<PAGE>
UNITED STATES
SECURITIES & EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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
incorporation or organization) Identification No.)
3799 Las Vegas Boulevard South, Las Vegas, Nevada 89109
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(702) 891-3333
- -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at May 11, 1999
- -------------------------------- --------------------------------
Common Stock, $.01 par value 62,079,476 shares
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
FORM 10-Q
I N D E X
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of
Operations for the Three Months Ended
March 31, 1999 and March 31, 1998....................... 1
Condensed Consolidated Balance Sheets
at March 31, 1999 and December 31, 1998................. 2
Condensed Consolidated Statements of
Cash Flows for the Three Months Ended
March 31, 1999 and March 31, 1998....................... 3
Notes to Condensed Consolidated Financial
Statements.............................................. 4-9
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations........ 10-14
PART II. OTHER INFORMATION
Item 6. Reports on Form 8-K..................................... 15
Signatures.............................................. 16
</TABLE>
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------------
1999 1998
------------- -------------
<S> <C> <C>
REVENUES:
Casino $138,053 $ 95,722
Rooms 54,839 40,749
Food and beverage 34,447 24,983
Entertainment, retail and other 40,422 23,947
Income from unconsolidated affiliate 6,084 10,209
------------- -------------
273,845 195,610
Less: promotional allowances 22,478 15,763
------------- -------------
251,367 179,847
------------- -------------
EXPENSES:
Casino 72,635 54,600
Rooms 14,718 11,373
Food and beverage 20,990 15,533
Entertainment, retail and other 25,271 18,117
Provision for doubtful accounts and discounts 11,395 8,187
General and administrative 33,620 24,524
Depreciation and amortization 20,892 16,904
------------- -------------
199,521 149,238
------------- -------------
OPERATING PROFIT BEFORE PREOPENING AND CORPORATE EXPENSE 51,846 30,609
Preopening and other 8,810 -
Corporate expense 5,094 2,451
------------- -------------
OPERATING INCOME 37,942 28,158
------------- -------------
OTHER INCOME (EXPENSE):
Interest income 327 3,797
Interest expense, net of amounts capitalized (8,186) (3,772)
Interest expense from unconsolidated affiliate (1,058) (2,171)
Other, net (201) (603)
------------- -------------
(9,118) (2,749)
------------- -------------
INCOME BEFORE PROVISION FOR INCOME TAXES, EXTRAORDINARY ITEM AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE 28,824 25,409
Provision for income taxes (10,333) (9,147)
------------- -------------
NET INCOME BEFORE EXTRAORDINARY ITEM AND CUMULATIVE EFFECT OF 18,491 16,262
ACCOUNTING CHANGE
Extraordinary Loss on early extinguishment of debt, net of income tax benefit of $484 (898) -
Cumulative effect of change in accounting for preopening, net of income tax benefit of $4,399 (8,168) -
------------- -------------
NET INCOME $ 9,425 $ 16,262
============= =============
PER SHARE OF COMMON STOCK:
Basic:
Net income per share before extraordinary item and cumulative effect of
accounting change 0.34 0.28
Extraordinary item, net (0.02) -
Cumulative effect of accounting change, net (0.15) -
------------- -------------
Net income per share $ 0.17 $ 0.28
============= =============
Weighted Average Shares Outstanding (000's) 55,376 57,990
============= =============
Diluted:
Net income per share before extraordinary item and cumulative effect of 0.33 0.28
accounting change
Extraordinary item, net (0.02) -
Cumulative effect of accounting change, net (0.14) -
------------- -------------
Net income per share $ 0.17 $ 0.28
============= =============
Weighted Average Shares Outstanding (000's) 56,646 58,775
============= =============
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated financial statements.
