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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1999.
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 0-16760
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MGM GRAND, INC.
(Exact name of registrant as specified in its charter)
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<S> <C>
DELAWARE 88-0215232
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
3799 Las Vegas Boulevard South Las Vegas, Nevada 89109
(Address of principal executive office) (Zip Code)
(702) 891-3333
(Registrant's telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act:
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<CAPTION>
Name of each exchange
Title of each class on which registered
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<S> <C>
Common Stock, $.01 Par Value New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
None
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 Regulation S-K ((S)229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of Registrant's Common Stock held by non-
affiliates (based on the closing price on the New York Stock Exchange-
Composite Transactions on March 9, 2000) was approximately $796.8 million. As
of March 9, 2000, 111,832,062 million shares of Registrant's Common Stock,
$.01 par value, were outstanding, net of treasury stock.
Portions of the Annual Report to Stockholders for the fiscal year ended
December 31, 1999 are incorporated by reference into Part II of this Form 10-
K.
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PART I
Item 1. Business
Safe Harbor Provisions
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in this
Form 10-K contains statements that are forward-looking, such as statements
relating to plans for future expansion and other business development
activities, as well as other capital spending, financing sources, the effects
of regulation (including gaming and tax regulations) and competition. Such
forward-looking information involves important risks and uncertainties that
could significantly affect anticipated results in the future and, accordingly,
such results may differ from those expressed in any forward-looking statements
made by or on behalf of the MGM Grand, Inc. (the "Company"). These risks and
uncertainties include, but are not limited to, those relating to development
and construction activities, dependence on existing management, leverage and
debt service (including sensitivity to fluctuations in interest rates),
domestic or global economic conditions (including sensitivity to fluctuations
in foreign currencies), changes in federal or state tax laws or the
administration of such laws, changes in gaming laws or regulations (including
legalization of gaming in certain jurisdictions) and the requirement to apply
for licenses and approvals under applicable jurisdictional laws and
regulations (including gaming laws and regulations).
General
The Company was organized as a Delaware corporation on January 29, 1986.
Through its wholly-owned subsidiary, MGM Grand Hotel, Inc., the Company owns
and operates the MGM Grand Las Vegas, a hotel and casino entertainment complex
offering a full range of destination resort amenities. The resort is located
on approximately 116 acres at the northeast corner of Las Vegas Boulevard
South (the "Strip") and Tropicana Avenue, the "New Four Corners," in Las
Vegas, Nevada, across the street from New York-New York Hotel and Casino.
Prior to March 1, 1999, the Company and Primadonna Resorts, Inc.
("Primadonna") each owned 50% of New York-New York Hotel and Casino, LLC.
("NYNY LLC"), which completed development of the $460 million architecturally
distinctive themed destination resort called New York-New York Hotel and
Casino ("NYNY") in December 1996. NYNY opened on January 3, 1997, and is
located on approximately 20 acres at the northwest corner of Tropicana Avenue
and the Strip, across from MGM Grand Las Vegas. On March 1, 1999, the Company
completed a merger (the "Merger") with Primadonna, and thereby, acquired
Primadonna's 50% ownership interest in NYNY LLC. The Merger also gave the
Company ownership of three hotel and casinos located in Primm, Nevada at the
California/Nevada state line, Whiskey Pete's, Buffalo Bill's and the Primm
Valley Resort, as well as two championship golf courses located one mile from
the state line. The Merger provided Primadonna shareholders 0.66 shares of the
Company's common stock for each share of Primadonna common stock held,
resulting in the issuance of a total of approximately 19 million shares of the
Company's common stock on March 1, 1999.
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
to construct, own and operate one of Detroit's three new casinos. Construction
of the new hotel/casino 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 its interim facility ("MGM Grand
Detroit Casino"), which commenced operations on July 29, 1999. The MGM Grand
Detroit Casino is located directly adjacent to an offramp of the Lodge freeway
in downtown Detroit, Michigan.
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Through its wholly-owned subsidiary, MGM Grand Australia Pty Ltd., the
Company owns and operates the MGM Grand Australia, a hotel and casino resort
in Darwin, Australia. MGM Grand Australia is located on 18 acres of beachfront
property on the north central coast of Australia.
Through its wholly-owned subsidiary, MGM Grand South Africa, Inc., the
Company manages one permanent and two temporary casinos in two provinces of
the Republic of South Africa. The Company managed a temporary facility in
Nelspruit from October 15, 1997 to November 17, 1999, at which time a
permanent casino began operations. The temporary casino in Witbank began
operations on March 10, 1998 and the temporary casino in Johannesburg began
operations on September 28, 1998. On July 30, 1996, the Company entered into
an agreement with Tsogo Sun Holdings (Pty) Limited ("Tsogo Sun"), a joint
venture company formed by the Southern Sun Group and Tsogo Investment Holding
Company (Pty) Limited, to act as the exclusive casino project developer and
manager for the joint venture company, which contemplates applying for up to
15 casino licenses in the Republic of South Africa. Under the agreement, the
Company will earn fees for the development and management of all casino
operations of Tsogo Sun. Tsogo Sun will provide or procure all of the
financing necessary for the hotel and casino projects.
Through its wholly-owned subsidiary, MGM Grand Atlantic City, Inc., the
Company intends to construct, own and operate a destination resort
hotel/casino, entertainment and retail facility in Atlantic City, New Jersey,
at a minimum approximate cost of $700 million, on approximately 35 acres of
land on the Atlantic City Boardwalk. Construction of the hotel/casino 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.
The Company's principal executive offices are located at 3799 Las Vegas
Boulevard South, Las Vegas, Nevada 89109. The Company's telephone number is
(702) 891-3333.
Recent Developments
On December 13, 1999, the Board of Directors approved a two-for-one split of
the Company's common stock and declared an initial quarterly cash dividend of
$0.10 per share, after giving effect to the stock split. The additional shares
were distributed on February 25, 2000 to stockholders of record on February
10, 2000. The cash dividend was paid on March 1, 2000 to stockholders of
record on February 10, 2000. All references to share and per share data herein
have been adjusted retroactively to give effect to the stock split.
Concurrently, the Board of Directors increased the number of authorized shares
of the Company's common stock from 75 million shares to 300 million shares.
On March 6, 2000, the Company announced the signing of a definitive merger
agreement with Mirage Resorts, Incorporated ("Mirage"), under which the
Company will acquire all of the outstanding shares of Mirage for $21 per share
in cash. The transaction will have a total equity value of approximately $4.4
billion. In addition, the Company will assume the outstanding debt of Mirage
of approximately $2.0 billion. The transaction is subject to the approval of
Mirage shareholders and to the satisfaction of customary closing conditions
contained in the merger agreement, including the receipt of all necessary
regulatory and governmental approvals. The transactions will be accounted for
as a purchase and is anticipated to close in 2000.
Hotels and Gaming
MGM Grand Las Vegas
MGM Grand Las Vegas, the Company's flagship property, is a multi-themed
destination resort, located on approximately 116 acres, which management
believes is a "must see" attraction for visitors to Las Vegas. The resort
opened on December 18, 1993, and has over 350 feet of frontage on the Strip
and 1,450 feet of frontage on Tropicana Avenue. The complex is easily
accessible from McCarran International Airport and from Interstate 15 via
Tropicana Avenue.
The casino is approximately 171,500 square feet in size, which management
believes is one of the largest casinos in the world. The casino has 3,589 slot
machines and 152 table games, a state of the art baccarat room, including
private premium play facilities, a race and sports book, and a keno lounge.
The casino is themed with various entertainment features, including well-known
movie characters and settings, which enhance the experience of the casino
patron.
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The hotel/casino, which management believes is one of the largest in the
world, has 5,034 rooms, including approximately 4,254 tastefully decorated
standard guest rooms. The hotel also has 751 luxury suites, ranging in size
from 650 to 6,000 square feet, representing a suite to room ratio which is one
of the highest among the Strip properties. In June 1999, the "Mansion at the
MGM Grand" was completed and opened, which added 29 exclusive suites and
villas ranging in size from 2,400 square feet to 12,000 square feet.
In an effort to continue a legacy of providing exceptional entertainment
through the leveraging of its highly recognizable brand name, in mid-1996, the
Company embarked on an extensive Master Plan transformation of MGM Grand Las
Vegas into "The City of Entertainment." The Master Plan program was designed
to enhance the quality of the entertainment experience, through a series of
substantive improvements and additions throughout the 116 acre destination
resort. Master Plan projects which have been completed to date include a
380,000 square foot state-of-the-art conference center, a 6.6 acre pool and
spa complex, an approximately 50 foot tall polished bronze lion sculpture on a
25 foot pedestal, which is the resort's signature, and a re-themed
entertainment casino that includes a Rainforest Cafe and a Studio 54
nightclub. Also completed in the Master Plan is "Studio Walk," which portrays
a Hollywood sound stage and reflects an appearance that is inspired by a
number of Hollywood landmarks, including the Brown Derby restaurant, the
Farmers Market food court, and Griffith Park Observatory retail facilities.
The final elements of the Master Plan were completed in 1999, which included
the "Mansion at the MGM Grand" in June 1999, the lion habitat in July 1999,
and significantly expanded and improved parking facilities which opened in
July 1999.
Other entertainment facilities include: an outdoor amusement zone including
thrill rides such as the 250 foot high SkyScreamer Skycoaster; an 11,700
square foot indoor arcade containing carnival games of skill and an extensive
video arcade including virtual reality simulators; a 660 seat showroom
providing celebrity entertainment; a 1,774 seat showroom specifically designed
for the EFX production show, the Company's original grand spectacle special
effects stage production; 13 restaurants and a food court; 37 retail shopping
outlets, including 20 owned and 17 leased facilities; and a special events
center, which seats a maximum of 16,766 patrons, providing mega entertainment
such as Barbra Streisand, Bette Midler, the Rolling Stones, Rod Stewart, Neil
Diamond, Elton John, Phil Collins, and Luther Vandross, as well as
championship boxing events and various other sporting events.
MGM Grand Las Vegas uses the unique characteristics of the property to
target the following segments of the Las Vegas market: (i) free and
independent travelers; (ii) tour and travel; (iii) special events/conventions;
(iv) high-end gaming; and (v) locals.
New York-New York
Construction of NYNY was completed in December 1996, and NYNY opened to the
public on January 3, 1997. The 47-story destination resort replicates many of
Manhattan's landmark buildings and icons, including the Statue of Liberty, the
Empire State Building, Central Park, the Brooklyn Bridge, a Coney Island-style
roller coaster, and is considered to be one of the most architecturally
distinctive and unique buildings in the world.
The casino is approximately 84,000 square feet in size and has approximately
2,250 slot machines and 70 table games. The casino features highly themed
interiors: Park Avenue with retail shops, The Financial District consisting of
the cashiers' cage, a Central Park setting in the central casino area, and
Little Italy with its traditional food court set inside a typical residential
neighborhood. NYNY features 2,024 guest rooms and suites as well as 7
specialty leased restaurants.
Primm Properties
Primadonna, which the Company acquired in the Merger on March 1, 1999, owns
and operates, through its wholly-owned subsidiaries, three hotel and casinos
on both sides of Interstate 15 at the California/Nevada state line in Primm,
Nevada and the Primm Valley Golf Club ("Golf Club") nearby in California.
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Buffalo Bill's Resort & Casino ("Buffalo Bill's"), Primm Valley Resort &
Casino ("Primm Valley"), Whiskey Pete's Hotel & Casino ("Whiskey Pete's") and
the Golf Club (collectively, the "Primm Properties") form a major destination
location and offer, to the more than 12 million vehicles traveling through
Primm on Interstate 15, the first opportunity to wager upon entering Nevada,
and the last opportunity before leaving. The Company estimates that more than
27% of all passing vehicles stopped at the Primm Properties in 1999.
The Primm Properties appeal to "various" market segments including the
family/entertainment-oriented Buffalo Bill's, the conference/leisure-oriented
Primm Valley, and the value-oriented Whiskey Pete's. These hotel and casinos
attract drive-by and overnight customers, and offer good values on dining and
lodging, with an emphasis on service, quality, cleanliness and comfort. The
Primm Properties offer an array of amenities and attractions, including
133,400 square feet of casino space, 2,642 hotel rooms, a 25,000 square foot
conference center, 10 restaurants, and a variety of amusement rides. The three
casinos include 4,494 slot machines, 101 table games, poker, keno, and race
and sports books. In addition, the Primm Properties offer swimming pools, a
movie theater, motion simulation theaters, an interactive water flume ride,
"The Desperado" roller coaster and the "Turbo Drop" thrill ride. The 6,100-
seat Star of the Desert Arena hosts top-name entertainers, and has allowed the
Primm Properties to use special events as part of extended stay packages.
In February 1997, Primadonna opened a championship 18-hole Primm Valley Golf
Club, designed by Tom Fazio, located one mile south of Primm in California. In
the second quarter of 1998, the second championship 18-hole course and a golf
academy opened to the public.
In July 1998, the Fashion Outlet of Las Vegas (the "Fashion Outlet") opened
to the public. The Fashion Outlet is a highly themed shopping experience
containing approximately 400,000 square feet of retail space with over 100
retail outlet stores. The Fashion Outlet is connected to Primm Valley and is
owned and operated by TrizecHahn Factory Shops, Inc.
Las Vegas Market
MGM Grand Las Vegas, NYNY and the Primm Properties operate in the Las Vegas
market. MGM Grand Las Vegas and NYNY are located on the Strip and the Primm
Properties are located approximately 40 miles south of Las Vegas on Interstate
15. Las Vegas is the largest city in Nevada, with a metropolitan area
population in excess of one million and is one of the most visited resort
destinations in the world.
Gaming has continued to be a strong and growing business in Las Vegas. Las
Vegas Strip gaming revenues have increased at a compound annual growth rate of
8.4% from $2.0 billion in 1989 to $4.5 billion in 1999.
The hotel/casino industry in Las Vegas is highly competitive. Four new mega-
resorts recently opened on the Las Vegas Strip. In addition, a major
hotel/casino is currently under construction, and is expected to open in 2000.
The current and future additions of resorts provide additional competitive
pressures. While some of the large themed resorts pose direct competition to
MGM Grand Las Vegas, NYNY and the Primm Properties, the Las Vegas Convention
and Visitors Authority ("LVCVA") statistics show that tourism growth is
increasing at a rate which appears sufficient to absorb the increased room
capacity, with visitor volume having increased at a compound annual growth
rate of 6.4% from 18.1 million in 1989 to 33.8 million in 1999. The Company's
future operating results could be adversely affected by excess room and gaming
capacity.
MGM Grand Las Vegas, NYNY and the Primm Properties compete with gaming and
resort facilities in Las Vegas as well as gaming and resort facilities
elsewhere in the world. To some extent, state lotteries and state-authorized
and locally approved card rooms and Native American gaming facilities, such as
those operating in California, compete with the gaming and resort facilities
in Las Vegas. Gambling, with various limitations and conditions, is currently
legal in numerous locations throughout the United States. The proliferation of
such gaming facilities on riverboats and elsewhere is increasing. Also, as a
result of certain legislative and court decisions, casino-type operations are
being established at various Native American reservations throughout the
country, including California as a result of the recent passage of Proposition
1A. The development of full service casinos in California would likely have a
negative effect on MGM Grand Las Vegas, NYNY and the Primm
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Properties' operations in Nevada. Additionally, slot machines are operating in
various jurisdictions in California. See "Competition."
The Company's business strategy at Primm is to capitalize on its unique and
advantageous location on the heavily traveled Interstate 15 corridor.
Approximately 12.3 million, 11.7 million, and 11.3 million vehicles traveled
through Primm on Interstate 15 in 1999, 1998, and 1997, respectively. The next
closest hotel/casino is located in Jean, Nevada, approximately eleven miles
north towards Las Vegas. Most of the land between Primm and Jean that is not
owned, leased or subject to the Company's exclusive gaming rights, is owned by
the Federal Government. The Primm Properties offer a convenient stop for
Interstate 15 travelers, and an attractive destination location for Southern
California residents, and to a lesser extent, visitors from Las Vegas and
elsewhere.
Insurance
MGM Grand Las Vegas, NYNY and the Primm Properties carry insurance of the
type customary in the hotel and casino industry and in amounts deemed adequate
by management to protect the properties. The policies provide business and
commercial coverages, including workers' compensation, third party liability,
property damage, boiler and machinery, and business interruption.
Nevada Government Regulation
The ownership and operation of casino gaming facilities in Clark County,
Nevada, are subject to: (i) the Nevada Gaming Control Act and the regulations
promulgated thereunder (collectively, the "Nevada Act"); and (ii) various
local regulations. The Company's gaming operations are subject to the
licensing and regulatory control of the Nevada Gaming Commission (the "Nevada
Commission"), the Nevada State Gaming Control Board (the "Nevada Board"), and
the Clark County Liquor and Gaming Licensing Board (the "CCLGLB"). The Nevada
Commission, the Nevada Board, and the CCLGLB are collectively referred to as
the "Nevada Gaming Authorities."
The laws, regulations and supervisory procedures of the Nevada Gaming
Authorities are based upon declarations of public policy that are concerned
with, among other things: (i) the prevention of unsavory or unsuitable persons
from having a direct or indirect involvement with gaming at any time or in any
capacity; (ii) the establishment and maintenance of responsible accounting
practices of licensees, including the establishment of minimum procedures for
internal fiscal affairs and the safeguarding of assets and revenues;
(iii) providing reliable record keeping and requiring the filing of periodic
reports with the Nevada Gaming Authorities; (iv) the prevention of cheating
and fraudulent practices; and (v) providing a source of state and local
revenues through taxation and licensing fees. Any change in such laws,
regulations and procedures could have an adverse effect on the Company's
gaming operations.
MGM Grand Hotel, Inc., NYNY LLC and Primadonna operate casinos and are
required to be licensed by the Nevada Gaming Authorities. The gaming licenses
require the periodic payment of fees and taxes and are not transferable. MGM
Grand Hotel, Inc. is also licensed as a manufacturer and distributor of gaming
devices, as the operator of the sportspool at NYNY, and the Company and an
indirect wholly-owned subsidiary of the Company are also licensed as the two
managers of NYNY. NYNY LLC and Primadonna are also licensed as manufacturers
and distributors of gaming devices. The Company is also required to be
registered by the Nevada Commission as a publicly traded corporation
("Registered Corporation") and as such, it is required periodically to submit
detailed financial and operating reports to the Nevada Commission and furnish
any other information that the Nevada Commission may require. No person may
become a stockholder or member of, or receive any percentage of profits from,
MGM Grand Hotel, Inc., NYNY LLC or Primadonna without first obtaining licenses
and approvals from the Nevada Gaming Authorities. The Company, MGM Grand
Hotel, Inc., NYNY LLC and Primadonna have obtained from the Nevada Gaming
Authorities the various registrations, approval permits and licenses required
in order to engage in gaming activities in Nevada.
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The Nevada Gaming Authorities may investigate any individual who has a
material relationship to, or material involvement with, the Company, MGM Grand
Hotel, Inc., NYNY LLC or Primadonna to determine whether such individual is
suitable or should be licensed as a business associate of a gaming licensee.
Officers, directors and certain key employees of MGM Grand Hotel, Inc., NYNY
LLC and Primadonna must file applications with the Nevada Gaming Authorities
and may be required to be licensed or found suitable by the Nevada Gaming
Authorities. Officers, directors and key employees of the Company who are
actively and directly involved in the gaming activities of MGM Grand Las
Vegas, NYNY and Primadonna may be required to be licensed or found suitable by
the Nevada Gaming Authorities. The Nevada Gaming Authorities may deny an
application for licensing for any cause they deem reasonable. A finding of
suitability is comparable to licensing, and both require submission of
detailed personal and financial information followed by a thorough
investigation. The applicant for licensing or a finding of suitability, or the
gaming licensee by whom the applicant is employed or for whom the applicant
serves, must pay all the costs of the investigation. Changes in licensed
positions must be reported to the Nevada Gaming Authorities, and in addition
to their authority to deny an application for a finding of suitability or
licensure, the Nevada Gaming Authorities have jurisdiction to disapprove a
change in a corporate position.
If the Nevada Gaming Authorities were to find an officer, director or key
employee unsuitable for licensing or unsuitable to continue having a
relationship with the Company, MGM Grand Hotel, Inc., NYNY LLC or Primadonna,
such company or companies would have to sever all relationships with such
person. In addition, the Nevada Commission may require the Company, MGM Grand
Hotel, Inc., NYNY LLC or Primadonna to terminate the employment of any person
who refuses to file appropriate applications. Determinations of suitability or
of questions pertaining to licensing are not subject to judicial review in
Nevada.
The Company, MGM Grand Hotel, Inc., NYNY LLC and Primadonna are required to
submit detailed financial and operating reports to the Nevada Commission.
Substantially all material loans, leases, sales or securities and similar
financing transactions by the Company, MGM Grand Hotel, Inc., NYNY LLC and
Primadonna must be reported to or approved by the Nevada Commission.
If it were determined that the Nevada Act was violated by MGM Grand Hotel,
Inc., NYNY LLC or Primadonna, the gaming licenses they hold could be limited,
conditioned, suspended or revoked, subject to compliance with certain
statutory and regulatory procedures. In addition, MGM Grand Hotel, Inc., NYNY
LLC Primadonna, the Company and the persons involved could be subject to
substantial fines for each separate violation of the Nevada Act at the
discretion of the Nevada Commission. Further, a supervisor could be appointed
by the Nevada Commission to operate the Company's gaming properties and, under
certain circumstances, earnings generated during the supervisor's appointment
(except for the reasonable rental value of the gaming properties) could be
forfeited to the State of Nevada. Limitation, conditioning or suspension of
any gaming license or the appointment of a supervisor could (and revocation of
any gaming license would) materially adversely affect the Company's gaming
operations.
Any beneficial holder of the Company's voting securities, regardless of the
number of shares owned, may be required to file an application, be
investigated, and have their suitability as a beneficial holder of the
Company's voting securities determined if the Nevada Commission has reason to
believe that such ownership would otherwise be inconsistent with the declared
policies of the State of Nevada. The applicant must pay all costs of
investigation incurred by the Nevada Gaming Authorities in conducting any such
investigation.
The Nevada Act requires any person who acquires more than 5% of the
Company's voting securities to report the acquisition to the Nevada
Commission. The Nevada Act requires that beneficial owners of more than 10% of
the Company's voting securities apply to the Nevada Commission for a finding
of suitability within thirty days after the Chairman of the Nevada Board mails
the written notice requiring such filing. Under certain circumstances, an
"institutional investor" as defined in the Nevada Act, which acquires more
than 10% but not more than 15% of the Company's voting securities, may apply
to the Nevada Commission for a waiver of such finding of suitability if such
institutional investor holds the voting securities for investment purposes
only. An institutional investor shall not be deemed to hold voting securities
for investment purposes unless the voting
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securities were acquired and are held in the ordinary course of business as an
institutional investor and not for the purpose of causing, directly or
indirectly, the election of a majority of the members of the board of
directors of the Company, any change in the Company's corporate charter,
bylaws, management, policies or operations of the Company or any of its gaming
affiliates, or any other action which the Nevada Commission finds to be
inconsistent with holding the Company's voting securities for investment
purposes only. Activities that are not deemed to be inconsistent with holding
voting securities for investment purposes only include: (i) voting on all
matters voted on by stockholders; (ii) making financial and other inquiries of
management of the type normally made by securities analysts for informational
purposes and not to cause a change in its management, policies or operations;
and (iii) such other activities as the Nevada Commission may determine to be
consistent with such investment intent. If the beneficial holder of voting
securities who must be found suitable is a corporation, partnership or trust,
it must submit detailed business and financial information including a list of
beneficial owners. The applicant is required to pay all costs of
investigation.
Any person who fails or refuses to apply for a finding of suitability or a
license within thirty days after being ordered to do so by the Nevada
Commission or the Chairman of the Nevada Board, may be found unsuitable. The
same restrictions apply to a record owner if the record owner, after request,
fails to identify the beneficial owner. Any stockholder found unsuitable and
who holds, directly or indirectly, any beneficial ownership of the common
stock of a Registered Corporation beyond such period of time as may be
prescribed by the Nevada Commission may be guilty of a criminal offense. The
Company is subject to disciplinary action if, after it receives notice that a
person is unsuitable to be a stockholder or to have any other relationship
with the Company, MGM Grand Hotel Inc., NYNY LLC or Primadonna, and
subsequently the Company, MGM Grand Hotel Inc., NYNY LLC or Primadonna (i)
pays that person any dividend or interest upon voting securities of the
Company; (ii) allows that person to exercise, directly or indirectly, any
voting right conferred through securities held by that person; (iii) pays
remuneration in any form to that person for services rendered or otherwise; or
(iv) fails to pursue all lawful efforts to require such unsuitable person to
relinquish his voting securities for cash at fair market value. Additionally,
the CCLGLB has taken the position that it has the authority to approve all
persons owning or controlling the stock of any corporation controlling a
gaming license.
The Nevada Commission may, in its discretion, require the holder of any debt
security of a Registered Corporation to file an application, be investigated
and be found suitable to own the debt security of a Registered Corporation. If
the Nevada Commission determines that a person is unsuitable to own such
security, then pursuant to the Nevada Act, the Registered Corporation can be
sanctioned, including through the loss of its approvals, if without the prior
approval of the Nevada Commission, it: (i) pays to the unsuitable person any
dividend, interest, or any distribution whatsoever; (ii) recognizes any voting
right by such unsuitable person in connection with such securities; (iii) pays
the unsuitable person remuneration in any form; or (iv) makes any payment to
the unsuitable person by way of principal, redemption, conversion, exchange,
liquidation, or similar transaction.
The Company is required to maintain a current stock ledger in Nevada that
may be examined by the Nevada Gaming Authorities at any time. If any
securities are held in trust by an agent or by a nominee, the record holder
may be required to disclose the identity of the beneficial owner to the Nevada
Gaming Authorities. A failure to make such disclosure may be grounds for
finding the record holder unsuitable. The Company is also required to disclose
the identity of the beneficial owner to the Nevada Gaming Authorities. A
failure to make such disclosure may be grounds for finding the record holder
unsuitable. The Company is also required to render maximum assistance in
determining the identity of the beneficial owner. The Nevada Commission has
the power to require the Company's stock certificates to bear a legend
indicating that such securities are subject to the Nevada Act. However, to
date, the Nevada Commission has not imposed such a requirement on the Company.
The Company may not make public offerings of any securities without the
prior approval of the Nevada Commission if the securities or the proceeds
therefrom are intended to be used to construct, acquire or finance gaming
facilities in Nevada, or to retire or extend obligations incurred for such
purposes. Such approval, if given, does not constitute a finding,
recommendation or approval by the Nevada Commission or the Nevada Board as to
the accuracy or adequacy of the prospectus or the investment merits of the
securities. Any representation to the contrary is unlawful.
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On August 19, 1999, the Nevada Commission granted the Company prior approval
to make public offerings for a period of twenty-three months, subject to
certain conditions (the "Shelf Approval"). However, the Shelf Approval may be
rescinded for good cause without prior notice upon the issuance of an
interlocutory stop order by the Chairman of the Nevada Board. The Shelf
Approval does not constitute a finding, recommendation or approval by the
Nevada Commission or the Nevada Board as to the accuracy or adequacy of the
prospectus or the investment merits of the securities offered. Any
representation to the contrary is unlawful.
Changes in control of the Company through merger, consolidation, stock or
asset acquisitions, management or consulting agreements, or any act or conduct
by any person whereby he or she obtains control, may not occur without the
prior approval of the Nevada Commission. Entities seeking to acquire control
of a Registered Corporation must satisfy the Nevada Board and the Nevada
Commission concerning a variety of stringent standards prior to assuming
control of such Registered Corporation. The Nevada Commission may also require
controlling stockholders, officers, directors and other persons having a
material relationship or involvement with the entity proposing to acquire
control, to be investigated and licensed as part of the approval process of
the transaction.
The Nevada legislature has declared that some corporate acquisitions opposed
by management, repurchases of voting securities and corporate defense tactics
affecting Nevada gaming licensees, and Registered Corporations that are
affiliated with those operations, may be injurious to stable and productive
corporate gaming. The Nevada Commission has established a regulatory scheme to
ameliorate the potentially adverse effects of these business practices upon
Nevada's gaming industry and to further Nevada's policy to: (i) assure the
financial stability of corporate gaming operators and their affiliates; (ii)
preserve the beneficial aspects of conducting business in the corporate form;
and (iii) promote a neutral environment for the orderly governance of
corporate affairs. Approvals are, in certain circumstances, required from the
Nevada Commission before the Company can make exceptional repurchases of
voting securities above the current market price thereof and before a
corporate acquisition opposed by management can be consummated.
The Nevada Act also requires prior approval of a plan of recapitalization
proposed by the Company's board of directors in response to a tender offer
made directly to the Registered Corporation's stockholders for the purposes of
acquiring control of the Registered Corporation.
License fees and taxes, computed in various ways depending on the type of
gaming or activity involved, are payable to the State of Nevada and to Clark
County, Nevada. Depending upon the particular fee or tax involved, these fees
and taxes are payable either monthly, quarterly or annually and are based upon
either: (i) a percentage of the gross revenues received; (ii) the number of
gaming devices operated; or (iii) the number of table games operated. A casino
entertainment tax is also paid by MGM Grand Las Vegas, NYNY and Primadonna
where certain entertainment is provided in a cabaret, nightclub, cocktail
lounge or casino showroom in connection with the serving or selling of food,
refreshments, or merchandise. Casino entertainment tax is also paid for
admission, food and refreshments at a bar located adjacent to a cabaret
nightclub, cocktail lounge or casino showroom if portions of the bar can
clearly see and hear the entertainment, or at a location adjacent to those
venues if such locations' primary purpose is to provide refreshment to patrons
viewing entertainment in the cabaret, nightclub, cocktail lounge or casino
showroom. Nevada licensees that hold a license as a manufacturer or a
distributor, such as MGM Grand Hotel Inc., NYNY LLC and Primadonna, also pay
certain fees and taxes to the State of Nevada.
