<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): June 17, 1999
-------------------------------------------
MGM Grand, Inc.
(Exact name of registrant as specified in its charter)
DELAWARE 0-16760 88-0215232
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation or organization) File Number) Identification No.)
3799 Las Vegas Boulevard South 89109
(Address of Principal Executive Offices) (Zip Code)
---------------------------------------------
(702) 891-3333
----------------------------------------------------
(Registrant's telephone number, including area code)
-------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report.)
<PAGE>
ITEM 5. OTHER EVENTS
The sole purpose of this filing is to file the Primadonna Resorts, Inc.
audited financial statements for the fiscal year ended December 31, 1998.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits
23.1 Consent of Arthur Andersen LLP.
99.1 Financial statements of Primadonna Resorts, Inc. for the fiscal year
ended December 31, 1998.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
MGM Grand, Inc.
Date: June 17, 1999 By: /S/ SCOTT LANGSNER
--------------------------
Name: Scott Langsner
Title: Secretary/Treasurer
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report dated January 30, 1999 (and to all references to our firm) included in or
made a part of this Current Report on Form 8-K.
Arthur Andersen LLP
Las Vegas, Nevada
June 15, 1999
<PAGE>
EXHIBIT 99.1
PRIMADONNA RESORTS, INC.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
TOGETHER WITH REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Audit Committee and Management of
Primadonna Resorts, Inc.:
We have audited the accompanying consolidated balance sheets of Primadonna
Resorts, Inc. (a Nevada corporation) and subsidiaries as of December 31, 1998
and 1997, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Primadonna Resorts, Inc. and
subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ending
December 31, 1998, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Las Vegas, Nevada
January 29, 1999
<PAGE>
PRIMADONNA RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(Amounts in Thousands)
<TABLE>
<CAPTION>
December 31,
-----------------------
1998 1997
---------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 15,499 $ 14,174
Accounts receivable, net of allowance for
doubtful accounts of $45 and $44 at December 31,
1998 and 1997, respectively 1,901 988
Income tax refund receivable - 1,664
Inventories 1,570 1,687
Prepaid expenses and other 9,371 6,647
--------- ---------
Total current assets 28,341 25,160
--------- ---------
Property and equipment:
Buildings and improvements 241,596 212,396
Land improvements 109,383 95,364
Furniture, fixtures and equipment 153,337 144,371
--------- ---------
504,316 452,131
Less: accumulated depreciation
and amortization (177,204) (144,653)
--------- ---------
327,112 307,478
Land 5,669 5,654
Construction in progress 4,081 19,495
--------- ---------
Property and equipment, net 336,862 332,627
Investment in joint venture 130,349 104,436
Notes receivable, net 264 2,718
Other assets, net 11,576 9,955
--------- ---------
Total assets $ 507,392 $ 474,896
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
PRIMADONNA RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
(Amounts in Thousands)
<TABLE>
<CAPTION>
December 31,
---------------------
1998 1997
--------- ---------
<S> <C> <C>
Current liabilities:
Accounts payable-trade $ 8,867 $ 14,466
Accrued expenses 13,750 10,432
Current portion of long-term debt 133 1,639
-------- --------
Total current liabilities 22,750 26,537
-------- --------
Long-term debt, net of current portion 233,521 220,765
Deferred income taxes payable 21,224 15,961
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value;
10,000,000 shares authorized; no
shares issued and outstanding
Common stock, $.01 par value;
100,000,000 shares authorized;
28,819,100 and 28,858,000 shares
issued and outstanding in 1998
and 1997, respectively 309 309
Additional paid-in capital 129,738 128,817
Retained earnings 136,312 118,169
Less: treasury stock, at cost (36,462) (35,662)
-------- --------
Total stockholders' equity 229,897 211,633
-------- --------
Total liabilities and stockholders' equity $507,392 $474,896
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
PRIMADONNA RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in Thousands Except Per Share Data)
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Revenues:
Casino $163,092 $163,886 $170,395
Food and beverage 28,640 30,068 29,709
Hotel 19,959 21,913 23,584
Entertainment 12,256 12,809 11,750
Service station 17,718 17,035 14,984
Other 6,157 6,707 6,433
Operating income (loss) from
New York-New York 38,409 53,895 (7,842)
