<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-K/A
(Mark One) AMENDMENT NO. 1
[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
----------------
MGM GRAND, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<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)
----------------
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of each exchange
Title of each class on which registered
------------------- ---------------------
<S> <C>
Common Stock, $.01 Par Value New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
None
----------------
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 of 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. [_]
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 14, 1996) was approximately $509 million. As
of March 14, 1996, 49,085,075 shares of Registrant's Common Stock, $.01 par
value, were outstanding.
Portions of the Annual Report to Stockholders for the fiscal year ended
December 31, 1995 are incorporated by reference into Part II of this Form 10-
K. Portions of the Registrant's Proxy Statement dated March 29, 1996 are
incorporated by reference into Part III of this Form 10-K.
EXPLANATORY NOTE
The purpose of this amendment is to amend Item 8 in its entirety.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
Item 8. Financial Statements and Supplementary Data
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the years ended December 31,
----------------------------------------
1999 1998 1997
------------ ------------ ------------
(in thousands, except share data)
<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
1
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
As of December 31,
----------------------
1999 1998
---------- ----------
(in thousands, except
share data)
<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.
2
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the years ended December
31,
-------------------------------
1999 1998 1997
--------- --------- ---------
(In thousands)
<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.
3
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the years ended December 31, 1999, 1998, and 1997
<TABLE>
<CAPTION>
Common Capital in Other Total
Stock Common Excess of Treasury Retained Comprehensive Stockholders'
Outstanding Stock ParValue Stock Earnings Income Equity
----------- ------ ---------- --------- -------- ------------- -------------
(In thousands except share data)
<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.
4
<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 Primadonna 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.
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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:
<TABLE>
<S> <C>
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
</TABLE>
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.
6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The estimated cost of providing such promotional allowances was included in
casino expenses as follows:
<TABLE>
<CAPTION>
Years Ended December
31,
-----------------------
1999 1998 1997
------- ------- -------
(In thousands)
<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 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.
7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 3. Statements of Cash Flows
The following supplemental disclosures are provided for the Consolidated
Statements of Cash Flows:
<TABLE>
<CAPTION>
Years ended December
31,
-----------------------
1999 1998 1997
------- ------- -------
(In thousands)
<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.
Note 4. Accounts Receivable, net
Components of accounts receivable were as follows:
<TABLE>
<CAPTION>
At December 31,
------------------
1999 1998
-------- --------
(In thousands)
<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.
8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 5. Property and Equipment, net
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
At December 31,
----------------------
1999 1998
---------- ----------
(In thousands)
<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 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).
9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Summary condensed financial information for New York-New York Hotel and
Casino, LLC is as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------
1999 1998 1997
-------- -------- --------
(In thousands)
<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
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
At December 31,
-----------------
1999 1998
-------- --------
(In thousands)
<S> <C> <C>
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>
At December 31,
----------------
1999 1998
------- --------
(In thousands)
<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>
The changes in the Company's investments in unconsolidated affiliates were
as follows:
<TABLE>
<CAPTION>
1999 1998
--------- --------
(In thousands)
<S> <C> <C>
New York-New York Hotel and Casino, LLC
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
========= ========
<CAPTION>
1999 1998
--------- --------
(In thousands)
<S> <C> <C>
MGM Grand-Bally's Monorail, LLC
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>
10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 8. Other Accrued Liabilities
Other accrued liabilities consisted of the following:
<TABLE>
<CAPTION>
At December 31,
-----------------
1999 1998
-------- --------
(In thousands)
<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>
At December 31,
--------------------
1999 1998
---------- --------
(In thousands)
<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 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.
11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
Maturities of the Company's long term debt are as follows:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
Years ending December 31,
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
12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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>
Operating Capital
Leases Leases
--------- -------
(In thousands)
<S> <C> <C>
Years ending December 31,
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 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%.
13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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
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.
14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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>
Years ended December 31,
-------------------------
1999 1998 1997
------- ------- --------
(In thousands)
<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 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.
15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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>
1999 1998 1997
------- ------- --------
(In thousands)
<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 00'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>
16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table summarizes information about fixed stock options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------- --------------------
Weighted
Number Average Weighted Number Weighted
Outstanding Remaining Average Exercisable Average
at Contractual Exercise at Exercise
12/31/1999 Life (Years) Price 12/31/1999 Price
Range of Exercise Prices ----------- ----------- -------- ----------- --------
<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.
17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company merged with Primadonna Resorts, 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>
Years Ended December
31,
------------------------
1999 1998 1997
------- ------- -------
(In thousands)
<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>
1999 1998
---------- ---------
(In thousands)
<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>
19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
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.
20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
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>
Years ended
December 31,
---------------------
1999 1998
---------- ----------
(in thousands except
per share amounts)
---------------------
<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.
21
<PAGE>
Note 21. Consolidating Condensed Financial Information
The Company's subsidiaries (excluding New York-New York, The Primadonna
Company, LLC, PRMA, LLC, New PRMA Las Vegas, Inc., MGM Grand Detroit II, LLC,
MGM Grand-Bally's Monorail Limited Liability Company, MGM Grand Austalia, Inc.
and the Company's non-U.S. subsidiaries and their U.S. holding companies which
have no other assets or operations) have unconditionally guaranteed payment of
the New Facility and Senior Collateralized Notes. The guaranty given by MGM
Grand Detroit, LLC and the pledge of its assets, are limited to the amount
borrowed under the credit facility which is made available to MGM Grand
Detroit, LLC. All material non-guarantor subsidiaries were acquired or
established during 1999, accordingly comparative information has not been
provided as prior to that time all material subsidiaries were guarantors.