Any person who is licensed, required to be licensed, registered, required to
be registered, or is under common control with such persons (collectively,
"Licensees"), and who proposes to become involved in a gaming venture outside
of Nevada, is required to deposit with the Nevada Board, and thereafter
maintain, a revolving fund in the amount of $10,000 to pay the expenses of
investigation of the Nevada Board of their participation in such foreign
gaming. The revolving fund is subject to increase or decrease at the
discretion of the Nevada Commission. Thereafter, Licensees are also required
to comply with certain reporting requirements imposed by the Nevada Act.
Licensees are also subject to disciplinary action by the Nevada Commission if
they knowingly violate any laws of the foreign jurisdiction pertaining to
foreign gaming operation, fail to conduct the
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foreign gaming operation in accordance with the standards of honesty and
integrity required of Nevada gaming operations, engage in activities that are
harmful to the State of Nevada or its ability to collect gaming taxes and
fees, or employ a person in a foreign operation who has been denied a license
or a finding of suitability in Nevada on the grounds of personal
unsuitability.
The sale of alcoholic beverages by MGM Grand Las Vegas, NYNY and Primadonna
are subject to licensing, control and regulation by the applicable local
authorities. All licenses are revocable and are not transferable. The agencies
involved have full power to limit, condition, suspend or revoke any such
license, and any such disciplinary action could (and revocation would) have a
material adverse effect upon the Company's operations.
Pursuant to a 1985 agreement between the State of Nevada and the United
States Department of the Treasury (the "Treasury"), the Nevada Commission and
the Nevada Board have authority, under Regulation 6A of the Nevada Act, to
enforce their own cash transaction reporting laws applicable to casinos which
substantially parallel the federal Bank Secrecy Act. Under the Money
Laundering Suppression Act of 1994 which was passed by Congress, the Secretary
of the Treasury retained the ability to permit states, including Nevada, to
continue to enforce their own cash transaction reporting laws applicable to
casinos. The Nevada Act requires gaming licensees to file reports related to
cash purchases of chips, cash wagers, cash deposits or cash payment of gaming
debts, if any such transactions aggregate more than $10,000 in a 24-hour
period. Casinos are required to monitor receipts and disbursements of currency
in excess of $10,000 and until November 1, 1997, were required to report them
to the Nevada Board, who in turn reported them to the Treasury. As of November
1, 1997, the casinos were required to submit such reports directly to the
Treasury. Pursuant to amendments to the Nevada Act that became effective on
October 1, 1997, casinos also are required under certain circumstances to file
suspicious activity reports directly with an office of the Treasury and
provide copies thereof to the Nevada Board. Although it is not possible to
quantify the full impact of these requirements on the Company's business, the
changes are believed to have had some adverse effect on results of operations
since inception.
Regulation and Taxes
As stated above, the Company is subject to extensive regulation by the
Nevada Gaming Authorities. The Company will also be subject to regulation,
which may or may not be similar to that in Nevada, by the appropriate
authorities in any other jurisdiction where the Company may conduct gaming
activities in the future. Changes in applicable laws or regulations could have
an adverse effect on the Company.
The gaming industry represents a significant source of tax revenues to the
State of Nevada and Clark County. From time to time, federal and state
legislators and officials have proposed changes in tax law, or in the
administration of such law, affecting the gaming industry. Recent proposals
have included a federal gaming tax and in January 2000, a Nevada state senator
filed an initiative petition seeking to increase the state gross gaming tax
rate from 6 1/4% to 11 1/4%. Recent proposals have also included limitations
on the federal income tax deductibility of the cost of furnishing certain
complimentary promotional items to customers, as well as various measures
which would require tax withholding on amounts won by customers. It is not
possible to determine with certainty the likelihood of possible changes in tax
law or in the administration of such law. Such changes, if adopted, could have
a material adverse effect on the Company's financial results.
Competition
The hotel industry is highly competitive. Hotels located on or near the
Strip ("Strip Hotels") compete primarily with other Strip Hotels and with a
few major hotels in downtown Las Vegas. Strip Hotels offering similar prices
compete with each other primarily on the basis of quality of rooms,
restaurants and facilities, entertainment offered, complimentary goods and
services given, credit limits and quality of personal attention offered to
guests and casino customers. The Company's hotel and casino operations also
compete with a large number of hotels and motels, and gaming facilities not
related to hotels or motels, located in and near Las Vegas. Some of the
Company's competitors may have greater resources.
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According to the LVCVA, as of December 31, 1999, there were approximately
120,000 hotel and motel rooms in the Las Vegas area. During 1999, three major
hotel/casinos opened on the Strip adding approximately 9,200 rooms. In
addition, the LVCVA reports projects under construction and/or proposed for
future development of approximately 8,100 more hotel and motel rooms,
including a major hotel/casino currently under construction on the Strip
between Tropicana Avenue and Flamingo Road. The Company cannot make any
prediction as to how many additional rooms will be constructed in Las Vegas.
The Company's future operating results could be adversely affected by excess
Las Vegas rooms and gaming capacity.
In addition to competing with hotel/casino facilities elsewhere in Nevada
(i.e., the Reno/Lake Tahoe areas and the Laughlin area) and in Atlantic City,
the Company competes with hotel/casino facilities elsewhere in the world and
with state lotteries. Certain states are currently considering legalizing
casino gaming in specific geographic areas, and several other states have
recently legalized casino gaming. This growth has been driven by the expansion
of traditional land-based casino destinations and the continued development of
new riverboat and Native American reservation casinos throughout the United
States. Currently, casinos are operating or are approved in 32 states.
Elsewhere in North America, nearly all of the Canadian provinces and
territories offer some form of casino gaming. Legalized casino gaming in other
states could adversely affect the Company's activities in Las Vegas,
particularly if such legalization were to occur in areas close to Nevada, such
as California. In addition, with respect to group bookings, the Company's
hotel and casino facilities in Las Vegas also compete with hotels and resorts,
which do not include casinos, throughout the United States. See "Las Vegas
Market."
Additionally, certain gaming operations are conducted or have been proposed
on federal Native American reservations, including those located in the
primary market to be served by MGM Grand Las Vegas, NYNY and the Primm
Properties. On September 8, 1999, a 20-year, tribal-state compact was signed
between the Governor of California and 57 tribes allowing up to 43,000 slot
machines in California. Among the 57 tribes, 37 tribes previously operated
what the state considers to be Nevada-style casinos. During 1999, Proposition
1A was introduced to amend the California State Constitution and legalize
Nevada-style gaming on Native American reservations. On March 7, 2000,
Proposition 1A was approved by California voters. With the passage of
Proposition 1A, the Company anticipates increased competition from larger and
more elaborate Native American casinos in California.
The Company's Primm Properties compete primarily with two casino-hotels
located 11 miles north along Interstate 15 in Jean, Nevada, and with numerous
other hotel and casinos in the Las Vegas area and Native American gaming
facilities in Southern California, principally on the basis of location, range
and pricing of amenities, gaming mix, and overall atmosphere. The recent
increase in room capacity on the Strip may increase competition for customers
at the Company's Primm Properties. Since many of the Company's current
customers stop at Primm as they are driving on Interstate 15 to and from major
casino-hotels located in Las Vegas, the Company believes that its success at
Primm is also favorably influenced by the popularity of the Las Vegas resorts.
To a lesser extent, the Company's Primm Properties also compete with gaming
establishments in or near Laughlin, Nevada, approximately 90 miles away in
Southern Nevada. Laughlin caters to moderate and middle income, value oriented
customers who travel primarily by car, bus, and recreational vehicle. The
addition of major gaming properties, the substantial expansion of existing
Laughlin resorts, or the addition of Native American gaming facilities in
California could have an adverse effect on the number of customers visiting
the Company's Primm Properties.
MGM Grand Australia
On September 7, 1995, the Company, through its wholly-owned subsidiary, MGM
Grand Australia Pty Ltd., completed the acquisition of the MGM Grand Australia
in Darwin, Northern Territory, Australia. MGM Grand Australia is located on 18
acres of beachfront property next to the Arafura Sea on the north central
coast. The resort includes a public and private casino, 96 rooms, restaurants
and other facilities. Casino operations include approximately 32 table games,
360 slot machines and a keno lounge. The Company has positioned MGM Grand
Australia as a multi-faceted gaming and entertainment facility for the local
market and, to a lesser extent, as an exclusive destination resort for
international table game customers.
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Two casinos operate in the Northern Territory, including MGM Grand's
property in Darwin on the northern coast, and a casino in Alice Springs in the
southern part of the Territory. Unlike the U.S., Australia has granted, for
the most part, regional casino monopolies in its provinces. Gaming machines
(i.e., slots or "poker machines") were installed in clubs and hotels in 1996,
and MGM Grand Australia will effectively receive 22.0% of the revenues from
these machines through 2005 in the form of a tax rebate. Northern Territory
Keno machines ("NT Keno") are also being installed in pubs, hotels and clubs
in the Northern Territory. NT Keno is a territory-wide keno game that the
Northern Territory Government has licensed to MGM Grand Australia. The pubs,
hotels and clubs act as agents on behalf of MGM Grand Australia and sell keno
tickets in return for a commission paid by MGM Grand Australia. NT Keno
commenced operations on October 30, 1996.
The success of MGM Grand Australia will depend in part upon a balance of (i)
its ability to effectively serve the local community as well as (ii) its
ability to make efficient use of its strategic location to the South East
Asian gaming market. The Darwin International Airport is an average of 5.5
hours away from the major Asian cities. However, frequency of scheduled air
service is a limiting factor.
There exist 13 casinos in Australia competing for the Far East Market.
Australian casinos operate under exclusive arrangements, which create a
regional monopoly for a fixed term. As such, Australian casinos do not compete
among themselves for the regional middle to low end players. However, Far East
premium players have become an increasingly important source of revenues;
consequently, this market has become very competitive. Competition for the Far
East premium player is increasing, as evidenced by the gaming activity in
Kuala Lumpur and Macao, the recent growth in the number of casinos operating
in Australia, and an increase in the quantity of casino cruise ships. In an
effort to attract premium players, MGM Grand Australia completed a $15 million
capital improvement program in June 1996, which included renovation of all 96
rooms (including 16 suites), enhanced casino facilities, and additional
dining, entertainment and retail amenities. Due to the competition for premium
play customers, and the limitations on scheduled air service, MGM Grand
Australia has targeted the local market for its customer base, which has
produced relatively stable results. MGM Grand Australia therefore revised its
marketing efforts with an emphasis on the local population and instituted cost
reduction and revenue enhancement programs in an effort to strengthen
operating results. The results of the cost reduction and revenue enhancement
programs have resulted in improved operating margins and increased revenues.
Australia Government Regulation
The Northern Territory of Australia, like Nevada, has comprehensive laws and
regulations governing the conduct of gaming. MGM Grand Australia's operations
are subject to the Gaming Control Act of 1993 and regulations promulgated
thereunder (the "Northern Territory Law") and to the licensing and general
control of the Minister for Racing and Gaming (the "Minister"). MGM Grand
Australia Pty. Ltd. has entered into a Casino Operator's Agreement with the
Minister pursuant to which MGM Grand Australia was granted a license (the
"License") to conduct casino gaming on an exclusive basis through June 30,
2005 in the northern half of the Northern Territory (which includes Darwin,
its largest city, where MGM Grand Australia is located). The License provides
for good faith negotiations to reach agreement on an extension of the License.
The License provides for a tax payable to the Northern Territory Government on
gross profits derived from gaming, including gaming devices. The License is
not exclusive with respect to gaming devices, and the Minister may permit such
devices to be placed in limited numbers in locations not operated by MGM Grand
Australia. However, under the License, a portion of the operators' win on such
gaming devices is to be offset against gaming tax otherwise payable by MGM
Grand Australia.
The License may be terminated if MGM Grand Australia breaches the Casino
Operator's Agreement or the Northern Territory Law or fails to operate in
accordance with the requirements of the License. The Northern Territory
authorities have the right under the Northern Territory Law, the Casino
Operator's Agreement and the License to monitor and approve virtually all
aspects of the conduct of gaming by MGM Grand Australia.
Additionally, under the terms of the License, the Minister has the right to
approve the directors and corporate secretary of the Company and its
subsidiaries which own or operate MGM Grand Australia, as well as changes in
the ownership or corporate structure of such subsidiaries. The Company is
required to file with the
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Northern Territory authorities copies of all documents required to be filed by
the Company or any of its subsidiaries with the Nevada Gaming Authorities. In
the event of any person becoming the beneficial owner of 10% or more of the
outstanding stock of the Company, the Minister must be so notified and may
investigate the suitability of such person. If the Minister determines such
person to be unsuitable and following such determination such person remains
the beneficial owner of 10% or more of the Company's stock, that would
constitute a default under the License.
MGM Grand Detroit
The Michigan Gaming Control and Revenue Act (the "Michigan Act") provides
that not more than three casinos may be licensed at any one time by the State
of Michigan ("Michigan") and that they be located only in the City of Detroit
("Detroit"). In November 1997, at the conclusion of a competitive selection
process, the Mayor of Detroit designated MGM Grand Detroit, LLC to develop one
of the three authorized hotel and casino complexes. MGM Grand Detroit, Inc., a
wholly-owned subsidiary of the Company, holds a controlling interest in MGM
Grand Detroit, LLC and plans to provide a majority of the equity capital. A
minority interest in MGM Grand Detroit LLC is held by Partners Detroit, LLC, a
Michigan limited liability company owned by seven individual residents of the
Detroit metropolitan area. As planned, the Detroit permanent facility is
expected to include a 100,000 square foot casino, an 800-room hotel with
ballroom, convention and meeting rooms, restaurants, bars, entertainment and
retail facilities. The total project cost could exceed $800 million and
development could take up to four years. Development of the permanent facility
will not proceed until after acquisition by MGM Grand Detroit, LLC of the
permanent development site from Detroit, which is in the process of attempting
to acquire the site from a number of independent land owners. The design,
budget and schedule for development of the permanent facility are at a
preliminary stage, and will be subject to the risks attendant to large-scale
projects and may be subject to additional costs and delays beyond preliminary
estimates. No assurance can be given that the Company will develop a
hotel/casino in Detroit, or if it does, as to its ultimate size, configuration
or costs.
In June 1998 all three casino development agreements with Detroit were
amended to permit the operation of temporary casinos. In November 1998, MGM
Grand Detroit, LLC commenced construction activities on its temporary casino,
which was subsequently licensed by the Michigan Gaming Control Board on July
28, 1999.
Construction of the Company's temporary casino facility in Detroit was
completed in July 1999 and opened to the public on July 29, 1999. The building
contains 269,000 square feet of interior space and has parking for
approximately 3,170 vehicles in two parking garages and additional on-site
covered parking. The interior is decorated in an Art Deco motif with a retail
outlet, two themed bars, a VIP lounge and four restaurants: the Java Coast;
Grand Buffet; Neyla--A Mediterranean Grill; and the Company's signature
upscale restaurant, The Brown Derby. The casino is approximately 75,000 square
feet and offers approximately 2,400 slot machines and 85 table games. The site
is conveniently located off of the Howard Street exit from the John C. Lodge
Expressway in downtown Detroit, Michigan.
On December 14, 1999, the second casino to be licensed in Detroit opened for
business. It is comparable in size to MGM Grand Detroit Casino and competes
directly against MGM Grand Detroit Casino as well as the casino currently
operating in Windsor, Ontario located across the bridge in Canada.
Detroit Market
An assessment prepared by independent consultants for the Company concludes
that the Detroit, Michigan and Windsor, Ontario casino gaming markets are
effectively one market, and that aggregate annual revenues of approximately
$1.1 billion will be generated by patrons living within 150 miles of downtown
Detroit. It is anticipated that the market will be divided among the three
casinos to be licensed under the Michigan Act and a fourth casino which is
currently operating in Windsor, Ontario. On December 14, 1999, the second
casino to be licensed in Detroit opened for business. It is comparable in size
to MGM Grand Detroit's casino. The Company anticipates that all four permanent
casinos will have roughly comparable gaming areas of approximately 100,000
square feet each.
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Michigan Government Regulation and Taxation
The Michigan Act subjects the ownership and operation of casino gaming
facilities to extensive state licensing and regulatory requirements. The
Michigan Act also authorizes local regulation of casino gaming facilities by
Detroit, provided that any such local ordinances regulating casino gaming are
consistent with the Michigan Act and rules promulgated to implement it.
The Michigan Act created the Michigan Gaming Control Board (the "MGCB") and
authorizes it to grant casino licenses to not more than three applicants who
have entered into development agreements with Detroit. The MGCB is granted
extensive authority to conduct background investigations and determine the
suitability of casino license applicants, affiliated companies, officers,
directors, or managerial employees of applicants and affiliated companies and
persons or entities holding a one percent or greater direct or indirect
interest in an applicant or affiliated company. Institutional investors
holding less than certain specified amounts of debt or equity securities are
exempted from meeting the suitability requirements of the Michigan Act,
provided such securities are issued by a publicly traded corporation, such as
the Company, and the securities were purchased for investment purposes only
and not for the purpose of influencing or affecting the affairs of the issuer.
The Michigan Act imposes the burden of proof on the applicant for a casino
license to establish its suitability to receive and hold the license. The
applicant must establish its suitability as to integrity, moral character and
reputation, business probity, financial ability and experience,
responsibility, and other criteria deemed appropriate by the MGCB. A casino
license is valid for a period of one year and the MGCB may refuse to renew it
upon a determination that the licensee no longer meets the requirements for
licensure.
The MGCB may, among other things, revoke, suspend or restrict a casino
license. Substantial fines or forfeiture of assets for violations of gaming
laws or rules may also be levied against a casino licensee. In the event that
a casino license is revoked or suspended for more than 120 days, the Michigan
Act provides for the appointment of a conservator who, among other things, may
be required to sell or otherwise transfer the assets of the casino licensee or
former licensee to another person or entity who meets the requirements of the
Michigan Act for licensure.
The MGCB has adopted administrative rules (the "Rules"), which became
effective on June 23, 1998, to implement the terms of the Michigan Act. Among
other things, the Rules impose more detailed substantive and procedural
requirements with respect to casino licensing and operations. Included are
requirements regarding such things as licensing investigations and hearings,
record keeping and retention, contracting, reports to the MGCB, internal
control and accounting procedures, security and surveillance, extensions of
credit to gaming patrons, conduct of gaming, and transfers of ownership
interests in licensed casinos. The Rules also establish numerous MGCB
procedures regarding licensing, disciplinary and other hearings, and similar
matters. The Rules have the force of law and are binding on the MGCB as well
as on applicants for or holders of casino licenses.
The Detroit City Council (the "City Council") enacted an ordinance entitled
"Casino Gaming Authorization and Casino Development Agreement Certification
and Compliance." The ordinance authorizes the conduct of casino gaming only by
operators who are licensed by the MGCB and are parties to a development
agreement which has been approved and certified by the City Council and is
currently in effect or by persons who are acting on behalf of such party. The
development agreement between MGM Grand Detroit, Detroit and the City Economic
Development Corporation has been so approved and certified and is currently in
effect. The ordinance requires each casino operator to submit to the Mayor of
Detroit and to the City Council periodic reports regarding the operator's
compliance with its development agreement or, in the event of non-compliance,
reasons for non-compliance and an explanation of efforts to comply. The
ordinance requires the Mayor of Detroit to monitor each casino operator's
compliance with its development agreement, to take appropriate enforcement
action in the event of default and to notify the City Council of defaults and
enforcement action taken and, if a development agreement is terminated, it
requires the City Council to transmit notice of such action to the MGCB within
five business days along with Detroit's request that the MGCB revoke the
relevant operator's certificate of suitability or casino license.
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The Michigan Act effectively provides that each of the three casinos in
Detroit shall pay a wagering tax equal to 18% of its adjusted gross receipts,
to be paid 8.1% to Michigan and 9.9% to Detroit, a municipal services fee
equal to the greater of $4 million or 1.25% of adjusted gross receipts of each
casino to be paid to Detroit to defray its cost of hosting casinos and an
annual assessment (as adjusted based upon a consumer price index) in the
initial amount of approximately $8.3 million to be paid by each casino to
Michigan to defray its regulatory enforcement and other casino-related costs.
These are in addition to the taxes, fees, and assessments customarily paid by
business entities situated in Detroit.
MGM Grand Atlantic City
The Company, through its wholly-owned subsidiary, MGM Grand Atlantic City,
Inc., intends to create a destination resort hotel/casino in Atlantic City,
New Jersey ("MGM Grand Atlantic City") that will be larger and more elaborate
than any other facility currently in existence in that market. The Company
expects to use similar entertainment themes from MGM Grand Las Vegas at MGM
Grand Atlantic City, and plans to offer a wide array of gaming and non-gaming
amenities to its prospective customers. The Company's plans for MGM Grand
Atlantic City also include the development of retail and food and beverage
facilities. The Company believes that the development of MGM Grand Atlantic
City could cost in excess of $700 million, and that the development could take
up to three years following the successful acquisition of land necessary to
complete the project. On January 5, 2000, the City of Atlantic City approved a
form of redevelopment agreement which, when effective, will govern MGM Grand
Atlantic City's development of a portion of the proposed project area. Further
agreements must be reached with the Atlantic City Housing Authority and
certain third parties regarding the balance of the proposed project area.
The design, budget and schedule for development of the project are at a
preliminary stage, and will be subject to the risks attendant to large-scale
projects and may be subject to additional costs and delays beyond preliminary
estimates. No assurance can be given that the Company will develop a
hotel/casino in Atlantic City, or if it does, as to its ultimate size,
configuration or cost. Any development or operation in Atlantic City will be
subject to the receipt of regulatory approvals. On July 24, 1996, the Company
was found suitable for licensing by the New Jersey Casino Control Commission.
Atlantic City Market
Atlantic City is, after Las Vegas, the second largest gaming destination in
the United States. The Company believes that it has the potential to
successfully expand its domestic base through developing and operating a
destination resort in Atlantic City. Management believes that Atlantic City
represents an attractive market for additional development due to its
proximity to areas with favorable demographics, including a large population
base with a high level of disposable income. The Atlantic City market
currently consists of 12 hotel/casinos which as of December 31, 1999 had
11,385 rooms, 1,172,408 square feet of casino space, 35,039 slot machines and
1,320 table games. According to the Atlantic City Department of Planning and
Development (the "ACDPD"), approximately 25% of the United States population
live within 300 miles of Atlantic City, and more than 17.8 million people live
within 100 miles. Most of the Atlantic City visitors are "day-trippers," but
there are a substantial number of overnight visitors, who are believed to have
a higher gaming budget. The Company believes that the overnight visitor
component will increase substantially as destination resorts and "must see"
attractions such as the proposed MGM Grand Atlantic City make Atlantic City a
more exciting and appealing attraction for the middle and high-end gaming
customer.
The Atlantic City gaming market has demonstrated continued growth despite
the recent proliferation of new gaming venues across the country. The 12
hotel/casinos in Atlantic City generated approximately $4.17 billion in gaming
revenues in 1999, a 3.5% increase over 1998 gaming revenues of approximately
$4.03 billion. From 1990 to 1999, gross total annual gaming revenues in
Atlantic City increased approximately 39%, while hotel rooms increased only
approximately 28% during this period.
The regulatory environment in Atlantic City has improved significantly over
the last several years. New games, such as poker and keno, have been approved,
24-hour gaming has been permitted, registration of hotel employees has been
eliminated, license terms have been extended, and various operational
requirements have
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been relaxed. These regulatory changes have resulted in reduced costs for the
operators and created a more varied and attractive environment for the gaming
customer. Management believes that the reforms will serve to permit future
reductions in operating expenses of casinos in Atlantic City and to increase
the funds available for additional infrastructure development through the New
Jersey Casino Redevelopment Authority ("CRDA"). Due principally to an improved
regulatory environment, general improvements of economic conditions and high
occupancy rates, the majority of the Atlantic City hotel/casinos have recently
expanded, are in the process of expanding or have announced plans to expand
their facilities. In 1997 and 1998, other gaming companies entered the
Atlantic City market by acquiring hotel/casino facilities. In addition, some
companies have entered into an agreement with Atlantic City for the
development of the "H-Tract," a 180-acre site in the Atlantic City Marina.
Management believes that these increases in hotel/casino capacity, together
with infrastructure improvements, and community revitalization programs, will
be instrumental in stimulating future revenue growth in the Atlantic City
market and increasing its appeal as a destination resort.
In addition to the planned casino expansions, major development projects and
infrastructure improvements have been proposed or have begun. These include,
among other projects, new housing and retail development and a tunnel
connecting the Atlantic City Expressway to the Marina. Construction of a new
$254 million Convention Center was completed and the facility opened in May
1997. The Convention Center features approximately 500,000 square feet of
exhibit and pre-function space, meeting rooms, food-service facilities and a
1,600 car underground parking garage. The new convention center is the largest
exhibition space between New York and Washington D.C. In conjunction with the
development of the Convention Center, the CRDA completed development of a $190
million "tourist corridor" at the foot of the Atlantic City Expressway linking
the Convention Center with the Boardwalk. Other community improvements
completed in 1998 and 1999 include a semi-professional baseball stadium, a
public skating rink and a $3.6 million Visitors Center on the Atlantic City
Expressway. The Boardwalk Convention Hall is currently undergoing a $73
million renovation to expand the uses of the facility. Such renovations are
projected to be completed in the Fall of 2001. Atlantic City is also reviewing
plans to enhance the Boardwalk area.
New Jersey Government Regulation
The ownership and operation of hotel/casino facilities and gaming activities
in Atlantic City, New Jersey are subject to extensive state regulation under
the New Jersey Casino Control Act (the "New Jersey Act") and the regulations
("Regulations") of the New Jersey Casino Control Commission (the "New Jersey
Commission") and other applicable laws. In order to operate a hotel/casino
facility in New Jersey, MGM Grand Atlantic City, Inc. must obtain a license
from the New Jersey Commission and obtain numerous other licenses, permits and
approvals from other states as well as local governmental authorities. The New
Jersey Act also established the New Jersey Division of Gaming Enforcement (the
"New Jersey Division") to investigate all license applications, enforce the
provisions of the New Jersey Act and Regulations and prosecute all proceedings
for violations of the New Jersey Act and Regulations before the New Jersey
Commission.
The New Jersey Commission has broad discretion regarding the issuance,
renewal, revocation and suspension of casino licenses. The New Jersey Act and
Regulations concern primarily the good character, honesty, integrity and
financial stability of casino licensees, their intermediary and holding
companies, their employees, their security holders and others financially
interested in casino operations; financial and accounting practices used in
connection with casino operations; rules of games, levels of supervision of
games and methods of selling and redeeming chips; manner of granting credit,
duration of credit and enforceability of gaming debts; and distribution of
alcoholic beverages.
The Company's wholly-owned subsidiary, MGM Grand Atlantic City, Inc., has
applied to be licensed by the New Jersey Commission to operate a casino, and
the Company has applied to be approved as a qualified holding company. On July
24, 1996, the Company and MGM Grand Atlantic City, Inc., and their then
officers, directors, and 5% or greater shareholders were found suitable for
licensing by the New Jersey Commission. These findings of suitability are
subject to review and revision by the New Jersey Commission based upon a
change in any material fact that is relevant to the findings.
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The New Jersey Act further provides that each person who directly or
indirectly holds any beneficial interest or ownership of the securities issued
by a casino licensee or any of its intermediary or holding companies, those
persons who, in the opinion of the New Jersey Commission, have the ability to
control the casino licensee or its intermediary or holding companies or elect
a majority of the board of directors of said companies, other than a banking
or other licensed lending institution which makes a loan or holds a mortgage
or other lien acquired in the ordinary course of business, lenders and
underwriters of said companies are required to be qualified by the New Jersey
Commission. However, with respect to a publicly traded holding company such as
the Company, a waiver of qualification may be granted by the New Jersey
Commission, with the concurrence of the Director of the New Jersey Division,
if the New Jersey Commission determines that said persons or entities are not
significantly involved in the activities of MGM Grand Atlantic City, Inc. and
in the case of security holders, do not have the ability to control the
Company or elect one or more of its directors. There exists a rebuttable
presumption that any person holding 5% or more of the equity securities of a
casino licensee's intermediary or holding company or a person having the
ability to elect one or more of the directors of such a company has the
ability to control the company and thus must obtain qualification from the New
Jersey Commission.
Notwithstanding this presumption of control, the New Jersey Act provides for
a waiver of qualification for passive "institutional investors," as defined by
the New Jersey Act, if the institutional investor purchased publicly traded
securities for investment purposes only and where such securities constitute
(i) less than 10% of the equity securities of a casino licensee's holding or
intermediary company or (ii) debt securities of a casino licensee's holding or
intermediary company representing a percentage of the outstanding debt of such
company not exceeding 20% or a percentage of any issue of the outstanding debt
of such company not exceeding 50%. The waiver of qualification is subject to
certain conditions including, upon request of the New Jersey Commission,
filing a certified statement that the institutional investor has no intention
of influencing or affecting the affairs of the issuer, except that an
institutional investor holding voting securities shall be permitted to vote on
matters put to a vote of the holders of outstanding voting securities.
Additionally, a waiver of qualification may also be granted to institutional
investors holding a higher percentage of securities of a casino licensee's
holding or intermediary company upon a showing of good cause.
The New Jersey Act requires the certificate of incorporation of a publicly
traded holding company to provide that any securities of such corporation are
held subject to the condition that if a holder is found to be disqualified by
the New Jersey Commission pursuant to the New Jersey Act, such holder shall
dispose of his interest in such company. Accordingly, the Company amended its
Certificate of Incorporation to provide that a holder of the Company's
securities must dispose of such securities if the holder is found disqualified
under the New Jersey Act. In addition, the Company amended its Certificate of
Incorporation to provide that the Company may redeem the stock of any holder
found to be disqualified.