-------- -------- --------
286,231 306,313 249,013
Less: promotional allowances (13,365) (18,492) (14,078)
-------- -------- --------
Net revenues 272,866 287,821 234,935
-------- -------- --------
Costs and expenses:
Casino 51,340 55,669 51,661
Food and beverage 25,741 26,854 27,214
Hotel 11,213 10,268 11,369
Entertainment 9,008 7,060 5,492
Service station 15,764 15,529 13,846
Other 2,793 2,640 2,922
Selling, general and administrative 49,204 47,052 44,611
Property costs 19,816 18,877 18,306
Depreciation and amortization 32,774 29,271 27,358
Pre-opening costs - - 1,144
-------- -------- --------
217,653 213,220 203,923
-------- -------- --------
Income from operations 55,213 74,601 31,012
Other (expense)
Interest expense, net (16,377) (13,205) (4,923)
Interest expense, from New York-New York (8,376) (9,891) -
-------- -------- --------
Income before income taxes 30,460 51,505 26,089
Income tax provision 12,317 18,139 9,321
-------- -------- --------
Income before extraordinary item 18,143 33,366 16,768
Extraordinary item - loss on early retirement
of debt, net of income tax benefit - 964 -
-------- -------- --------
Net income: $ 18,143 $ 32,402 $ 16,768
======== ======== ========
Earnings per share:
Basic earnings before extraordinary item $ .63 $ 1.14 $ 0.55
Basic earnings from net income $ .63 $ 1.11 $ 0.55
Diluted earnings before extraordinary item $ .63 $ 1.13 $ 0.55
Diluted earnings from net income $ .63 $ 1.10 $ 0.55
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
PRIMADONNA RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
(Amounts in Thousands)
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Retained Treasury
Shares Amount Capital Earnings Stock Total
---------- ------ ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1995 30,765,375 $308 $127,179 $ 68,999 $ (440) $196,046
Net income - - - 16,768 - 16,768
Exercise of stock options 42,600 - 1,057 - - 1,057
Purchase of treasury stock (805,000) - - - (12,853) (12,853)
---------- ---- -------- -------- -------- --------
Balances, December 31, 1996 30,002,975 308 128,236 85,767 (13,293) 201,018
Net income - - - 32,402 - 32,402
Exercise of stock options 34,525 1 581 - - 582
Purchase of treasury stock (1,179,500) - - - (22,369) (22,369)
---------- ---- -------- -------- -------- --------
Balances, December 31, 1997 28,858,000 309 128,817 118,169 (35,662) 211,633
Net income - - - 18,143 - 18,143
Exercise of stock options 61,100 - 921 - - 921
Purchase of treasury stock (100,000) - - - (800) (800)
---------- ---- -------- -------- -------- --------
Balances, December 31, 1998 28,819,100 $309 $129,738 $136,312 $(36,462) $229,897
========== ==== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
PRIMADONNA RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 18,143 $ 32,402 $ 16,768
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 32,774 29,271 27,358
Amortization of debt issuance costs 145 245 425
Equity (income) loss in New York-New York
in excess of distributions (25,913) (28,843) 7,842
Allowance for doubtful accounts 1,749 - 1,852
Pre-opening costs - - 1,144
Increase in life insurance cash
surrender value (95) (270) (75)
Gain on sale of assets (38) (88) (314)
Deferred income taxes 2,243 2,374 (1,771)
Extraordinary loss - 1,483 -
Change in current assets and liabilities
due to operating activities:
(Increase) decrease in accounts receivable (913) 182 1,581
(Increase) decrease in income tax
refund receivable 1,664 (1,443) 773
(Increase) decrease in inventories 117 (284) (199)
(Increase ) decrease in prepaid expenses
and other 296 (640) 472
Increase (decrease) in accounts
payable-trade (5,598) 6,778 570
Increase (decrease) in accrued expenses 3,318 (252) 1,595
-------- -------- --------
Total adjustments 9,749 8,513 41,253
-------- -------- --------
Net cash provided by operating activities 27,892 40,915 58,021
-------- -------- --------
Cash flows from investing activities:
Purchases of property and equipment (36,959) (60,609) (35,158)
Investment in joint venture - (7,000) (26,874)
Increase in other assets (5,203) (1,545) (4,670)
Proceeds from other assets 4,224 321 789
Pre-opening costs - - (1,144)
-------- -------- --------
Net cash used in investing activities $(37,938) $(68,833) $(67,057)
-------- -------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
PRIMADONNA RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------
1998 1997 1996
---------- ---------- ---------
<S> <C> <C> <C>
Cash flows from financing activities:
Net proceeds from the exercise
of stock options $ 921 $ 582 $ 1,057
Purchase of treasury stock (800) (22,369) (12,853)
Proceeds from issuance of long-term debt 179,300 378,200 70,400
Debt issuance costs - (931) -
Principal payments on long-term debt (168,050) (325,506) (46,600)