-1-
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
----------------- -----------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 65,769 $ 81,956
Accounts receivable, net 66,158 69,116
Prepaid expenses and other 29,450 11,829
Inventories 11,212 11,081
Deferred tax asset 30,779 34,098
----------------- -----------------
Total current assets 203,368 208,080
----------------- -----------------
PROPERTY AND EQUIPMENT, NET 2,230,791 1,327,722
OTHER ASSETS:
Investments in unconsolidated affiliates, net 10,967 134,025
Excess of purchase price over fair market value
of net assets acquired, net 37,318 37,574
Deposits and other assets, net 56,411 66,393
----------------- -----------------
Total other assets 104,696 237,992
----------------- -----------------
$ 2,538,855 $ 1,773,794
================= ================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 31,375 $ 23,931
Construction payable 22,182 17,403
Income taxes payable 14,901 2,457
Current obligation, capital leases 5,174 5,086
Current obligation, long term debt 10,374 10,077
Accrued interest on long term debt 6,270 14,630
Other accrued liabilities 126,539 115,781
----------------- -----------------
Total current liabilities 216,815 189,365
----------------- -----------------
DEFERRED REVENUES 4,874 5,219
DEFERRED INCOME TAXES 98,291 77,165
LONG TERM OBLIGATION, CAPITAL LEASES 13,339 2,867
LONG TERM DEBT 983,230 534,797
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock ($.01 par value, 75,000,000 shares
authorized, 67,790,047 and 58,033,094
shares issued and outstanding) 678 580
Capital in excess of par value 1,218,052 968,199
Treasury stock, at cost (6,000,000 shares) (210,589) (210,589)
Retained earnings 202,612 193,187
Other comprehensive income 11,553 13,004
----------------- -----------------
Total stockholders' equity 1,222,306 964,381
----------------- -----------------
$ 2,538,855 $ 1,773,794
================= ================
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
-2-
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 9,425 $ 16,262
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation and amortization 21,095 16,942
Amortization of debt offering costs 490 377
Provision for doubtful accounts and discounts 11,395 8,187
Loss on early extinguishment of debt 1,382 -
Cumulative change in accounting principle 12,567 -
Earnings in excess of distributions-unconsolidated affiliate (5,026) (8,038)
Deferred income taxes 3,740 2,575
Change in assets and liabilities:
Accounts receivable 16,139 23,043
Inventories 1,279 2,339
Prepaid expenses and other (6,184) (1,193)
Income taxes payable 5,638 -
Accounts payable, accrued liabilities and other (41,139) (36,754)
Currency translation adjustment (127) (71)
------------ ------------
Net cash from operating activities 30,674 23,669
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (117,257) (104,092)
Acquisition of Primadonna Resorts, Inc., net (13,345) -
Disposition of property and equipment, net 4,691 402
Change in construction payable 4,779 (4,590)
Change in deposits and other assets, net 9,880 (10,434)
------------ ------------
Net cash from investing activities (111,252) (118,714)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments to banks and others (2,593) (2,694)
Issuance of long term debt - 500,000
Borrowings under bank line of credit 450,000 31,000
Extinguishment of debt (374,500) -
Repayments of bank line of credit (15,000) (31,000)
Issuance of common stock 6,484 466
------------ ------------
Net cash from financing activities 64,391 497,772
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (16,187) 402,727
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 81,956 34,606
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 65,769 $ 437,333
============ ============
</TABLE>
-3-
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Organization and Basis of Presentation
MGM Grand, Inc. (the "Company") is a Delaware corporation,
incorporated on January 29, 1986. As of March 31, 1999, approximately
61.5% of the outstanding shares of the Company's common stock were owned by
Kirk Kerkorian and Tracinda Corporation ("Tracinda"), a Nevada corporation
wholly owned by Kirk Kerkorian.
Through its wholly-owned subsidiary, MGM Grand Hotel, Inc., the
Company owns and operates the MGM Grand Hotel/Casino ("MGM Grand Las
Vegas"), a hotel/casino and entertainment complex in Las Vegas, Nevada.