If the New Jersey Commission should find a security holder to be unqualified
to be a holder of securities of a casino licensee or holding company, not only
must the disqualified holder dispose of such securities but in addition,
commencing on the date the New Jersey Commission serves notice upon such a
company of the determination of disqualification, it shall be unlawful for the
disqualified holder (i) to receive any dividends or interest upon any such
securities, (ii) to exercise, directly or through any trustee or nominee, any
right conferred by such securities, or (iii) to receive any remuneration in
any form from the licensee for services rendered or otherwise. If the New
Jersey Commission should find a security holder to be unqualified to be a
holder of securities of a casino licensee or holding company, the New Jersey
Commission shall take any necessary action to protect the public interest
including the suspension or revocation of the casino license except that if
the disqualified person is the holder of securities of a publicly traded
holding company, the New Jersey Commission shall not take action against the
casino license if (i) the holding company has the corporate charter provisions
concerning divestiture of securities by disqualified owners required by the
New Jersey Act, (ii) the holding company has made good faith efforts including
the pursuit of legal remedies to comply with any order of the New Jersey
Commission, and (iii) the disqualified holder does not have the ability to
control the company or elect one or more members of the company's board of
directors.
If, after licensure, the New Jersey Commission determines that the MGM Grand
Atlantic City, Inc. has violated the New Jersey Act or Regulations, or if any
security holder of the Company or MGM Grand Atlantic City, Inc. who is
required to be qualified under the New Jersey Act is found to be disqualified
but does not
16
<PAGE>
dispose of the securities, MGM Grand Atlantic City, Inc. could be subject to
fines or its license could be suspended or revoked. If MGM Grand Atlantic
City, Inc.'s license is revoked after issuance, the New Jersey Commission
could appoint a conservator to operate and to dispose of any hotel/casino
facilities of MGM Grand Atlantic City, Inc. Net proceeds of a sale by a
conservator and net profits of operations by a conservator (at least up to an
amount equal to a fair return on MGM Grand Atlantic City, Inc.'s investment
which is reasonable for casinos or hotels) would be paid to the Company.
The New Jersey Act imposes an annual tax of eight percent on gross casino
revenues (as defined in the New Jersey Act). In addition, casino licensees are
required to invest one and one-quarter percent of gross casino revenues for
the purchase of bonds to be issued by the Casino Reinvestment Development
Authority or make other approved investments equal to that amount. In the
event the investment requirement is not met, the casino licensee is subject to
a tax in the amount of two and one-half percent on gross casino revenues. The
New Jersey Commission has established fees for the issuance or renewal of
casino licenses and casino hotel alcoholic beverage licenses and an annual
license fee on each slot machine.
In addition to compliance with the New Jersey Act and Regulations relating
to gaming, any facility built in Atlantic City by MGM Grand Atlantic City,
Inc. or any other subsidiary of the Company must comply with the New Jersey
and Atlantic City laws and regulations relating to, among other things, the
Coastal Area Facilities Review Act, construction of buildings, environmental
considerations, and the operation of hotels.
Employees
As of December 31, 1999, the Company and certain of its subsidiaries
employed approximately 6,733 full-time equivalent employees at the MGM Grand
Las Vegas and at the Company's corporate offices. Effective December 1, 1996,
MGM Grand Las Vegas and the International Union of Operating Engineers Local
501 finalized a collective bargaining agreement, running through December 1,
2001, covering approximately 137 facilities and maintenance employees. On
November 13, 1997, MGM Grand Las Vegas finalized a collective bargaining
agreement with the Local Joint Executive Board of Las Vegas, on behalf of the
Hotel Employees Restaurant Employee International Union, Local 226 and the
Bartenders Union, Local 165 as the exclusive bargaining representative of
approximately 2,851 employees, running through December 12, 2000.
As of December 31, 1999, MGM Grand Australia employed approximately 350
full-time equivalent employees. Hourly employees are covered by collective
bargaining agreements.
As of December 31, 1999, NYNY employed approximately 1,876 full-time
equivalent employees. As of December 31, 1999, 788 of NYNY's employees were
covered by collective bargaining agreements.
As of December 31, 1999, the Primm Properties employed approximately 2,953
full-time equivalent employees. On October 21, 1999, the International Union
of Operating Engineers Local 501 was elected to represent approximately 17
employees, at Primm Properties, and on February 11, 2000 were elected to
represent approximately 21 employees at Buffalo Bill's.
As of December 31, 1999, MGM Grand Detroit employed approximately 2,559
full-time equivalent employees. MGM Grand Detroit is currently engaged in
union negotiations that will result in most of the hourly employees being
covered by collective bargaining agreements.
Item 2. Properties
The Company's principal executive offices are located at 3799 Las Vegas
Boulevard South, Las Vegas, Nevada 89109, where it rents approximately 8,800
square feet from MGM Grand Las Vegas.
MGM Grand Las Vegas' principal executive offices are also located at 3799
Las Vegas Boulevard South, Las Vegas, Nevada, 89109. In November 1999, MGM
Grand Las Vegas terminated a lease for approximately 132,000 square feet in
Las Vegas, Nevada, which cost $525,000 annually. MGM Grand Las Vegas is
leasing approximately 80 acres of land in Boulder City for the purpose of
building and operating a championship golf course which is currently under
construction and set for opening in the fall of 2000. The annual rent will be
$200,000 per year after opening of the course, and increasing on a graduated
basis.
17
<PAGE>
MGM Grand Las Vegas is located on approximately 116 acres on the Strip in
Las Vegas, Nevada. The property is subject to a first priority deed of trust
securing bank financing of up to $1.25 billion (the "New Facility"), on which
there was $612 million outstanding as of December 31, 1999, which bears
interest based on LIBOR or the bank reference rate, and which is due December
2002. The property is also subject to a first priority deed of trust with
respect to $500 million in senior collateralized notes (secured on a pari
passu basis with the bank financing) issued on January 26, 1998 and February
6, 1998, in tranches of $300 million and $200 million, respectively.
In January 1995, the Company contributed an 18-acre site, located at the
intersection of the Strip and Tropicana Avenue to the Company's New York-New
York joint venture (see Item 1. Business). This property, together with an
adjacent two-acre parcel, were previously subject to a first priority deed of
trust securing bank financing of up of $210 million. Following the Merger with
Primadonna, the Company used $157.9 million from the New Facility to retire
the NYNY LLC bank facility on March 31, 1999.
MGM Grand Australia's principal executive offices are located at Gilruth
Avenue, Mindil Beach, Darwin, Northern Territory 0801 Australia. In September
1995, the Company acquired MGM Grand Australia which is located on an 18-acre
beach front site on the north central coast of Australia (see Item 1.
Business). This property is subject to a first priority deed of trust securing
bank financing of up to approximately $38 million (AUD $57.8 million), which
bears interest based on the Australian bank bill rate and is due December
2004.
MGM Grand Detroit's principal office is located at 1300 John C. Lodge,
Detroit, Michigan. MGM Grand Detroit is located on approximately 4.3 acres.
The 1.7 acre parcel on which the building, additional on-site covered parking
and a 640 space parking garage are located is leased with an annual rent of
approximately $1.9 million. The 1.4 acre parcel on which the 2,200 space
parking deck is located and the 1.2 acre parcel on which an entrance and
surface parking are located are subject to a Senior Secured Credit Facility of
up to approximately $230 million, of which $169 million was outstanding as of
December 31, 1999.
The Primm Properties are located on approximately 143 acres of land on both
sides of Interstate 15 at the California/Nevada state line. Substantially all
of the land is leased from Primm South Real Estate Company, a corporation
owned by the Primm family. The lease has an expiration date of 2043 with an
option to renew for an additional 25 years. Rent for all properties covered by
the lease is approximately $478,000 per month. Rent increases each year by the
cost of living, but not more than eight percent in any one year. Every eight
years, the rent is to be reset by two appraisers, or, if they are unable to
agree, by another appraiser selected by the first two appraisers. The lease
provides for a fee of $100,000 per year, adjusted every 10 years by the cost
of living but not more than eight percent annually, for lessor's agreement not
to engage in or permit any gaming activity on any of the unleased acreage
owned by the lessor. In addition, the lessor has made available to Primadonna
acreage for a wastewater treatment plant operated by Primadonna and the
associated rapid infiltration basins. The wastewater treatment plant has
sufficient capacity to support the Primm Properties' requirements. The plant
was constructed, and is being expanded, in a manner to allow for expansion on
the site if additional capacity is needed in the future.
Primadonna owns approximately 16 acres immediately north of Buffalo Bill's
that are currently the site of 144 company-owned mobile homes rented to
employees. A subsidiary of the Company owns approximately 573 acres of land in
California, approximately one mile south of Primm, which is the location for
the Primm Valley Golf Club. Approximately 125 of these acres remain available
for future development.
Primadonna has rights to water in various wells located on federal land in
the vicinity of the Primm Properties, and has received permits to pipe the
water to the Primm Properties. The Company believes that there is adequate
water, and that Primadonna has the necessary permits to pipe sufficient
quantities of water, to meet present and ongoing needs of the Primm
Properties. Such permits and rights are subject to the jurisdiction and on-
going regulatory authority of the U.S. Bureau of Land Management, the States
of Nevada and California, and local governmental units. The Company believes
that adequate water for the Primm Properties is available, however, there can
be no assurances that the future needs will be within the current permitted
allowance. There can be no assurances that any future requests for additional
water will be approved, or that no further requirements will be imposed by
governmental agencies on the Primadonna's use and delivery of water to the
Primm Properties.
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<PAGE>
Primadonna and its properties were previously subject to a first priority
deed of trust securing bank financing of up to $350 million. Following the
Merger with Primadonna, the Company used $216.6 million from the New Facility
to retire the Primadonna bank facility on March 31, 1999.
Item 3. Legal Proceedings
A subsidiary of the Company is a defendant in an adversary proceeding
against MGM Dist. Inc., (formerly MGM Desert Inn, Inc.) in a bankruptcy case
pending in the United States Bankruptcy Court for the Central District of
California. The adversary complaint, which was filed on December 12, 1997,
alleges that the debtor, Ken Mizuno, transferred approximately $1.1 million to
MGM Desert Inn, Inc. in 1988 and 1989, in payment of casino debts of various
individuals. The complaint alleges these transfers were fraudulent conveyances
and seeks damages against the Company in an amount not less than approximately
$1.1 million. The Company answered the complaint on January 30, 1998, denying
the allegations thereof and asserting the complaint failed to state a claim
upon which relief could be granted. Also on January 30, 1998, the Company
filed a motion to transfer venue to the United States Bankruptcy Court in the
District of Nevada. On February 12, 1998, the plaintiff indicated his intent
to file an amended adversary complaint asserting that Mr. Mizuno's payment of
his own casino debt at the Desert Inn in the approximate amount of $20 million
also constituted a fraudulent conveyance. On July 20, 1998, the Bankruptcy
Court entered an order granting the Company's motion for dismissal for failure
to state a claim based on statute of limitations grounds. The plaintiff's
motion for reconsideration in Bankruptcy Court was denied on November 11,
1998. The plaintiff has since filed a Notice of Appeal to the District Court
from the Bankruptcy Court's order granting the Company's motion for dismissal
and the Bankruptcy Court's denial of the motion for reconsideration. The
Company intends to vigorously defend this action.
On April 26, 1994, a purported class action lawsuit was filed in the United
States District Court, Middle District of Florida, against 41 manufacturers,
distributors and casino operators of video poker and electronic slot machines,
including the Company ("Poulos"). On May 10, 1994, a complaint alleging
substantially identical claims was filed by another plaintiff in the United
States District Court, Middle District of Florida, against 48 manufacturers,
distributors and casino operators of video poker and electronic slot machines,
including the Company and most of the other major hotel-casino companies
("Ahern"). On September 26, 1995, a complaint alleging substantially identical
claims was filed by another plaintiff in the United States District Court for
Nevada, against 45 operators, manufacturers, and distributors of video poker
and electronic slot machines, including the Company ("Schreier"). The
complaints allege that the defendants have engaged in a course of fraudulent
and misleading conduct intended to induce persons to play such games based on
a false belief concerning how the gaming machines operate, as well as the
extent to which there is an opportunity to win. The three lawsuits have been
consolidated into a single action, and discovery with respect to
jurisdictional issues is currently in progress ("Poulos/Ahern/Schreier"). On
December 9, 1994, the Florida Court ordered the case be transferred to the
United States District Court for the District of Nevada. On April 17, 1996,
the federal district court in Las Vegas, Nevada, dismissed the purported class
action suit, and gave the claimants until May 31, 1996 to file amended
complaints. On May 31, 1996 the plaintiffs filed an amended complaint, and
also filed a motion to substitute Brenda McElmore for Mr. Ahern as one of the
class representatives. The motion was not opposed by the Company. On July 12,
1996, the plaintiffs filed a motion seeking to lift the December 30, 1994 stay
of discovery and seeking leave to add additional defendants. The defendants
(including the Company) have opposed those motions, and no hearing date has
been set on these motions. By order dated August 17, 1996, the Case was
transferred to Judge Ezra of the United States District Court of Hawaii, and
assigned the new Case No. CV-S-94-1126-DAE (RJJ)-BASE FILE. The plaintiffs,
Poulos/Ahern/Schreier had until February 14, 1997 to file one consolidated
complaint, which was done. The defendants (including the Company) appointed a
steering committee to file consolidated pleadings in response to the
consolidated complaint. On February 14, 1997, the parties filed a case
management order. The defendants filed a motion to dismiss on March 21, 1997.
On December 19, 1997, the Court granted a motion to dismiss one of the
complaints, the balance of the motions were denied. A motion to dismiss
certain parts of the consolidated complaint was granted, and all other
remaining motions were denied. The plaintiffs filed a second consolidated
amended complaint of January 9, 1998, with essentially the same allegations as
in the earlier Consolidated Case. The defendants (including the Company) filed
their answer on February 11, 1998. The parties have submitted an updated case
management order which
19
<PAGE>
has been approved, in part, by the court. On March 18, 1998, the plaintiffs
filed a motion for class certification. On March 19, 1998, the Magistrate
Judge granted the defendants' motion seeking to bifurcate discovery into
"class" and "merits" phases, and to stay merits discovery pending a decision
on plaintiffs motion for class certification. Class discovery was completed on
July 17, 1998; however, plaintiffs have filed a motion to compel further
discovery from the defendants. The Magistrate Judge has recommended denial of
that motion, and the plaintiffs have sought review of that recommendation by
the Judge. The defendants will oppose the review sought by the plaintiffs. If
that motion is granted, defendants could be required to provide additional
documents and information to plaintiffs. On August 7, 1998, the defendants
filed their opposition to the class certification. The plaintiffs reply
memorandum was filed on August 25, 1998, and the matter has been submitted for
decision. The stay of merits discovery remains in effect until the court
decides the motion for class certification.
On July 15, 1997, Yolanda Manuel, the non-custodial parent of Sherrice
Iverson, filed suit in the State of Nevada, in Case No. A375879, identifying
herself as the child's "personal representative". During the early morning
hours of May 25, 1997, Sherrice Iverson, a seven year-old female, was
assaulted and killed in the women's arcade restroom at Primm Valley Resort. An
eighteen year-old male, Jeremy Strohmeyer, has been convicted of her murder.
The complaint alleges negligence on the part of Primadonna and seeks
compensatory and punitive damages. On October 15, 1997, Primadonna moved to
dismiss the complaint and asked, in the alternative, for partial summary
judgment. While the motion was pending, Manuel filed for letters testamentary
regarding Sherrice Iverson on November 12, 1997 in Los Angeles, receiving
"Special Powers" to settle the lawsuit. On December 3, 1997, Ms. Manuel and
Primadonna entered into a stipulation that would allow for the withdrawal of
Primadonna's motion to dismiss in exchange for dismissal of the second claim
for relief, pertaining to "Negligence Per Se", and for the substitution of the
correct name of Primadonna. An answer to the Manuel complaint was filed on
behalf of Primadonna on February 3, 1998, together with a Crossclaim against
Jeremy Strohmeyer and a Third-Party Complaint against David Cash, a young man
who allegedly witnessed all or part of the murder and sexual assault of
Sherrice Iverson by Strohmeyer. On November 25, 1997, other heirs, Leroy
Iverson (father) and Harold Jordan (brother), filed a lawsuit in Department I
of the District Court, Clark County, Nevada. This second complaint was served
on March 31, 1998, but contained numerous errors which were brought to the
attention of Iverson's and Jordan's counsel. Thereafter, an Amended Complaint
was filed on behalf of Iverson and Jordan on August 5, 1998. Primadonna
responded by filing demands for Iverson and Jordan to post additional non-
resident security bonds in the amount of $500.00 per defendant and per
plaintiff. The plaintiff subsequently filed their non-resident cost bonds in
the amount of $3,000.00. Primadonna filed an Answer, Counterclaims against
Iverson and Jordan, and Crossclaims against Strohmeyer and Cash. The
Crossclaims are currently in the process of being served upon Strohmeyer and
Cash. With respect to Primadonna's Crossclaim and Third-Party Complaint
against Strohmeyer and Cash in the Manuel case, Primadonna has taken a default
against Strohmeyer for his failure to respond to the Crossclaim. Cash
attempted to file an Answer, in pro per, to Primadonna's Third-Party
Complaint. However, Cash's "Answer" was filed after Primadonna had defaulted
him and, therefore, the court ruled that he must file an appropriate Motion to
lift the default before he is permitted to Answer the Third-Party Complaint.
To date, Cash has not filed a Motion and, therefore, he has not properly
answered in the Manuel case. There have been significant discussions for
Manuel and Iverson regarding mediation and possible settlement; however, no
agreements have been reached between the parties. Counsel for all parties have
exchanged lists of documents and possible witnesses that they believe will be
used or called at trial. On December 17, 1998, the Discovery commissioner
ordered both Primadonna and Manuel to produce additional documents that were
the subject of a dispute between these parties. Counsel for Primadonna, Manuel
and Iverson have agreed to stipulate to consolidate the two lawsuits into one
action for the purpose of discovery and trial. At present, the parties are
engaging in discovery. Although, an April 3, 2000 trial date has been set for
this matter, it appears that the Judge will be continuing the matter due to
conflicts. Further, plaintiffs have not provided sufficient discovery
responses, and Primadonna's counsel intends to request a continuance of the
trial date, based upon plaintiffs' lack of cooperation.
On January 4, 1999, Primadonna was served with a lawsuit in the Eighth
Judicial District Court of Clark County, Nevada entitled: Michael Shapiro v.
Primadonna Resorts, Inc., MGM Grand, Inc., Gary E. Primm, Robert E. Armstrong,
Michael B. Graves, Sigmund Rogich, Gary R. Sitzmann and George C. Swarts (Case
No. A395831). The complaint purports to be a class action filed on behalf of
holders of Primadonna common
20
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stock and alleges that the merger consideration is inadequate and did not
result from an auction process. The complaint seeks unspecified damages and
injunctive relief. On January 22, 1999, the case was removed to the United
States District Court, Clark County, Nevada. On April 13, 1999, the matter was
voluntarily dismissed. On February 22, 1999, Primadonna was served with a
second lawsuit by Mr. Shapiro in the United States District Court, District of
Nevada entitled: Michael Shapiro v. Primadonna Resorts, Inc., MGM Grand, Inc.,
Robert E. Armstrong, Madison B. Graves II, Gary E. Primm, Sigmund Rogich, H.
Martin Rosa, Gary R. Sitzmann, Gregory B. Primm, Roger B. Primm, Janet Primm
Rosa, and George C. Swarts (Case No. CV-S-99- 00199-JBR(RJJ)). The claim
purports to be a class action filed on behalf of holders of Primadonna common
stock and alleges sufficient information on which to base a vote for merger
was not provided, and that the information provided was false and misleading.
The complaint seeks unspecified damages and injunctive relief. On March 12,
1999, defendants filed joint motions to dismiss the complaint. On January 5,
2000, the Court entered an order granting defendants' motions to dismiss the
amended complaint with prejudice. On January 7, 2000, the Court entered
judgment in favor of the defendants.
On January 27, 1999, Primadonna was served with a lawsuit in the Eighth
Judicial District Court of Clark County, Nevada entitled: Sharei Yeshua, Inc.
v. Primadonna Resorts, Inc., MGM Grand, Inc., Gary E. Primm, Robert E.
Armstrong, Michael B. Graves, Sigmund Rogich, Gary R. Sitzmann and George C.
Swarts (Case No. CV-S-0249 HDM (LRL). The complaint purports to be a class
action filed on behalf of holders of Primadonna common stock and alleges that
the merger consideration is inadequate and did not result from an auction
process. The complaint seeks unspecified damages and injunctive relief. On or
about March 15, 1999, defendants filed their respective motions to dismiss the
complaint. On August 19, 1999, the Court granted defendants' motions to
dismiss the complaint. On or about September 8, 1999, plaintiff filed an
amended complaint. On November 1, 1999, defendants filed joint motions to
dismiss the amended complaint, which motions have been fully briefed and are
submitted to the Court, which has not ruled as yet.
Item 4. Submission of Matters to a Vote of Security Holders
None
Executive Officers of the Registrant
John T. Redmond (age 41) has served as Co-Chief Executive Officer of the
Company since December 1999. He served as President and Chief Operating
Officer of Primadonna from March 1999 to December 1999, Senior Vice President
of MGM Grand Development, Inc. from August 1996 to September 1998, Director of
MGM Grand Detroit, LLC. since July 1997, Vice-Chairman from April 1998 to
February 2000 and Chairman since February 2000. Prior thereto, he was Senior
Vice President and Chief Financial Officer of Caesars Palace and Desert Inn,
having served in various senior operational and development positions with
Caesars World, Inc.
Daniel M. Wade (age 47) has served as Co-Chief Executive Officer of the
Company since December 1999 and as a member of the Executive Committee of the
Company since May 1999. He served as Chief Operating Officer of the Company
from April 1999 to December 1999, and Executive Vice President of the Company
from October 1998 to April 1999. Prior thereto, he served as President and
Chief Operating Officer of MGM Grand Hotel, Inc., having served in various
other senior capacities with MGM Grand Hotel, Inc. since January 1990.
James J. Murren (age 38) has served as President of the Company since
December 1999 and as Chief Financial Officer of the Company since January
1998. He served as Executive Vice President of the Company from January 1998
to December 1999. Prior thereto, he served as Managing Director and Co-
Director of research for Deutsche Morgan Grenfell ("DMG"), having served DMG
in various other capacities since 1984.
Scott Langsner (age 46) has served as Senior Vice President of the Company
since December 1999 and as Secretary/Treasurer since July 1987.
Kyle Edwards (age 54) has served as Vice President of the Company since
December 1999. Prior thereto, he served as Deputy Chief of the Patrol Division
and Investigative Services Division for the Las Vegas Metropolitan Police
Department ("LVMPD"), having served in various other senior capacities with
the LVMPD since 1973.
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<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company's Common Stock is listed on the New York Stock Exchange.
For price information with respect to such Common Stock, see page 55
of the Company's 1999 Annual Report to Stockholders, which information
is incorporated herein by this reference.
As of March 9, 2000, there were approximately 4,422 record holders of
the Company's Common Stock.
At December 31, 1999, the Company had not paid any dividends on the
Common Stock. On December 13, 1999, the Board of Directors approved a
two-for-one split of the Company's common stock and declared an
initial quarterly cash dividend of $0.10 per share, after giving
effect to the stock split. The additional shares were distributed on
February 25, 2000 to stockholders of record as of February 10, 2000.
The cash dividend was paid on March 1, 2000 to stockholders of record
on February 10, 2000. See the Company's 1999 Annual Report to
Stockholders which is incorporated herein by reference.
Item 6. Selected Financial Data
The information set forth on page 1 of the Company's 1999 Annual
Report to Stockholders is incorporated herein by this reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The information set forth on pages 25 to 32 of the Company's 1999
Annual Report to Stockholders is incorporated herein by this
reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Certain amounts borrowed under the Company's credit facilities are at
variable interest rates and are thus subject to market risk resulting
from interest rate fluctuations. However, the Company does not invest
in derivative financial instruments, interest rate swaps or other
similar investments to alter interest rate exposure.
Item 8. Financial Statements and Supplementary Data
The consolidated balance sheets as of December 31, 1999 and 1998 and
the consolidated statements of operations, stockholders' equity and
cash flows for each of the three years in the period ended December
31, 1999 together with the Report of Independent Public Accountants
which includes an explanatory paragraph that describes the accounting
change discussed in Note 2 to the financial statements contained on
pages 33 to 53 of the Company's 1999 Annual Report to Stockholders are
incorporated herein by reference.
Item 9. Disagreements on Accounting and Financial Disclosure
None.
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PART III
Item 10. Directors and Executive Officers of the Registrant
The following table sets forth the name, age and position of each of our
executive officers and directors as of March 9, 2000. Each director will hold
office until the next annual meeting of stockholders or until his or her
successor has been elected and qualified. Executive officers are elected by
the Board of Directors and serve at the discretion of the Board of Directors.
<TABLE>
<CAPTION>
Name Age Positions
---- --- ---------
<S> <C> <C>
J. Terrence Lanni 57 Chairman of the Board
John T. Redmond 41 Co-Chief Executive Officer and Director
Daniel M. Wade 47 Co-Chief Executive Officer and Director
James J. Murren 38 President and Chief Financial Officer and Director
James D. Aljian 67 Director
Fred Benninger 83 Director
Terry N. 59 Director
Christensen
Glenn A. Cramer 78 Director
Willie D. Davis 65 Director
Kyle Edwards 54 Vice President
Alexander M. 75 Director
Haig, Jr.
Kirk Kerkorian 82 Director
Scott Langsner 46 Senior Vice President and Secretary/Treasurer
Walter M. Sharp 83 Director
Alex Yemenidjian 44 Director
Jerome B. York 61 Director
</TABLE>
The recent business experience of our executive officers is set forth in
Part I of this Form 10-K and is incorporated herein by this reference. The
recent business experience of our directors who are not executive officers is
set forth below.
J. Terrence Lanni has served as Chairman of the Company since July 1995 and
as Chairman of the Executive Committee since June 1995. He served as Chief
Executive Officer of the Company from June 1995 to December 1999 and as
President of the Company from June 1995 to July 1995. Prior thereto, he was
President and Chief Operating Officer of Caesars World, Inc. from April 1981
to February 1995 and a Director from January 1982 to February 1991.
James D. Aljian has been a Director of the Company since 1988. He has been
an executive of Tracinda since October 1987. Mr. Aljian served as a Director
of Chrysler Corporation from February 1996 to November 1998 and has served as
a member of the Shareholder's Committee of DaimlerChrysler Corporation since
November 1998. He also is a Director of Metro-Goldwyn-Mayer Inc. ("MGM Inc."),
of which Tracinda has an approximate 89.0% ownership interest.
Fred Benninger has been a Director of the Company since 1986. He served as
Vice Chairman of the Board of the Company from April 1995 to March 1998, as
Chairman of the Board from August 1987 to April 1995, as President from August
1987 to March 1990 and as Chief Executive Officer from August 1987 to
January 1991.
Terry N. Christensen has been a Director of the Company since 1987. He has
been a partner in Christensen, Miller, Fink, Jacobs, Glaser, Weil & Shapiro,
LLP, a law firm in Los Angeles, California, since May 1988. He is also a
Director of GIANT GROUP, LTD and Checkers Drive-In Restaurants, Inc.
Glenn A. Cramer has been a Director of the Company since 1992. He served as
a Director of Transamerica Corporation from 1968 to April 1994 and as Chairman
of the Executive Committee of Transamerica Airlines from 1983 to April 1994.
23
<PAGE>
Willie D. Davis has been a Director of the Company since 1989. Mr. Davis is
President and Director of All-Pro Broadcasting, Inc., an AM and FM radio
broadcasting company. Mr. Davis has served on the Board of Directors of MGM
Inc. since 1998 and is Director of Sara Lee Corporation, K-Mart Corporation,
Johnson Controls, Inc., Alliance Bank, WICOR, Dow Chemical Company, Checkers
Drive-In Restaurants, Inc., Strong Fund and Bassett Furniture Industries,
Incorporated.
Alexander M. Haig, Jr. has been a Director of and a consultant to the
Company since 1990. He has served as a Director of and a consultant to MGM
Inc. since November 1998. Mr. Haig is Chairman of Worldwide Associates Inc.,
an international business advisory firm. In addition, he serves on the Boards
of Directors of America Online, Inc., Interneuron Pharmaceuticals, Inc.,
Preferred Employers Holdings, Inc. and U. S. Technologies, Inc.
Kirk Kerkorian has been a Director of the Company since 1987. Mr. Kerkorian
has served as Chief Executive Officer, President and sole director and
shareholder of Tracinda for more than the past five years. In addition, Mr.
Kerkorian serves on the Board of Directors of MGM Inc.
Walter M. Sharp has been a Director of the Company since 1986. He is
President of Water M. Sharp Company, financial consultants, and was a
consultant to Tracinda through April 1997.
Alex Yemenidjian has served as a Director of the Company since 1989. He has
served as Chairman of the Board and Chief Executive Officer of MGM Inc. since
April 1999 and a Director of MGM Inc. since November 1997. He served as
President of the Company from July 1995 to December 1999, Chief Operating
Officer of the Company from June 1995 to April 1999, Executive Vice President
of the Company from June 1992 to July 1995 and Chief Financial Officer of the
Company from May 1994 to January 1998. He served as Chairman of the Executive
Committee of the Company from January 1991 to June 1992 and as President and
Chief Operating Officer of the Company from March 1990 to January 1991. He
also served as an executive of Tracinda from January 1990 to January 1997 and
from February 1999 to April 1999.
