Cash Flows - Supplemental Disclosures
For the nine months ended September 30, 1999 and 1998, cash payments
made for interest, net of amounts capitalized, were $45.3 million and $10.5
million, respectively.
Cash payments made for state and federal taxes for the nine months
ended September 30, 1999 and 1998 were $17.7 million and $9.4 million,
respectively.
As a result of the Merger (see Note 7), the Company issued stock to
Primadonna shareholders in the amount of approximately $244.7 million and
assumed long term debt totaling $389 million.
Note 3. Long Term Debt and Notes Payable
Long term debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
<S> <C> <C>
Australian Bank Facility, due December 1, 2002 (US$) $ 39,700 $ 44,874
Senior Reducing Revolving Credit Facility 625,000 -
MGM Grand Detroit, LLC Credit Facility 181,000 -
6.95% Senior Collateralized Notes, due February 1, 2005 300,000 300,000
6.875% Senior Collateralized Notes, due February 6, 2008 200,000 200,000
------------- ------------
1,345,700 544,874
Less: Current Maturities (10,721) (10,077)
------------- ------------
$1,334,979 $534,797
============= ============
</TABLE>
Total interest incurred for the first nine months of 1999 and 1998 was
$52.8 million and $29.3 million, respectively, of which $13.1 million and
$11.6 million were capitalized in the 1999 and 1998 periods, respectively.
During the first nine months of 1999 and 1998, the Company recognized
interest expense from its unconsolidated affiliate of $1.1 million and $6.5
million, respectively.
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. 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
-6-
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Note 3. Long Term Debt and Notes Payable (continued)
rate or Eurodollar rate. The New Facility matures in December 2002, with
the opportunity to extend the maturity for successive one year periods.
Quarterly reductions of $62.5 million begins on December 23, 2001. On May
4, 1999, two letters of credit totaling $49.9 million were issued under the
New Facility to support municipal financing used in connection with the
proposed Detroit permanent casino. During the nine months ended September
30, 1999, $765 million was drawn down on the New Facility of which $625
million remained outstanding. The Company used $216.6 million and $157.9
million from the New Facility to pay off the Primadonna and NYNY bank
facilities, respectively, and terminated these borrowing arrangements.
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.
These Senior Collateralized Notes are pari passu with the New Facility and
contain various restrictive covenants, as does the New Facility. The Senior
Collateralized Notes and the New Facility are collateralized by
substantially all of the assets of the Company except for assets of certain
unrestricted subsidiaries.
The Australian bank facility originally provided a total availability
of approximately $68.5 million (AUD $105 million), which has been reduced
by principal payments totaling $29.6 million (AUD $44.2 million) made in
accordance with the terms of the bank facility, including $8 million (AUD
$12.3 million) during the nine months ended September 30, 1999. As of
September 30, 1999, $39.7 million (AUD $60.8 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 2002, has been wholly guaranteed by
the Company.
MGM Grand Australia has a $13.1 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 nine months ended
September 30, 1999.
On March 31, 1999, MGM Grand Detroit, LLC through a wholly-owned
subsidiary secured a $230 million credit facility (the "Detroit Facility")
with a consortium of banks, the majority of which are based in the greater
Detroit metropolitan area. The Detroit Facility will be used to finance the
development and construction of the temporary and permanent casino
complexes and for general working capital. The Detroit Facility may be
increased to $250 million at the Company's discretion. The Detroit Facility
is secured by substantially all of the assets of the temporary facility and
is guaranteed by the Company. During the nine months ended September 30,
1999, $181 million was drawn down and remained outstanding on the Detroit
Facility.
As of September 30, 1999, the Company was in compliance with all
covenant provisions associated with the aforementioned obligations.
Note 4. Common Stock
On June 23, 1998, the Company announced a $35.00 per share cash tender
offer for up to 6 million shares of the Company's common stock as part of a
12 million share repurchase program. The offer commenced on July 2, 1998,
and expired on July 31, 1998. A total of 10.8 million shares of the
Company's common stock were tendered and, accordingly, the shares were
prorated with 6 million shares being purchased. The total acquisition cost
of the tendered shares was approximately $210.6 million.