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 owns and operates the New York-New York Hotel and
Casino ("NYNY") in Las Vegas, Nevada (see Note 7). Beginning March 1, 1999,
Primadonna and NYNY are wholly-owned subsidiaries of the Company. The
Merger gives the Company ownership of three hotel/casinos located in Primm,
Nevada at the California/Nevada border: 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/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 development and 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 at an
approximate cost of $800 million. On November 20, 1997, MGM Grand Detroit
was chosen as a finalist for a development agreement to construct, own and
operate one of Detroit's three new casinos. On April 9, 1998, the Detroit
City Council approved MGM Grand Detroit's development agreement with the
City 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 allows
the issuance of casino licenses to conduct gaming operations in temporary
facilities. Pending receipt of a license, MGM Grand Detroit, LLC
anticipates the opening of a temporary gaming facility in the third quarter
of 1999 at an approximate cost of $200 million. Through March 31, 1999,
approximately $77.6 million was expended, with $61.4 million capitalized
and $16.2 million expensed, by the Company for the permanent and temporary
facilities.
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
-4-
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Note 1. Organization and Basis of Presentation (continued)
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 March 31, 1999, approximately $54.5 million was
expended, with $53.7 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 on Form 10-K.
In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (which include
only normal recurring adjustments) necessary to present fairly the
financial position as of March 31, 1999, and the results of operations for
the three month periods ended March 31, 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 with the 1999 presentation, which have no effect on
previously reported net income.
Note 2. Statements of Cash Flows - Supplemental Disclosures
For the three months ended March 31, 1999 and 1998, cash payments made
for interest, net of amounts capitalized were $1.6 million and zero,
respectively.
Cash payments made for state and federal taxes for the three months
ended March 31, 1999 were $2 million. No cash payments were made for state
and federal taxes for the three months ended March 31, 1998.
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>
March 31, December 31,
1999 1998
----------- ------------
<S> <C> <C>
Australian Hotel/Casino Loan, due December 1, 2000 (USD) $ 43,604 $ 44,874
Senior Reducing Revolving Credit Facility 450,000 -
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
-------- --------
993,604 544,874
Less: Current Maturities (10,374) (10,077)
-------- --------
$983,230 $534,797
======== ========
</TABLE>
-5-
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Note 3. Long Term Debt and Notes Payable (continued)
Total interest incurred for the first three months of 1999 and 1998
was $13.1 million and $7.5 million, respectively, of which $4.9 million and
$3.7 million were capitalized in the 1999 and 1998 periods, respectively.
During the first three months of 1999 and 1998, the Company recognized
interest expense from its unconsolidated affiliate of $1.1 million and $2.2
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 rate or Eurodollar rate.
The New Facility matures in December 2002, with the opportunity to extend
the maturity for successive one year periods. During the three months ended
March 31, 1999, $450 million was drawn down and remained outstanding on the
New Facility. Of the $450 million drawn down, the Company used $216.6
million and $157.9 million 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 $66.3 million (AUD $105 million), which has been reduced
by principal payments totaling $24.2 million (AUD $36 million) made in
accordance with the terms of the bank facility, including $2.6 million (AUD
$4.1 million) during the three months ended March 31, 1999. As of March 31,
1999, $43.6 million (AUD $69 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 an $12.6 million (AUD $20 million) uncommitted
standby line of credit, with a funding period of 91 days for working
capital purposes. No amount was outstanding during the three months ended
March 31, 1999.
On March 31, 1999, MGM Grand Detroit LLC secured a $230 million credit
facility (the "Detroit Facility") with a consortium of banks, the majority
of which are based in the greater Detroit
-6-
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Note 3. Long Term Debt and Notes Payable (continued)
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. As of March 31, 1999, the Company was in
compliance with all covenant provisions associated with the aforementioned
obligations.
Note 4. Issuance of 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. The Company
anticipates that, depending on market conditions, the remaining 6 million
shares in the repurchase program may be acquired in the open market, in
private transactions, through a tender offer or offers or otherwise.
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).