Jerome B. York has been a Director of the Company since 1995. Mr. York is
Chairman, President and Chief Executive Officer of MicroWarehouse, Inc., a
reseller of computer hardware, software and peripheral products. Mr. York
previously served as the Vice Chairman of Tracinda from September 1995 to
October 1999. Prior to joining Tracinda, Mr. York served as Senior Vice
President and Chief Financial Officer of IBM Corporation from May 1993 to
September 1995 and as a director of IBM Corporation from January 1995 to
September 1995. Prior thereto, Mr. York served as Executive Vice President--
Finance and Chief Financial Officer of Chrysler Corporation from May 1990 to
May 1993 and as a director of Chrysler Corporation from April 1992 to May
1993. In addition, Mr. York serves on the Board of Directors of MGM Inc.,
Apple Computer, Inc. and Waste Management, Inc.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Company's executive officers
and directors to file reports of ownership of the Common Stock with the
Securities and Exchange Commission. Executive officers and directors are
required to furnish the Company with copies of all Section 16(a) forms that
they file. Based upon a review of these filings and representations from the
Company's directors and executive officers that no other reports were
required, the Company notes that all reports were filed on a timely basis.
24
<PAGE>
Item 11. Executive Compensation
Executive Compensation
The following table sets forth information concerning the annual and long-
term compensation for services in all capacities to the Company for the years
ended December 31, 1999, 1998, and 1997, of those persons who were, at
December 31, 1999, (i) the Chief Executive Officer, and (ii) the other most
highly compensated Executive Officers of the Company who have received in
excess of $100,000 (collectively, the "Named Executives").
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
------------
Awards
------------
Annual Compensation Shares
Name and Principal --------------------------- Other Underlying All Other
Position Year Salary Bonus Annual Option(A) Compensation(B)
- ------------------ ---- ---------- -------- ------ ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Daniel M. Wade 1999 $ 533,333(I) $621,415(C) $ -- $ 943,000(I) $ --
Co-Chief Executive 1998 500,000 300,000(G) -- -- (J) --
Officer 1997 450,000 253,125(G) -- 50,000 --
John Redmond 1999 401,025(I) 880,000(H) -- 1,015,838(I) 13,000
Co-Chief Executive 1998 347,500 300,000(H) -- 120,000(J) --
Officer 1997 270,000 135,000(H) -- 30,000 --
James J. Murren 1999 400,000(I) 377,132(C) -- 250,000(I) --
President and Chief 1998 359,375(F) 230,000(D) -- 950,000(J) 62,771
Financial Officer 1997 -- -- -- -- --
Scott Langsner 1999 200,000 123,139(C) -- -- --
Senior Vice President 1998 200,000 100,000(D) -- -- (J) --
& Secretary/Treasurer 1997 200,000 118,037(E) -- 14,000 591
J. Terrence Lanni 1999 996,154(K) 940,248(C) -- -- --
Chairman (K) 1998 1,000,000 500,000(D) -- -- --
1997 1,000,000 983,642(E) -- -- 591
Alex Yemenidjian 1999 382,564(K) 705,186(C) -- -- --
Director (K) 1998 750,000 472,500(D) -- -- --
1997 750,000 826,482(E) -- -- --
</TABLE>
- --------
(A) During the years indicated, the only long-term compensation was pursuant
to the Company Nonqualified Stock Option Plan. No grants have been made
under the Company Incentive Stock Option Plan. The quantity of shares
listed reflects the effect of the Company's February 10, 2000 two-for-one
stock split.
(B) The amount of $13,000 in benefit of Mr. Redmond represented an auto
allowance with regard to his responsibilities at Primadonna Resorts. The
amount of $62,771 in benefit of Mr. Murren in 1998 represented moving
benefits provided and reimbursement of moving costs incurred related to
his relocation to Las Vegas, Nevada. The amounts of $591 in this column
for 1997 represent value received pursuant to the May 1997 employee stock
grant program.
(C) In February 2000, certain of the Named Executives received bonuses
pursuant to the Company's Annual Performance Based Incentive Plan for
executive officers (see "Compensation Committee Report on Executive
Compensation") as follows: Mr. Wade--$471,415; Mr. Murren--$377,132; Mr.
Langsner--$113,139; Mr. Lanni--$940,248; and Mr. Yemenidjian--$705,186.
Additionally in July 1999, Messrs. Wade and Langsner received $150,000 and
$10,000, respectively, for services rendered in the opening of MGM Grand
Detroit Casino.
25
<PAGE>
(D) The Named Executives did not qualify for 1998 bonuses pursuant to the
Company's Annual Performance Based Incentive Plan for executive officers.
However, based upon the attainment of certain other Company goals, the
Named Executives received bonuses in February 1999 as follows: Mr.
Murren--$200,000; Mr. Langsner--$75,000; Mr. Lanni--$500,000; and Mr.
Yemenidjian--$375,000. Additionally, in March 1998, Mr. Murren received
$30,000 pursuant to commencement of an employment contract (see "Certain
Transactions"); in February 1999, Mr. Langsner received $25,000 pursuant
to commencement of an employment contract (see "Certain Transactions");
and in February 1999, Mr. Yemenidjian received $97,500 pursuant to a long-
term incentive agreement as detailed herein (see "Certain Transactions").
(E) In February 1998, certain of the Named Executives received bonuses
pursuant to the Company's Annual Performance Based Incentive Plan for
executive officers as follows: Mr. Langsner--$118,037; Mr. Lanni--
$983,642; and Mr. Yemenidjian--$737,732. Additionally, Mr. Yemenidjian
received $40,000 in April 1997 pursuant to commencement of an employment
contract, and Mr. Yemenidjian received $48,750 in February 1998 pursuant
to a long-term incentive agreement.
(F) Pursuant to the terms of his employment agreement, Mr. Murren's annual
salary was $375,000; the amount shown covers a period of less than one
year.
(G) Mr. Wade served as President and Chief Operating Officer of MGM Grand
Hotel, Inc., the Company's wholly owned subsidiary, through October 1998,
and received bonuses based on the financial performance of MGM Grand
Hotel, Inc., as well as his individual performance. As a Named Executive
commencing in October 1998, he did not qualify for a bonus pursuant to the
Company's Annual Performance Based Incentive Plan, however, he did receive
a bonus of $50,000 based upon a partial year of employment with the
Company and the attainment of certain other Company goals.
(H) Mr. Redmond served as President and Chief Operating Officer of Primadonna
Resorts, the Company's wholly owned subsidiary from March 1999 through
December 1999, and received a bonus in February 2000 based on the 1999
financial performance of Primadonna Resorts, as well as his individual
performance. As a Named Executive commencing in December 1999, he did not
qualify for a bonus pursuant to the Company's Annual Performance Based
Incentive Plan (see "Compensation Committee Report on Executive
Compensation"), however, he did receive a bonus of $300,000 in July 1999
and $100,000 in February 2000 based upon the successful July 1999 opening
of the MGM Grand Detroit Casino, and the attainment of certain other
Company goals. Mr. Redmond served as Senior Vice President of MGM Grand
Development from August 1996 to September 1998, and received a 1998 bonus
of $300,000 in February 1999, and a 1997 bonus of $135,000 in February
1998, based on successful construction projects during 1998 and 1997.
(I) Messrs. Wade, Redmond and Murren were elected to the offices as set forth
on December 30, 1999, and accordingly, their respective annual salaries
were increased to $600,000 (see "Compensation Committee Report on
Executive Compensation"). Additionally, on December 13, 1999, stock
options were granted in various amounts which provided each individual an
aggregate of 1,200,000 outstanding stock options (adjusted to reflect the
Company's February 10, 2000 two-for-one stock split) (see "Option Grants
in Last Fiscal Year"). Included in Mr. Wade's aggregate option grant of
943,000 shares was a grant of 100,000 shares in May 1999. Included in
Mr. Redmond's aggregate option grant of 1,015,838 shares was a grant of
100,000 shares in March 1999.
(J) Mr. Murren's options were granted in January 1998 and repriced in June
1998. Mr. Wade's and Mr. Langsner's options for 100,000 shares and 29,000
shares respectively, which were originally granted in 1996 and 1997, were
repriced in June 1998. Mr. Redmond's options were granted in April 1998
and repriced in June 1998, additionally, Mr. Redmond's options granted in
July 1997 and August 1996 for 30,000 shares and 50,000 shares,
respectively, were repriced in June 1998.
(K) Mr. Lanni resigned as Chief Executive Officer of the Company effective
December 30, 1999, and accordingly, the salary shown covers a period of
less than one year. Mr. Yemenidjian resigned as Chief Operating Officer of
the Company in April 1999, and as President of the Company effective
December 30, 1999, and accordingly, the salary shown covers a period of
less than one year.
26
<PAGE>
Option Grants in Last Fiscal Year
The table below sets forth certain information regarding options granted
during 1999 to the Named Executives.
<TABLE>
<CAPTION>
Percent of Exercise
Total Options Price
Options Granted to Per
Granted Employees in Share Expiration
Name (A)(C) Fiscal Year (C) Date 5% 10%
- ---- ------- ------------- -------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Daniel M. Wade.......... 843,000 19.8% $23.875 12/13/09 $12,657,526 $32,076,657
100,000 2.4% $24.000 5/3/09 $ 1,509,347 $ 3,824,982
John T. Redmond......... 915,838 21.5% $23.875 12/13/09 $13,751,179 $34,848,187
100,000 2.4% $18.875 3/1/09 $ 1,187,039 $ 3,008,189
James J. Murren......... 250,000 5.9% $23.875 12/13/09 $ 3,753,715 $ 9,512,650
</TABLE>
- --------
(A) The options have a ten-year term, with 20% of the options becoming
exercisable on each of the first through the fifth anniversary dates of
the grant.
(B) These amounts represent certain assumed rates of appreciation only. Actual
gains, if any, on stock option exercises and Common Stock holdings are
dependent on the future performance of the Common stock and overall stock
market conditions.
(C) The quantity of shares and the price listed reflects the effect of the
Company's February 10, 2000 two-for-one stock split.
Aggregated Option Exercises in Fiscal 1999 and Fiscal Year end Option Values
The following table sets forth option exercises and year end value tables
for the Named Executives.
<TABLE>
<CAPTION>
Number of Shares
Underlying Unexercised Value of Unexercised
Options at In-the-Money Options at
Shares December 31, 1999(B) December 31, 1999(A)
Acquired on Value ------------------------- --------------------------
Name Exercise(#) Realized Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ----------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Daniel M. Wade.......... 143,000 $ 1,637,875 69,000 1,131,000 $ 874,531 $3,530,094
John T. Redmond......... 15,838 185,107 24,162 1,175,838 286,169 3,696,542
James J. Murren......... -- -- 190,000 1,010,000 2,250,313 9,321,563
Scott Langsner.......... 70,000 1,117,394 23,800 35,200 296,506 426,650
J. Terrence Lanni....... 961,892 11,225,855 1,038,108 -- 12,619,500 --
Alex Yemenidjian........ 435,540 7,132,730 664,460 -- 8,077,342 --
</TABLE>
- --------
(A) Based upon the market value of the underlying securities at December 31,
1999 of $25.1563 after giving effect to the Company's two-for-one stock
split, minus the exercise price of "in-the-money" options.
(B) The quantity of shares listed reflects the Company's February 10, 2000
two-for-one stock split.
Benefit Plans
The Company's Annual Performance Based Incentive Plan for Executive Officers
(the "Incentive Plan"), which was approved by the Company's stockholders in
May 1997, is an annual bonus plan designed to provide certain senior executive
officers with incentive compensation based upon the achievement of performance
goals which are set by the Compensation Committee during the first quarter of
each year. The Incentive Plan provides for performance-based bonuses for
executives who are "covered employees" under Section 162(m) of the Internal
Revenue Code, enacted in 1993. Section 162(m) generally disallows a tax
deduction to public companies for compensation over $1 million paid to any
such company's chief executive officer and four other most highly compensated
executives. Qualifying performance-based compensation will not be subject to
the deduction limitation if certain requirements are met. The Compensation
Committee's current policy is to structure the performance-based portion of
the compensation of its executive officers (currently consisting of stock
option grants and the bonuses granted pursuant to the Incentive Plan) in a
manner that complies with Section 162(m) of the Internal Revenue Code
whenever, in the judgment of the Compensation Committee, to do so would be
consistent with the objectives of the compensation plan under which the
compensation would be payable.
27
<PAGE>
MGM Grand Hotel, Inc., a wholly-owned subsidiary of the Company, separately
adopted a Section 401(k) employee savings plan (the "MGM Hotel Savings Plan").
The MGM Hotel Savings Plan allows participants to defer, on a pretax basis, a
portion of their salary and accumulate tax deferred earnings as a retirement
fund. All deferred amounts vest immediately and are invested in either an
equity, balanced income, money market, short-term bond, or foreign equity fund
as directed by the participant. MGM Grand Hotel, Inc. will make matching
contributions of 50% up to an annual limit of 2% of a participant's salary
(based upon a maximum annual salary of $160,000) and annual bonus
contributions up to a maximum of $500 based on years of participant
employment. The full amount vested in a participant's account will be
distributed following termination of employment, normal retirement or in the
event of disability or death. A participant may also make a request for
withdrawal of the vested account balance under the MGM Hotel Savings Plan
based on financial hardship. A participant is entitled to borrow up to 50% of
the vested portion of his account, but no more than $50,000. The Company's
employees are also eligible to participate under the MGM Hotel Savings Plan.
New York-New York Hotel & Casino, LLC., a wholly-owned subsidiary of the
Company, effective with the March 1, 1999 acquisition of Primadonna Resorts,
Inc., separately adopted a Section 401(k) employee savings plan (the "New
York-New York Savings Plan"). The New York-New York Savings Plan allows
participants to defer, on a pretax basis, a portion of their salary and
accumulate tax deferred earnings as a retirement fund. All deferred amounts
vest immediately and are invested in either an equity, balanced income, money
market or short-term bond fund, as directed by the participant. New York-New
York Hotel & Casino, LLC. will make matching contributions of 50% up to an
annual limit of 6% of a participant's salary (based upon a maximum annual
salary of $160,000). The full amount vested in a participant's account will be
distributed following termination of employment, normal retirement or in the
event of disability or death. A participant may also make a request for
withdrawal of the vested account balance under the New York-New York Savings
Plan based on financial hardship. A participant is entitled to borrow up to
50% of the vested portion of his account, but no more than $50,000.
Effective with the March 1, 1999 acquisition of Primadonna Resorts, Inc. by
the Company, a Section 401(k) employee savings plan (the "Primadonna Savings
Plan") for Primadonna employees was acquired. The Primadonna Savings Plan
allows participants to defer, on a pretax basis, a portion of their salary and
accumulate tax deferred earnings as a retirement fund. All deferred amounts
vest immediately and are invested in either an equity, balanced income, money
market, short-term bond or international equity fund, or in a guaranteed
investment contract as directed by the participant. Primadonna makes matching
contributions of 50% up to an annual limit of 2.5% of a participant's salary
and bonus (based upon a maximum annual salary and bonus of $160,000). The full
amount vested in a participant's account will be distributed following
termination of employment, normal retirement or in the event of disability or
death. A participant may also make a request for withdrawal of the vested
account balance under the Primadonna Savings Plan based on financial hardship.
A participant is entitled to borrow up to 50% of the vested portion of his
account, but no more than $50,000.
As a result of the July 1999 opening of the MGM Grand Detroit Casino, MGM
Grand Detroit, LLC (a partnership between MGM Grand Detroit, Inc. and the
Company's local partners in Detroit, Michigan) joined the MGM Hotel Savings
Plan with certain adjusted parameters (the "MGM Detroit Savings Plan"). The
MGM Detroit Savings Plan allows participants to defer, on a pretax basis, a
portion of their salary and accumulate tax deferred earnings as a retirement
fund. All deferred amounts vest immediately and are invested in either an
equity, balanced income, money market, short-term bond, or foreign equity fund
as directed by the participant. MGM Grand Detroit, LLC will make matching
contributions of 50% up to an annual limit of 6% of a participant's salary
(based upon a maximum annual salary of $160,000). The full amount vested in a
participant's account will be distributed following termination of employment,
normal retirement or in the event of disability or death. A participant may
also make a request for withdrawal of the vested account balance under the
MGM Detroit Savings Plan based on financial hardship. A participant is
entitled to borrow up to 50% of the vested portion of his account, but no more
than $50,000.
The Company and MGM Grand Hotel, Inc. maintain an Employee Stock Purchase
Plan. The plan provides eligible employees the opportunity to purchase shares
of the Company's Common Stock via payroll deductions. The price for each share
of Common Stock is the weighted average price paid for all shares purchased by
the
28
<PAGE>
Plan Administrator on behalf of the participating employees on the last
trading day of each month. The Company and MGM Grand Hotel, Inc. pay the
administrative costs of the plan. The plan may be amended or terminated at any
time by the Company's Board of Directors or by a committee designated by the
Board of Directors.
Effective with the September 1995 acquisition of the Diamond Beach Hotel and
Casino ("MGM Grand Australia") by MGM Grand Australia Pty., Ltd., an
Australian employee retirement fund was acquired. The plan is subject to the
Superannuation Industry (Supervision) Act of 1993 imposing a legal obligation
on MGM Grand Australia to contribute to all employee superannuation funds.
MGM Grand Australia maintains two categories for the plan, depending on
employment status: category (A) for executive employees and category (B) for
staff. Death and Disablement benefits are provided for all members, however,
category (A) members receive increased coverages under both benefits. The
Company contributes 7% of salary to satisfy the Superannuation Guarantee
Legislation, and allows participants to defer, on a pretax basis, a portion of
their salary (minimum 3%) and accumulate tax deferred earnings as a retirement
fund. The full amount vested in members' retirement accounts is payable to the
member following termination of employment, under certain circumstances or
normal retirement.
The Company and MGM Grand Hotel, Inc. maintain a Nonqualified Deferred
Retirement Plan for Certain Key Employees not a part of a collective
bargaining unit. The Nonqualified Deferred Retirement Plan allows participants
to defer, on a pretax basis, a portion of their salary and bonus and
accumulate tax deferred earnings, plus interest, as a retirement fund. These
deferrals are in addition to those allowed under the MGM Hotel Savings Plan.
All deferred amounts vest immediately. There are no employer matching
contributions made under this plan. At the time of enrollment in the plan,
each participant must elect either a lump-sum payment or 10-year installment-
payout to be distributed following termination of employment, normal
retirement or in the event of disability or death.
The Company also maintains stock option plans. The Company's Board of
Directors may adopt other benefit plans, including an employee retirement
plan. In addition, the Company's Board of Directors may adopt a profit-sharing
plan which will provide for a percentage of the Company's annual pretax
operating profits to be available for distribution on a discretionary basis.
The terms and benefit levels of any such plans have not yet been determined.
Employment Agreements
For a description of agreements with certain of the Named Executives, see
"Item 13. Certain Relationships and Related Transactions" which is
incorporated herein by reference.
29
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
Shown below is certain information as of March 9, 2000 with respect to
beneficial ownership as that term is defined in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") of shares of
Common Stock by the only person or entities known to the Company to be
beneficial owner of more than five percent of the outstanding shares of Common
Stock, by the Named Executives, as defined under Item 11. Executive
Compensation, by each Director of the Company and by all directors and
executive officers of the Company as a group who held office as of the date of
this Proxy Statement.
<TABLE>
<CAPTION>
Amount Percent
Beneficially of
Name and Address(1) Owned(2) Class
------------------- ------------ -------
<S> <C> <C>
Kirk Kerkorian 72,010,244(3) 64.40%
150 S. Rodeo Drive, Ste. 250
Beverly Hills, CA 90212
J. Terrence Lanni 674,422(4) *
John T. Redmond 46,162(4) *
Daniel M. Wade 131,600(4) *
James J. Murren 198,000(4) *
James D. Aljian 28,000(5) *
Fred Benninger 21,200(5) *
Terry N. Christensen 11,200(5) *
Glenn A. Cramer 17,266(5) *
Willie D. Davis 8,200(5) *
Alexander M. Haig, Jr. 7,600(5) *
Scott Langsner 27,816(4) *
Walter M. Sharp 66,164(5) *
Alex Yemenidjian 712,784(4) *
Jerome B. York 17,200(5) *
All directors and executive officers
as a group (17 persons) 73,977,858(3)(4)(5) 65.14%
</TABLE>
- --------
* Less than one percent (1%)
(1) Unless otherwise indicated, the address for the persons listed is 3799
Las Vegas Blvd. South, Las Vegas, Nevada 89109.
(2) The quantity of shares listed reflects the effect of the Company's
February 10, 2000 two-for-one stock split. Except as otherwise indicated
and subject to applicable community property and similar laws, the
persons listed as beneficial owners of the shares have sole voting and
investment power with respect to such shares.
(3) Of these shares, 68,221,432 are held by Tracinda Corporation
("Tracinda"), a Nevada corporation wholly owned by Mr. Kerkorian.
(4) Included in these amounts are 664,460 shares, 638,108 shares, 44,162
shares, 129,000 shares, 190,000 shares and 23,800 shares subject to stock
options exercisable on or prior to May 9, 2000 held by
Messrs. Yemenidjian, Lanni, Redmond, Wade, Murren, and Langsner,
respectively.
(5) Also included are shares subject to stock options held by non-employee
directors which are exercisable on or prior to May 9, 2000, as follows:
Messrs. Aljian, Christensen, Davis, Haig, Sharp and York each hold
7,200 shares, Mr. Cramer holds 3,200 shares, and Mr. Benninger holds
1,200 shares.
30
<PAGE>
Item 13. Certain Relationships and Related Transactions
John T. Redmond, Co-Chief Executive Officer of the Company, is not employed
pursuant to an employment agreement. Mr. Redmond was granted options to
purchase Company Common Stock (adjusted to reflect the Company's February 2000
two-for-one stock split) as follows: 50,000 shares of Common Stock on August
5, 1996 (which were repriced on June 22, 1998 and which vest 20% annually from
the date of the repricing) of which 9,838 shares have been exercised; 30,000
shares of Common Stock on July 7, 1997 (which were repriced on June 22, 1998
and which vest 20% annually from the date of the repricing) of which 6,000
shares have been exercised; 120,000 shares of Common Stock on April 6, 1998
(which were repriced on June 22, 1998 and which vest 20% annually from the
date of the repricing); 100,000 shares of Common Stock on March 1, 1999 and
915,838 shares of Common Stock on December 13, 1999 (which vest 20% annually
commencing with the first anniversary date of each grant).
Daniel M. Wade, Co-Chief Executive Officer of the Company, has a 5-year
employment agreement with the Company which commenced April 22, 1997, under
which he received a signing bonus of $40,000, and received an annual salary of
$500,000, which was increased to $550,000 effective May 1, 1999, and increased
to $600,000 effective December 30, 1999, and which contains a covenant not to
compete. The agreement is terminable by either party. Under the agreement, the
Company may terminate the agreement for good cause (as defined). In such
event, Mr. Wade shall be entitled to exercise those of his stock options
granted under the Company's Nonqualified Stock Option Plan as had been vested
but were unexercised as of the date of termination. Also, pursuant to the
agreement, if the Company terminates the agreement for other than good cause
(as defined), Mr. Wade's salary will continue for the term of the agreement,
he will continue to receive certain employee benefits, and all unvested stock
options held will continue to vest for a period of 12 months. If Mr. Wade
seeks to terminate the agreement for good cause, he must give the Company 30
days notice to cure the breach. If such breach is not cured (and the Company
does not invoke its right to arbitration), or if Mr. Wade terminates without
cause upon 30 days notice, then termination will result and Mr. Wade shall be
entitled to exercise those of his stock options granted under the Company's
Nonqualified Stock Option Plan as had been vested but were unexercised as of
the date of termination. Mr. Wade was granted options to purchase Company
Common Stock (adjusted to reflect the Company's February 2000 two-for-one
stock split) as follows: 100,000 shares of Common Stock on September 4, 1990
which have been exercised; 30,000 shares of Common Stock on January 4, 1993
which have been exercised; 70,000 shares of Common Stock on June 6, 1994
(which vest 20% in each of the third, fourth and fifth years, and 40% in the
sixth year from the date of the grant) of which 28,000 shares have been
exercised; 50,000 shares of Common Stock on April 3, 1995 (which vest 20%
annually commencing April 1, 1997) of which 30,000 shares have been exercised;
150,000 shares of Common Stock on November 6, 1995 (which vest 20% annually
commencing April 1, 1997) of which 55,000 shares have been exercised; 50,000
shares of Common Stock on July 8, 1996 (which were repriced on June 22, 1998
and which vest 20% annually from the date of the repricing); 50,000 shares of
Common Stock on July 7, 1997 (which were repriced on June 22, 1998 and which
vest 20% annually from the date of the repricing); 100,000 shares of Common
Stock on May 3, 1999 (which vest 20% annually commencing May 3, 2000); and
843,000 shares of Common Stock on December 13, 1999 (which vest 20% annually
commencing December 13, 2000). If there is a Change in Control (as defined) of
the Company, all unvested stock options become fully vested. If the Change in
Control results from an exchange of outstanding Common Stock as a result of
which the Common Stock of the Company is no longer publicly held, then options
held by Mr. Wade to purchase Common Stock of the Company shall be exercisable
at the time or times they would otherwise have been exercisable for the
consideration (cash, stock or otherwise) which the holders of the Company's
Common Stock received in such exchange.
James J. Murren, President and Chief Financial Officer of the Company, has a
5-year employment agreement with the Company which commenced January 16, 1998,
pursuant to which he received a signing bonus of $30,000 and received an
annual salary of $375,000, which was increased to $400,000 effective
January 1, 1999, and increased to $600,000 effective December 30, 1999, and
which contains a covenant not to compete. The agreement is terminable by
either party. Pursuant to the agreement, the Company may terminate the
agreement for good cause (as defined). In such event, Mr. Murren shall be
entitled to exercise those of his
31
<PAGE>
stock options granted under the Company's Nonqualified Stock Option Plan as
had been vested but were unexercised as of the date of termination. Also,
pursuant to the agreement, if the Company terminates the agreement without
good cause (as defined), Mr. Murren's salary will continue for the term of the
agreement, he will continue to receive certain employee benefits and all
unvested stock options held will continue to vest for a period of 12 months.
If Mr. Murren seeks to terminate the agreement for good cause, he must give
the Company 30 days notice, then termination will result and Mr. Murren shall
be entitled to exercise those of his stock options granted under the Company's
Nonqualified Stock Option Plan as had been vested but were unexercised as of
the date of termination. Mr. Murren was granted options to purchase Company
Common Stock (adjusted to reflect the Company's February 2000 two-for-one
stock split) as follows: 950,000 shares of Common Stock on January 16, 1998
(which were repriced on June 22, 1998 and which vest 20% annually from the
date of the repricing); and 250,000 shares of Common Stock on December 13,
1999 (which vest 20% annually commencing December 13, 2000). If there is a
Change in Control of the Company (as defined), all unvested stock options
become fully vested. If the Change in control results from an exchange of
outstanding Common Stock as a result of which the Common Stock of the Company
is no longer publicly held, then options held by Mr. Murren to purchase Common
Stock of the Company shall be exercisable at the time or times they would
otherwise have been exercisable for the consideration (cash, stock or
otherwise) which the holders of the Company's Common Stock received in such
exchange.
Scott Langsner, Senior Vice President and Secretary/Treasurer of the
Company, has a 4-year employment agreement with the Company which commenced
December 9, 1998, pursuant to which he received a signing bonus of $25,000 and
received an annual salary of $200,000, which was increased to $230,000
effective January 1, 2000, and which contains a covenant not to compete. The
agreement is terminable by either party. Pursuant to the agreement, the
Company may terminate the agreement for good cause (as defined). In such
event, Mr. Langsner shall be entitled to exercise those of his stock options
granted under the Company's Nonqualified Stock Option Plan as had been vested
but were unexercised as of the date of termination. Also, pursuant to the
agreement, if the Company terminates the agreement without good cause (as
defined), Mr. Langsner's salary will continue for the term of the agreement,
he will continue to receive certain employee benefits and all unvested stock
options held will continue to vest for a period of 12 months. If Mr. Langsner
seeks to terminate the agreement for good cause, he must give the Company 30
days notice to cure the breach. If such breach is not cured (and the Company
does not invoke its right to arbitration), or if Mr. Langsner terminates
without cause upon 30 days notice, then termination will result and Mr.
Langsner shall be entitled to exercise those of his stock options granted
under the Company's Nonqualified Stock Option Plan as had been vested but were
unexercised as of the date of termination. Mr. Langsner was granted options to
purchase Company Common Stock (adjusted to reflect the Company's February 2000
two-for-one stock split) as follows: 50,000 shares of common stock on
September 4, 1990 and 20,000 shares on November 9, 1992 (all of which were
exercised during 1999); 30,000 shares on June 6, 1994 (which vest 20% in each
of the third, fourth and fifth years, and 40% in the sixth year from the date
of the grant); 15,000 shares on July 8, 1996 and 14,000 shares on July 7, 1997
(which were repriced on June 22, 1998 and which vest 20% annually from the
date of the repricing). If there is a Change in Control (as defined) of the
Company, all unvested stock options become fully vested. If the Change in
Control results from an exchange of outstanding Common Stock as a result of
which the Common Stock of the Company is no longer publicly held, then options
held by Mr. Langsner to purchase Common Stock of the Company shall be
exercisable at the time or times they would otherwise have been exercisable
for the consideration (cash, stock or otherwise) which the holders of the
Company's Common Stock received in such exchange.
Christensen, Miller, Fink, Jacobs, Glaser, Weil, & Shapiro, LLP, a law firm
of which Terry Christensen, a member of the Board of Directors of the Company,
is a partner (see "Election of Directors"), has performed extensive legal
services for the Company. Such services rendered relate to litigation, sales
of securities, financing transactions, acquisitions and dispositions of
certain assets and operations, tax matters and other business transactions,
contracts and agreements.