--------- --------- --------
Net cash provided by
financing activities 11,371 29,976 12,004
--------- --------- --------
Net increase in cash and
cash equivalents 1,325 2,058 2,968
Cash and cash equivalents, beginning of year 14,174 12,116 9,148
--------- --------- --------
Cash and cash equivalents, end of year $ 15,499 $ 14,174 $ 12,116
========= ========= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
PRIMADONNA RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATIONAL STRUCTURE AND BASIS OF PRESENTATION
Primadonna Resorts, Inc., a Nevada corporation, and subsidiaries (the
"Company"), owns and operates three hotel-resort/casinos; Buffalo Bill's
Resort & Casino, Primm Valley Resort & Casino, and Whiskey Pete's Hotel &
Casino, all located at the California/Nevada border in Primm, Nevada. The
Company also owns and operates the Primm Valley Golf Club, located
approximately four miles south of Primm, in California.
The Company and MGM Grand, Inc. ("MGM") 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 (see Note 5). 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.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Principles of Consolidation
The consolidated financial statements include the accounts of
Primadonna Resorts, Inc. and its wholly owned subsidiaries.
Investments in unconsolidated affiliates which are 50% or less owned
are accounted for under the equity method. All material intercompany
accounts and transactions have been eliminated.
b. Cash and Cash Equivalents
Cash and cash equivalents consist of investments in bank certificates
of deposit and other interest bearing instruments with initial
maturities of three months or less. Such investments are carried at
cost which approximate market value.
c. Accounts Receivable
Accounts receivable are due within one year and are recorded net of
amounts estimated to be uncollectable.
<PAGE>
PRIMADONNA RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
d. Property and Equipment
Property and equipment are recorded at cost. Depreciation and
amortization are provided for on the straight-line method over the
following estimated useful lives:
Buildings and improvements 10 to 40 years
Land improvements 5 to 15 years
Furniture, fixtures and equipment 3 to 12 years
Normal repairs and maintenance are charged to expense when incurred.
Expenditures which materially extend the useful life of assets are
capitalized.
e. Casino Revenues and Promotional Allowances
Casino revenues represent the net win from gaming wins and losses.
The retail value of food, beverage, and hotel rooms provided to
customers without charge is included in gross revenues, and then
deducted as promotional allowances. The estimated departmental costs
of providing such promotional allowances is included in casino costs
and expenses as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------
1998 1997 1996
------- ------- ------
(In thousands)
<S> <C> <C> <C>
Food and beverage $ 8,089 $ 8,397 $6,534
Hotel 2,270 4,116 2,403
Other 546 2,073 1,022
------- ------- ------
$10,905 $14,586 $9,959
======= ======= ======
</TABLE>
f. Net Income Per Common Share
Basic income per share of common stock is computed based on the
weighted average number of shares of common stock outstanding during
the period. Diluted income per share of common stock is computed based
on the assumption that options issued to employees are exercised and
repurchased at the average price for the periods presented (see Note
14).
<PAGE>
PRIMADONNA RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
g. Preopening Expense
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 development of the
property was substantially complete and ready to open, at which time
the cumulative costs were expensed. As of December 31, 1998, the
Company had no capitalized "start-up" costs. The Company will adopt
SOP 98-5 in the first quarter of fiscal year 1999.
h. Capitalized Interest
The Company capitalizes interest costs associated with debt incurred
in connection with major construction projects. Interest capitalized
was $464,000, $1,124,000, and $6,100,000 for the years ended December
31, 1998, 1997, and 1996, respectively.
i. Management's use of Estimates
The consolidated financial statements have been prepared in conformity
with generally accepted accounting principles. Those principles
require management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those
estimates.
j. Reclassifications
The consolidated financial statements for prior periods reflect
certain reclassifications to conform with classifications adopted in
1998.
k. Debt Issuance Costs
Debt issuance costs are capitalized and amortized to expense based on
the terms of the related debt agreements using the effective interest
method.
