UNITED STATESSECURITIES & EXCHANGE COMMISSION Washington, D.C. 20549
FORM 10-Q
(Mark One)
For the quarterly period ended September 30, 2001
OR
For the transition period from to
Commission File No. 0-16760
MGM MIRAGE (Exact name of registrant as specified in its charter)
3600 Las Vegas Boulevard South, Las Vegas, Nevada 89109 (Address of principal executive offices—Zip Code)
(702) 693-7120 (Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /x/ No / /
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
MGM MIRAGE AND SUBSIDIARIES FORM 10-Q
INDEX
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
MGM MIRAGE AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except share data)
The accompanying notes are an integral part of these consolidated financial statements.
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MGM MIRAGE AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) (Unaudited)
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MGM MIRAGE AND SUBIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
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MGM MIRAGE AND SUBSIDIARIESCONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NOTE 1—ORGANIZATION AND BASIS OF PRESENTATION
MGM MIRAGE (the "Company"), formerly known as MGM Grand, Inc., is a Delaware corporation, incorporated on January 29, 1986. As of September 30, 2001, approximately 58% of the outstanding shares of the Company's common stock were owned by Tracinda Corporation, a Nevada corporation wholly owned by Kirk Kerkorian.
On May 31, 2000, the Company completed the acquisition (the "Mirage Acquisition") of Mirage Resorts, Incorporated ("Mirage") (see Note 2). Mirage, through wholly owned subsidiaries, owns and operates the following hotel, casino and entertainment resorts: Bellagio, a European-style luxury resort; The Mirage, a tropically-themed destination resort; Treasure Island at The Mirage, a Caribbean-themed hotel and casino resort; and the Holiday Inn® Casino Boardwalk, all of which are located on the Las Vegas Strip. Mirage owns a 50% interest in the joint venture that owns and operates the Monte Carlo Resort & Casino, a palatial-style hotel and casino also located on the Las Vegas Strip. Mirage owns and operates Shadow Creek, an exclusive world-class golf course located approximately ten miles north of its Las Vegas Strip properties. Mirage also owns and operates the Golden Nugget, a hotel and casino in downtown Las Vegas, the Golden Nugget-Laughlin, located in Laughlin, Nevada, and Beau Rivage, a beachfront resort located in Biloxi, Mississippi.
Through wholly owned subsidiaries, the Company owns and operates the MGM Grand Hotel and Casino ("MGM Grand Las Vegas"), a hotel, casino and entertainment complex, and New York-New York Hotel and Casino, a destination resort, both located on the Las Vegas Strip. The Company, through wholly owned subsidiaries, also owns and operates three resorts located in Primm, Nevada at the California/Nevada state line: Whiskey Pete's, Buffalo Bill's and the Primm Valley Resort (the "Primm Properties"), as well as two championship golf courses located near the Primm Properties.
The Company, through its wholly owned subsidiary, MGM Grand Detroit, Inc., and its local partners formed MGM Grand Detroit, LLC, to develop a hotel, casino and entertainment complex in Detroit, Michigan. On July 29, 1999, MGM Grand Detroit, LLC commenced gaming operations in an interim facility located directly off of the John C. Lodge Expressway in downtown Detroit.
A limited liability company owned 50-50 with Boyd Gaming Corporation is developing the Borgata, a hotel and casino resort on 27 acres at Renaissance Pointe, located in the Marina area of Atlantic City, New Jersey. The Company also owns approximately 95 acres adjacent to the Borgata site which is available for future development.
Through its wholly owned subsidiary, MGM Grand Australia Pty Ltd., the Company owns and operates the MGM Grand Hotel and Casino in Darwin, Australia ("MGM Grand Australia"), 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 two permanent casinos and two interim casinos in the Republic of South Africa. The Company receives management fees from its partner, Tsogo Sun Gaming & Entertainment, which is responsible for providing all project costs. We have entered into an agreement to sell our operations in South Africa. The transaction, which is subject to regulatory approval, is expected to be completed in the first quarter of 2002.