During 1997, 1998, and 1999, Alexander M. Haig, Jr., a member of the Board
of Directors of the Company, rendered consulting services to the Company, for
which he received fees at the rate of $50,000 per annum.
32
<PAGE>
In 1997, the Compensation Committee adopted a stock option grant program
pursuant to the Nonqualified Stock Option Plan, which was subsequently
approved by stockholders, whereby members of the Company's Board of Directors
who are not full-time employees of the Company would receive an initial grant
(adjusted to reflect the Company's February 10, 2000 two-for-one stock split)
of 10,000 stock options, and subsequent yearly grants of 2,000 stock options
during their respective terms as directors.
For the twelve months ended December 31, 1999, the Company and its
subsidiaries rented aircraft from Tracinda for various business purposes. The
aggregate amount of rental payments were approximately $120,000, and the rent
payments were at rates which management believes are generally below those
offered by third parties. The Company and Tracinda have entered into various
other transactions and arrangements which, individually and in the aggregate,
are not material.
MGM Grand Hotel, Inc. and certain of its affiliates, purchase on a wholesale
basis from a subsidiary of Metro-Goldwyn-Mayer Inc., a California-based motion
picture studio in which Tracinda has an approximate 89.1% ownership interest
(collectively with its subsidiaries, "MGM Inc."), videocassettes and other
merchandise such as baseball caps, clothing, key chains and watches bearing
the trademarks and logos of MGM Inc. for resale to consumers in retail shops
located within MGM Grand Hotel, Inc. or its affiliate's hotels. For the year
ended December 31, 1999, the Company purchased approximately $20,000 in MGM
Inc. merchandise at rates which management believes are generally comparable
to those offered to third parties. Affiliates of MGM Grand Hotel, Inc. and
MGM Inc. occasionally conduct cross-promotional campaigns, in which MGM Grand
Hotel or its affiliate's hotels and MGM Inc.'s motion picture releases are
promoted together; however, management believes that the amounts involved are
immaterial. MGM Grand Hotel Inc. and MGM Inc. have an ongoing relationship
whereby MGM Grand Hotel can utilize key art, still photographs of artwork and
one-minute film clips from certain of MGM Inc.'s motion picture releases on an
as-needed basis. MGM Grand Hotel, Inc. does not pay any monetary compensation
for these licenses.
Pursuant to a License Agreement between a predecessor in interest to the
Company and Metro-Goldwyn-Mayer Film Co. (predecessor in interest to Metro-
Goldwyn-Mayer Lion Corp.) dated February 29, 1980, as amended May 18, 1992 and
as further amended August 6, 1998, the Company has an open-ended exclusive
royalty-free license to use certain trademarks, trade names and logos in and
in connection with the Company's resort hotel and/or gaming and other
businesses, excluding the filmed entertainment business.
During the three year periods ended December 31, 1997, 1998, and 1999, the
Company and MGM Inc. have entered into various other transactions and
arrangements which, individually and in the aggregate, are not material.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The financial statements and schedule listed in the accompanying
index to Financial Statements at Page 36 herein are filed as part of
this Form 10-K.
(b) Form 8-Ks and 8-K/As filed on February 23, 1999, February 28, 1999,
March 12, 1999, June 1, 1999 and June 18, 1999.
(c) Exhibits
The exhibits listed in the accompanying Exhibit Index on Pages 39 to 41
are filed as part of this Form 10-K.
33
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
MGM GRAND, INC.
By: /s/ John T. Redmond
_____________________________________
John T. Redmond
Co-Chief Executive Officer
(Principal Executive Officer)
By: /s/ Daniel M. Wade
_____________________________________
Daniel M. Wade
Co-Chief Executive Officer
(Principal Executive Officer)
By: /s/ James J. Murren
_____________________________________
James J. Murren
President and Chief Financial
Officer
(Principal Financial and Accounting
Officer)
Dated: March 22, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ J. Terrence Lanni Chairman of the Board and March 22, 1999
____________________________________ Director
J. Terrence Lanni
/s/ John T. Redmond Co-Chief Executive Officer March 22, 1999
____________________________________ and Director
John T. Redmond
/s/ Daniel M. Wade Co-Chief Executive Officer March 22, 1999
____________________________________ and Director
Daniel M. Wade
/s/ James J. Murren President, Chief Financial March 22, 1999
____________________________________ Officer and Director
James J. Murren
/s/ James D. Aljian Director March 22, 1999
____________________________________
James D. Aljian
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Fred Benninger Director March 22, 1999
____________________________________
Fred Benninger
/s/ Terry N. Christensen Director March 22, 1999
____________________________________
Terry N. Christensen
/s/ Glenn A. Cramer Director March 22, 1999
____________________________________
Glenn A. Cramer
Director March , 1999
____________________________________
Willie D. Davis
/s/ Alexander M. Haig, Jr. Director March 22, 1999
____________________________________
Alexander M. Haig, Jr.
Director March , 1999
____________________________________
Kirk Kerkorian
/s/ Walter M. Sharp Director March 22, 1999
____________________________________
Walter M. Sharp
/s/ Alex Yemenidjian Director March 22, 1999
____________________________________
Alex Yemenidjian
Director March , 1999
____________________________________
Jerome B. York
</TABLE>
35
<PAGE>
INDEX TO FINANCIAL STATEMENTS
(Item 14(a))
<TABLE>
<CAPTION>
Annual
Report to
Stockholders Form 10-K
Page Page
------------ ---------
<S> <C> <C>
Report of Independent Public Accountants................ 53
Consolidated Statements of Operations--For the years
ended December 31, 1999, 1998, 1997.................... 33
Consolidated Balance Sheets as of December 31, 1999 and
1998................................................... 34
Consolidated Statements of Cash Flows--For the years
ended December 31, 1999, 1998, 1997.................... 35
Consolidated Statements of Stockholders' Equity--For the
years ended December 31, 1999, 1998, and 1997.......... 36
Notes to Consolidated Financial Statements.............. 37
Selected Quarterly Financial Results (unaudited)........ 54
Report of Independent Public Accountants on Supplemental
Schedule............................................... 37
Schedule II--Valuation and Qualifying Accounts.......... 38
</TABLE>
All other schedules have been omitted either as inapplicable or not required
under the instructions contained in Regulation S-X, or because the information
is included in the financial statements or the notes thereto.
36
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SUPPLEMENTAL SCHEDULE
To the Board of Directors and Stockholders of MGM Grand, Inc.:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements included in MGM Grand, Inc.'s (the
"Company") Annual Report to stockholders incorporated by reference in this
Form 10-K, and have issued our report thereon dated January 20, 2000 (except
with respect to the matter discussed in Note 11, as to which the date is March
1, 2000). Our audits were made for the purpose of forming an opinion on those
statements taken as a whole. The supplemental Schedule II as shown on page 38
is the responsibility of the Company's management and is presented for
purposes of complying with the Securities and Exchange Commission's rules and
is not part of the basic consolidated financial statements. This schedule has
been subjected to the auditing procedures applied in the audits of the basic
consolidated financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Las Vegas, Nevada
January 20, 2000
(except with respect to
the matter discussed in
Note 11, as to which the
date is March 1, 2000)
37
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1999, 1998, and 1997
(In thousands)
<TABLE>
<CAPTION>
Additions
Balance Charged Balance
at to Costs Amounts at End
Beginning and Written of
Description of Period Expenses Off Period
----------- --------- --------- ------- -------
<S> <C> <C> <C> <C>
FOR THE YEAR ENDED DECEMBER 31, 1999:
Allowance for doubtful accounts and
discounts............................... $36,831 $47,157 $61,216 $22,772
FOR THE YEAR ENDED DECEMBER 31, 1998:
Allowance for doubtful accounts and
discounts............................... $27,023 $40,455 $30,647 $36,831
FOR THE YEAR ENDED DECEMBER 31, 1997:
Allowance for doubtful accounts and
discounts............................... $35,432 $31,814 $40,223 $27,023
</TABLE>
MGM GRAND, INC. AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
Year Ended December 31, 1999
(In thousands)
<TABLE>
<CAPTION>
Additions Amounts
Balance Charged Charged
at to Costs Against Balance
Beginning and the at End of
Description of Period Expenses Accrual Period
----------- --------- --------- ------- ---------
<S> <C> <C> <C> <C>
FOR THE YEAR ENDED DECEMBER 31, 1999:
Merger reserves........................ $ 0 $15,296 $14,783 $513
</TABLE>
38
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
2(1) Agreement and Plan of Merger, dated as of December 2, 1998, among the
Company, MGM Acquisition Corp. and Primadonna Resorts, Inc.
(incorporated by reference to Appendix A to the Company's Proxy
Statement/Prospectus dated February 1, 1999).
2(2) Agreement and Plan of Merger dated as of March 6, 2000 among Mirage
Resorts, Incorporated, MGM Grand, Inc. and a Wholly Owned Subsidiary
of MGM Grand, Inc. (incorporated by reference to Exhibit 2 to the
Company's Current Report on Form 8-K dated March 6, 2000).
3(1) Certificate of Incorporation of Company, as amended through 1997
(incorporated by reference to Exhibit 3(1) to Registration Statement
No. 33-3305 and to Exhibit 3(a) to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1997 (the "1997 10-
K")).
3(2) Certificate of Amendment to Certificate of Incorporation of the
Company dated January 7, 2000 relating to an increase in the
authorized shares of common stock.
3(3) Certificate of Amendment to Certificate of Incorporation of the
Company dated January 7, 2000 relating to a 2-for-one stock split.
3(4) Bylaws of Company, as amended (incorporated by reference to Exhibit
3(2) to Registration Statement No. 33-30337).
4(1) Indenture, dated as of February 2, 1998, among the Company, as issuer,
the Guarantor Parties thereto, as guarantors, and PNC Bank, National
Association, as Trustee (incorporated by reference to Exhibit 4(1) to
the Company's Current Report on Form 8-K, dated February 23, 1998 (the
"Form 8-K")).
4(2) Schedule setting forth material details of the Indenture, among MGM
Grand, Inc., as Issuer, the Guarantors Parties thereto and U.S. Trust
Company of California, N.A., dated as of February 6, 1998
(incorporated by reference to Exhibit 4(2) to the Form 8-K).
*10(1) MGM Grand, Inc. Nonqualified Stock Option Plan (incorporated by
reference to Exhibit 10(1) to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996 (the "1996 10-K")).
*10(2) MGM Grand, Inc. Incentive Stock Option Plan (incorporated by reference
to Exhibit 10(2) to the 1996 10-K).
10(3) Amended and Restated Loan Agreement, dated as of July 17, 1997, as
amended, between the Company, as Borrower, MGM Grand Atlantic City,
Inc., as Co-Borrower, Bank of America NT&SA, as Administrative Agent,
and the banks named therein (incorporated by reference to Exhibit 10
to the Company's Current Report on Form 8-K dated July 23, 1997,
Exhibit 10(3)(a) to the 1997 10-K and Exhibit 10(3)(b) to the 1997 10-
K).
10(4) Loan Agreement between MGM Grand Australia and the banks named therein
dated September 6, 1995 (incorporated by reference to Exhibit 10(22)
to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995 (the "1995 10-K)).
10(5) MGM Grand, Inc. Continuing Guaranty dated as of September 1, 1995
(incorporated by reference to Exhibit 10(23) to the 1995 10-K).
*10(6) Letter Agreement dated April 13, 1995 between the Company and J.
Terrence Lanni (incorporated by reference to Exhibit 10(26) to the
1995 10-K).
</TABLE>
39
<PAGE>
EXHIBIT INDEX--(Continued)
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
*10(7) MGM Grand, Inc. 1997 Nonqualified Stock Option Plan (incorporated by
reference to Exhibit 4.1 to the Company's Registration Statement on
Form S-8 (File No. 333-42729) (the "Form S-8")).
*10(8) MGM Grand, Inc. 1997 Incentive Stock Option Plan (incorporated by
reference to Exhibit 4.2 to the Form S-8).
*10(9) Annual Performance Based Incentive Plan for Executive Officers
(incorporated by reference to Appendix 1 to the Company's Proxy
Statement dated March 28, 1997).
*10(10) Letter Agreement dated April 22, 1997, between the Company and
Alejandro Yemenidjian (incorporated by reference to Exhibit 10(31) to
the 1997 10-K).
*10(11) Letter Agreement dated January 16, 1998, between the Company and James
Murren (incorporated by reference to Exhibit 10(32) to the 1997 10-K).
*10(12) Letter Agreement dated December 9, 1998, between the Company and Scott
Langsner (incorporated by reference to Exhibit 10(33) to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1998
(the "1998 10-K")).
*10(13) Letter Agreement dated April 1, 1998 between the Company and J.
Terrence Lanni (incorporated by reference to Exhibit 10(34) to the
1998 10-K).
*10(14) Amended and Restated Ground Lease Agreement dated July 1, 1993 between
Primm South Real Estate Company and The Primadonna Corporation
(incorporated by reference to Exhibit 10.11 to the Annual Report on
Form 10-K of Primadonna Resorts, Inc. for the fiscal year ended
December 31, 1997 (the "Primadonna 1997 10-K")).
*10(15) Amended and Restated Split-Dollar Agreement between The Primadonna
Corporation, Gary E. Primm and Robert E. Armstrong, Trustee of the
1992 Primm Children's Trust U/A dated December 22, 1992 (the
"Trustee") dated as of December 22, 1998 (incorporated by reference to
Exhibit 10(36) to the 1998 10-K).
*10(16) Split-Dollar Collateral Assignment, dated December 22, 1998, between
The Primadonna Corporation, Robert E. Armstrong, as trustee of the
1992 Primm Children's Trust U/A dated December 22, 1992, and John
Hancock, as insurer (incorporated by reference to Exhibit 10(37) to
the 1998 10-K).
10(17) Credit Agreement dated June 5, 1997 by and among Primadonna Resorts,
Inc. and The Primadonna Corporation as "Borrowers," and Wells Fargo
Bank, as "Agent Bank" for a consortium of sixteen participating banks
listed therein as "Lenders" (without schedules or exhibits"
(incorporated by reference to Exhibit 10.29 to the Form 10-Q of
Primadonna Resorts, Inc. for the period ended June 30, 1997).
*10(18) First Amendment to the Amended and Restated Ground Lease Agreement and
Consent and Waiver, dated August 25, 1997 by and among The Primadonna
Corporation and Primm South Real Estate Company (incorporated by
reference to Exhibit 10.31 to the Primadonna 1997 10-K).
10(19) Assumption and Consent Agreement, dated December 18, 1997, by and
among Primadonna Resorts, Inc. and The Primadonna Corporation, as
"Borrowers," and Wells Fargo Bank, as "Agent Bank" for a consortium of
sixteen participating banks listed therein as "Lenders" (without
schedules or exhibits" (incorporated by reference to Exhibit 10.32 to
the Primadonna 1997 10-K).
10(20) Assumption and Consent Agreement, dated June 3, 1998, by and among
Primadonna Resorts, Inc. and The Primadonna Corporation, as
"Borrowers," and Wells Fargo Bank, as "Agent Bank" for a consortium of
participating banks listed therein as "Assuming Lenders" (without
exhibit or schedules) (incorporated by reference to Exhibit 10.33 to
the Form 10-Q of Primadonna Resorts, Inc. for the period ended June
30, 1998).
</TABLE>
40
<PAGE>
EXHIBIT INDEX--(Continued)
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10(21) Amended and Restated Development Agreement among the City of Detroit
and The Economic Development Corporation of the City of Detroit and
MGM Grand Detroit, LLC for the City of Detroit Casino Development
Project dated as of April 9, 1998 (incorporated by reference to
Exhibit 10(41) to the 1998 10-K).
10(22) First Amendment to the Amended and Restated Development Agreement
dated June 25, 1998 (incorporated by reference to Exhibit 10(42) to
the 1998 10-K).
10(23) Letter dated January 26, 1999 from MGM Grand Detroit, LLC to the City
of Detroit and The Economic Development Corporation of the City of
Detroit (incorporated by reference to Exhibit 10(43) to the 1998 10-
K).
10(24) Second Amendment to the Amended and Restated Development Agreement
dated June 25, 1998.
10(25) Stock Option Agreement dated as of March 6, 2000 by and between MGM
Grand, Inc. and Mirage Resorts, Incorporated (incorporated by
reference to Exhibit 10 to the Company's Current Report on Form 8-K
dated March 6, 2000).
13 The Company's 1999 Annual Report to Stockholders.
21 List of Subsidiaries.
23 Consent of Independent Public Accountants.
27 Financial Data Schedule for the period ending December 31, 1999.
</TABLE>
- --------
* Management contract or compensatory plan.
41
<PAGE>
EXHIBIT 3(2)
State of Delaware
PAGE 1
Office of the Secretary of State
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT
OF "MGM GRAND, INC.", FILED IN THIS OFFICE ON THE TENTH DAY OF FEBRUARY, A.D.
2000, AT 9 O'CLOCK A.M.
A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS.
/s/ Edward J. Freel
[SEAL] ------------------------------------
Edward J. Freel, Secretary of State
2082204 8100 AUTHENTICATION: 0253057
001067152 DATE: 02-11-00
<PAGE>
CERTIFICATE OF AMENDMENT TO
CERTIFICATE OF INCORPORATION OF
MGM GRAND, INC.
MGM Grand, Inc. a corporation organized and existing under and by virtue of the
General Corporation Law of the State of Delaware (the "Corporation"), DOES
HEREBY CERTIFY:
FIRST: That pursuant to a duly called and noticed meeting of the Board of
Directors of the Company, resolutions were duly adopted setting forth a proposed
amendment of the Company's Certificate of Incorporation, as amended (the
"Certificate of Incorporation"), declaring said amendment to be advisable and
providing that the amendment be presented to the stockholders for consideration
and action by written consent. The resolution setting forth the proposed
amendment is as follows:
RESOLVED FURTHER, that the Certificate of Incorporation of the Company be
amended by changing Article 4 thereof so that, as amended, said Article shall be
and read as follows:
"The aggregate number of shares which the corporation shall have the
authority to issue is 300,000,000 shares, all of which are to be common
stock, and the par value of each of such shares is to be $.01.""
SECOND: That thereafter, in accordance with Section 228 of the General
Corporation Law of the State of Delaware, the necessary number of shares as
required by the statute were voted in favor of the amendment by written
stockholder consent, dated January 7, 2000.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 02/10/2000
001067152 - 2082204
<PAGE>
IN WITNESS WHEREOF, MGM Grand, Inc. has duly caused this certificate to be
signed by Scott Langsner, its Secretary/Treasurer, this 7th day of January,
2000.
MGM GRAND, INC.
By: /s/ Scott Langsner
---------------------------
Scott Langsner
Secretary/Treasurer
<PAGE>
EXHIBIT 3(3)
State of Delaware
PAGE 1
Office of the Secretary of State
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT
OF "MGM GRAND, INC.", FILED IN THIS OFFICE ON THE TENTH DAY OF FEBRUARY, A.D.
2000, AT 4 O'CLOCK P.M.
A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS.
/s/ Edward J. Freel
[SEAL] ------------------------------------
Edward J. Freel, Secretary of State
2082204 8100 AUTHENTICATION: 0252049
001067158 DATE: 02-10-00
<PAGE>
CERTIFICATE OF AMENDMENT TO
CERTIFICATE OF INCORPORATION OF
MGM GRAND, INC.
MGM Grand, Inc. a corporation organized and existing under and by virtue of the
General Corporation Law of the State of Delaware (the "Company"), DOES
HEREBY CERTIFY:
FIRST: That pursuant to a duly called and noticed meeting of the Board of
Directors of the Company, resolutions were duly adopted setting forth a proposed
amendment of the Company's Certificate of Incorporation, as amended (the
"Certificate of Incorporation"), declaring said amendment to be advisable and
providing that the amendment be presented to the stockholders for consideration
and action by written consent. The resolution setting forth the proposed
amendment is as follows:
"RESOLVED FURTHER, that the upon the filing with Secretary of State of the
State of Delaware of a certificate of amendment of the Company's Certificate of
Incorporation setting forth this resolution, each share of the Company's issued
and outstanding common stock, par value $.01 per share (including treasury
shares), shall be changed into two shares of the Company's common stock, $.01
par value per share."
SECOND: That thereafter, in accordance with Section 228 of the General
Corporation Law of the State of Delaware, the necessary number of shares as
required by the statute were voted in favor of the amendment by written
shareholder consent, dated January 7, 2000.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 04:00 PM 02/10/2000
001067158 - 2082204
<PAGE>
IN WITNESS WHEREOF, MGM Grand, Inc. has duly caused this certificate to be
signed by Scott Langsner, its Secretary/Treasurer, this 7th day of January,
2000.
MGM GRAND, INC.
By: /s/ Scott Langsner
---------------------------
Scott Langsner
Secretary/Treasurer
<PAGE>
EXHIBIT 10(24)
SECOND AMENDMENT TO THE
AMENDED AND RESTATED DEVELOPMENT AGREEMENT
BY AND AMONG
THE CITY OF DETROIT, THE ECONOMIC DEVELOPMENT CORPORATION
OF THE CITY OF DETROIT AND
MGM GRAND DETROIT, L.L.C.
THIS SECOND AMENDMENT (the "Second Amendment") to that certain Amended and
Restated Development Agreement, dated as of April 9, 1998, as amended by the
First Amendment dated June 25, 1998, by and among the City of Detroit (the
"City"), the Economic Development Corporation of the City of Detroit (the "EDC")
and MGM Grand Detroit, L.L.C., a Delaware limited liability company
("Developer") for the City of Detroit Casino Development Project (the
"Development Agreement") is made on this _____ day of December, 1999 by and
among the City, the EDC and the Developer.
WHEREAS, the City, EDC and Developer have previously entered into the
Development Agreement; and
WHEREAS, it is the desire of the parties to enter into this Second
Amendment to amend certain provisions of the Development Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and the
covenants herein contained, the parties agree as follows:
1. All capitalized terms not otherwise defined herein shall have the same
meaning as set forth in the Development Agreement.
2. Section 2.4(d) of the Development Agreement is hereby amended by deleting
--------------
the reference to "December 31, 1999" in such section and substituting in
its place "December 31, 2000".
3. To give recognition to the fact that the JEPAB has already been formed,
Section 2.6(n)(3) of the Development Agreement is hereby amended so that
-----------------
the third sentence reads as follows: Developer shall fund the JEPAB
according to the following schedule: an initial payment of One Hundred
Thousand Dollars ($100,000) within thirty (30) days after the later of: (i)
the Temporary Casino Opening Date or (ii) the Amendment Effective Date (as
defined in Paragraph 7 hereof); One Hundred Thousand Dollars ($100,000)
within one (1) year of the due date of the initial payment; Four Hundred
Thousand Dollars ($400,000) within six (6) months of the Closing Date; and
Four Hundred Thousand Dollars ($400,000) within twelve (12) months of the
Closing Date.
1
<PAGE>
4. Section 2.19(b) of the Development Agreement is hereby amended by deleting
---------------
the reference to "Closing Date" in such section and substituting in its
place "Temporary Casino Opening Date".
5. Anything in the Development Agreement to the contrary notwithstanding,
including but not limited to the reporting requirements set forth in
Section 2.19(b) of the Development Agreement, Developer agrees that not
---------------
later than thirty (30) days after the end of any calendar quarter,
commencing with the calendar quarter ending December 31, 1999, Developer
shall deliver to City a report in such form and having such statistical
information as may be reasonably prescribed by the City setting forth a
description of Developer's efforts during such calendar quarter with
respect to the following:
a. compliance with Section 2.6(e) of the Development Agreement;
--------------
b. compliance with Section 2.6(i) of the Development Agreement; and
--------------
c. compliance with Section 2.6(j) of the Development Agreement.
--------------
6. Except as amended by this Second Amendment, the Development Agreement is
reaffirmed in all respects, and shall remain in full force and effect.
7. This Second Amendment shall become effective on the date (the "Amendment
Effective Date") on which all of the following have been accomplished: this
Second Amendment has been executed by all parties hereto and the City
Council has duly approved the last of the following: (i) this Second
Amendment; and (ii) a second amendment to the amended and restated
development agreements of each of the Other Land-Based Casino Developers
containing substantially the same terms and conditions as set forth in this
Second Amendment.
8. This Second Amendment may be executed in counterparts, each of which shall
be deemed to be an original document and together shall constitute one
instrument.
[signature page follows]
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have set their hands and had their
seals affixed on the dates set forth after their respective signatures.
CITY OF DETROIT, a municipal
corporation
By:___________________________
Its:_______________________
THE ECONOMIC DEVELOPMENT
CORPORATION OF THE CITY OF
DETROIT, a Michigan public
body corporate
By:___________________________
Its:_______________________
MGM GRAND DETROIT, L.L.C.
a Delaware liability company
By:___________________________
Its:_______________________
3
<PAGE>
EXHIBIT 13
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
(In thousands except share data)
For the Years Ended December 31, 1999 1998 1997 1996 1995
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net revenues................................ $ 1,391,650 $ 773,863 $ 827,597 $ 800,189 $ 718,781
EBITDA (1) 421,805 218,547 287,064 258,781 169,837
Operating profit before non-recurring
items and corporate expense............ 295,820 142,263 222,960 196,585 113,905
Operating income............................ 209,868 131,574 190,970 129,294 103,823
Income before income taxes,
extraordinary item and cumulative
effect of change in accounting
principle.............................. 150,153 109,528 180,301 99,151 46,565
Net income.................................. 86,058 68,948 111,018 43,706 46,565
Basic Earnings Per Share: (2)
Income before extraordinary item and
cumulative effect of change in
accounting principle................... $ 0.82 $ 0.62 $ 1.01 $ 0.70 $ 0.48
Extraordinary item - loss on early
extinguishment of debt, net of
income tax benefit..................... (0.01) - (0.04) (0.29) -
Cumulative effect of change in
accounting principle - preopening,
and other, net of income tax benefit (0.07) - - - -
--------------------------------------------------------------------------
Net income per share........................ $ 0.74 $ 0.62 $ 0.97 $ 0.41 $ 0.48
==========================================================================
Weighted average number of shares (2) 116,580,000 111,356,000 114,950,000 105,518,000 96,152,000
Diluted Earnings Per Share: (2)
Income before extraordinary item and
cumulative effect of change in
accounting principle................... $ 0.80 $ 0.61 $ 0.98 $ 0.68 $ 0.48
Extraordinary item - loss on early
extinguishment of debt, net of
income tax benefit..................... (0.01) - (0.04) (0.28) -
Cumulative effect of change in
accounting principle - preopening,
net of income tax benefit.............. (0.07) - - - -
--------------------------------------------------------------------------
Net income per share........................ $ 0.72 $ 0.61 $ 0.94 $ 0.40 $ 0.48
==========================================================================
Weighted average number of shares (2) 120,086,000 112,684,000 117,670,000 108,514,000 97,088,000
At Year End
Total assets................................ $ 2,760,743 $ 1,768,958 $ 1,389,816 $ 1,275,121 $ 1,275,883
Total debt, excluding capital leases........ 1,318,841 544,874 57,830 83,391 551,099
Stockholders' equity........................ 1,033,846 964,381 1,101,622 973,382 584,548
Stockholders' equity per share (2).......... $ 9.08 $ 9.27 $ 9.50 $ 8.41 $ 5.99
Number of shares at year end,
net of Treasury shares (2)............. 113,880,000 104,066,000 115,970,000 115,768,000 97,550,000
</TABLE>
The selected financial data above includes information for MGM Grand Las
Vegas, which commenced operations on December 18, 1993, New York-New York, which
commenced operations on January 3, 1997, and was 50% owned until March 1, 1999
when the Company acquired the remaining 50%, the Primm Properties, which were
acquired on March 1, 1999, MGM Grand Australia which was acquired on September
7, 1995, and MGM Grand Detroit, which commenced operations on July 29, 1999.
(1) EBITDA consists of net income plus net interest expense, other nonoperating
expenses, taxes, depreciation and amortization, one-time charges (which consist
of Master Plan asset disposition, Preopening and Other, Cumulative Effect of
Change in Accounting Principle and Extraordinary Items) and Corporate expense.
EBITDA should not be construed as an alternative to operating income, as an
indicator of the Company's operating performance, or as an alternative to cash
flows generated by operating, investing or financing activities as an indicator
of cash flows, or a measure of liquidity, or as any other measure of performance
determined in accordance with generally accepted accounting principles.
(2) Effective December 13, 1999, the Board of Director's approved a two-for-one
split of the Company's common stock. All references to share and per share data
herein have been adjusted retroactively to give effect to the stock split.
(3) Diluted E.P.S. represents E.P.S. before extraordinary items and cumulative
change in accounting principle.
[GRAPH OF MGM GRAND, INC. NET REVENUES APPEARS HERE]
[GRAPH OF MGM GRAND, INC. EBITDA(1) APPEARS HERE]
[GRAPH OF MGM GRAND, INC. DILUTED E.P.S.(3) APPEARS HERE]
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL TABLE OF CONTENTS
<S> <C>
Management's Discussion
and Analysis of Financial
Condition and Results of
Operations......................................................25
Consolidated Statements of
Operations......................................................33
Consolidated Balance
Sheets..........................................................34
Consolidated Statements of
Cash Flows......................................................35
Consolidated Statements of
Stockholders' Equity............................................36
Notes to Consolidated
Financial Statements............................................37
Report of Independent
Public Accountants..............................................53
Selected Quarterly Financial
Results.........................................................54
Investor Information............................................55
Directors and Officers..........................................56
Corporate Directory.............................................56
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The Company, through its wholly-owned subsidiaries, owns and operates the
MGM Grand Hotel and Casino in Las Vegas, Nevada ("MGM Grand Las Vegas"), which
commenced operations on December 18, 1993, the New York-New York Hotel and
Casino in Las Vegas, Nevada ("NYNY"), which commenced operations on January 3,
1997, and was 50% owned until March 1, 1999 when the Company acquired the
remaining 50% (see Notes 1 and 19), Whiskey Pete's, Buffalo Bill's and the Primm
Valley Resort (the "Primm Properties") in Primm, Nevada, which were acquired
through the merger (the "Merger") between Primadonna Resorts, Inc.