On March 1, 1999, the Company issued 9.5 million shares of the
Company's common stock valued at approximately $244.7 million in connection
with the Merger (see Note 7).
On June 10, 1999, the Company announced a $50.00 per share cash tender
offer for up to 6 million shares of the Company's common stock. The offer
commenced on June 17, 1999, and expired on
-7-
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Note 4. Common Stock (continued)
July 23, 1999. A total of 15.1 million shares of the Company's common stock
were tendered, and accordingly, the tendered shares were prorated with 6
million shares being purchased. The total acquisition cost of the tendered
shares was approximately $282 million. The Company recognized certain non-
recurring compensation costs totaling approximately $18.5 million related
to exercisable options that were tendered. This tender offer completes the
acquisition of the remaining 6 million shares offered in the 12 million
share repurchase program announced on June 23, 1998.
On August 5, 1999, the Company announced a twelve-month stock
repurchase program for up to 5 million shares of the Company's common
stock. The purchases will be made from time to time in the open market or
through privately negotiated transactions as market conditions warrant.
Through September 30, 1999, the Company purchased 262,100 shares for an
approximate cost of $12.2 million.
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 consolidated financial statements.
Comprehensive income is calculated as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- ------------------------
1999 1998 1999 1998
--------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Net income $12,605 $17,052 $46,136 $47,713
Currency translation adjustment 469 2,157 (3,165) 5,120
--------- -------- -------- --------
Comprehensive income $13,074 $19,209 $42,971 $52,833
========= ======== ======== ========
</TABLE>
Note 6. Earnings per Share
The Company calculates earnings per share ("EPS") in accordance with
the Statement of Financial Accounting Standards No. 128 ("SFAS 128"),
Earnings Per Share. 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 is
determined on the assumption 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 Nine Months Ended
September 30, September 30,
-------------------------------- ----------------------------------
1999 1998 1999 1998
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Net Income $12,605 $17,052 $46,136 $47,713
=========== ========== =========== ==========
Weighted Average Basic Shares 58,806 54,765 58,762 56,907
=========== ========== =========== ==========
Basic Earnings per Share $ 0.21 $ 0.31 $ 0.79 $ 0.84
=========== ========== =========== ==========
Weighted Average Diluted Shares 60,683 55,390 60,505 57,659
=========== ========== =========== ==========
Diluted Earnings per Share $ 0.21 $ 0.31 $ 0.76 $ 0.83
=========== ========== =========== ==========
</TABLE>
-8-
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Note 6. Earnings per Share (continued)
Weighted average diluted shares include the following: options to
purchase 1,877,000 and 625,000 shares issued to employees for the three
month periods ended September 30, 1999 and 1998, respectively, and
1,743,000 and 752,000 for the nine month periods ended September 30, 1999
and 1998, respectively.
Note 7. Primadonna Acquisition
On March 1, 1999, the Company completed the Merger with Primadonna
Resorts, Inc. for 9.5 million shares of the Company's common stock valued
at approximately $244.7 million plus the assumption of debt totaling $389
million. Primadonna shareholders received .33 shares of the Company's
common stock for every Primadonna share held. The transaction was accounted
for as a purchase and, accordingly, the purchase price was preliminarily
allocated to the underlying assets acquired and liabilities assumed based
upon their estimated fair values at the date of the Merger. The operating
results for Primadonna are included in the Condensed Consolidated
Statements of Operations from the date of acquisition.