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
March 31,
------------------------------
1999 1998
------------- -------------
<S> <C> <C>
Net income $ 9,425 $16,262
Currency translation adjustment (1,451) (1,102)
------------------------------
Comprehensive income $ 7,974 $15,160
==============================
</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 which is
determined on the
-7-
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Note 6. Earnings per Share (continued)
assumptions that options issued to employees are exercised and repurchased
at the average price for the periods presented (in thousands except per
share amounts):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------------
1999 1998
------------- -------------
<S> <C> <C>
Net Income $ 9,425 $16,262
======= =======
Weighted Average Basic Shares 55,376 57,990
======= =======
Basic Earnings per Share $ 0.17 $ 0.28
======= =======
Weighted Average Diluted Shares 56,646 58,775
======= =======
Diluted Earnings per Share $ 0.17 $ 0.28
======= =======
</TABLE>
Weighted average diluted shares include the following: options to
purchase 1,270,000 and 785,000 shares issued to employees for the three
month periods ended March 31, 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.
-8-
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
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
March 31,
-------------------------------------------
1999 1998
--------------- ---------------
<S> <C> <C>
Net Revenues $318,465 $280,047
======== ========
Operating Profit before Preopening and Corporate Expense $ 61,702 $ 45,431
======== ========
Operating Income $ 47,799 $ 41,796
======== ========
Net Income before Extaordinary Item and Cumulative Effect of
Accounting Change $ 22,414 $ 21,227
======== ========
Basic Earnings per Share before Extraordinary Item and Cumulative
Effect of Accounting Change $ 0.36 $ 0.31
======== ========
Weighted Average Basic Shares Outstanding (000's) 61,610 67,521
======== ========
Diluted Earnings per Share before Extraordinary Item and Cumulative
Effect of Accounting Change $ 0.36 $ 0.31
======== ========
Weighted Average Diluted Shares Outstanding (000's) 62,973 68,321
======== ========
</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 $4.3 million and $.1 million in preopening expense for
the current period related to the Detroit and Atlantic City projects, as
well as $1.1 million related to the Mansion at the MGM Grand Las Vegas.
Additionally, the Company recognized the cumulative effect of the
accounting change of $7.7 million and $.5 million, related to the adoption
of SOP 98-5 for the Detroit and Atlantic City projects.
-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 first quarter of 1999 were $251.4 million,
representing an increase of $71.6 million (39.8%) when compared with $179.8
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 1st
merger with Primadonna Resorts, Inc. (see Note 7).
Consolidated casino revenues for the first quarter of 1999 were $138.1
million, representing an increase of $42.4 million (44.3%) when compared
with $95.7 million during the same period in the prior year. MGM Grand
Las Vegas casino revenues were $107.2 million, representing an increase of
$17.6 million (19.6%) when compared with $89.6 million during the same
period in the prior year. The increase in casino revenues at MGM Grand Las
Vegas was a result of a record table games volume (excluding baccarat) and
a more normalized win percentage in 1999. MGM Grand Australia reported
casino revenues of $6.6 million, representing an increase of $.5 million
(8.2%) when compared with $6.1 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 $10.3
million and $13.9 million, respectively, to casino revenues since the
merger on March 1, 1999.
Consolidated room revenues were $54.8 million for the first quarter of
1999 compared with $40.7 million in the prior year's first quarter,
representing an increase of $14.1 million (34.6%). MGM Grand Las Vegas
room revenues were $46.8 million, representing an increase of $6.4 million
(15.8%) when compared with $40.4 million in the same period of the prior
year. The increase was due to a higher average room rate for the 1999 first
quarter of $109 compared with $100, as well as an increase in occupancy to
96.5% in the first quarter of 1999 when compared with 90.5% in the prior
year. MGM Grand Australia room revenues decreased $.1 million (25%) from
$.4 million in 1998 to $.3 million in 1999 due to slightly lower room rates
and occupancy during the first quarter of 1999 compared with 1998. NYNY and
the Primm Properties reported room revenues of $5.9 million and $1.9
million, respectively, since the merger on March 1, 1999.