("Primadonna") and the Company on March 1, 1999 (see Notes 1 and 19), and the
MGM Grand Hotel/Casino in Darwin, Australia ("MGM Grand Australia"), which was
acquired on September 7, 1995, and manages three casinos throughout various
provinces of the Republic of South Africa (see Note 1). The Company and its
local partners own and operate an interim gaming facility ("MGM Grand Detroit
Casino") in Detroit, Michigan, which commenced operations on July 29, 1999.
Additionally, the Company's wholly-owned subsidiaries, MGM Grand Detroit, Inc.
and MGM Grand Atlantic City, Inc. are in the development stage, with plans to
construct permanent hotel/casino and entertainment facilities in Detroit,
Michigan and Atlantic City, New Jersey, respectively, (see Notes 1 and 6).
On December 13, 1999, the Board of Directors approved a two-for-one split
of the Company's common stock and declared an initial quarterly cash dividend of
$0.10 per share, after giving effect to the stock split. The additional shares
were distributed on February 25, 2000 to stockholders of record on February 10,
2000. The cash dividend was paid on March 1, 2000 to stockholders of record on
February 10, 2000. All references to share and per share data herein have been
adjusted retroactively to give effect to the stock split. Concurrently, the
Board of Directors increased the number of authorized shares of the Company's
common stock from 75 million shares to 300 million shares.
1999 Compared with 1998
Net revenues for the year ended December 31, 1999 were $1,391.7 million,
representing an increase of $617.8 million (79.8%) when compared with $773.9
million during the prior year. The increase in net revenues was due to growth in
every revenue segment at existing properties, as well as the addition of the
remaining 50% share of NYNY and the Primm Properties effective with the March 1,
1999 Merger with Primadonna (see Note 19) and the successful opening of MGM
Grand Detroit Casino on July 29, 1999.
Consolidated casino revenues for the year ended December 31, 1999 were
$873.8 million, representing an increase of $463.2 million (112.8%) when
compared with $410.6 million during the prior year. MGM Grand Las Vegas casino
revenues were $447.2 million, representing an increase of $63.9 million (16.7%)
when compared with $383.3 million during 1998. The increase in casino revenues
at MGM Grand Las Vegas was primarily a result of higher 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
$30.9 million, representing an increase of $3.6 million (13.2%) when compared
with $27.3 million during the prior year. The increase in casino revenues at MGM
Grand Australia was primarily a result of higher slots volume. NYNY and the
Primm Properties contributed $94.6 million and $134.6 million, respectively, to
casinorevenues for the year as a result of the Merger on March 1, 1999. MGM
Grand Detroit Casino contributed $166.4 million to casino revenues during the
year as a result of the opening of the property on July 29, 1999.
Consolidated room revenues for 1999 were $251.2 million, representing an
increase of $79.9 million (46.6%) when compared with $171.3 million during 1998.
MGM Grand Las Vegas room revenues were $179.7 million in 1999, representing an
increase of $10 million (5.9%) when compared with $169.7 million in the prior
year. The increase was due to a higher occupancy of 96.3% in 1999 when compared
with 94.4% in 1998, in addition to a higher average daily room rate of $103 in
1999 versus $99 in 1998. MGM Grand Australia room revenues were $2 million for
the year ended December 31, 1999, representing an increase of $.2 million
(11.1%) when compared with $1.8 million for the prior year. The increase was due
to a higher occupancy of 77.5% in 1999 when compared with
25 MGM Grand Inc.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
74.8% in 1998, in addition to a higher average daily room rate of $67 in 1999
compared with $61 in 1998. NYNY and the Primm Properties reported room revenues
of $50.1 million and $19.5 million, respectively, since the Merger on March 1,
1999.
Consolidated food and beverage revenues for 1999 were $161.3 million,
representing an increase of $55.4 million (52.3%) when compared with $105.9
million for the prior year. The increase was partially attributable to MGM Grand
Las Vegas which had food and beverage revenues of $112 million during 1999, an
increase of $11.7 million (11.7%) when compared with $100.3 million in 1998.
This increase resulted from additional banquet revenues generated from a full
year of operation at the MGM Grand Conference Center (the "Conference Center"),
which opened on April 16, 1998, increased revenue from the Studio 54 night club
and revenue from the Grand Buffet which was closed for remodeling during part of
1998. This increase was somewhat offset by decreased revenue from the Studio
Cafe due to its closure for remodeling during part of 1999. MGM Grand Australia
reported food and beverage revenues of $5.8 million, representing an increase of
$.1 million (1.8%) when compared with $5.7 million during the prior year as a
result of higher food covers in the current year. NYNY and the Primm Properties
contributed food and beverage revenues of $10.2 million and $23.3 million,
respectively, since the Merger on March 1, 1999. MGM Grand Detroit Casino
contributed $10.2 million to food and beverage revenues since the opening of the
property on July 29, 1999.
Consolidated entertainment, retail and other revenues increased $97.9
million (86%) from $113.9 million in 1998 to $211.8 million in 1999. MGM Grand
Las Vegas reported entertainment, retail and other revenues of $134.4 million
during 1999, an increase of $26 million (24%) when compared with $108.4 million
in 1998. This increase was the result of higher entertainment revenues in 1999,
which included two heavyweight boxing matches, as well as increased tenant
rental and spa revenues and the addition of the Wedding Chapel and other
amenities in 1999. The increase was somewhat offset by lower theme park revenues
due to management's decision to further reduce the theme park's operational
schedule, resulting in fewer operating days in the current year compared with
the prior year. The Company had increased management and development fees from
MGM Grand South Africa, Inc. ("MGM Grand South Africa") of $8.7 million during
1999 compared with $6 million in 1998, due to the opening of the Johannesburg
temporary casino in September 1998. Since the Merger on March 1, 1999, NYNY and
the Primm Properties contributed entertainment, retail and other revenues of
$33.1 million and $34.8 million, respectively. MGM Grand Detroit contributed $1
million to entertainment, retail and other revenues since the opening of the
property on July 29, 1999.
Income from unconsolidated affiliate, representing the Company's 50% share
of NYNY's operating income, was $6.1 million representing a decrease of $32.3
million when compared with $38.4 million during the prior year. The reduction in
earnings from NYNY 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, Other Non-Recurring
charges and Corporate expense) for 1999 were $1,095.8 million, representing an
increase of $464.2 million (73.5%) when compared with $631.6 million for 1998.
MGM Grand Las Vegas operating expenses increased $63 million (10.4%) from $604.5
million in 1998 to $667.5 million in 1999. The increase was 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 two heavyweight boxing matches held in the current year, and higher food and
beverage expenses from increased revenues primarily from the Grand Buffet, which
was closed during part of the 1998 period. MGM Grand Australia operating
expenses increased $2.5 million (9.6%) from $26 million in 1998 to $28.5 million
in 1999. These increases were primarily due to increased casino expenses
resulting from higher gaming taxes related to increased revenues and a higher
gaming tax rate of 20% compared to 17.5% in the prior year. NYNY and the Primm
Properties added operating expenses of $116.8 million and $154.9 million,
respectively, since the Merger on
26 MGM Grand Inc.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
March 1, 1999. MGM Grand Detroit Casino added $127.5 million in operating
expenses since the opening of the property on July 29, 1999.
Preopening and other non-recurring expenses for the year ended December 31,
1999 of $71.5 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 $46.5 million or $0.38 per diluted share, net of
taxes.
Corporate expense was $14.5 million in 1999 compared with $10.7 million in
1998, representing an increase of $3.8 million. The increase was largely due to
non-cash amortization expense in the current year associated with the issuance
of stock options to non-employees of the Company.
Interest income of $2.1 million for the year ended December 31, 1999,
decreased by $10.9 million from $13 million in 1998. The decrease was
attributable to lower invested cash balances compared with the prior year.
Interest expense for the year ended December 31, 1999 of $59.9 million (net
of amounts capitalized) increased by $35.3 million when compared with $24.6
million in 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. Also, the Company incurred additional
interest expense during 1999 due to borrowings related to the repurchase of 12
million shares in July 1999 (see Note 11). The Company recognized interest
expense from its unconsolidated affiliate of $1.1 million during 1999 compared
with $8.4 million during 1998. The decrease of $7.3 million was due to the
Merger with Primadonna, on March 1, 1999, at which time 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.
Income tax provision of $55 million has been recorded at a rate of 36.6%
for the year ended December 31, 1999, compared with $40.6 million in 1998 at a
rate of 37%. At December 31, 1999, the Company believes that it is more likely
than not that its deferred tax assets are fully realizable because of the future
reversal of existing taxable temporary differences and future projected taxable
income. Accordingly, there is no valuation allowance at December 31, 1999.
Extraordinary loss of $.9 million in 1999, net of income tax benefit,
reflects the write-off of unamortized debt costs from the NYNY LLC bank
facility, which was extinguished on March 31, 1999 (see Note 9).
Cumulative effect of change in accounting principle of $8.2 million in
1999, net of income tax benefit, reflects the Company's adoption of Statement of
Position 98-5 ("SOP 98-5") which requires that costs associated with start-up
activities must be expensed as incurred.
1998 Compared with 1997
Net revenues for the year ended December 31, 1998 were $773.9 million,
representing a decrease of $53.7 million (6.5%) when compared with $827.6
million during the prior year. The decrease in net revenues was largely due to
lower income from the Company's 50% ownership in NYNY and decreased casino
revenues largely due to unusually low table game hold percentages, partially
offset by higher food and beverage revenues.
Consolidated casino revenues for the year ended December 31, 1998 were
$410.6 million, representing a decrease of $46.6 million (10.2%) when compared
with $457.2 million during the prior year. MGM Grand Las Vegas casino revenues
were $383.3 million, representing a decrease of $46.6 million (10.8%) when
compared with $429.9 million during 1997. The reduction in casino revenues at
MGM Grand Las Vegas was primarily a result of lower table games and baccarat win
percentages. MGM Grand Australia reported casino revenues of $27.3 million,
which were flat when compared with the prior year.
Consolidated room revenues for 1998 were $171.3 million, which were flat
when compared with the prior year. MGM Grand Las Vegas room revenues were $169.7
million in 1998, representing an increase of $.4 million (.2%) when compared
with $169.3 million in the prior year. The increase was due to a greater number
of rooms in service during 1998 compared to 1997 despite lower occupancy of
94.4% in 1998 when compared with 94.5% in 1997, and a slightly lower average
daily room rate of $99 in 1998 versus $100 in 1997. MGM Grand Australia room
revenues were $1.8 million for the year ended December 31, 1998, representing a
decrease of $.4 million (18.2%) when
27 MGM Grand Inc.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
compared with $2.2 million for the prior year. The decrease was due to a lower
average daily room rate for 1998 of $61 compared with $89 for 1997 resulting
from a lower average exchange rate in the current year when compared with the
prior year, somewhat offset by a higher occupancy of 74.8% for 1998 compared
with 60.5% in 1997.
Consolidated food and beverage revenues for 1998 were $105.9 million,
representing an increase of $13.3 million (14.4%) when compared with $92.6
million for the prior year. The increase was attributable to MGM Grand Las Vegas
which had food and beverage revenues of $100.3 million during 1998, an increase
of $14.2 million (16.5%) when compared with $86.1 million in 1997. This increase
resulted from additional banquet revenues generated from the Conference Center,
which opened on April 16, 1998, and the operation of the Studio 54 nightclub,
which opened in late December 1997. MGM Grand Australia reported food and
beverage revenues of $5.7 million, representing a decrease of $.9 million
(13.6%) when compared with $6.6 million during the prior year as a result of the
lower average exchange rate in the current year.
Consolidated entertainment, retail and other revenues decreased $2.6
million (2.3%) from $116.5 million in 1997 to $113.9 million in 1998. The
decrease was attributable to MGM Grand Las Vegas which had lower theme park
revenues due to management's decision to change the theme park's operational
schedule from a year-round park to a seasonal park. These decreases were
partially offset by increases in entertainment revenues from MGM Grand Garden
Arena and EFX, conference revenue from the opening of the Conference Center and
management and development fees from MGM Grand South Africa.
Income from unconsolidated affiliate, representing the Company's 50% share
of NYNY's operating income, for 1998 was $38.4 million representing a decrease
of $15.4 million (28.6%) when compared with $53.8 million during the prior year.
The reduction in earnings from NYNY is a result of the unprecedented public
response NYNY received during its first year of operations.
Consolidated operating expenses (before Master Plan asset disposition and
Corporate expense) for 1998 were $631.6 million, representing an increase of $27
million (4.5%) when compared with $604.6 million for 1997. The increase was
attributable to MGM Grand Las Vegas, offset by decreases at MGM Grand Australia.
The increases at MGM Grand Las Vegas were due primarily to increased room
expenses associated with the higher occupancy and increased food and beverage
expenses associated with the addition of the Studio 54 night club and the
additional banquet expenses for the Conference Center. Additionally, the
provision for doubtful accounts and discounts increased by $8.6 million at MGM
Grand Las Vegas due to possible changes in anticipated collectibility of
receivables given uncertain economic conditions in Asia, along with higher
depreciation expense due to Master Plan assets placed in service. These
increases were partially offset by lower casino expenses due to a reduction in
casino taxes and the absence of a championship boxing event in the current year.
MGM Grand Australia operating expenses decreased $4.4 million (14.5%) from $30.4
million in 1997 to $26 million in 1998 as a result of continuing cost
containment efforts and a lower average exchange rate in the current year.
Master Plan asset disposition relates to the write-off of various assets
related to the transformation of MGM Grand Las Vegas into "The City of
Entertainment." The prior year charge of $28.6 million (pre-tax) resulted from
the increase in the scope of the project from $250 million to approximately $570
million (see Note 16).
Corporate expense was $10.7 million in 1998 compared with $3.4 million in
1997, representing an increase of $7.3 million. The increase was due to higher
operating expenses in the current year and the $5.9 million reversal of stock
price guarantee amortization that occurred in the prior year (see Note 11).
Interest income of $13 million for the year ended December 31, 1998,
increased by $11.7 million from $1.3 million in 1997. The increase was
attributable to higher invested cash balances primarily from the proceeds of the
Senior Collateralized Notes (see Note 9).
Interest expense for the year ended December 31, 1998, of $24.6 million
(net of amounts capitalized) increased by $23.4 million when compared with $1.2
million in 1997. The increase in 1998 was primarily due to the issuance of the
Senior Collateralized Notes (See Note 9). Also, the Company recognized interest
expense from its unconsolidated affiliate of $8.4 million during 1998 compared
with $9.9 million during
28 MGM Grand Inc.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
the same period in 1997. The decrease of $1.5 million was due to the reduction
of debt at New York-New York Hotel and Casino, LLC ("NYNY LLC").
Income tax provision of $40.6 million has been recorded at a rate of 37%
for the year ended December 31, 1998, compared with $65 million in 1997 at a
rate of 36.1%. At December 31, 1998, the Company believes that it is more likely
than not that its deferred tax assets are fully realizable because of the future
reversal of existing taxable temporary differences and future projected taxable
income. Accordingly, there is no valuation allowance at December 31, 1998.
Extraordinary loss of $4.2 million in 1997, net of income tax benefit,
reflects the write-off of unamortized debt costs from the Company's previous
$600 million Senior Reducing Revolving Credit Facility (see Note 9).
Impact of the Year 2000 Issue
The Year 2000 Issue was the result of computer programs being written using
two digits rather than four digits to define the applicable year, which may have
resulted in system failures and disruptions to operations at January 1, 2000.
The Company's Year 2000 Remediation program required a few enhancements to
ensure there was no disruption to the Company's operations and those
enhancements were not material to the Company's financial position or results of
operations. During 1999, the Company incurred costs to modify existing computer
systems of approximately $2.1 million. Subsequent to January 1, 2000, the
Company has experienced no major disruptions in operations due to the Year 2000
Issue.
Liquidity and Capital Resources
As of December 31, 1999 and 1998, the Company held cash and cash
equivalents of $121.5 million and $82 million, respectively. Cash provided by
operating activities for 1999 was $289.9 million, compared with $171.7 million
for 1998.
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 night club 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.
During the year ended December 31, 1999, capital expenditures totaled
$375.3 million. MGM Grand Las Vegas expended $83.1 million related to the Master
Plan project and $95.5 million related to general property and equipment
improvements. MGM Grand Australia expended $.5 million for general property and
equipment improvements. Since the Merger on March 1, 1999, NYNY expended $11.7
million and the Primm Properties expended $7.9 million for general property
improvements. MGM Grand Detroit, LLC expended $161.9 million for the
construction of its interim casino facility. MGM Grand Atlantic City continued
the development of its planned new destination resort by expending $14.7 million
for land acquisitions and pre-construction activities.
The Company made no capital contributions to NYNY LLC during 1999 and 1998.
The Company received no distributions from NYNY LLC during 1999. The Company
received $4.1 million in distributions from NYNY LLC during 1998 to pay taxes on
its allocated share of income.
During the year ended December 31, 1998, capital expenditures totaled
$361.9 million. MGM Grand Las Vegas expended $304.8 million related to the
Master Plan project and $32 million related to general property and equipment
improvements. MGM Grand Australia expended $1.8 million for general property and
equipment improvements. MGM Grand Detroit, LLC expended $5 million for the
construction of its interim casino facility. MGM Grand Atlantic City continued
the development of its planned new destination resort by expending $5.5 million
for land acquisitions and pre-construction activities. The Company also expended
$12.8 million primarily for the purchase of a corporate jet.
29 MGM Grand Inc.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Capital expenditures are expected to decrease significantly in 2000 to
approximately $250.2 million as a result of the completion of the transformation
of MGM Grand Las Vegas into "The City of Entertainment" during 1999, as well as
the completion of the Detroit interim facility in 1999. MGM Grand Las Vegas
expenditures for 2000 are expected to be approximately $141.6 million, including
room remodeling, the completion of a championship golf course which is expected
to open in late 2000, and general property and equipment improvements. NYNY
plans to expend approximately $5.4 million for general property and equipment
improvements. The Primm Properties plan to expend approximately $11.1 million
for general property and equipment improvements. MGM Grand Australia plans to
expend approximately $2 million for general property and equipment improvements.
MGM Grand Detroit, LLC plans to expend approximately $83.9 million, consisting
of $76.4 million related to land acquisitions and pre-construction activities
for the permanent facility and approximately $7.5 million for general property
and equipment improvements for the interim facility. Approximately $6.2 million
is anticipated to be expended for land acquisitions and pre-construction
activities relating to the Company's MGM Grand Atlantic City project. In
conjunction with the proposed merger with Mirage Resorts, Incorporated
("Mirage"), the Company may incur additional capital expenditures related to the
maintenance of the Mirage properties (see Note 20).
On July 1, 1996, the Company secured a $500 million Senior Reducing
Revolving Credit Facility with BA Securities (the "Facility"), an affiliate of
Bank of America NT&SA. In August 1996, the Facility was increased to $600
million. In July 1997, the Facility was amended, extended and increased to $1.25
billion (the "New Facility"), with provisions to allow an increase of the New
Facility to $1.5 billion as well as to allow additional pari passu debt
financing up to $500 million. As a result of the New Facility, the Company
recognized an extraordinary loss of approximately $4.2 million, net of tax
benefit, due to the write-off of unamortized debt costs from the Facility during
1997. The New Facility contains various restrictive covenants on the Company,
which include the maintenance of certain financial ratios and limitations on
additional debt, dividends, capital expenditures and disposition of assets. The
New Facility also restricts certain acquisitions and similar transactions.
Interest on the New Facility is based on the bank reference rate or Eurodollar
rate and as of December 31, 1999, the Company's borrowing rate was approximately
6.8%. 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 begin 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
1999, $782 million was drawn down on the New Facility of which $612 million
remained outstanding as of December 31, 1999. During 1999, 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/or equity securities. On February 2 and February 6, 1998, the Company
completed public offerings totaling $500 million of Senior Collateralized Notes
in tranches of 7 and 10 years. The 7-year tranche of $300 million carries a
coupon of 6.95%, while the 10-year tranche of $200 million carries a coupon of
6.875% (see Note 9). Both tranches are initially secured equally and ratably
with the New Facility, and the security may be removed equally with the New
Facility at the Company's option upon the occurrence of certain events,
including the maintenance of investment grade ratings. The Senior Collateralized
Notes are pari passu with the New Facility and contain various restrictive
covenants, as does the New Facility. The Company received net proceeds of
approximately $294.1 million and $197.1 million on the 7-year and 10-year
tranches, respectively.
On September 15, 1995, NYNY LLC completed its bank financing for up to $225
million, which was increased to $285 million during September 1996. The non-
revolving construction line of credit converted to a five-year reducing revolver
upon completion of construction and commencement of operations of
30 MGM Grand Inc.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NYNY on January 3, 1997. On October 8, 1998, NYNY LLC's five-year reducing
revolver was amended and reduced to $210 million. Following the Merger with
Primadonna, the Company used $157.9 million from the New Facility to extinguish
the NYNY bank facility on March 31, 1999. On January 21, 1997, NYNY LLC
completed an additional $20 million equipment financing with a financial
institution. As of December 31, 1999, $11.4 million remained outstanding related
to the equipment financing.
On September 7, 1995, the Company completed the acquisition of MGM Grand
Australia (formerly the Diamond Beach Hotel/Casino) in Darwin, Australia. The
acquisition cost was financed by an Australian bank facility which provided a
total availability of approximately $68.7 million (AUD $105 million) and
includes funding for general corporate purposes. During 1999, the facility was
reduced by principal payments totaling $10 million (AUD $15.3 million) made in
accordance with the terms of the bank facility, and as of December 31, 1999,
$37.8 million (AUD $57.8 million) remained outstanding. Interest on the
Australian facility is based on the bank bill rate and was approximately 5.8%
and 5.3% as of December 31, 1999 and 1998, respectively. The facility matures in
December 2004, and the indebtedness has been 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. During the year ended December 31, 1999, no amounts were borrowed
under the line of credit and no amounts were outstanding as of December 31, 1999
and 1998, respectively.
On June 23, 1998, the Company announced a $17.50 per share cash tender
offer for up to 12 million shares of Company common stock as part of a 24
million share repurchase program. The offer commenced on July 2, 1998 and
expired on July 31, 1998. Based upon the final results, 21.6 million shares of
the Company's common stock were tendered, and accordingly, the shares were
prorated. The total acquisition cost of the 12 million shares was approximately
$210.6 million.
On March 1, 1999, the Company completed the Merger with Primadonna Resorts,
Inc. for 19 million shares of the Company's common stock valued at approximately
$243.6 million plus the assumption of debt totaling $315.2 million. Primadonna
shareholders received .66 shares of the Company's common stock for every
Primadonna share held. Following the Merger with Primadonna, the Company used
$216.6 million from the New Facility to extinguish the Primadonna bank facility
on March 31, 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 interim and permanent casino complexes, as well as for
general working capital purposes. 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 interim facility and is guaranteed by the
Company. During 1999, $181 million was drawn down on the Detroit Facility of
which $169 million remained outstanding as of December 31, 1999.
On June 10, 1999, the Company announced a $25.00 per share cash tender
offer for up to 12 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, 30.2 million shares of the Company's common stock were tendered, and
accordingly, the shares were prorated. The total acquisition cost of the 12
million 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 completed the
acquisition of the remaining 12 million shares offered in the 24 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 10 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 December 31, 1999,
the Company purchased 565,200 shares for an approximate cost of $13.2 million.
On December 13, 1999, the Board of Directors approved a two-for-one split
of the Company's
31 MGM Grand Inc.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
common stock and declared an initial quarterly cash dividend of $0.10 per share,
after giving effect to the stock split. The additional shares were distributed
on February 25, 2000 to stockholders of record on February 10, 2000. The cash
dividend was paid on March 1, 2000 to stockholders of record on February 10,
2000. All references to share and per share data herein have been adjusted
retroactively to give effect to the stock split. Concurrently, the Board of
Directors increased the number of authorized shares of the Company's common
stock from 75 million shares to 300 million shares.
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 (see Note 9).
On March 6, 2000, the Company and Mirage entered into a definitive merger
agreement whereby the Company will acquire all of the outstanding shares of
Mirage for $21 per share in cash plus the assumption of debt. The Company
intends to finance this acquisition and all costs related to the merger through
a new bank facility and debt and equity securities. Any public offering of
securities will only be made by means of a prospectus (see Note 20).
Market risk is the risk of loss arising from adverse changes in market
rates and prices, foreign currency exchange rates and commodity prices. The
Company's primary exposure to market risk is interest rate risk associated with
the Company's long-term debt. The Company attempts to limit their exposure to
interest rate risk through the mix of long-term and short-term borrowings under
the Senior Collateralized Notes and New Facility.
Safe Harbor Provision
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in this
Annual Report 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).
32 MGM Grand Inc.
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(in thousands, except share data)
For the years ended December 31, 1999 1998 1997
--------------------------------------------
<S> <C> <C> <C>
Revenues:
Casino................................................................. $ 873,781 $ 410,605 $ 457,206
Rooms.................................................................. 251,207 171,292 171,272
Food and beverage...................................................... 161,301 105,875 92,594
Entertainment, retail and other........................................ 211,837 113,948 116,458
Income from unconsolidated affiliate.................................. 6,084 38,362 53,800
--------------------------------------------
1,504,210 840,082 891,330
Less: Promotional allowances.......................................... 112,560 66,219 63,733
--------------------------------------------
1,391,650 773,863 827,597
--------------------------------------------
Expenses:
Casino................................................................. 417,491 221,439 225,896
Rooms.................................................................. 75,064 47,767 45,848
Food and beverage...................................................... 100,871 67,101 55,124
Entertainment, retail and other........................................ 119,324 75,192 79,605
Provision for doubtful accounts and discounts.......................... 47,157 40,455 31,814
General and administrative............................................. 209,938 103,362 102,246
Depreciation and amortization.......................................... 125,985 76,284 64,104
--------------------------------------------
1,095,830 631,600 604,637
--------------------------------------------
Operating Profit Before Master Plan Asset Disposition,
Preopening and Other and Corporate Expense........................... 295,820 142,263 222,960
Master Plan asset disposition.......................................... - - 28,566
Preopening and other................................................... 71,495 - -
Corporate expense...................................................... 14,457 10,689 3,424
--------------------------------------------
Operating Income.................................................... 209,868 131,574 190,970
--------------------------------------------
Nonoperating Income (Expense):
Interest income........................................................ 2,142 12,997 1,268
Interest expense, net of amounts capitalized........................... (59,853) (24,613) (1,242)
Interest expense from unconsolidated affiliate......................... (1,058) (8,376) (9,891)
Other, net............................................................. (946) (2,054) (804)
--------------------------------------------
(59,715) (22,046) (10,669)
--------------------------------------------
Income Before Income Taxes, Extraordinary Item and
Cumulative Effect of Change in Accounting Principle................. 150,153 109,528 180,301
Provision for income taxes............................................. (55,029) (40,580) (65,045)
--------------------------------------------
Income Before Extraordinary Item and
Cumulative Effect of Change in Accounting Principle................. 95,124 68,948 115,256
Extraordinary Item:
Loss on early extinguishment of debt, net of income tax benefits
of $484 and $2,333................................................... (898) - (4,238)
Cumulative Effect of Change in Accounting Principle:
Preopening costs, net of income tax benefit of $4,399.................. (8,168) - -
--------------------------------------------
Net Income............................................................. $ 86,058 $ 68,948 $ 111,018
============================================
Basic Income Per Share of Common Stock:
Income before extraordinary item and cumulative effect of change
in accounting principle............................................. $0.82 $0.62 $ 1.01
Extraordinary item - loss on early extinguishment of debt, net......... (0.01) - (0.04)
Cumulative effect of change in accounting principle -
preopening costs, net............................................... (0.07) - -
--------------------------------------------
Net Income per share................................................... $0.74 $0.62 $ 0.97
============================================
Weighted Average Shares Outstanding............................................. 116,580,000 111,356,000 114,950,000
============================================
Diluted Income Per Share of Common Stock:
Income before extraordinary item and cumulative effect of change
in accounting principle............................................. $0.80 $0.61 $ 0.98
Extraordinary item - loss on early extinguishment of debt, net......... (0.01) - (0.04)
Cumulative effect of change in accounting principle -
preopening costs, net............................................... (0.07) - -
--------------------------------------------
Net Income per share................................................... $0.72 $0.61 $ 0.94
============================================
Weighted Average Shares Outstanding............................................. 120,086,000 112,684,000 117,670,000
============================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
33 MGM Grand Inc.
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(in thousands, except share data)
As of December 31, 1999 1998
--------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents..................................................... $ 121,522 $ 81,956
Accounts receivable, net...................................................... 83,101 64,280
Prepaid expenses.............................................................. 32,598 11,829
Inventories................................................................... 15,240 11,081
Deferred tax asset............................................................ 17,452 34,098
--------------------------
Total current assets.......................................................... 269,913 203,244
--------------------------
Property and Equipment, net............................................................ 2,390,524 1,327,722
Other Assets:
Investment in unconsolidated affiliates....................................... 12,485 134,025
Excess of purchase price over fair market value
of net assets acquired, net.............................................. 36,550 37,574
Deposits and other assets, net................................................ 51,271 66,393
--------------------------
Total other assets....................................................... 100,306 237,992
--------------------------
$2,760,743 $1,768,958
==========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.............................................................. $ 38,018 $ 23,931
Construction payable.......................................................... 7,896 17,403
Income taxes payable.......................................................... 3,296 2,457
Dividend payable.............................................................. 11,388 -
Current obligation, capital leases............................................ 5,145 5,086
Current obligation, long term debt............................................ 7,852 10,077
Accrued interest.............................................................. 18,915 14,630
Other accrued liabilities..................................................... 197,580 110,945
--------------------------
Total current liabilities................................................ 290,090 184,529
--------------------------
Deferred Revenues...................................................................... 4,241 5,219
Deferred Income Taxes.................................................................. 108,713 77,165
Long Term Obligation, Capital Leases................................................... 12,864 2,867
Long Term Debt......................................................................... 1,310,989 534,797
Commitments and Contingencies..........................................................