The following unaudited pro forma consolidated financial information
for the Company has been prepared assuming that the Merger had occurred on
the first day of the following respective periods (in thousands, except per
share amounts):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- -------------------------
1999 1998 1999 1998
--------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Net Revenues $400,335 $300,249 $1,037,860 $872,598
========= ========= =========== =========
Operating Profit before Preopening, Other Non-
Recurring Expenses and Corporate Expense $ 86,958 $ 48,927 $ 217,492 $141,278
========= ========= =========== =========
Operating Income $ 38,626 $ 45,553 $ 136,615 $129,235
========= ========= =========== =========
Net Income before Extraordinary Item and
Cumulative Effect of Accounting Change $ 12,605 $ 20,138 $ 59,125 $ 60,971
========= ========= =========== =========
Basic Earnings per Share before Extraordinary Item
and Cumulative Effect of Accounting Change $ 0.21 $ 0.31 $ 0.98 $ 0.92
========= ========= =========== =========
Weighted Average Basic Shares Outstanding (000's) 58,806 64,297 60,567 66,442
========= ========= =========== =========
Diluted Earnings per Share before Extraordinary Item
and Cumulative Effect of Accounting Change $ 0.21 $ 0.31 $ 0.94 $ 0.91
========= ========= =========== =========
Weighted Average Diluted Shares Outstanding (000's) 60,683 64,923 62,625 67,206
========= ========= =========== =========
</TABLE>
These unaudited pro forma results are presented for comparative
purposes only. The pro forma results are not necessarily indicative of what
the Company's actual results would have been had the acquisition been
completed as of the beginning of these periods, or of future results.
Note 8. Start-Up Activities
Effective January 1, 1999, the Company adopted Statement of Position
98-5 ("SOP 98-5"), "Reporting on the Costs of Start-up Activities." SOP 98-
5 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. As a result of the adoption of SOP 98-5, the
Company recognized $42.6 million and $.2 million in preopening expense
related to the Detroit and Atlantic City projects, respectively, and $4.6
million related to the Mansion at the MGM Grand Las Vegas for the nine
months ended September 30, 1999. Additionally, the Company recognized the
cumulative effect of the accounting change (net of tax) of $7.7 million and
$.5 million, related to the adoption of SOP 98-5 for the Detroit and
Atlantic City projects, respectively.
-9-
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Quarter versus Quarter
Net revenues for the third quarter of 1999 were $400.3 million,
representing an increase of $206.6 million (106.7%) when compared with
$193.7 million during the same period last year. The increase in net
revenues was due to growth in every revenue segment at existing properties,
as well as the addition of NYNY and the Primm Properties effective with the
March 1, 1999 Merger with Primadonna (see Note 7) and the successful
opening of MGM Grand Detroit Casino on July 29, 1999.
Consolidated casino revenues for the third quarter of 1999 were $265.9
million, representing an increase of $166.4 million (167.2%) when compared
with $99.5 million during the same period in the prior year. MGM Grand Las
Vegas casino revenues were $117.7 million, representing an increase of
$25.5 million (27.8%) when compared with $92.2 million during the same
period in the prior year. The increase in casino revenues at MGM Grand Las
Vegas was a result of increased table games, baccarat and slots volume, in
addition to more normalized table games and baccarat win percentages. MGM
Grand Australia reported casino revenues of $8.5 million, representing an
increase of $1.2 million (16.4%) when compared with $7.3 million during the
same period in the prior year. This increase was largely due to an increase
in table games, slots and NT Keno volume. NYNY and the Primm Properties
contributed $28 million and $42.4 million, respectively, to casino revenues
during the quarter as a result of the Merger on March 1, 1999. MGM Grand
Detroit Casino contributed $69.2 million to casino revenues during the
quarter as a result of the opening of the property on July 29, 1999.