<PAGE>
PRIMADONNA RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
l. Income Taxes
The Company provides for income taxes under the provisions of SFAS No.
109 "Accounting for Income Taxes". SFAS No. 109 requires an asset and
liability based approach in accounting for income taxes.
Deferred income tax assets and liabilities are recorded to reflect the
tax consequences on future years of temporary differences of revenue
and expense items for financial statement and income tax purposes.
Valuation allowances are provided against assets, which are not likely
to be realized.
m. Segment Reporting
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 131,
"Disclosure about Segments of an Enterprise and Related Information."
SFAS No. 131 establishes additional standards for segment reporting in
financial statements and is effective for fiscal years beginning after
December 15, 1997. The Company currently operates as one segment.
n. Concentrations of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of short-term
investments and the note receivable discussed in Note 6.
The Company maintains an allowance for doubtful accounts to reduce its
receivables to their carrying amounts, which approximates fair value.
Management believes that as of December 31, 1998, no significant
concentrations of credit risk existed for which an allowance had not
already been determined and recorded.
<PAGE>
PRIMADONNA RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
3. STATEMENT OF CASH FLOWS
The following supplemental disclosures are provided as part of the
accompanying consolidated statements of cash flows:
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------
1998 1997 1996
------- ------- ------
(In thousands)
<S> <C> <C> <C>
Cash payments made for interest
(net of amounts capitalized) $16,024 $12,051 $5,274
======= ======= ======
Cash payments made for income taxes $ 5,200 $16,700 $9,900
======= ======= ======
Assets acquired through
capitalized leases $ - $ 383 $ -
======= ======= ======
</TABLE>
4. EARNINGS PER SHARE
The Company accounts for Earnings per Share in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128").
SFAS 128 presents two EPS calculations: (i) basic earnings per share of
common stock which is computed by dividing net income by the weighted
average number of shares of common stock outstanding during the periods
presented, and (ii) diluted earnings per share of common stock which is
determined on the assumption that options issued pursuant to the Company's
stock option plans (see Note 14) are exercised and repurchased at the
average price for the periods presented.
<PAGE>
PRIMADONNA RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
4. EARNINGS PER SHARE, continued
Earnings per share consist of the following (amounts in thousands except
per share data):
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------------
1998 1997 1996
----------------- ------------------- -----------------
Income Shares Income Shares Income Shares
------- ------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS:
Income before extraordinary item $18,143 28,896 $33,366 29,278 $16,768 30,406
Extraordinary item - - (964) - - -
------- ------- ------- ------- ------- -------
Net income available to common
shareholders $18,143 28,896 $32,402 29,278 $16,768 30,406
------- ------- ------- ------- ------- -------
Per share amounts:
Income from before extraordinary item $ .63 $ 1.14 $ 0.55
Extraordinary item $ - (0.03) -
Net income available to common
shareholders $ .63 $ 1.11 $ 0.55
Diluted EPS:
Income before extraordinary item $18,143 28,896 $33,366 29,278 $16,768 30,406
Effect of dilutive stock options - 48 - 127 - 129
------- ------- ------- ------- ------- -------
Income before extraordinary item $18,143 28,944 $33,366 29,405 $16,768 30,535
Extraordinary item - - (964) - - -
------- ------- ------- ------- ------- -------
Net income available to common
shareholders $18,143 28,944 $32,402 29,405 $16,768 30,535
------- ------- ------- ------- ------- -------
Per share amounts:
Income before extraordinary item $ .63 $ 1.13 $ 0.55
Extraordinary item $ - (0.03) -
Net income available to common
shareholders $ .63 $ 1.10 $ 0.55
</TABLE>
<PAGE>
PRIMADONNA RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
4. EARNINGS PER SHARE, continued
Options to purchase 1,224,320, 333,000, and 393,000 shares of common stock
at December 31, 1998, 1997, and 1996, respectively, at prices of $7.25-
$31.25, $21.75-$31.25, and $19.50-$31.25, respectively, were outstanding
during the period but not included in the computation of diluted earnings
per share because their exercise price was in excess of the average market
price of the common shares for the periods presented.