As permitted by the rules and regulations of the Securities and Exchange Commission, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Form 10-K for the year ended December 31, 2000.
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In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (which include only normal recurring adjustments) necessary to present fairly the Company's financial position as of September 30, 2001, and the results of its operations for the three and nine month periods ended September 30, 2001 and 2000. The results of operations for such periods are not necessarily indicative of the results to be expected for the full year.
Certain reclassifications have been made to the 2000 financial statements to conform to the 2001 presentation, which have no effect on previously reported net income.
NOTE 2—MIRAGE ACQUISITION
On May 31, 2000, the Company completed the Mirage Acquisition whereby Mirage shareholders received $21 per share in cash. The acquisition had a total equity value of approximately $4.4 billion. In addition, the Company assumed approximately $2.0 billion of Mirage's outstanding debt, of which approximately $1.0 billion was refinanced and $950 million remains outstanding. The transaction was accounted for as a purchase and, accordingly, the purchase price was allocated to the underlying assets acquired and liabilities assumed based upon their estimated fair values at the date of the acquisition. The estimated fair value of assets acquired and liabilities assumed (net of the debt refinanced at the time of the acquisition) were $8.0 billion and $2.7 billion, respectively. The operating results for Mirage are included in the Consolidated Statements of Operations from the date of acquisition.
The following unaudited pro forma consolidated financial information for the Company has been prepared assuming the Mirage Acquisition had occurred on January 1, 2000:
This unaudited pro forma consolidated financial information is not necessarily indicative of what the Company's actual results would have been had the acquisition been completed on January 1, 2000, or of future results.
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NOTE 3—LONG-TERM DEBT
Long-term debt consisted of the following:
Total interest incurred for the three-month periods ended September 30, 2001 and 2000 was $102 million and $143 million, respectively, of which $18 million and $38 million, respectively, was capitalized. Total interest incurred for the nine-month periods ended September 30, 2001 and 2000 was $335 million and $228 million, respectively, of which $61 million and $54 million, respectively, was capitalized.
On January 23, 2001, the Company issued under its shelf registration statement $400 million of senior subordinated notes, which carry a coupon of 8.375% and are due on February 1, 2011. These senior subordinated notes contain covenants consistent with the Company's other senior subordinated notes. Remaining capacity under the shelf registration statement after issuance of these notes is $790 million. Any future offering of securities under the shelf registration statement will only be made by means of a prospectus supplement.
The Company's $1.3 billion term loan was fully repaid during the first quarter of 2001, principally through proceeds from the January 23, 2001 senior subordinated note offering. The Company recognized an extraordinary loss of $0.8 million, net of income tax benefit, relating to the early extinguishment of this loan, reflecting the write-off of unamortized debt issuance costs.
On April 6, 2001, the Company entered into an amendment to its $1.0 billion revolving credit facility whereby the maturity date was extended to April 5, 2002 and the lending commitment was reduced to $800 million.
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The Company established a commercial paper program during 2001 that provides for the issuance, on a revolving basis, of up to $500 million outstanding principal amount of uncollateralized short-term notes. The Company is required to maintain credit availability under its revolving credit facility equal to the outstanding principal amount of commercial paper borrowings.
The Company attempts to limit its exposure to interest rate risk by managing the mix of its long-term fixed rate borrowings and short-term borrowings under its bank credit facilities and commercial paper program. Since the Mirage Acquisition was completed on May 31, 2000, the Company has issued $1.25 billion of long-term fixed rate debt and reduced outstanding bank credit facility and commercial paper borrowings by $2.20 billion. As a result, as of September 30, 2001, long-term fixed rate borrowings represented approximately 61% of the Company's total borrowings. During June 2001, the Company entered into interest rate swap agreements designated as fair value hedges of its $500 million of fixed rate debt due in 2005. During September 2001, one of those swap agreements was terminated and replaced by a new agreement. Under the terms of these agreements, the Company makes payments based on specified spreads over six-month LIBOR, and receives payments equal to the interest payments due on the fixed rate debt. Giving effect to these agreements, the Company's fixed rate and floating rate borrowings represent approximately 48% and 52%, respectively, of total borrowings.