Stockholders' Equity:
Common stock ($.01 par value, 300,000,000 shares authorized,
138,445,048 and 116,066,188 shares issued and outstanding)................. 1,384 1,161
Capital in excess of par value................................................ 1,261,625 968,199
Treasury stock, at cost (24,565,200 and 12,000,000 shares).................... (505,824) (210,589)
Retained earnings............................................................. 267,165 192,606
Other comprehensive income.................................................... 9,496 13,004
--------------------------
Total stockholders' equity............................................... 1,033,846 964,381
--------------------------
$2,760,743 $ 1,768,958
==========================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
34 MGM Grand Inc.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(In thousands)
For the years ended December 31, 1999 1998 1997
-----------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income................................................................. $ 86,058 $ 68,948 $ 111,018
Adjustments to reconcile net income to net cash from
operating activities:
Loss on early extinguishment of debt........................... 1,382 - 6,571
Master Plan asset disposition.................................. - - 28,566
Cumulative effect of change in accounting principle............ 12,567 - -
Amortization of debt offering costs............................ 1,958 1,849 1,127
Depreciation and amortization.................................. 126,756 76,712 64,244
Provision for doubtful accounts and discounts.................. 47,157 40,455 31,814
Deferred income taxes.......................................... 27,489 14,530 48,100
Unconsolidated affiliate, earnings in excess of distributions.. (5,026) (25,866) (28,749)
Change in assets and liabilities:
Accounts receivable............................................ (41,401) (30,594) (30,262)
Prepaid expenses............................................... (9,332) (1,377) 2,756
Inventories.................................................... (4,067) 4,314 (4,035)
Income taxes payable........................................... (5,966) 2,457 (23,653)
Accounts payable, accrued liabilities, and other............... 52,887 20,799 (24,185)
Currency translation adjustment................................ (585) (547) 700
-----------------------------------
Net cash provided from operating activities.............. 289,877 171,680 184,012
-----------------------------------
Cash Flows from Investing Activities:
Purchases of property and equipment............................ (375,260) (361,942) (227,756)
Merger with Primadonna Resorts, Inc............................ (13,346) - -
Dispositions of property and equipment, net.................... 6,487 599 202
Change in construction payables................................ (9,507) (15,973) 32,418
Investment in unconsolidated affiliates........................ (2,133) (800) (7,190)
Deposits and other assets...................................... 7,066 (27,617) 548
-----------------------------------
Net cash used in investing activities.................... (386,693) (405,733) (201,778)
-----------------------------------
Cash Flows from Financing Activities:
Issuance of long term debt..................................... - 500,000 -
Repayments to banks and others................................. (9,955) (9,720) (11,839)
Borrowings under lines of credit............................... 963,000 31,000 25,500
Repayments of lines of credit.................................. (197,000) (31,000) (25,500)
Extinguishment of debt......................................... (374,500) - -
Purchase of treasury stock..................................... (295,235) (210,589) -
Issuance of common stock....................................... 50,072 1,712 2,799
-----------------------------------
Net cash provided by (used in) financing activities...... 136,382 281,403 (9,040)
-----------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents....................... 39,566 47,350 (26,806)
Cash and Cash Equivalents at Beginning of Year............................. 81,956 34,606 61,412
-----------------------------------
Cash and Cash Equivalents at End of Year................................... $ 121,522 $ 81,956 $ 34,606
===================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
35 MGM Grand Inc.
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
In thousands except share data)
Common Capital in Other Total
For the years ended Stock Common Excess of Treasury Retained Comprehensive Stockholders'
December 31, 1999, Outstanding Stock ParValue Stock Earnings Income Equity
1998, and 1997 --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1996............... 115,767,532 $1,158 $ 963,688 $ - $ 12,642 $(4,106) $ 973,382
Issuance of common stock
pursuant to stock option
grants.......................... 144,604 2 1,093 - (1) - 1,094
Employee stock incentive
issuance........................ 57,610 - 1,142 - - - 1,142
Tax benefit
from stock option exercises..... - - 564 - - - 564
Net income........................... - - - - 111,018 - 111,018
Currency translation
adjustment...................... - - - - - 14,422 14,422
----------------------------------------------------------------------------------------
Balance at
December 31, 1997............... 115,969,746 1,160 966,487 - 123,659 10,316 1,101,622
Issuance of common stock
pursuant to stock option
grants.......................... 96,442 1 1,315 - (1) - 1,315
Treasury stock....................... - - - (210,589) - - (210,589)
Tax benefit
from stock option exercises..... - - 397 - - - 397
Net income........................... - - - - 68,948 - 68,948
Currency translation
adjustment...................... - - - - - 2,688 2,688
-----------------------------------------------------------------------------------------
Balance at
December 31, 1998 .............. 116,066,188 1,161 968,199 (210,589) 192,606 13,004 964,381
Issuance of common stock
pursuant to stock option
grants.......................... 3,358,254 33 43,096 - (16) - 43,113
Issuance of common stock
for Primadonna Merger........... 19,020,606 190 243,371 - (95) - 243,466
Treasury stock....................... - - - (295,235) - - (295,235)
Tax benefit
from stock option exercises..... - - 6,959 - - - 6,959
Dividend payable - - - - (11,388) - (11,388)
Net income........................... - - - - 86,058 - 86,058
Currency translation
adjustment...................... - - - - - (3,508) (3,508)
-----------------------------------------------------------------------------------------
Balance at
December 31, 1999............... 138,445,048 $1,384 $1,261,625 $(505,824) $267,165 $ 9,496 $1,033,846
=========================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
36 MGM Grand Inc.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Organization
------------------------------------------------------------
MGM Grand, Inc. (the "Company") is a Delaware corporation incorporated on
January 29, 1986. As of December 31, 1999, Kirk Kerkorian and Tracinda
Corporation ("Tracinda"), a Nevada corporation wholly-owned by Kirk Kerkorian,
owned approximately 63% of the outstanding shares of the Company's common stock.
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.
Prior to March 1, 1999, the Company and Prima-donna Resorts, Inc.
("Primadonna") each owned 50% of New York-New York Hotel and Casino, LLC ("NYNY
LLC"). On March 1, 1999, the Company completed a merger (the "Merger") with
Primadonna Resorts, Inc., and as part of the Merger, acquired Primadonna's 50%
ownership interest in NYNY LLC, which owned and operated the destination resort
called New York-New York Hotel and Casino ("NYNY") in Las Vegas, Nevada.
Consequently, as of March 1, 1999, Primadonna and NYNY LLC are wholly-owned
subsidiaries of the Company. 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. The Merger also 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 one mile from the Primm Properties.
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
to construct, own and operate one of Detroit's three new casinos. Construction
of the new hotel/casino 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 its interim facility ("MGM Grand Detroit
Casino"), which commenced operations on July 29, 1999. The MGM Grand Detroit
Casino is located in the former Internal Revenue Service building located
directly off of the Lodge freeway in downtown Detroit, Michigan.
Through its wholly-owned subsidiary, MGM Grand Australia Pty Ltd., the
Company owns and operates the MGM Grand Hotel/Casino in Darwin, Australia ("MGM
Grand Australia"), which is located on 18 acres of beachfront property on the
north central coast of Australia.
Through its wholly-owned subsidiary, MGM Grand South Africa, Inc., the
Company manages one permanent and two temporary casinos throughout various
provinces of the Republic of South Africa. The permanent casino in Nelspruit
began operations on November 17, 1999, the temporary casino in Witbank began
operations on March 10, 1998 and the temporary 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 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 hotel/casino 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.
37 MGM Grand Inc.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2. Significant Accounting Policies and Basis of Presentation
------------------------------------------------------------------------
a. Principles of Consolidation -- The consolidated financial statements
include the accounts of the Company and its subsidiaries. Investments in
unconsolidated affiliates which are 50% or less owned are accounted for under
the equity method. All significant intercompany balances and transactions have
been eliminated in consolidation.
b. Management's Use of Estimates -- The consolidated financial statements
have been prepared in conformity with generally accepted accounting principles.
Those principles require management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
c. Cash and Cash Equivalents -- Cash and cash equivalents consist of
investments in bank certificates of deposit and other interest bearing
instruments with initial maturities of three months or less. Such investments
are carried at cost which approximates market value.
d. Accounts Receivable -- Accounts receivable are due within one year and
are recorded net of amounts estimated to be uncollectible.
e. Inventories -- Inventories are stated at the lower of cost or market.
Cost is determined by the first-in, first-out method.
f. Property and Equipment -- Property and equipment are stated at cost.
Maintenance and repairs that neither materially add to the value of the property
nor appreciably prolong its life are charged to expense as incurred. Gains or
losses on dispositions of property and equipment are included in the
determination of income. Depreciation and amortization are provided on a
straight-line basis over the estimated useful lives of the assets as follows:
Buildings and improvements 15 to 40 years
Equipment, furniture and fixtures 3 to 7 years
Land improvements 10 to 15 years
Leasehold improvements 5 to 20 years
Capital leases are depreciated on the estimated useful life or life of the
lease, whichever is shorter.
g. Excess of Purchase Price over Fair Market Value of Net Assets Acquired
- -- The excess of purchase price over fair market value of net assets acquired is
amortized on a straight-line basis over 40 years.
h. Other Assets -- The cost of normal hotel operating quantities of china,
silverware, glassware and utensils is recorded as an asset and is depreciated.
Direct costs related to the debt offering and bank financing are being deferred
and amortized over the debt repayment periods.
i. Casino Revenues and Promotional Allowances -- Casino revenue is the
aggregate of gaming wins and losses. The retail value of accommodations, food
and beverage, and other services furnished to hotel/casino guests without charge
is included in gross revenue and then deducted as promotional allowances. The
estimated retail value of these promotional allowances was $112.6 million, $66.2
million and $63.7 million for the years ended December 31, 1999, 1998 and 1997,
respectively.
The estimated cost of providing such promotional allowances was included in
closing expenses as follows:
<TABLE>
<CAPTION>
(In thousands)
Years Ended December 31, 1999 1998 1997
---------------------------
<S> <C> <C> <C>
Rooms.................................................. $18,627 $11,304 $ 9,841
Food and beverage...................................... 42,681 26,826 28,436
Other.................................................. 11,701 4,011 2,235
---------------------------
$73,009 $42,141 $40,512
===========================
</TABLE>
j. Currency Translation -- The Company accounts for currency translation in
accordance with Statement of Financial Accounting Standards No. 52, "Foreign
Currency Translation." The Australian results of operations and the balance
sheet are translated from Australian dollars to US dollars. Certain fixed assets
and intangibles are valued at historical exchange rates, while other balance
sheet accounts are translated at the
38 MGM Grand Inc.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
exchange rate in effect at each year-end. Income accounts are translated at the
average rate of exchange prevailing during the year.
k. Net Income Per Common Share -- Basic income per share of common stock is
computed based on the weighted average number of shares of common stock
outstanding during the period. Diluted income per share of common stock is
computed based on the assumption that options issued to employees are exercised
and repurchased at the average price for the periods presented (see Notes 13 and
14).
l. Capitalized Interest -- The Company capitalizes interest costs
associated with debt incurred in connection with major construction and
development projects. The Company capitalizes interest on amounts expended on
projects at the Company's weighted average cost of the borrowed funds (see Note
9), and based upon the weighted average amount of the Company's outstanding
borrowings. Capitalization of interest ceases when the project is completed.
m. Corporate Expense -- Corporate expense represents unallocated payroll
costs, professional fees, and various other expenses not directly related to the
Company's hotel/casino operations. In addition, corporate expense includes the
costs associated with the Company's evaluation and pursuit of new business
opportunities, which are expensed as incurred until development of a specific
project has become relatively certain.
n. Reclassifications -- The consolidated financial statements for prior
years reflect certain reclassifications to conform with the current year
presentation, which have no effect on previously reported net income.
o. Change in Accounting Principle -- 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 $44.3 million and $.2 million in
preopening expense related to the Detroit and Atlantic City projects,
respectively, and $5.7 million related to the Mansion at MGM Grand Las Vegas for
the year ended December 31, 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.
p. Stock Split -- Effective December 13, 1999, the Board of Director's
approved a two-for-one split of the Company's common stock. All references to
share and per share data in the consolidated financial statements and notes
thereto have been adjusted retroactively to give effect to the stock split.
Note 3. Statements of Cash Flows
------------------------------------------------------------
The following supplemental disclosures are provided for the Consolidated
Statements of Cash Flows:
<TABLE>
<CAPTION>
(In thousands)
Years ended December 31, 1999 1998 1997
--------------------------
<S> <C> <C> <C>
Cash payments made for:
Interest, net of amounts capitalized............. $56,035 $23,680 $ 7,916
===========================
State and federal income taxes................... $26,068 $15,900 $43,159
===========================
</TABLE>
During 1997, the Company completed equipment lease financing for
approximately $3.1 million at MGM Grand Las Vegas.
As a result of the Merger (see Note 19), the Company issued stock to
Primadonna shareholders in the amount of approximately $243.6 million and
assumed long-term debt totaling $315.2 million.
39 MGM Grand Inc.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4. Accounts Receivable, net
-----------------------------------------------------------
<TABLE>
<CAPTION>
Components of accounts receivable were as follows:
(In thousands)
At December 31, 1999 1998
--------------------
<S> <C> <C>
Casino................................................. $ 81,418 $ 84,845
Hotel.................................................. 13,390 12,679
Other.................................................. 11,065 3,587
--------------------
105,873 101,111
Less: Allowance for doubtful accounts and discounts... (22,772) (36,831)
--------------------
$ 83,101 $ 64,280
====================
</TABLE>
Credit is issued in exchange for gaming chips at MGM Grand Las Vegas, NYNY,
the Primm Properties and MGM Grand Detroit Casino as permitted by the
regulations of the Nevada Gaming Commission, the Nevada State Gaming Control
Board and the Michigan Gaming Control Board. The Company extends credit,
following an evaluation of credit worthiness, to certain casino patrons, a
substantial portion of whom reside in countries other than the United States.
The Company maintains an allowance for doubtful accounts and discounts which is
based on management's estimate of the amount expected to be uncollectible
considering historical experience and the information management obtains
regarding the credit worthiness of the customer. The collectibility of these
receivables could be affected by future business or economic trends or other
significant events in the countries in which such customers reside. Although
management believes the allowance is adequate, it is possible that the estimated
amount of cash collections with respect to the casino accounts receivable could
change.
Note 5. Property and Equipment, net
------------------------------------------------------------------
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
(In thousands)
At December 31, 1999 1998
-----------------------
<S> <C> <C>
Land........................................................ $ 332,769 $ 107,613
Buildings and improvements.................................. 1,628,761 929,980
Equipment, furniture, fixtures and leasehold improvements... 665,133 304,239
Equipment under capital lease............................... 26,256 18,053
Construction in progress.................................... 130,848 223,772
-----------------------
2,783,767 1,583,657
Less: Accumulated depreciation and amortization............ (393,243) (255,935)
-----------------------
$2,390,524 $1,327,722
=======================
</TABLE>
Note 6. Development Projects
------------------------------------------------
The Company, along with its local partners in Detroit, Michigan, plans to
develop a permanent hotel/casino and entertainment complex at an approximate
cost of $800 million. On November 20, 1997, the Company was chosen to construct,
own and operate one of Detroit's three new casinos. Construction of the
hotel/casino 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. Through December 31, 1999, the Company has expended and
capitalized approximately $4.1 million for licensing, design and construction
costs for the permanent facility.
The Company plans to develop a hotel/casino and entertainment complex in
Atlantic City, New Jersey, at a minimum approximate cost of $700 million, on
approximately 35 acres of land on the Atlantic City Boardwalk. Construction of
the hotel/casino is subject
40 MGM Grand Inc.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
to the receipt of various governmental approvals. On July 24, 1996, the
Company was found suitable for licensing by the New Jersey Casino Control
Commission. Through December 31, 1999, the Company has expended and capitalized
approximately $67.2 million relating primarily to land acquisition and pre-
construction activities.
Note 7. Investments in Unconsolidated Affiliates
-----------------------------------------------------------
On December 28, 1994, the Company and Primadonna formed a joint venture to
construct, own and operate the New York-New York Hotel and Casino (see Note 1).
The hotel/casino opened to the public on January 3, 1997. The Company held a 50%
interest in the joint venture until the Merger on March 1, 1999, whereby it
acquired the remaining 50% interest. Through February 28, 1999, the Company
contributed land on which the property is located and cash totaling $70.7
million. During the two months ended February 28, 1999, the Company received no
distributions from the joint venture to pay taxes on its allocated share of
income. The joint venture secured bank financing of $285 million, which was
subsequently amended and reduced to $210 million, and equipment term loan
financing of $20 million (see Note 9). In addition, the joint venture Partners
executed a joint and several unlimited Keep-Well Agreement in conjunction with
the financing. Following the Merger with Primadonna, the Company extinguished
the joint venture secured bank financing on March 31, 1999 (see Note 9).
Summary condensed financial information for New York-New York Hotel and
Casino, LLC is as follows:
<TABLE>
<CAPTION>
(In thousands)
Years Ended December 31, 1999 1998 1997
--------------------------------
<S> <C> <C> <C>
Net Revenues............... $213,055 $219,107 $255,253
================================
Operating Income........... $ 66,159 $ 76,628 $107,431
================================
Interest Expense, net...... $(11,086) $(16,562) $(19,425)
================================
Net Income................. $ 55,073 $ 60,066 $ 88,006
================================
(In thousands)
At December 31, 1999 1998
--------------------
Total Assets............... $536,217 $451,496
====================
Long-term Debt............. $117,343 $189,361
====================
Members' Equity............ $387,156 $235,176
====================
</TABLE>
Effective December 10, 1993, the Company through its wholly owned
subsidiary, MGM Grand Hotel, Inc., and Bally's Grand Inc. ("Bally's") formed a
50/50 joint venture, MGM Grand-Bally's Monorail, LLC. The joint venture was
formed to construct, own and operate the MGM Grand-Bally's Monorail, which was
completed and commenced operations in June of 1995. The Company contributed $1.3
million, $2 million, and $1.5 million to the joint venture as part of its
operating contribution during 1999, 1998 and 1997, respectively.
Investments in unconsolidated affiliates consisted of the following:
<TABLE>
<CAPTION>
(In thousands)
At December 31, 1999 1998
--------------------
<S> <C> <C>
New York-New York Hotel and Casino, LLC..................................... $ - $122,861
MGM Grand - Bally's Monorail, LLC........................................... 12,485 11,164
--------------------
$12,485 $134,025
====================
</TABLE>
41 MGM Grand Inc.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The changes in the Company's investments in unconsolidated affiliates were as
follows:
<TABLE>
<CAPTION>
(In thousands)
New York-New York Hotel and Casino, LLC 1999 1998
---------------------
<S> <C> <C>
Investment at January 1,................................................................. $ 122,861 $ 96,949
Earnings................................................................................. 5,041 30,032
Distributions received................................................................... - (4,120)
Merger with Primadonna................................................................... (127,902) -
---------------------
Investment at December 31,............................................................... $ - $122,861
=====================
(In thousands)
MGM Grand-Bally's Monorail, LLC 1999 1998
---------------------
Investment at January 1,................................................................. $ 11,164 $ 11,172
Costs of Operations...................................................................... (812) (808)
Additional investments................................................................... 2,133 800
---------------------
Investment at December 31,............................................................... $ 12,485 $ 11,164
=====================
</TABLE>
Note 8. Other Accrued Liabilities
-----------------------------------------------------
Other accrued liabilities consisted of the following:
<TABLE>
<CAPTION>
(In thousands)
At December 31, 1999 1998
---------------------
<S> <C> <C>
Accrued salaries and related............................................................. $ 72,588 $ 38,422
Casino front money....................................................................... 24,090 20,109
Casino chip liability.................................................................... 16,809 12,198
Other liabilities........................................................................ 84,093 40,216
---------------------
$197,580 $110,945
=====================
</TABLE>
Note 9. Long Term Debt
-----------------------------------------------------
Long term debt consisted of the following:
<TABLE>
<CAPTION>
(In thousands)
At December 31, 1999 1998
----------------------
<S> <C> <C>
Senior Reducing Revolving Credit Facility................................................ $ 612,000 $ -
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
MGM Grand Detroit, LLC Credit Facility due April 1, 2003................................. 169,000 -
Australian Hotel/Casino Loan due December 1, 2004........................................ 37,841 44,874
----------------------
1,318,841 544,874
Less: Current maturities................................................................ (7,852) (10,077)
----------------------
$1,310,989 $ 534,797
======================
</TABLE>
Total interest incurred during 1999, 1998 and 1997 was $76.2 million, $40.1
million and $9 million, respectively, of which $16.3 million, $15.5 million and
$7.8 million were capitalized in 1999, 1998 and 1997, 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. As a result of the New Facility, the Company
recognized an extraordinary loss of approximately $4.2 million, net of income
tax benefits, due to the write-off of unamortized debt costs from the Facility
during 1997. The New Facility contains various restrictive covenants on the
Company which include the
42 MGM Grand Inc.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
maintenance of certain financial ratios and limitations on additional debt,
dividends, capital expenditures and disposition of assets. The New Facility also
restricts certain acquisitions and similar transactions. Interest on the New
Facility is based on the bank reference rate or Eurodollar rate and as of
December 31, 1999, the Company's borrowing rate was approximately 6.8%. 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 begin 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 1999, $782 million
was drawn down on the New Facility of which $612 million remained outstanding as
of December 31, 1999. During 1999, 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. The 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. Based on the quoted market value of
the Senior Collateralized Notes at December 31, 1999, the fair value of the 7-
year and 10-year tranches were $275.4 million and $177.9 million, respectively.
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 interim 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 interim facility and is guaranteed by the Company. The Detroit
Facility matures in April 2003. During 1999, $181 million was drawn down on the
Detroit Facility of which $169 million remained outstanding as of December 31,
1999.
On September 7, 1995, the Company completed the acquisition of MGM Grand
Australia (formerly the Diamond Beach Hotel/Casino) in Darwin, Australia. The
acquisition cost was financed by an Australian bank facility which provided a
total availability of approximately $68.7 million (AUD $105 million) and
includes funding for general corporate purposes. During 1999, the facility was
reduced by principal payments totaling $10 million (AUD $15.3 million) made in
accordance with the terms of the bank facility, and as of December 31, 1999,
$37.8 million (AUD $57.8 million) remained outstanding. Interest on the
Australian facility is based on the bank bill rate and was approximately 5.8%
and 5.3% as of December 31, 1999 and 1998, respectively. During 1999, the
maturity of the facility was extended from December 2002 to December 2004. The
indebtness has been 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. During the year ended December 31, 1999, no amounts were borrowed
under the line of credit and no amounts were outstanding as of December 31, 1999
and 1998, respectively.
43 MGM Grand Inc.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Maturities of the Company's long term debt are as follows:
(In thousands)
<TABLE>
<CAPTION>
Years ending December 31,
<S> <C>
2000........................ $ 7,852
2001........................ 23,518
2002........................ 696,519
2003........................ 84,519
2004........................ 6,433
Thereafter.................. 500,000
----------
Total....................... $1,318,841
==========
</TABLE>
On September 15, 1995, NYNY LLC completed its bank financing for up to $225
million, which was increased to $285 million during September 1996. The non-
revolving construction line of credit converted to a five-year reducing revolver
upon completion of construction and commencement of operations of NYNY on
January 3, 1997. On October 8, 1998, the NYNY LLC five-year reducing revolver
was amended and reduced to $210 million. Following the Merger with Primadonna,
the Company used $157.9 million from the New Facility to extinguish the NYNY
bank facility on March 31, 1999. On January 21, 1997, NYNY LLC completed an
additional $20 million equipment financing with a financial institution. As of
December 31, 1999, $11.4 million remained outstanding related to the equipment
financing. During 1999, as a result of extinguishing the NYNY LLC bank
facility, the Company recognized an extraordinary loss of approximately $.9
million, net of income tax benefits, due to the write-off of unamortized debt
costs.
As of December 31, 1999, the Company was in compliance with all covenant
provisions associated with the aforementioned obligations.
Note 10. Commitments and Contingencies
--------------------------------------------------------------
The Company and its subsidiaries lease buildings and equipment under non-
cancelable operating lease agreements which expire at various times through the
year 2004. The leases generally provide that the Company pay taxes, insurance
and maintenance expenses related to leased assets.
At December 31, 1999, the Company was obligated under non-cancelable
operating leases and capital leases to make future minimum lease payments as
follows:
<TABLE>
<CAPTION>
(In thousands) Operating Capital
Years ending December 31, Leases Leases
--------------------
<S> <C> <C>
2000.................................... $ 11,911 $ 5,187
2001.................................... 8,472 5,773
2002.................................... 8,457 3,998
2003.................................... 7,494 3,122
2004.................................... 5,737 31
Thereafter.............................. 220,873 -
-------------------
Total Minimum Lease Payment............. $262,944 18,111
========
Amount Representing Interest............ (102)
-------
Total Obligation Under Capital Leases... 18,009
Less: Amount Due Within One Year....... (5,145)
-------
Amount Due After One Year............... $12,864
=======
</TABLE>
Rental expense on the non-cancelable operating leases was $9.1 million,
$1.7 million and $2.5 million for the years ending December 31, 1999, 1998 and
1997, respectively.
The Company has a lease agreement 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"). The lease has an initial
term of 50 years, with an option to extend for one additional 25
44 MGM Grand Inc.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
year period. 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.
Additionally, the lease provides the Company with the exclusive right to
conduct gaming activities on the landlord's property in Primm, Nevada, for 10
years, for an annual fee of $100,000. 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%.
Note 11. Stockholders' Equity
--------------------------------------------------------------
On May 7, 1996, the Company made a commitment to grant 30 shares of Company
common stock to each of its employees in exchange for continued active
employment through the one-year anniversary date of the commitment. As a result
of the stock grant commitment, deferred compensation was charged to
stockholders' equity and amortized monthly to compensation expense over the one-
year commitment period. On May 7, 1997, 198,090 shares were issued to employees
as a result of the commitment. Over the life of the commitment, approximately $4
million was amortized to expense, of which $1.2 million and $2.8 million of such
expense were recognized during the years ended December 31, 1997 and 1996,
respectively.
On May 24, 1995, and as amended, the Company entered into an agreement with
Don King Productions, Inc. ("DKP") to present six of Mike Tyson's fights.
Pursuant to the agreement, the Company made a non-interest bearing working
capital advance of $15 million to DKP, sold to DKP 1,237,114 treasury shares of
the Company's Common Stock (the "Shares") for $15 million in exchange for a non-
interest bearing promissory note which was repaid, and provided a guaranteed
future share price of $24.25. The original agreement was amended by a Trust
Agreement dated October 23, 1996, in which the Shares were placed in the name
of, and held by, an independent trustee, pending disposition at the direction of
the Company. The Company and DKP determined to terminate the agreement, and on
September 25, 1997, after solicitation of competitive bids, the Shares held by
the Trustee were sold to Tracinda at the price of $22.25 per share for an
aggregate consideration of $27.5 million. The Company was repaid the $15 million
working capital advance and the remaining consideration in the amount of $12.5
million was paid to DKP. As a result of this transaction, the Company reversed
approximately $5.9 million of previously expensed stock price guarantee
amortization during 1997.
On June 23, 1998, the Company announced a $17.50 per share cash tender
offer for up to 12 million shares of Company common stock as part of a 24
million share repurchase program. The offer commenced on July 2, 1998 and
expired on July 31, 1998. Based upon final results, 21.6 million shares of the
Company's common stock were tendered, and accordingly, the shares were prorated.
The total acquisition cost of the 12 million shares was approximately $210.6
million.
On March 1, 1999, the Company issued 19 million shares of the Company's
common stock valued at approximately $243.6 million in connection with the
Merger (see Note 19).
On June 10, 1999, the Company announced a $25.00 per share tender offer for
up to 12 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, 30.2
million shares of the Company's common stock were tendered, and accordingly, the
shares were prorated. The total acquisition cost of the 12 million 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 completed the acquisition of the
remaining 12 million shares offered in the 24 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 10 million shares of the Company's common stock. The
45 MGM Grand Inc.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
purchases will be made from time to time in the open market or through privately
negotiated transactions as market conditions warrant. Through December 31, 1999,
the Company purchased 565,200 shares for an approximate cost of $13.2 million.
From January 1, 2000 through February 25, 2000, the Company purchased 2,493,800
shares for an approximate cost of $52.6 million.
On December 13, 1999, the Board of Directors approved a two-for-one split
of the Company's common stock and declared an initial quarterly cash dividend of
$0.10 per share, after giving effect to the stock split. The additional shares
were distributed on February 25, 2000 to stockholders of record on February 10,
2000. The cash dividend was paid on March 1, 2000 to stockholders of record on
February 10, 2000. All references to share and per share data herein have been
adjusted retroactively to give effect to the stock split. Concurrently, the
Board of Directors increased the number of authorized shares of the Company's
common stock from 75 million shares to 300 million shares.
Note 12. Comprehensive Income
--------------------------------------------------------------
Statement of Financial Accounting Standards No. 130 ("SFAS 130"), Reporting
Comprehensive Income, requires that the Company disclose comprehensive income
and its components. The objective of SFAS 130 is to report a measure of all
changes in equity of a company that result from transactions and other economic
events of the period other than transactions with stockholders. Comprehensive
income is the total of net income and all other non-stockholder changes in
equity ("Other Comprehensive Income").