5. INVESTMENT IN JOINT VENTURE
On December 28, 1994, the Company and MGM Grand, Inc.("MGM"), formed a
joint venture to own and operate the New York-New York Hotel & Casino (see
Note 1). The hotel/casino opened on January 3, 1997. The Company holds a
50% interest in the joint venture. The Company has contributed cash of
$69.5 million and certain rights to the New York theme acquired from a
third party licensor. MGM has contributed land (valued at $41.2 million) on
which the property is located and cash of $29.5 million. The joint venture
secured limited recourse bank financing of $285 million, and term loan
financing of $20 million, which funded the construction of, and equipment
for, the hotel/casino. In September 1998, the joint venture amended its
limited recourse $285 million bank financing. The amendment included a
reduction in bank commitments to $210 million and eliminated the scheduled
reductions under the bank loan. The joint venture partners have executed
Keep-Well Agreements in conjunction with the bank financing. Should New
York-New York fail to meet certain minimum financial ratios the partners
would be required to make additional equity contributions to the extent
needed to bring the ratios into compliance.
Also, in September 1998, the Company and MGM amended the operating
agreement for the joint venture to require scheduled reductions of the bank
financing, equivalent to those required prior to the September 1998
amendment, and to require utilizing cash flow from operations, after tax
distributions, to reduce the amounts outstanding under the current bank
loan.
<PAGE>
PRIMADONNA RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
5. INVESTMENT IN JOINT VENTURE, continued
Summary condensed financial information for the joint venture is as
follows:
<TABLE>
<CAPTION>
Years Ended December 31, 1998 1997
--------- ---------
(In thousands)
<S> <C> <C>
Net revenues $219,107 $255,253
Operating income 76,628 107,431
Interest income (expense), net (16,562) (19,425)
Net income 60,066 88,006
Total assets $451,496 $470,252
Long-term debt 189,361 246,403
Member equity 235,176 183,350
</TABLE>
6. NOTES RECEIVABLE
The Company has advanced a total of $3.8 million to Southwest Casino and
Hotel Corp. ("Southwest"), a developer and manager of Native American
gaming enterprises. Southwest managed a Class II Indian gaming facility in
Eagle Pass, Texas for the Kickapoo Traditional Tribe of Texas under
management contract which was terminated on December 31, 1997. Southwest
currently manages a Class II Indian gaming facility just outside Oklahoma
City, Oklahoma for the Cheyenne and Arapaho Tribes, and has consulting
agreements with several other Native American tribes.
The Company exchanged a portion of a $2.2 million note from Southwest for a
note from the Kickapoo tribe, secured by the assets of the Kickapoo gaming
facility. The note currently has a balance of $1.7 million, which is fully
reserved at December 31, 1998. On October 30, 1998 the company agreed to
convert a $1.6 million convertible term promissory note and the $.3 million
remaining balance of the $2.2 million demand promissory note into 2.9
million warrants for convertible preferred stock in Southwest, as part of
Southwest's plan of recapitalization. The Company's investment in
Southwest is fully reserved at December 31, 1998.
<PAGE>
PRIMADONNA RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
7. OTHER ASSETS
Other assets at December 31, 1998 and 1997 consist of the following:
<TABLE>
<CAPTION>
1998 1997
------- ------
(In thousands)
<S> <C> <C>
Cash surrender value of life insurance $ 7,300 $6,573
Investment in real property 1,094 1,094
China, linen and glassware 1,084 1,084
Deposits 979 -
Deferred financing fees, net 678 816
Other 441 388
------- ------
$11,576 $9,955
======= ======
</TABLE>
8. LIFE INSURANCE
The cash surrender value of various life insurance policies are primarily
held on behalf of the Company's principal shareholder and Chairman of the
Board. The aggregate face value of all policies was approximately $75 and
$94 million at December 31, 1998 and 1997, respectively. The Company is
the primary beneficiary on $24 million of face value of the policies. The
Company's principal shareholder and Chairman of the Board has agreed to
reimburse the Company, with respect to certain policies with a face value
of $50 million, for the difference between premiums paid by the Company and
such policies' cash surrender value.
9. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
December 31,
-----------------
1998 1997
------- -------
(In thousands)
<S> <C> <C>
Compensation and related benefits $ 4,861 $ 4,300
Unredeemed chip and token liability 775 1,078
Accrued gaming taxes 788 704
Progressive jackpot liabilities 427 582
Accrued sales and use taxes 155 846
Accrued interest 2,318 1,955
Federal Income Tax Payable 3,103 -
Other 1,323 967
------- -------
$13,750 $10,432
======= =======
</TABLE>
<PAGE>
PRIMADONNA RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
10. LONG-TERM DEBT
On June 5, 1997 the Company entered into a Credit Agreement ("Agreement")
with a sixteen bank consortium led by Wells Fargo Bank as agent, for a
$250,000,000 revolving loan. The maximum balance under the loan was
increased to $300,000,000 on December 19, 1997 and to $350,000,000 on June
4, 1998. This loan replaced the existing Reducing Revolving Bank Credit
Agreement.