Consolidated food and beverage revenues were $34.4 million in the
first quarter of 1999, representing an increase of $9.4 million (37.6%)
when compared with $25 million in the first quarter of the prior year. MGM
Grand Las Vegas reported food and beverage revenues of $29.9 million during
the first quarter of 1999, representing an increase of $6.2 million (26.2%)
when compared with $23.7 million in the first quarter of 1998. This
increase resulted from the banquet revenue generated by the Conference
Center, which opened on April 16, 1998, and increased revenue from the
Studio 54 night club. MGM Grand Australia reported food and beverage
revenues of $1 million, representing a decrease of $.3 million (23.1%) when
compared with $1.3 million in the first quarter of 1998, due to fewer food
covers in the current year. NYNY and the Primm Properties reported food
and beverage revenues of $1.2 million and $2.4 million, respectively, since
the merger on March 1, 1999.
Consolidated entertainment, retail and other revenues increased $16.5
million (69%) from $23.9 million in the 1998 period to $40.4 million in the
1999 period. The increase is primarily a result of strengthened MGM Grand
Las Vegas entertainment, retail and other revenue which increased $7.7
million (32.9%) from $23.4 million in the first quarter of 1998 to $31.1
million in 1999. This was the result of increased entertainment revenues
in 1999 which included a heavyweight boxing match. Also, the Company had
increased management and development
-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)
fees from MGM Grand South Africa of $2.6 million in the 1999 period
compared with $.7 million in the prior year. NYNY and the Primm Properties
reported entertainment, retail, and other revenues of $3.4 million and $3.4
million, respectively, since the merger on March 1, 1999.
Income from unconsolidated affiliate was $6.1 million for the first
quarter of 1999, compared with $10.2 million in 1998, representing the
Company's 50% share of NYNY's operating income. The reduction is a result
of the current quarter's two months of activity compared with the prior
year's three months. As a result of the merger with Primadonna Resorts,
Inc. 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 Pre-Opening and Corporate
expenses) were $199.5 million in the first quarter of 1999, representing an
increase of $50.3 million (33.7%) when compared with $149.2 million for the
same period last year. The overall increase was attributable to MGM Grand
Las Vegas which included increased casino expenses due to gaming taxes on
the increased revenues, expenses associated with the heavyweight boxing
match held in the quarter and higher food and beverage expenses due to the
increased revenues. MGM Grand Australia operating expenses remained flat
when compared with the prior year period as a result of continuing cost
containment efforts. NYNY and the Primm Properties added operating
expenses of $11.9 million and $16.3 million, respectively, since the merger
on March 1, 1999.
Preopening and other expense for the 1999 first quarter of $8.8
million represents costs principally associated with the Detroit temporary
casino, which is expected to open in the third quarter of 1999.
Corporate expense for 1999 was $5.1 million compared with $2.5 million
in 1998, representing an increase of $2.6 million. The 1999 quarter
included expense of stock options issued to non-employees of the Company.
Interest income of $.3 million for the three months ended March 31,
1999 decreased by $3.5 million from $3.8 million in the first quarter of
1998. The decrease was attributable to lower invested cash balances versus
the prior year.
Interest expense in the first quarter of 1999 was $8.2 million (net of
amounts capitalized) compared with $3.8 million in the first quarter of
1998, reflecting increased outstanding loan balances relating to
construction of the Detroit temporary casino as well as debt assumed in the
Merger with Primadonna on March 1, 1999. Also, the Company recognized
interest expense from unconsolidated affiliate of $1.1 million during the
1999 period compared with $2.2 million in 1998, reflecting a reduced
outstanding balance on the NYNY facility, as well as two months of activity
during 1999 compared with three months in 1998.
The extraordinary loss in the current year's first quarter of $.9
million, net of applicable income tax benefit, reflects the write-off of
unamortized debt costs associated with the extinguishment of the NYNY LLC
credit facility (see Note 3).