Consolidated room revenues were $63.8 million for the third quarter of
1999 compared with $42.6 million in the prior year's third quarter,
representing an increase of $21.2 million (49.8%). MGM Grand Las Vegas room
revenues were $42.8 million, representing an increase of $.8 million (1.9%)
when compared with $42 million in the same period of the prior year. The
increase was due to an increase in occupancy to 99.8% in the third quarter
of 1999 when compared with 97.8% in the prior year. MGM Grand Australia
room revenues were $.7 million, representing an increase of $.1 million
(16.7%) when compared with $.6 million in the same period of the prior
year. The increase was due to a higher average room rate for the 1999 third
quarter of $72 compared with $63, as well as an increase in occupancy to
95.8% compared with 90.7% in the prior year. NYNY and the Primm Properties
reported room revenues of $14.1 million and $6.3 million, respectively, for
the third quarter of 1999.
Consolidated food and beverage revenues were $43 million in the third
quarter of 1999, representing an increase of $15.9 million (58.7%) when
compared with $27.1 million in the third quarter of the prior year. MGM
Grand Las Vegas reported food and beverage revenues of $26.5 million during
the third quarter of 1999, representing an increase of $1.0 million (3.9%)
when compared with $25.5 million in the third quarter of 1998. This
increase resulted from increased revenue from the Studio 54 night club and
the Grand Buffet. MGM Grand Australia reported food and beverage revenues
of $1.7 million, representing an increase of $.1 million (6.3%) when
compared with $1.6 million in the third quarter of 1998, due to increased
banquet revenue in the current year. NYNY and the Primm Properties reported
food and beverage revenues of $3.1 million and $7.6 million, respectively,
for the third quarter of 1999. MGM Grand Detroit Casino contributed $4.2
million to food and beverage revenues during the quarter as a result of the
opening of the property on July 29, 1999.
Consolidated entertainment, retail and other revenues increased $26.3
million (82.7%) from $31.8 million in the 1998 period to $58.1 million in
the 1999 period. MGM Grand Las Vegas entertainment, retail and other
revenue increased $3.5 million (11.4%) from $30.6 million in the third
quarter of 1998 to $34.1 million in the third quarter of 1999. This was the
result of increased Conference Center, tenant rental and retail and spa
revenues in 1999, as well as the addition of the Mansion in 1999. Also, the
Company had increased management and development fees from MGM Grand South
Africa of $1.9 million in the 1999 period compared with $1.3 million in the
prior year, due to the opening of the Johannesburg temporary casino in
September 1998. NYNY and the Primm Properties reported entertainment,
retail and other revenues of $10.5 million and $11.3 million,
respectively, for the third quarter of 1999. MGM Grand Detroit Casino
contributed entertainment, retail and other revenues of $.4 million as a
result of the opening of the property on July 29, 1999.
-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 (continued)
Income from unconsolidated affiliate was $9.8 million for the third
quarter of 1998, representing the Company's 50% share of NYNY's operating
income. As a result of the Merger with Primadonna, on March 1, 1999, NYNY
became a 100% owned subsidiary of the Company and as such its results of
operations have been consolidated with those of the Company since that
time.
Consolidated operating expenses (before Preopening, Other Non
Recurring Charges and Corporate expenses) were $313.4 million in the third
quarter of 1999, representing an increase of $154.6 million (97.4%) when
compared with $158.8 million for the same period last year. MGM Grand Las
Vegas expenses increased $18.1 million (11.9%) from $151.8 million in the
1998 period to $169.9 million in the 1999 period. The increase is primarily
due to increased casino expenses for gaming taxes and marketing expenses on
the increased casino revenues, increased provision for doubtful accounts
and higher entertainment, retail and other expenses related to the wedding
chapel and Mansion. MGM Grand Australia operating expenses increased from
$6.8 million in the 1998 period to $7.7 million in 1999 primarily due to
higher casino taxes from increased revenue and tax rates in the 1999
period. NYNY and the Primm Properties added operating expenses of $34.7
million and $49.3 million, respectively, during the third quarter of 1999.
As a result of the opening of the property on July 29, 1999, MGM Grand
Detroit Casino added $52 million in operating expenses during the third
quarter of 1999.