The interest rate swap agreements qualify for the "shortcut" method allowed under Statement of Financial Accounting Standards No. 133, which allows an assumption of no ineffectiveness in the hedging relationship. As such, there is no income statement impact from changes in the fair value of the hedging instruments. Instead, the fair value of the instruments is recorded as an asset or liability on the Company's balance sheet, with an offsetting adjustment to the carrying value of the related debt. Deposits and other assets, net on the accompanying September 30, 2001 balance sheet include approximately $5 million representing the fair value of the interest rate swap agreements at that date, with a corresponding aggregate increase in the carrying value of the Company's 6.95% and 6.625% senior notes due in 2005. The Company received a payment of approximately $8 million during September 2001 upon the termination of a swap agreement as described above. This amount was added to the carrying value of the Company's 6.95% senior notes due in 2005, and will be amortized and recorded as a reduction in interest expense over the remaining life of those notes.
NOTE 4—INCOME PER SHARE OF COMMON STOCK
The weighted-average number of common and common equivalent shares used in the calculation of basic and diluted earnings per share consisted of the following:
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NOTE 5—RESTRUCTURING COSTS
During the first quarter of 2000, management initiated and completed a restructuring plan designed to consolidate certain general and administrative functions at New York-New York and MGM Grand Las Vegas. This restructuring resulted in a charge against earnings in the first quarter of 2000 totaling $5 million. Approximately 70 people were affected by the reductions, primarily at the Company's operating properties (excluding the Mirage Properties).
In connection with the Mirage Acquisition, management initiated a comprehensive restructuring plan designed to reduce costs and improve efficiencies of the combined operations of the Company. This restructuring resulted in a charge against earnings in the second quarter of 2000 totaling $18 million, primarily related to the accrual of costs associated with contract terminations and staffing reductions of approximately $6 million, the buyout of various leases of approximately $11 million and other related restructuring costs of $1 million. Approximately 125 people were affected by the reductions, primarily at the Company's operating properties (excluding the Mirage Properties) relating to duplicative functions within marketing, entertainment, retail, information systems and human resources.
Approximately $11 million of payments have been applied against the 2000 restructuring accruals, leaving a remaining unpaid balance of $12 million as of September 30, 2001. The remaining balance relates principally to the lease buyouts discussed above.
During the third quarter of 2001, management responded to a decline in business volumes caused by the September 11 attacks by implementing cost containment strategies which included a significant reduction in payroll and a refocusing of several of our marketing programs. Approximately 6,400 employees (on a full-time equivalent basis) were laid off or terminated, resulting in a $20 million charge against earnings, primarily related to the accrual of severance pay, extended health care coverage and other related costs in connection with these personnel reductions. Substantially all of the accrued costs remained unpaid at September 30, 2001.
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NOTE 6—CONSOLIDATING CONDENSED FINANCIAL INFORMATION
The Company's subsidiaries (excluding MGM Grand Detroit, LLC and the Company's non-U.S. subsidiaries) have fully and unconditionally guaranteed, on a joint and several basis, payment of the $2.0 billion and $800 million revolving credit facilities, the senior notes and debentures and the senior subordinated notes. Separate condensed financial statement information for the subsidiary guarantors and non-guarantors as of September 30, 2001 and December 31, 2000 and for the three and nine month periods ended September 30, 2001 and 2000 is as follows:
CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION
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CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION
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CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations
Our operating results reflect a substantial decline in business volumes at our hotel and casino resorts immediately after the terrorist attacks of September 11, 2001. Our hotels on the Las Vegas Strip averaged an unprecedented low 64% occupancy level from September 11 through September 30, at average room rates substantially below those of the comparable periods of prior years. This reduction in customer traffic also resulted in lower casino, food and beverage, entertainment and retail revenues. Mid-week occupancy levels have now significantly improved, and weekend occupancy has essentially returned to pre-attack levels, with a resulting improvement in casino and non-casino revenues. Room rates have improved, but are still significantly below those of the year-ago period.