The Agreement provides for interest payments at least quarterly, at the
prime rate or LIBOR, plus a sliding margin, based upon the Company's debt
to earnings before interest, taxes, depreciation and amortization
("EBITDA") ratio. The margin for the prime rate ranges between 0% and
1.125%, while the margin for LIBOR ranges between 0.5% and 2.375%. The
weighted average interest rate was 5.3% at December 31, 1998 and 7.0% at
December 31, 1997. The Company incurs commitment fees of .20% to .50% for
the unused portion of the Agreement, also dependent upon the debt to EBITDA
ratio. The obligation is secured by a deed of trust on all real property,
leasehold interests in real property, and personal property of the Company,
excluding the Primm Valley Golf Club. The Agreement contains certain
restrictive covenants relating to the use of proceeds, sale or transfer of
assets, the incurrence of additional debt over a specified level, capital
expenditures, and maintenance of certain minimum financial ratios.
The Reducing Revolving Bank Credit Agreement ("Prior Agreement") entered
into on December 28, 1993, as amended, was terminated on June 5, 1997. The
Prior Agreement provided for a maximum principal balance of $250,000,000,
with scheduled reductions in the maximum permitted beginning August 18,
1997, and continuing thereafter through maturity on July 18, 2000. The
Prior Agreement provided for EBITDA ratios, interest payments, security
interests, and covenants that were substantially similar to the Agreement
which replaced the Prior Agreement.
The Company incurred a liability in connection with the acquisition of the
New York-New York theme rights of $1,100,000, due January 6, 1997, and
$400,000 due January 7, 1998. At December 31, 1997, $1,500,000 due for the
theme rights was reflected as a current obligation. This liability was paid
in full in July 1998.
<PAGE>
PRIMADONNA RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
10. LONG-TERM DEBT, continued
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
--------------------
1998 1997
-------- --------
(In thousands)
<S> <C> <C>
Credit Agreement $350,000,000, June 5, 1997
5 year term, LIBOR plus applicable margin $233,500 $220,600
NEW YORK-NEW YORK theme rights due January
6, 1997 and January 7, 1998 - 1,500
Other 154 304
-------- --------
233,654 222,404
Less: current portion 133 1,639
-------- --------
Total long-term debt $233,521 $220,765
======== ========
</TABLE>
11. INCOME TAXES
The Company files a consolidated federal income tax return. The provision
(benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------
1998 1997 1996
------- ------- --------
(In thousands)
<S> <C> <C> <C>
Current $ 8,062 $15,765 $11,092
Deferred 4,255 2,374 (1,771)
------- ------- -------
$12,317 $18,139 $ 9,321
======= ======= =======
</TABLE>
<PAGE>
PRIMADONNA RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
11. INCOME TAXES, continued
The tax effect of significant temporary differences representing deferred
tax assets and liabilities for the Company is as follows:
<TABLE>
<CAPTION>
December 31,
------------------------
1998 1997
--------- --------
(In thousands)
<S> <C> <C>
Deferred tax assets (liabilities):
Current:
Progressive jackpots $ 81 $ 69
Accrued current liabilities 504 368
Inventories 44 38
Outstanding chip and token liability 153 265
Prepaid Other 492 -
Other - 74
-------- --------
1,274 814
-------- --------
Long-term:
Depreciation (20,513) (17,334)
Pre-opening costs 422 314
Bad debt allowances 1,331 648
Joint venture timing differences (5,905) 408
Alternative Minimum Tax Credit
carryforward 3,441 -
Other - 3
-------- --------
(21,224) (15,961)
-------- --------
$(19,950) $(15,147)
======== ========
</TABLE>
The Company did not record a valuation allowance at December 31, 1998 or
1997, relating to recorded tax benefits, because all benefits are likely to
be realized.