Preopening and other non-recurring expenses for the 1999 period of
$45.9 million represent costs principally associated with opening of the
MGM Grand Detroit Casino on July 29, 1999, and certain tender offer
costs. These expenses affected net income by $29.8 million or $.49 per
diluted share, net of taxes.
Corporate expense for 1999 was $2.5 million compared with $.7 million
in 1998, representing an increase of $1.8 million. The 1998 third quarter
reflected a payroll-related reversal.
Interest income of $.8 million for the three months ended September
30, 1999, decreased by $2.1 million from $2.9 million in the third quarter
of 1998. The decrease was attributable to lower invested cash balances
compared to the prior year.
Interest expense in the third quarter of 1999 was $19.5 million (net
of amounts capitalized) compared with $7.7 million in the third quarter of
1998, reflecting increased outstanding loan balances relating to
construction of the MGM Grand Detroit Casino, as well as debt assumed in
the Merger with Primadonna on March 1, 1999. In addition, interest expense
was incurred in the 1999 quarter due to borrowings related to the
repurchase of 6 million shares in July 1999 (see Note 7). Also, the Company
recognized interest expense from unconsolidated affiliate of $2.1 million
during the 1998 period.
Nine Months versus Nine Months
Net revenues for the nine months ended September 30, 1999 were $970.8
million, representing an increase of $411.9 million (73.7%) when compared
with $558.9 million during the same period last year. The increase in net
revenues was due to growth in every revenue segment at existing properties,
as well as the addition of NYNY and the Primm Properties effective with the
March 1, 1999 Merger with Primadonna (see Note 7) and the successful
opening of MGM Grand Detroit Casino on July 29, 1999.
Consolidated casino revenues for the nine months ended September 30,
1999, were $586.6 million, representing an increase of $294.9 million
(101.1%) when compared with $291.7 million during the same period in the
prior year. MGM Grand Las Vegas casino revenues were $330.6 million,
representing an increase of $58.9 million (21.7%) when compared with $271.7
million during the same period in the prior year. The increase in casino
revenues at MGM Grand Las Vegas was a result of increased table games
volume (excluding baccarat), a more normalized table games and baccarat win
percentage, and increased slots volume. MGM Grand Australia reported casino
revenues of $22.3 million, representing an increase of $2.3 million (11.5%)
when compared with $20 million during the same period in the prior year.
The increase in casino revenue was largely due to an increase in slots
volume. In addition, NYNY and the Primm Properties contributed $66.6
million and $97.8 million, respectively, to casino revenues since the
-11-
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
Nine Months versus Nine Months (continued)
Merger on March 1, 1999. As the result of the opening of the property on
July 29, 1999, MGM Grand Detroit Casino contributed $69.2 million to casino
revenues.
Consolidated room revenues for the period were $186.1 million compared
with $126.7 million for the same period in 1998, representing an increase
of $59.4 million (46.9%). MGM Grand Las Vegas room revenues were $134.9
million, representing an increase of $9.5 million (7.6%) when compared with
$125.4 million in the same period of the prior year. The increase was due
to a higher average room rate for the 1999 period of $101 compared with $97
in the prior year, as well as an increase in occupancy to 98.8% in the 1999
period compared with 95.4% in the same period of the prior year. MGM Grand
Australia room revenues for the period were consistent year over year. NYNY
and the Primm Properties reported room revenues of $35.8 million and $14
million, respectively, since the Merger on March 1, 1999.
Consolidated food and beverage revenues for the period were $117.5
million, representing an increase of $41.9 million (55.4%) when compared
with $75.6 million for the same period of the prior year. MGM Grand Las
Vegas reported food and beverage revenues of $85 million during the current
period, representing an increase of $13.5 million (18.9%) when compared
with $71.5 million in the same period of 1998. This increase resulted from
the banquet revenue generated by the Conference Center, increased revenue
from the Studio 54 night club and revenue from the Grand Buffet which was
closed for remodeling during part of 1998. MGM Grand Australia reported
food and beverage revenues of $4.2 million, representing a decrease of $.1
million (2.4%) when compared with $4.3 million during the same period in
the prior year, due to fewer food covers in the current year. NYNY and the
Primm Properties reported food and beverage revenues of $7.4 million and
$16.9 million, respectively, since the Merger on March 1, 1999. MGM Grand
Detroit Casino reported food and beverage revenues of $4.2 million as a
result of the opening of the property on July 29, 1999.