Quarter versus Quarter
Consolidated casino revenues for the third quarter of 2001 were $552 million, a decrease of $20 million, or 3%, versus the prior-year quarter. This decline is primarily due to lower gaming volumes on the Las Vegas Strip and an increased accrual for gaming discounts, predominately attributable to the September 11 attacks, offset in part by an increase in table game hold percentage. Additionally, gaming volumes at MGM Grand Detroit were adversely affected as a competitor opened the third and final Detroit casino in November 2000.
Consolidated room revenues for the three months ended September 30, 2001 were $196 million, a decrease of $14 million, or 7%, versus the third quarter of 2000. This decline corresponded to a 7% decline in quarterly occupancy percentage, reflecting the historically low occupancy for the last 20 days of the quarter, as discussed above. Despite significantly reduced post-September 11, 2001 room rates, average daily rate for the quarter declined by less than 1%, reflecting strong room rate performance earlier in the quarter.
Consolidated food and beverage, entertainment, retail and other revenues were $339 million for the third quarter of 2001, a decrease of $20 million, or 6%, versus the prior-year third quarter. This decrease is attributable to the substantial declines in visitation following the attacks of September 11, which resulted in a reduction in the number of performances of our major entertainment attractions and the curtailment of restaurant operating hours in the period following the attacks.
Consolidated operating expenses (before preopening expense, restructuring costs, write-downs and impairments and corporate expense) were $855 million for the three months ended September 30, 2001, an increase of $45 million, or 6%, over the $810 million reported in the prior-year quarter. A significant element of this increase was in the provision for doubtful accounts, which increased by $16 million, or 153%, versus the third quarter of 2000. This increase was the result of management's evaluation of the collectibility of its receivables in light of the economic impacts of the September 11 attacks. Our assessment of these economic impacts also led to an $8 million adjustment to the carrying values of certain of our retail inventories. Absent these adjustments, operating expenses would have increased approximately 3% for the quarter. This increase in expenses despite the decrease in revenues is reflective of strong business volumes in the first part of the quarter. As discussed below, management took steps to curtail operating costs in the wake of the September 11 attacks, but in most cases the savings from these actions began to accrue in the fourth quarter.
Management responded to the decline in business volumes caused by the September 11 attacks by implementing cost containment strategies which included a significant reduction in payroll and a refocusing of several of our marketing programs. In connection therewith, approximately 6,400 employees (on a full-time equivalent basis) were laid off or terminated. The $20 million of restructuring costs in the third quarter of 2001 represents severance pay, extended health care coverage and other related costs in connection with these personnel reductions. We also reassessed the carrying value of
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certain assets and recognized a write-down and impairment charge of $47 million during the 2001 quarter. Most of this charge related to our land on the Atlantic City Boardwalk, which is included in the "Deposits and other assets, net" caption on the accompanying balance sheet.
Corporate expense was $8 million in the 2001 third quarter, versus $12 million in the prior-year quarter. This decrease reflects our progress in integrating corporate functions following the May 31, 2000 Mirage acquisition.
Interest expense, net of amounts capitalized, was $84 million for the third quarter of 2001, versus $105 million in the prior-year quarter. This reduction represents an interest cost decline of $41 million, reflecting lower debt balances and significantly lower short-term interest rates, offset in part by a $20 million reduction in capitalized interest, reflecting lower interest rates and the absence of interest capitalization on our development land on the Las Vegas Strip. Capitalization of interest on the Las Vegas Strip project was suspended in January 2001 until such time as the development process for that project is further advanced.
Nine Months versus Nine Months
In addition to the impact of the events of September 11, 2001, the May 31, 2000 acquisition of Mirage has also had a profound impact on our nine-month comparisons. The acquisition added four wholly owned and one joint venture resort on the Las Vegas Strip, as well as resorts in downtown Las Vegas and Laughlin, Nevada and Biloxi, Mississippi. Net revenues for the nine months ended September 30, 2001 totaled $3.11 billion, an increase of $1.04 billion, or 50%, over the comparable prior-year period. The Mirage properties generated net revenues of $1.94 billion, an increase of $1.12 billion versus their four-month results in 2000, while same store net revenues at the MGM properties declined by $80 million, or 6%, to $1.17 billion.