The Company has recorded currency translation adjustments as Other
Comprehensive Income in the accompanying financial statements. Comprehensive
income is calculated as follows:
<TABLE>
<CAPTION>
In thousands)
Years ended December 31, 1999 1998 1997
-----------------------------
<S> <C> <C> <C>
Net income........................ $86,058 $68,948 $111,018
Currency translation adjustment... (3,508) 2,688 14,422
-----------------------------
Comprehensive income.............. $82,550 $71,636 $125,440
=============================
</TABLE>
Note 13. Earnings per Share
--------------------------------------------------------------
The Company accounts for Earnings per Share according to Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"). SFAS
128 presents two EPS calculations: (i) basic earnings per common share which is
computed by dividing net income by the weighted average number of shares of
common stock outstanding during the periods presented, and (ii) diluted earnings
per common share which is determined on the 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.
Weighted average diluted shares include the following: options to purchase
approximately 3,506,000, 1,328,000, and 1,754,000 shares issued pursuant to the
Company's stock option plans (see Note 14) for the years ended December 31,
1999, 1998 and 1997, respectively; employee grant shares of approximately 58,000
for the year ended December 31, 1997; and DKP shares of approximately 908,000
for the year ended December 31, 1997 (see Note 11).
Note 14. Stock Option Plans
--------------------------------------------------------------
The Company has adopted nonqualified stock option plans and incentive stock
plans which provide for the granting of stock options pursuant to the applicable
provisions of the Internal Revenue Code and regulations. The aggregate options
available under the plans are 20.2 million shares. The Company had
46 MGM Grand Inc.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
granted options of approximately 15 million shares through December 31, 1999.
The plans are administered by the Compensation and Stock Option Committee
of the Board of Directors. Salaried officers and other key employees of the
Company and its subsidiaries are eligible to receive options. The exercise price
in each instance is 100% of the fair market value of the Company's common stock
on the date of grant. The options have ten-year terms and are exercisable in
four and five annual installments.
On March 26, 1996, the Compensation and Stock Option Committee of the Board
of Directors determined to adjust the vesting provision of the Company's Non-
Qualified Stock Option Plan and Incentive Stock Option Plan to provide for the
vesting of future stock option grants under the plans at 20% on each of the
first four anniversary dates of the grant, with full vesting on the fifth
anniversary date of the grant. The Compensation and Stock Option Committee also
determined that pro-rata vesting at times other than successive anniversary
dates of the date of the grant are no longer applicable. Stock option holders
with grants dated prior to March 26, 1996 were given the opportunity to accept
or decline the new vesting provisions with regard to their existing grants.
On June 22, 1998, the Compensation and Stock Option Committee of the Board
of Directors approved an offer to employees to reprice their out-of-the-money
options (covering an aggregate of 3,641,900 shares). The original options had
exercise prices ranging from $16.59 to $22.06, and the new options have an
exercise price of $13.31. For holders who accepted the new price, certain
conditions were adopted including: (1) commencement of a new holding period for
vesting of options (whether or not the initial options had vested) and (2) a
one-year extension of employee employment contracts, at the Company's option,
where applicable. The repricing offer was not made to the Company's outside
directors.
Had the Company accounted for these plans under Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123"), the Company's net income and earnings per share would have been reduced
to the following pro forma amounts:
<TABLE>
<CAPTION>
(In thousands) 1999 1998 1997
----------------------------
<S> <C> <C> <C>
Net income:
As Reported................ $86,058 $68,948 $111,018
============================
Pro Forma.................. $77,030 $66,047 $110,235
============================
Basic Earnings per share:
As Reported................ $ 0.74 $ 0.62 $ 0.97
============================
Pro Forma.................. $ 0.66 $ 0.59 $ 0.96
============================
Diluted Earnings per share:
As Reported................ $ 0.72 $ 0.61 $ 0.94
============================
Pro Forma.................. $ 0.64 $ 0.59 $ 0.94
============================
</TABLE>
A summary of the status of the Company's fixed stock option plan for each
of the years ended December 31, 1999, 1998 and 1997 is presented below (there
are no options outstanding under the Incentive Stock Option Plan):
<TABLE>
<CAPTION>
1999 1998 1997
--------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Shares Exercise Shares Exercise Shares Exercise
(000's) Price (000's) Price (000's) Price
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at Beginning of the year..................... 9,402 $12.89 7,284 $14.41 6,426 $13.63
Granted............................................ 5,712 $21.11 6,334 $14.61 1,454 $18.13
Exercised.......................................... (3,358) $12.00 (98) $13.56 (144) $ 7.55
Forfeited.......................................... (764) $19.00 (4,118) $18.21 (452) $17.60
Expired............................................ - - - $ - - $ -
------ ------ -----
Outstanding at End of the Year........................... 10,992 $17.00 9,402 $12.89 7,284 $14.41
====== ====== =====
Exercisable at End of Year............................... 3,006 $14.02 2,718 $11.95 1,566 $12.12
====== ====== =====
Weighted Average Fair Value
of Options Granted................................. $11.15 $ 6.81 $ 8.49
====== ====== ======
</TABLE>
47 MGM Grand Inc.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes information about fixed stock options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------------------------------------------
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Outstanding Contractual Exercise Exercisable Exercise
Range of Exercise Prices at 12/31/1999 Life (Years) Price at 12/31/1999 Price
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 5.00 - $10.00............. 138,792 4.5 $ 6.94 138,792 $ 6.94
$10.01 - $15.00............. 6,110,930 7.3 $13.09 2,562,590 $13.02
$15.01 - $20.00............. 1,244,860 8.2 $17.81 50,100 $17.26
$20.01 - $25.00............. 3,309,900 9.5 $23.63 85,862 $22.27
$25.01 - $30.00............. 137,800 7.6 $27.19 118,800 $27.47
$30.01 - $35.00............. 19,464 5.6 $32.98 19,464 $32.98
$35.01 - $40.00............. 27,714 .2 $36.72 27,714 $36.72
$40.01 - $45.00............. - - - - -
$45.01 - $50.00............. 2,970 .2 $47.35 2,970 $47.35
-------------------------------------------------------------------------------
10,992,430 8.0 $17.00 3,006,292 $14.02
===============================================================================
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1999, 1998 and 1997, respectively; risk-free
interest rates of 6% for all years; no expected dividend yields for the years
presented; expected lives of 8, 6, and 6 years, respectively; and expected
volatility of 36%, 36%, and 38%, respectively.
The Company has agreements with 153 executives which provide that, upon a
change of control, any unvested stock options covered by such agreements become
exercisable. The total number of stock options subject to such agreements is 3.8
million which become immediately exercisable.
Note 15. Employee Pension and Savings Plans
--------------------------------------------------------------
Participation in the MGM Grand Hotel, Inc. 401(k) employee savings plan is
available for all full time employees. The savings plan allows participants to
defer, on a pre-tax basis, a portion of their salary and accumulate tax deferred
earnings as a retirement fund. MGM Grand Hotel, Inc. matches 50% of employee
contributions up to a maximum of 2% of participating employee's eligible gross
wages. Additionally, MGM Grand Hotel, Inc. makes contributions to the employees'
savings plan based on length of service, which vest over a five-year period. For
the periods ended December 31, 1999, 1998 and 1997, MGM Grand Hotel, Inc.
contributions under this arrangement were $4.5 million, $4.1 million, and $3.4
million, respectively.
Effective November 1994, the Company and MGM Grand Hotel, Inc. adopted a
Nonqualified Deferred Retirement Plan for certain key employees not a part of a
collective bargaining unit. The Nonqualified Deferred Retirement Plan allows
participants to defer, on a pre-tax basis, a portion of their salary and
accumulate tax deferred earnings, plus interest, as a retirement fund. These
deferrals are in addition to those allowed under the MGM Grand Hotel, Inc.
401(k) savings plan. All deferred amounts vest immediately. There are no
employer matching contributions made under this plan. The full amount vested in
a participant's account will be distributed to a participant following
termination of employment, normal retirement or in the event of disability or
death.
The Company and MGM Grand Hotel, Inc. maintain an Employee Stock Purchase
Plan. The plan provides eligible employees the opportunity to purchase shares of
the Company's Common Stock via payroll deductions. The price for each share of
Common Stock is the weighted average price paid for all the shares purchased by
the Plan Administrator on behalf of the participating employees on the last
trading day of each month. The Company and MGM Grand Hotel, Inc. pay the
administrative costs of the plan. The plan may be amended or terminated at any
time by the Company's Board of Directors or by a committee designated by the
Board of Directors.
48 MGM Grand Inc.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Participation in the NYNY 401(k) employee savings plan is available for all
full time employees. The savings plan allows participants to defer, on a pre-tax
basis, a portion of their salary and accumulate tax deferred earnings as a
retirement fund. NYNY matches 50% of employee contributions up to a maximum of
3% of participating employee's eligible gross wages. For the period ended
December 31, 1999, NYNY contributions under this arrangement were $.7 million.
Participation in MGM Grand Detroit's 401(k) employee savings plan is
available for all employees after completing three months of employment. The
savings plan allows participants to defer, on a pre-tax basis, a portion of
their salary and accumulate tax-deferred earnings as a retirement fund. MGM
Grand Detroit matches 50% of employee contributions up to a maximum of 6% of
participating employee's eligible gross wages. Matching contributions vest
ratably over a five-year period. For the period ended December 31, 1999, MGM
Grand Detroit contributions under this arrangement were $.2 million .
Effective with the March 1, 1999 Merger with Primadonna, a section 401(k)
employee savings plan (the "Primadonna Savings Plan") for Primadonna employees
was acquired. The Primadonna Savings Plan allows participants to defer, on a
pretax basis, a portion of their salary and accumulate tax deferred earnings as
a retirement fund. The Company matches 50% of employee contributions up to a
maximum of 2.5%, which was amended to 3% on December 1, 1999, of participating
employee's eligible gross wages and bonus. For the period ended December 31,
1999, Primadonna contributions under the arrangement were $.3 million.
Effective with the September 1995 acquisition of MGM Grand Australia (see
Note 1), an Australian employee retirement fund was acquired. The fund is
subject to the Superannuation Industry (Supervision) Act of 1993, imposing a
legal obligation on MGM Grand Australia to contribute to all employees. MGM
Grand Australia maintains two categories for the plan, depending on employment
status: category (A) for executive employees and category (B) for staff. Death
and Disablement benefits are provided for all members; however, category (A)
members receive increased coverages under both benefits. MGM Grand Australia
contributes 7% of salary to satisfy the Superannuation Guarantee Legislation,
and allows participants to defer, on a pre-tax basis, a portion of their salary
and accumulate tax deferred earnings as a retirement fund. The full amount
vested in members' retirement accounts is payable to the member following
termination of employment, under certain circumstances or normal retirement.
During 1999, MGM Grand Australia contributed under these arrangements $.3
million and $.6 million for the executive employees and staff, respectively.
During 1998, MGM Grand Australia contributed under these arrangements $.3
million and $.5 million for the executive employees and staff, respectively.
During 1997, MGM Grand Australia contributed under these arrangements $.2
million and $.5 million for the executive employees and staff, respectively.
Note 16. Master Plan Asset Disposition
--------------------------------------------------------------
During 1997, the Company enhanced and increased the Master Plan from $250
million to approximately $570 million, and wrote off assets with a net book
value of $28.6 million (pre-tax), which included the original swimming pool
facility which was replaced by the Mansion at the MGM Grand, consisting of 29
exclusive suites and villas, and certain theme park assets.
Note 17. Income Taxes
--------------------------------------------------------------
The Company accounts for income taxes according to Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS
109 requires the recognition of deferred tax assets, net of applicable reserves,
related to net operating loss carryforwards and certain temporary differences.
The standard requires recognition of a future tax benefit to the extent that
realization of such benefit is more likely than not. Otherwise, a valuation
allowance is applied. At December 31, 1999, the Company believes that it is more
likely than not that its deferred tax assets are fully realizable because of the
future reversal of existing taxable temporary differences and future projected
taxable income. Accordingly, there is no valuation allowance at December 31,
1999.
The Company merged with Primadonna Resorts,
49 MGM Grand Inc.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Inc. on March 1, 1999 through a transaction that qualified as a tax free
reorganization under the Internal Revenue Code. The respective deferred tax
assets and liabilities of The Primadonna Resorts, Inc. have been consolidated
with the MGM Grand, Inc. deferred balances, and are reflected in the December
31, 1999 deferred tax assets and liabilities below.
The provision for income taxes and income from continuing operations before
extraordinary item and cumulative effect of change in accounting principle for
the years ended December 31, 1999, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
In thousands)
Years Ended December 31, 1999 1998 1997
------------------------------------
<S> <C> <C> <C>
Current - Federal.......................................................... $26,035 $23,250 $14,207
Deferred - Federal......................................................... 26,188 14,847 51,439
------------------------------------
Provision for Federal income taxes...................................... $52,223 $38,097 $65,646
====================================
Current - State............................................................ $ 803 $ - $ -
Deferred - State........................................................... (320) - -
------------------------------------
Provision for City and State income taxes............................... $ 483 $ - $ -
====================================
Current - Foreign.......................................................... $ 2,945 $ 1,541 $ -
Deferred - Foreign......................................................... (622) 942 (601)
------------------------------------
Provision for Foreign income taxes...................................... $ 2,323 $ 2,483 $ (601)
====================================
</TABLE>
Reconciliation of the Federal income tax rate and the Company's effective
tax rate is as follows:
<TABLE>
<CAPTION>
Years Ended December 31, 1999 1998 1997
----------------------------
<S> <C> <C> <C>
Federal income tax rate.......................................................... 35.0% 35.0% 35.0%
Permanent and other items........................................................ 1.6 2.0 1.1
Changes in valuation allowance................................................... - - -
----------------------------
Effective tax rate............................................................... 36.6% 37.0% 36.1%
============================
</TABLE>
As of December 31, 1999 and 1998, the major tax affected components of the
Company's net deferred tax liability are as follows:
<TABLE>
<CAPTION>
(In thousands) 1999 1998
----------------------
<S> <C> <C>
Deferred Tax Assets - Federal and State:
Bad debt reserve............................. $ 3,844 $ 12,234
Tax credit carryforwards..................... 25,390 29,492
Preopening costs............................. 471 -
----------------------
29,705 41,726
----------------------
Deferred Tax Liabilities - Federal and State:
Depreciation and amortization................ (107,090) (72,817)
Accruals, reserves and other................. (11,783) (9,261)
----------------------
(118,873) (82,078)
----------------------
Deferred Tax Liabilities - Foreign:
Depreciation, amortization and other......... (2,093) (2,715)
----------------------
Net Deferred Tax Liability...................... $ (91,261) $(43,067)
======================
</TABLE>
For U.S. Federal income tax return purposes, the Company has an alternative
minimum tax credit carryforward of $24.3 million which does not expire, and a
general business tax credit carryforward of $1.1 million which expires in
different periods through 2013.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 18. Related-Party Transactions
--------------------------------------------------------
The Company, through its wholly-owned subsidiary MGM Grand Hotel, Inc., has
entered into an agreement to lease space in NYNY to operate a race book and
sports pool. The terms of the lease are for ten years from the commencement
date of January 3, 1997, with an option for an additional term of ten years. MGM
Grand Hotel, Inc. is obligated to pay to NYNY the greater of a minimum annual
rent of $.2 million or percentage rent based upon gross revenue. The percentage
rent is based on a graduated scale of gross revenue at percentages ranging from
12% to 15%. During 1999 and 1998, approximately $.1 million and $.4 million were
paid under this agreement. The race and sports pool rent payment was below the
minimum annual rent of $.2 million due to the closure of the race book and
sports pool in May 1999. Additionally, MGM Grand Hotel, Inc. provided various
other hotel goods and services for which NYNY paid approximately $.1 million
during both 1999 and 1998. On September 4, 1996, the Company also entered into
an agreement with NYNY to provide exclusive floral services through its wholly-
owned subsidiary, MGM Grand Merchandising, Inc., at rates generally comparable
to those offered by third parties. Payments were made by NYNY totaling $.2
million and $.1 million under the floral service contract for 1999 and 1998,
respectively. The Company and NYNY have entered into various other transactions
and arrangements which, individually and in the aggregate, are not material.
For the years ended December 31, 1999 and 1998, the Company and its
subsidiaries rented aircraft from Tracinda for various business purposes. The
aggregate amount of rental payments were $.1 million and $.3 million,
respectively, and the rent payments were at rates which management believes are
generally below those offered by third parties. The Company and Tracinda have
entered into various other transactions and arrangements which, individually and
in the aggregate, are not material.
During 1999 and 1998, the Company made no additional contributions to NYNY
LLC. The Company received no distributions in 1999 and $4.1 million in
distributions in 1998 from NYNY LLC to pay taxes on its allocated share of
income.
In August 1998, Tracinda agreed to sell its building and land
(approximately .56 acres located in Las Vegas, Nevada) to the Company's
subsidiary, MGM Grand Hotel, Inc., for $1.8 million. The Company, based on
appraisals it received, believes that this purchase was on terms comparable to
what it could have obtained for the land and building on an arms-length basis in
an equivalent transaction with a third party.
Pursuant to an agreement dated December 23, 1996, between MGM Grand Hotel,
Inc. and MGM Home Entertainment, Inc. ("MGM-HE"), a California-based motion
picture studio in which Tracinda has an approximate 89.1% ownership interest,
(collectively with its subsidiaries, "MGM Inc.") MGM Grand Hotel, Inc. can
utilize key art, still photographs of artwork and one-minute film clips from
certain Metro Goldwyn Mayer, Inc.'s motion picture releases on an as-needed
basis. MGM Grand Hotel, Inc. does not pay any monetary compensation for these
licenses. Affiliates of MGM Grand Hotel, Inc. and MGM Inc. occasionally conduct
cross-promotional campaigns, in which MGM Grand Hotel, Inc. or its affiliate's
hotels and MGM Inc.'s motion picture releases are promoted together; however,
management believes that the amounts involved are immaterial. During 1999 and
1998, MGM Grand Hotel, Inc. purchased video cassettes and other MGM-HE
merchandise of approximately $.1 million each year at rates which management
believes are generally comparable to those offered to third parties. In
addition, MGM Grand Hotel, Inc. provided various goods and services during 1999
to MGM-HE which, individually and in the aggregate, are not material.
Pursuant to a License Agreement between a predecessor in interest to the
Company and Metro Goldwyn Mayer Film Co. dated February 29, 1980, as amended May
18, 1992 and as further amended August 6, 1998, the Company has an open-ended
exclusive royalty-free license in perpetuity to use certain trademarks, trade
names and logos in and in connection with the Company's hotel/gaming business
and other businesses, excluding the film entertainment business.
During the three-year periods ended December 31, 1999, 1998 and 1997, the
Company and MGM-HE have entered into various other transactions and arrangements
which, individually and in the aggregate, are not material.
51 MGM Grand Inc.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 19. Primadonna Acquisition
---------------------------------------------------
On March 1, 1999, the Company completed the Merger with Primadonna Resorts,
Inc. for 19 million shares of the Company's common stock valued at approximately
$243.6 million plus the assumption of debt totaling $315.2 million. Primadonna
shareholders received .66 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 Consolidated Statement 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:
<TABLE>
<CAPTION>
in thousands except per share amounts)
Years ended December 31, 1999 1998
-----------------------
<S> <C> <C>
Net Revenues........................................... $1,458,749 $1,187,830
=======================
Operating Profit before Preopening, Other Non-
Recurring Expenses and Corporate Expense............ $ 305,677 $ 197,285
=======================
Operating Income....................................... $ 219,725 $ 180,656
=======================
Net Income before Extraordinary Item and
Cumulative Effect of Accounting Change.............. $ 99,047 $ 84,276
=======================
Basic Earnings per Share before Extraordinary Item
and Cumulative Effect of Accounting Change.......... $ 0.83 $ 0.65
=======================
Weighted Average Basic Shares Outstanding (000's)...... 119,090 130,442
=======================
Diluted Earnings per Share before Extraordinary Item
and Cumulative Effect of Accounting Change.......... $ 0.80 $ 0.64
=======================
Weighted Average Diluted Shares Outstanding (000's).... 123,268 131,802
=======================
</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 20. Subsequent Event (unaudited)
----------------------------------------------------
On March 6, 2000, the Company announced the signing of a definitive merger
agreement with Mirage Resorts, Incorporated ("Mirage"), under which the Company
will acquire all of the outstanding shares of Mirage for $21 per share in cash.
The transaction will have a total equity value of approximately $4.4 billion. In
addition, the Company will assume the outstanding debt of Mirage of
approximately $2.0 billion. The transaction is subject to the approval of Mirage
shareholders and to the satisfaction of customary closing conditions contained
in the merger agreement, including the receipt of all necessary regulatory and
governmental approvals. The transaction will be accounted for as a purchase and
is anticipated to close during the fourth quarter of 2000.
52 MGM Grand Inc.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of MGM Grand, Inc.:
We have audited the accompanying consolidated balance sheets of MGM Grand,
Inc. (a Delaware corporation) and subsidiaries as of December 31, 1999 and 1998,
and the related consolidated statements of operations, stockholders' equity and
cash flows for each of the three years in the period ended December 31, 1999.
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 in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of MGM Grand, Inc. and
subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ending
December 31, 1999, in conformity with generally accepted accounting principles
in the United States.
As explained in Note 2 of notes to the consolidated financial statements,
effective January 1, 1999, the Company changed it's method of accounting for
start-up activities in accordance with Statement of Position 98-5, "Reporting on
the Costs of Start-up Activities."
ARTHUR ANDERSEN LLP
Las Vegas, Nevada
January 20, 2000
(except with respect to the matter discussed in
Note 11, as to which the date is March 1, 2000)
53 MGM Grand Inc.
<PAGE>
SELECTED QUARTERLY FINANCIAL RESULTS
<TABLE>
<CAPTION>
(In thousands except share data) (Unaudited)
Quarter
--------------------------------------------------------
For the Years ended December 31,
1999 and 1998 First Second Third Fourth Total
--------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999
Net revenues...................................................... $251,367 $ 319,060 $ 400,335 $420,888 $1,391,650
Operating profit before non-recurring
items and corporate expense................................. 51,846 68,831 86,958 88,185 295,820
Operating income.................................................. 37,942 50,191 38,626 83,109 209,868
Income before income taxes........................................ 28,824 38,264 19,695 63,370 150,153
Net income.................................................. 9,425 24,106 12,605 39,922 86,058
Basic income per share of common stock:
Net income.................................................. $ 0.09 $ 0.19 $ 0.11 $ 0.35 $ 0.74
=========================================================
Diluted income per share of common stock:
Net income.................................................. $ 0.08 $ 0.19 $ 0.10 $ 0.35 $ 0.72
=========================================================
1998
Net revenues...................................................... $179,847 $ 185,365 $ 193,707 $214,944 $ 773,863
Operating profit before non-recurring
items and corporate expense................................. 30,609 30,040 34,896 46,718 142,263
Operating income.................................................. 28,158 27,103 34,182 42,131 131,574
Income before income taxes........................................ 25,409 23,515 26,643 33,961 109,528
Net income.................................................. 16,262 14,399 17,052 21,235 68,948
Basic income per share of common stock:
Net income.................................................. $ 0.14 $ 0.12 $ 0.16 $ 0.20 $ 0.62
=========================================================
Diluted income per share of common stock:
Net income.................................................. $ 0.14 $ 0.12 $ 0.15 $ 0.20 $ 0.61
=========================================================
</TABLE>
54 MGM Grand Inc.
<PAGE>
INVESTOR INFORMATION
---------------------------------------------------
The following table represents the high and low trading prices of the
Company's common stock:
<TABLE>
<CAPTION>
For the years ended December 31, 1999 1998
--------------------------------------------------
High Low High Low
--------------------------------------------------
<S> <C> <C> <C> <C>
First Quarter.................................................. 20 13 9/16 19 15/16 16 5/8
Second Quarter................................................. 24 13/16 16 5/16 17 7/8 13 5/16
Third Quarter.................................................. 26 3/16 21 3/16 16 3/4 11 9/16
Fourth Quarter................................................. 27 5/16 22 11/16 14 7/8 11 5/16
</TABLE>
The Company's common stock is listed on the New York Stock Exchange. The
symbol is MGG.
---------------------------------------------------------------------------
Transfer Agent and Independent Public Independent Public Accountants
Registrar For Common Stock Arthur Andersen LLP
ChaseMellon Shareholders Services, LLC 3773 Howard Hughes Parkway
Overpeck Centre Suite 500 South
85 Challenger Road Las Vegas, NV 89109
Ridgefield Park, NJ 07660
www.chasemellon.com
---------------------------------------------------
Form 10-K
A copy of the Company's annual report on Form 10-K, as filed with the Securities
and Exchange Commission, will be furnished without charge to any
stockholder upon written request to:
Mr. Scott Langsner
Senior Vice President
Secretary/Treasurer
MGM Grand, Inc.
3799 Las Vegas Blvd. South
Las Vegas, NV 89109
55 MGM Grand Inc.
<PAGE>
CORPORATE INFORMATION
<TABLE>
<CAPTION>
Directors and Officers
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
J. Terrence Lanni James D. Aljian Alexander M. Haig, Jr. Scott Langsner
Director Director Director Officer
Chairman of the Board Executive, Tracinda Corporation Chairman, Senior Vice President
Worldwide Associates, Inc. Secretary/Treasurer
John T. Redmond Fred Benninger
Director/Officer Director Kirk Kerkorian Kyle Edwards
Co-Chief Executive Officer Executive, Tracinda Corporation Director Officer
President and Chief Executive Vice President
Daniel M. Wade Glenn A. Cramer Officer, Tracinda Corporation
Director/Officer Director James H. Fox
Co-Chief Executive Officer Former Chairman, Walter M. Sharp Officer
Transamerica Airlines, Retired Director Vice President
James J. Murren President,
Director/Officer Terry N. Christensen Walter M. Sharp Company
President and Director
Chief Financial Officer Partner, Christensen, Miller, Alex Yemenidjian
Weil & Shapiro, LLP Director
Chairman and
Willie D. Davis Chief Executive Officer,
Director Metro Goldwyn Mayer Inc.
President and Director,
All-Pro Broadcasting, Inc. Jerome B. York
Director
</TABLE>
<TABLE>
<CAPTION>
CORPORATE DIRECTORY
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MGM Grand, Inc. MGM Grand Las Vegas MGM Grand Australia MGM Grand Detroit
3799 Las Vegas Blvd. South 3799 Las Vegas Blvd. South Gilruth Ave. 1300 John C. Lodge
Las Vegas, NV 89109 Las Vegas, NV 89109 Mindil Beach Detroit, MI 48226
1-702-891-3333 1-702-891-1111 Darwin, Northern Territory 1-313-393-7777
Reservations 0801 Australia www.mgmgrand.com
1-702-891-7777 International number
1-800-929-1111 (Outside Nevada) 011-61-8-89438888 Primadonna Resorts
www.mgmgrand.com PO Box 95997
New York-New York Hotel & Casino Las Vegas, NV 89183
3790 Las Vegas Blvd. South 1-700-382-1212
Las Vegas, NV 89109 Reservations
1-702-740-6969 1-800-FUN-STOP
Reservations 1-800-386-7867
1-702-740-6900 www.primadonna.com
1-800-693-6763 (Outside Nevada)
www.nynyhotelcasino.com
</TABLE>
56 MGM Grand Inc.
<PAGE>
EXHIBIT 21
MGM GRAND, INC.
LIST OF SUBSIDIARIES
DECEMBER 31, 1999
STATE OF
NAME INCORPORATION
--------------------------------------- -------------
PARENT MGM Grand, Inc. Delaware
SUBSIDIARIES MGM Grand Hotel, Inc. Nevada
Destron, Inc. Nevada
MGM Grand Australia Pty, Ltd. Australia
MGM Grand Merchandising, Inc. Nevada
MGM Grand Monorail, Inc. Nevada
MGM Grand Atlantic City, Inc. New Jersey
MGM Grand Development, Inc. Nevada
MGM Grand Detroit, Inc. Delaware
MGM Grand Detroit, LLC Delaware
MGM Dist., Inc. Nevada
MGM Grand Diamond, Inc. Nevada
MGMGMR Acquisition, Inc. Nevada
Primadonna Resorts, Inc. Nevada
New York-New York Hotel and Casino, LLC Nevada
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Form 10-K of our reports dated January 20, 2000 (except with
respect to the matter discussed in Note 11, as to which the date is March 1,
2000) into MGM Grand, Inc.'s previously filed Registration Statements
File Nos. 33-35023, 33-38616, 333-00187, 333-73155, 333-77061 and 333-42729.
ARTHUR ANDERSEN LLP
Las Vegas, Nevada
March 16, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MGM GRAND,
INC. 10-K AND IS QUALIFIED IN ITS ENTIRETY BE REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 121,522
<SECURITIES> 0
<RECEIVABLES> 105,873
<ALLOWANCES> (22,772)
<INVENTORY> 15,240
<CURRENT-ASSETS> 269,913
<PP&E> 2,783,360
<DEPRECIATION> (392,836)
<TOTAL-ASSETS> 2,760,743
<CURRENT-LIABILITIES> 290,090
<BONDS> 500,000
0
0
<COMMON> 1,384
<OTHER-SE> 1,032,462
<TOTAL-LIABILITY-AND-EQUITY> 2,760,743
<SALES> 1,504,210
<TOTAL-REVENUES> 1,391,650
<CGS> 0
<TOTAL-COSTS> 1,095,830
<OTHER-EXPENSES> 14,457
<LOSS-PROVISION> 47,157
<INTEREST-EXPENSE> 60,911
<INCOME-PRETAX> 150,153
<INCOME-TAX> 55,029
<INCOME-CONTINUING> 95,124
<DISCONTINUED> 0
<EXTRAORDINARY> 898
<CHANGES> 8,168
<NET-INCOME> 86,058
<EPS-BASIC> .74
<EPS-DILUTED> .72
</TABLE>