Consolidated entertainment, retail and other revenues increased $70
million (84.2%) from $83.1 million in the 1998 period to $153.1 million in
the 1999 period. MGM Grand Las Vegas entertainment, retail and other
revenue increased $15.3 million (18.9%) from $80.9 million in the 1998
period to $96.2 million in 1999. This was the result of increased
entertainment revenues in 1999, which included a heavyweight boxing match,
as well as increased tenant rental and spa revenues and the addition of the
Mansion in 1999. Also, the Company had increased management and development
fees from MGM Grand South Africa of $7.2 million in the 1999 period
compared with $2.6 million in the prior year, due to the opening of the
Johannesburg temporary casino in September 1998. NYNY and the Primm
Properties reported entertainment, retail and other revenues of $24 million
and $25.5 million, respectively, since the Merger on March 1, 1999. As a
result of the opening of the property on July 29, 1999, MGM Grand Detroit
Casino contributed entertainment, retail and other revenues of $.4 million.
Income from unconsolidated affiliate was $6.1 million for the nine
months ended September 30, 1999, compared with $29.5 million in 1998,
representing the Company's 50% share of NYNY's operating income. The
reduction is a result of the Merger with Primadonna on March 1, 1999,
whereby NYNY became a 100% owned subsidiary of the Company, and as such its
results of operations have been consolidated with those of the Company
since that time.
Consolidated operating expenses (before Preopening, and Other Non-
Recurring Charges and Corporate expenses) for the 1999 period were $763.1
million, representing an increase of $299.7 million (64.7%) when compared
with $463.4 million for the same period last year. MGM Grand Las Vegas
expenses increased $52 million (11.7%) from $443.1 million in the 1998
period to $495.1 million in the 1999 period. The increase is primarily due
to increased casino expenses resulting from higher gaming taxes and
marketing expenses on the increased revenues, and an increase in the
provision for doubtful accounts. In addition, expenses increased due to
costs associated with the heavyweight boxing match held in the current year
and higher food and beverage expenses from increased revenues primarily
from the Grand Buffet
-12-
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
Nine Months versus Nine Months (continued)
which was closed part of the 1998 period. MGM Grand Australia operating
expenses increased $1.3 million (6.6%) from $19.6 million in the 1998
period to $20.9 million in the 1999 period as a result of costs associated
with increased revenues in the casino. NYNY and the Primm Properties added
operating expenses of $81.6 million and $112.8 million, respectively, since
the Merger on March 1, 1999. MGM Grand Detroit Casino added $52 million in
operating expenses as a result of the opening of the property on July 29,
1999.
Preopening and other non-recurring expenses for the 1999 period of
$68.8 million represent costs principally associated with opening of the
MGM Grand Detroit Casino on July 29, 1999, expansion activities at MGM
Grand Las Vegas, and certain tender offer costs. These expenses affected
net income by $44.7 millon or $.47 per diluted share, net of taxes.
Corporate expense for the 1999 period was $12.1 million compared with
$6.1 million in 1998, representing an increase of $6 million. The 1999
period included expenses related to the issuance of stock options to non-
employees of the Company. In addition, the 1998 period reflected a payroll-
related reversal.
Interest income of $1.4 million for the period ended September 30,
1999, decreased by $10.7 million from $12.1 million in the same period of
1998. The decrease was attributable to lower invested cash balances
compared to the prior year.