The provision for income taxes differs from the amount computed at the
federal statutory rate as a result of the following:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Federal Statutory rate 35.0% 35.0% 35.0%
Employee Meal Disallowance 3.4 - 1.0
Political Lobbying and Contributions 1.2 - -
Other 0.7 - -
------ ------ ------
Effective tax rate 40.3% 35.0% 36.0%
====== ====== ======
</TABLE>
<PAGE>
PRIMADONNA RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
12. LEASES
The Company entered into a lease agreement on July 1, 1993 which covers the
property upon which Whiskey Pete's, Primm Valley, and Buffalo Bill's are
located. The land is owned by Primm South Real Estate Company ("Primm
South"). Certain shareholders and one Director of the Company are
shareholders of Primm South. The lease has an initial term of 50 years,
with an option to extend for one additional 25 year period. Monthly lease
payments were $429,000 through June 1996, $441,000 through June 1997,
$451,000 through June 1998 and are currently $469,000 through June 1999.
Lease payments are subject to annual increases based upon the Consumer
Price Index, not to exceed 8% per year. The lease provides for the base
rent to be adjusted every 8 years, based upon appraisal. The Company is
required to pay all taxes, insurance, utilities, and maintenance expenses
related to the property.
The lease further provides the Company with the exclusive right to conduct
gaming activities on the landlord's property in Primm, Nevada, for 10
years, for a $100,000 annual fee. This right can be extended, at the
Company's option, for consecutive 10 year periods so long as the Company is
in compliance with the lease agreement. At each renewal period, the fee
will be increased by the Consumer Price Index, subject to a maximum annual
increase of 8%.
Future minimum lease payments, for all leases with noncancellable lease
terms in excess of one year are as follows at December 31, 1998:
<TABLE>
<CAPTION>
Years ending December 31,
------------------------
(In thousands)
<S> <C>
1999 $ 5,754
2000 5,669
2001 5,627
2002 5,627
2003 5,627
Thereafter 222,254
--------
Total minimum lease payment $250,558
========
</TABLE>
Rent expense is as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------
1998 1997 1996
------ ------- ------
(In Thousands)
<S> <C> <C>
$5,654 $ 5,564 $5,609
====== ======== ======
</TABLE>
<PAGE>
PRIMADONNA RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
13. RELATED-PARTY TRANSACTIONS
The Company leases certain property from Primm South as discussed in Note
11. Included in property costs and expenses for the years ended December
31, 1998, 1997 and 1996, is lease expense of $5,520,000, $5,353,000, and
$5,320,000, respectively.
The Company has an agreement with the Chairman of the Company that provides
for each party to share undivided interests of 75% and 25%, respectively,
in a jet aircraft. Operational expenses are borne by the participants based
upon actual flight hours utilized by each party.
In September 1996, the Company entered into a new two-year agreement with a
director of the Company for certain consulting services. Contract terms
provide for monthly payments of $12,500 and include an option to renew the
agreement for one additional year. The agreement provides for a waiver of
any fees to which the director would otherwise be entitled in his capacity
as a director of the Company. The Company exercised the one year extension
option in 1998. This agreement replaces a substantially similar agreement
executed in September 1993 for a one year term with two one year renewal
options. Fees of $150,000 were incurred for the years ended December 31,
1998, 1997, and 1996. The director is also a partner in a law firm, which
provides legal services to the Company. The total amount for such services
were $241,000, $383,000, and $264,000 for the years ended December 31,
1998, 1997, and 1996, respectively.
14. CAPITAL STOCK, STOCK OPTIONS AND INCENTIVES
a. Authorized Shares
The authorized capital stock of the Company consists of 10,000,000
shares of preferred stock, $.01 par value, and 100,000,000 shares of
common stock, $.01 par value. The preferred stock may be issued in one
or more series having such respective terms, rights, and preferences
as are designated by the Board of Directors. No preferred stock has
been issued.
b. Treasury Stock
The Board of Directors has authorized the Company to acquire up to $50
million of the Company's outstanding common shares. As of December
31, 1998, the Company had acquired 2,114,500 shares for $36.5 million.
<PAGE>
PRIMADONNA RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
14. CAPITAL STOCK, STOCK OPTIONS AND INCENTIVES, continued
c. Stock Incentive Plan
The Company's Board of Directors adopted various Stock Incentive Plans
("Plans"), as amended, for directors, officers, employees, employee-
directors, consultants, or advisors. A maximum of 300,000 shares of
common stock have been reserved for non-employee directors, and
3,000,000 shares have been reserved for issuance to all others under
the Plans. All awards will terminate 10 years after grant, no awards
may be granted after June 2003. In October 1998, the Company's
compensation committee amended all outstanding stock options issued to
employees, excluding consultants and directors, to reduce the exercise
price per share to between $6.94 - $7.25 (the market price on the date
of employee election of the amendment).