-11-
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
Quarter versus Quarter (continued)
The cumulative effect of the accounting change in the current year's
first quarter of $8.2 million, net of income tax benefit, reflects the
Company's adoption of the recently issued SOP 98-5. Previously, the Company
had capitalized preopening costs until the development of a property was
substantially completed and ready to open, at which time the cumulative
costs were expensed (see Note 8). SOP 98-5 requires such start costs to be
expensed as incurred.
Liquidity and Capital Resources
As of March 31, 1999 and December 31, 1998, the Company held cash and
cash equivalents of $65.8 million and $82 million, respectively. Cash
provided by operating activities for the first three months of 1999 was
$30.7 million compared with $23.7 million for the same period of 1998.
During the three months ended March 31, 1999, $450 million was drawn
down and remained outstanding on the New Facility. Of the $450 million
drawn down, 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.
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 nearing completion with the
"Mansion at the MGM Grand" offering 29 exclusive suites and villas,
anticipated to open in May 1999; the lion habitat anticipated to open in
June 1999; and expanded parking facilities anticipated to open in July
1999. The Company's 380,000 square foot state-of-the-art conference center
opened in April 1998, and the 50-foot tall polished bronze lion sculpture
along with the "Entertainment Casino" (previously known as the Emerald City
casino) were completed during the first quarter of 1998 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. Approximately $81.1 million is anticipated to be expended during 1999
related to the Master Plan, of which $40.7 million had been expended
through March 31, 1999.
Capital expenditures during the first three months of 1999 were $117.3
million, consisting primarily of $22.3 million related to MGM Grand Las
Vegas for general property improvements, $40.7 million for the Master Plan
project, $.8 million at NYNY for general property improvements, $1.3
million at Primm Properties for general property improvements, $.1 million
at MGM Grand Australia for general property improvements, $50.9 million at
MGM Grand Detroit for construction activities and $1.2 million for MGM
Grand Atlantic City land acquisition costs and pre-construction activities.
Anticipated capital expenditures remaining for 1999 are approximately
$421.1 million, consisting of approximately $40.4 million related to the
Master Plan, approximately $121.9 million related to general property
improvements for MGM Grand Las Vegas, approximately $16.3 million related
to general property improvements for NYNY, approximately $4.7 million
related to general property improvements for the Primm Properties,
approximately $234.8 million related to construction activities for MGM
Grand Detroit's temporary and permanent facilities, and approximately $3
million related to land acquisitions and pre-construction activities for
MGM Grand Atlantic City.
-12-
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
Liquidity and Capital Resources (continued)
On June 23, 1998, the Company announced a $35.00 per share cash tender
offer for up to 6 million shares of Company 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. The Company anticipates that, depending on
market conditions, the remaining 6 million shares in the repurchase program
may be acquired in the open market, in private transactions, through a
tender offer, offers or otherwise.
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 at
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 of the Company's
Year 2000 issues, contacting suppliers of certain systems to determine the
timing of applicable upgrades, and implementing applicable Year 2000
upgrades, which are currently available.
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
current quarter, the Company has not incurred material costs to modify
existing computer systems, however, it is estimated that approximately $2.7
million will be incurred in 1999.
-13-
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
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).
-14-
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
Part II. OTHER INFORMATION
Items 1 through 5 of Part II are not applicable.
Item 6.
Reports on Form 8-K.
1. Report on Form 8-K dated March 1, 1999, filed by the Company
with the Commission on March 12, 1999 in which events under Item 5, Other
Events were reported.
-15-
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MGM GRAND, INC.
-----------------------------------------
(Registrant)
Date: May 12, 1999 /s/ J. Terrence Lanni
_________________________________________
J. Terrence Lanni
Chairman of the Board
and Chief Executive Officer
Date: May 12, 1999 /s/ James J. Murren
_________________________________________
James J. Murren
Executive Vice President
and Chief Financial Officer
-16-
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