Interest expense (net of amounts capitalized) for the nine months
ended September 30, 1999, was $39.6 million compared with $17.7 million in
the same period of 1998, reflecting increased outstanding loan balances
related to construction of the MGM Grand Detroit Casino, as well as debt
assumed in the Merger with Primadonna on March 1, 1999. In addition, the
Company incurred additional interest expense in the 1999 period related to
the repurchase of 6 million shares in July 1999 (see Note 4). Also, the
Company recognized interest expense from unconsolidated affiliate of $1.1
million during the 1999 period compared with $6.5 million in 1998,
reflecting a reduced outstanding balance on the NYNY facility, as well as
two months of activity during 1999 compared with nine months in 1998.
The extraordinary loss in the 1999 period of $.9 million, net of
applicable income tax benefit, reflects the write-off of unamortized debt
costs associated with the extinguishment of the NYNY credit facility (see
Note 3). This loss affected net income by $.9 million or $.01 per diluted
share, net of taxes.
The cumulative effect of the accounting change in the 1999 period of
$8.2 million, net of income tax benefit, reflects the Company's adoption of
the recently issued SOP 98-5. The statement requires start-up costs to be
expensed as incurred. Previously, the Company had capitalized preopening
costs until the development of a property was substantially complete and
ready to open at which time the cumulative costs were expensed (see Note
8). This cumulative effect of the accounting change affected net income by
$8.2 million or $.13 per diluted share, net of taxes.
Liquidity and Capital Resources
As of September 30, 1999 and December 31, 1998, the Company held cash
and cash equivalents of $107.8 million and $82 million, respectively. Cash
provided by operating activities for the first nine months of 1999 was
$173.8 million compared with $104.2 million for the same period of 1998.
During the nine months ended September 30, 1999, $765 million was
drawn down on the New Facility, of which $625 million remained outstanding
at the end of the period. The Company used $216.6 million and $157.9
million to pay off the Primadonna and NYNY bank facilities, respectively.
Accordingly, both the Primadonna and NYNY bank facilities have been
extinguished. During the nine months ended September 30, 1999, $181 million
was drawn down and remained outstanding on the Detroit Facility.
As of September 30, 1999, the Company was in compliance with all
covenant provisions associated with the aforementioned obligations.
-13-
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
Liquidity and Capital Resources (continued)
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 approximately $570 million, is substantially complete with the
debut of the "Mansion at the MGM Grand" in June 1999, and the opening of
the Lion Habitat and the expanded parking facilities in July 1999.
Previously, the 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 which includes a
Studio 54 nightclub and the Rainforest Cafe. Additionally, the new 6.6-acre
pool and spa complex was completed and opened for operations in July 1998
and a new 3,800 space employee parking garage also opened in July 1998.
Capital expenditures during the first nine months of 1999 were $296.7
million, of which $80 million was for the Master Plan project, $53.0
million at MGM Grand Las Vegas, $5.8 million at NYNY, $4 million at Primm
Properties, and $.5 million at MGM Grand Australia for general property
improvements. Additionally, $140.2 million was incurred at the MGM Grand
Detroit Casino for construction activities and $13.2 million for MGM Grand
Atlantic City for land acquisition costs and pre-construction activities.
Anticipated capital expenditures remaining for 1999 are approximately
$113.6 million, consisting of approximately $6.4 million related to the
Master Plan, $60 million for MGM Grand Las Vegas, $12.5 million for NYNY,
and $1.5 million for the Primm Properties related to general property
improvements. In addition, approximately $32.3 million is anticipated for
construction activities related to interim and permanent facilities in
Detroit, and approximately $.9 million related to land acquisitions and
pre-construction activities for MGM Grand Atlantic City.
On June 23, 1998, the Company announced a $35.00 per share cash tender
offer for up to 6 million shares of the Company's common stock as part of a
12 million share repurchase program. The offer commenced on July 2, 1998
and expired on July 31, 1998. Based upon the final results, 10.8 million
shares of the Company's common stock were tendered, and accordingly, the
shares were prorated. The total acquisition cost of the tendered shares was
approximately $210.6 million.