MGM Grand, Inc.
Consolidating Condensed Financial Information
As of and for the year ended December 31, 1999
(In thousands)
<TABLE>
<CAPTION>
MGM Grand, Guarantor Non-Guarantor
Inc. Subsidiaries Subsidiaries Elimination Consolidated
---------- ------------ ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Balance Sheet
- -------------
Current assets.......... $ 222,712 $ 216,523 $ 63,371 $ (232,693) $ 269,913
Property and equipment,
net.................... 11,227 1,560,281 831,037 (12,021) 2,390,524
Investment in
subsidiaries........... 1,232,701 -- -- (1,232,701) --
Investment in
unconsolidated
affiliates............. 127,902 -- 226,748 (342,165) 12,485
Excess of purchase price
over fair market value
of net assets acquired,
net.................... -- -- 36,550 -- 36,550
Intercompany note
receivable............. 288,779 -- (288,779) -- --
Other non-current
assets................. 10,553 28,955 11,763 -- 51,271
---------- ---------- -------- ----------- ----------
$1,893,874 $1,805,759 $880,690 $(1,819,580) $2,760,743
========== ========== ======== =========== ==========
Current liabilities..... $ 145,138 $ 462,422 $ 92,865 $ (410,335) $ 290,090
Long term obligation,
capital leases......... -- 4,284 8,580 -- 12,864
Long term debt.......... 1,112,000 169,000 29,989 -- 1,310,989
Other non-current
liabilities............ 67,000 4,241 24,766 16,947 112,954
Stockholders' equity.... 569,736 1,165,812 724,490 (1,426,192) 1,033,846
---------- ---------- -------- ----------- ----------
$1,893,874 $1,805,759 $880,690 $(1,819,580) $2,760,743
========== ========== ======== =========== ==========
Statement of Operations
- -----------------------
Revenues:
Casino................. $ -- $ 613,657 $260,124 $ -- $ 873,781
Rooms.................. -- 179,704 71,671 (168) 251,207
Food and beverage...... -- 122,247 39,276 (222) 161,301
Entertainment, retail
and other............. 1,560 135,410 76,649 (1,782) 211,837
Income from
unconsolidated
affiliate............. 6,099 -- -- (15) 6,084
---------- ---------- -------- ----------- ----------
7,659 1,051,018 447,720 (2,187) 1,504,210
Less: Promotional
allowances -- 88,139 24,421 -- 112,560
---------- ---------- -------- ----------- ----------
7,659 962,879 423,299 (2,187) 1,391,650
---------- ---------- -------- ----------- ----------
Expenses:
Casino................. -- 323,224 94,300 (33) 417,491
Rooms.................. -- 46,708 28,356 -- 75,064
Food and beverage...... -- 75,443 25,428 -- 100,871
Entertainment, retail
and other............. -- 88,743 30,765 (184) 119,324
Provision for doubtful
accounts and
discounts............. -- 46,600 557 -- 47,157
General and
administrative........ -- 129,856 80,082 -- 209,938
Depreciation and
amortization.......... -- 84,383 41,958 (356) 125,985
Preopening and other... 18,526 50,195 2,774 -- 71,495
Corporate expense...... 16,426 -- -- (1,969) 14,457
---------- ---------- -------- ----------- ----------
34,952 845,152 304,220 (2,542) 1,181,782
---------- ---------- -------- ----------- ----------
Operating income
(loss)................. (27,293) 117,727 119,079 355 209,868
Interest expense, net... (4,028) (26,693) (28,048) -- (58,769)
Other, net.............. -- (134) (812) -- (946)
---------- ---------- -------- ----------- ----------
Income before income
taxes, extraordinary
item and cumulative
effect of change in
accounting principle... (31,321) 90,900 90,219 355 150,153
Provision for income
taxes.................. (55,029) -- -- -- (55,029)
---------- ---------- -------- ----------- ----------
Income before
extraordinary item and
cumulative effect of
change in accounting
principle.............. (86,350) 90,900 90,219 355 95,124
Extraordinary item...... 484 -- (1,382) -- (898)
Cumulative effect of
change in accounting
principle.............. 4,399 (12,567) -- -- (8,168)
---------- ---------- -------- ----------- ----------
Net income (loss)....... $ (81,467) $ 78,333 $ 88,837 $ 355 $ 86,058
========== ========== ======== =========== ==========
Statement of Cash Flows
- -----------------------
Net cash provided by
(used in) operating
activities............. $ (104,939) $ 224,163 $123,250 $ 47,403 $ 289,877
Net cash provided by
(used in) investing
activities............. (33) (367,250) (12,171) (7,239) (386,693)
Net cash provided by
(used in) financing
activities............. 80,210 162,678 (110,035) 3,529 136,382
</TABLE>
22
<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 auditing standards generally
accepted 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 accounting principles generally
accepted in the United States.
As explained in Note 2 of notes to the consolidated financial statements,
effective January 1, 1999, the Company changed its 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)
23
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized, this 4th day of May, 2000.
MGM GRAND, INC.
By
/s/ Scott Langsner
-----------------------------------
Scott Langsner
Senior Vice President and
Secretary/Treasurer
24