Option activity under the Stock Incentive Plan was as follows:
<TABLE>
<CAPTION>
Number of Option Shares
Years Ended December 31,
----------------------------
1998 1997 1996
-------- ------- -------
(In thousands)
<S> <C> <C> <C>
Balance, beginning of year 2,084 1,338 1,249
Granted 1,427 979 563
Exercised (61) (35) (43)
Canceled (1,219) (198) (431)
------- ------ ------
Balance, end of year 2,231 2,084 1,338
------- ------ ------
Options exercisable at
end of year 832 547 319
======= ====== ======
Weighted Average Exercise Price
Granted $ 8.16 $18.43 $19.65
Exercised 14.51 15.00 15.00
Canceled 16.87 18.29 15.94
Balance, end of year 11.43 17.48 16.83
Options exercisable at
end of year $ 13.58 $16.96 $15.49
======= ====== ======
</TABLE>
The options vest ratably over 2 to 5 years. The exercise price is the
market value on the date granted. The Company applies Accounting
Principles Board Opinion No. 25
<PAGE>
PRIMADONNA RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
c. Stock Incentive Plan, continued
and related interpretations in accounting for the Plan. Accordingly, no
compensation expense has been recognized for the stock options. In
accordance with SFAS No. 123, the Company has calculated, on a pro forma
basis, the estimated compensation expense related to its stock option
programs utilizing the assumptions in the table below. The effect on net
income and earnings per share would be as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------
1998 1997 1996
--------- --------- ---------
(In Thousands, except share data)
<S> <C> <C> <C>
Net income as reported $18,143 $32,402 $16,768
Pro forma $16,914 $31,370 $16,164
Basic earnings per share as reported $ .63 $ 1.11 $ .55
Pro forma $ .59 $ 1.07 $ .53
Diluted earnings per share as reported $ .63 $ 1.10 $ .55
Pro forma $ .59 $ 1.07 $ .53
</TABLE>
Weighted average assumptions, using the Black-Scholes option pricing model:
<TABLE>
<S> <C> <C> <C>
Expected stock price volatility 52% 19% 19%
Risk-free interest rate 4.65% 5.60% 5.83%
Option life, in years 8.88 3.36 4.39
Expected forfeitures 39% 45% 45%
</TABLE>
15. COMMITMENTS AND CONTINGENCIES
a. Change in Control Agreements
During 1998, the Company entered into change in control and salary
continuation agreements with four of its executive officers. The
agreements have a term of three years and provide for severance
payments in the case of a change in control of the Company (as
defined) and termination of the executive without good cause (as
defined). As of December 31, 1998, if all of the executives covered
under contract were to be terminated by the Company without good cause
following a change in control, the Company's liability for severance
payments would be approximately $2.7 million. Based on events
subsequent to the merger with MGM Grand, Inc. (see Note 16), the
Company expects that the ultimate liability under the change of
control agreements will be $1.8 million.
<PAGE>
PRIMADONNA RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
b. Litigation
Currently, there are lawsuits pending against the Company arising in
the normal course of business. In management's opinion, the ultimate
outcome of these matters will not have a material adverse effect on
the results of operations or the financial position of the Company.
16. SUBSEQUENT EVENTS (UNAUDITED)
During December 1998, the Company and MGM Grand, Inc. ("MGM") entered into
a definitive merger agreement whereby MGM would acquire the Company in an
all stock transaction. The terms of the merger provided for the Company's
stockholders to receive 0.33 shares of MGM's common stock for each company
share held, or a total of approximately 9.5 million shares of MGM common
stock.
On February 28, 1999, the merger with MGM was completed making the Company
a wholly-owned subsidiary of MGM.
On March 31, 1999, the Company borrowed $217 million from MGM under a
Demand Promissory Note ("Note"). The Note bears interest at a rate equal
to MGM's cost of bank financing and is intended to be used to meet the
long-term financing needs of the Company. Proceeds from the Note were used
to extinguish and terminate the Credit Agreement described in Note 10.