On June 10, 1999, the Company announced a $50.00 per share cash tender
offer for up to 6 million shares of the Company's common stock. The offer
commenced on June 17, 1999 and expired on July 23, 1999. Based upon the
final results, 15.1 million shares of the Company's common stock were
tendered, and accordingly, the tendered shares were prorated. The total
acquisition cost of the tendered shares was approximately $282 million.
The Company recognized certain non-recurring compensation costs totaling
approximately $18.5 million related to exercisable options that were
tendered. This tender offer completes the acquisition of the remaining 6
million shares offered in the 12 million share repurchase program announced
on June 23, 1998.
On August 5, 1999, the Company announced a twelve month stock
repurchase program for up to 5 million shares of the Company's common
stock. The purchases will be made from time to time in the open market or
through privately negotiated transactions as market conditions warrant.
Through September 30, 1999, the Company purchased 262,100 shares for an
approximate cost of $12.2 million.
The Company expects to finance operations, capital expenditures,
existing debt obligations and future share repurchases through cash flow
from operations, cash on hand and the bank lines of credit.
Impact of the Year 2000 Issue
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four digits to define the applicable year,
which may result in system failures and disruptions to operations on
January 1, 2000. The Company is assessing its Year 2000 readiness through
an ongoing Year 2000 Remediation Program that addresses information
technology systems, as well as systems outside of the information
technology area. The Year 2000 Remediation Program takes into consideration
all locations where the Company has operations. The Year 2000 Remediation
Program includes continuing assessment
-14-
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
Impact of the Year 2000 Issue (continued)
of the Company's Year 2000 issues, contacting suppliers of certain systems
to determine the timing of applicable upgrades, implementing applicable
Year 2000 upgrades which are currently available, and developing
appropriate contingency plans.
The Company has initiated formal communications with its significant
suppliers to determine the extent to which the Company is vulnerable to
third party failure to remediate their own Year 2000 issues. In conjunction
with this effort, the Company is assessing the potential impact of such
third party Year 2000 issues. There can be no guarantee that the systems of
third parties on which the Company's systems rely will be timely converted,
or that a failure to convert by another company or a conversion that is
incompatible with the Company's systems would not have a material adverse
effect on the Company.
The Company's Year 2000 Remediation Program may require enhancements
to ensure there is no disruption to the Company's operations, however, the
financial impact of making such enhancements is not expected to be material
to the Company's financial position or results of operations. During the
nine months ended September 30, 1999, the Company has incurred $1.6 million
in costs to modify existing computer systems, it is anticipated that
approximately $2.4 million will be expended in 1999.
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).
-15-
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
Part II. OTHER INFORMATION
All of the items of Part II are not applicable.
-16-
<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: November 5, 1999 /s/ Alex Yemenidjian
--------------------------------
Alex Yemenidjian
President
Date: November 5, 1999 /s/ James J. Murren
--------------------------------
James J. Murren
Executive Vice President
and Chief Financial Officer
-17-
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<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-START> JUL-01-1999 JAN-01-1999
<PERIOD-END> SEP-30-1999 SEP-30-1999
<CASH> 0 107,753
<SECURITIES> 0 0
<RECEIVABLES> 0 96,413
<ALLOWANCES> 0 36,478
<INVENTORY> 0 12,585
<CURRENT-ASSETS> 0 262,057
<PP&E> 0 2,705,241
<DEPRECIATION> 0 357,136
<TOTAL-ASSETS> 0 2,711,160
<CURRENT-LIABILITIES> 0 248,851
<BONDS> 0 500,000
0 0
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<COMMON> 0 691
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<TOTAL-LIABILITY-AND-EQUITY> 0 2,711,160
<SALES> 430,798 1,049,375
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<TOTAL-COSTS> 302,221 727,688
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<LOSS-PROVISION> 11,156 35,439
<INTEREST-EXPENSE> 19,476 40,685
<INCOME-PRETAX> 19,695 86,783
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