The decrease in revenues at the MGM properties for the nine-month period was concentrated in the casino area. Consolidated casino revenues for the first nine months of 2001 were $1.68 billion, an increase of $464 million, or 38%, over the prior-year period. The Mirage properties generated casino revenues of $938 million in the first nine months of 2001, an increase of $543 million over their four-month results in 2000, while casino revenues at the MGM properties decreased by $79 million, or 10%, to $738 million. This decrease was principally the result of declines of $36 million, $22 million and $15 million at MGM Grand Detroit, the Primm Properties and MGM Grand Las Vegas, respectively. These declines were all attributable primarily to reduced gaming volumes. The Primm Properties were faced with increased competition from Native American casinos, as well as the impact of higher gasoline and utility costs in California, while volumes at MGM Grand Detroit were impacted by a competitor's opening of the third and final Detroit casino in November 2000. The volume decreases at MGM Grand Las Vegas are attributable to the impact of the September 11 attacks.
Consolidated room revenues for the nine months ended September 30, 2001 were $663 million, an increase of $264 million, or 66%, over the first nine months of 2000. Room revenues at the Mirage properties during the first nine months of 2001 totaled $445 million, an increase of $259 million over the four-month result from 2000. The remainder of the increase was attained at MGM Grand Las Vegas, which achieved a 4% increase in room revenue despite the significant impact on business in the period from September 11, 2001 through the end of the quarter. MGM Grand Las Vegas benefited from having additional available rooms during the 2001 period, as a room remodeling project had been ongoing in the prior year, and also achieved a small increase in revenue per available room.
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Consolidated food and beverage, entertainment, retail and other revenues were $1.05 billion for the nine months ended September 30, 2001, an increase of $415 million, or 65%, over the first nine months of 2000. The Mirage properties contributed a $417 million increase, as revenues were $739 million for the nine-month period in 2001 versus $322 million for the four-month period in 2000. Food and beverage, entertainment, retail and other revenues at the MGM properties declined by only 1% from the comparable 2000 levels, despite the impact on business of the September 11 attacks.
Consolidated operating expenses (before preopening expense, restructuring costs, write-downs and impairments and corporate expense) were $2.50 billion for the nine months ended September 30, 2001, an increase of $908 million, or 57%, over the $1.59 billion reported in the prior-year period. The Mirage properties generated a $904 million increase in operating expenses, with $1.56 billion of current-period costs versus $658 million in the four-month period in 2000, while operating costs at the MGM properties increased by $4 million, or less than 1%. As noted above, operating revenues at the MGM properties declined by 6% over the comparable nine-month period in 2000. The factors discussed above in the quarter versus quarter comparison also affected margins for the nine-month period, as did increased energy costs and intensified competitive conditions, particularly with respect to the Primm Properties.
The Mirage acquisition resulted in corporate expense increasing from $25 million for the nine months ended September 30, 2000 to $30 million for the first nine months of 2001.
Interest expense, net of amounts capitalized, was $274 million for the first nine months of 2001, versus $174 million in the prior-year period. This increase reflected substantially higher average debt levels attributable to the financing of the Mirage acquisition, offset in part by a significant reduction in interest rates on borrowings under our bank credit facilities.
Liquidity and Capital Resources
As of September 30, 2001 and December 31, 2000, we held cash and cash equivalents of $133 million and $228 million respectively. Cash provided by operating activities for the first nine months of 2001 was $606 million, compared with $576 million for the comparable period of 2000.
Capital expenditures for the first nine months of 2001 were $234 million. These expenditures related to general property improvements at our resorts, as well as pre-construction activities associated with ongoing development projects, including capitalized interest, principally in Atlantic City.
During August 2001, our Board of Directors approved a stock repurchase program authorizing the purchase of up to 10 million shares of our common stock. During September 2001, we repurchased approximately 2.2 million shares at a total cost of approximately $46 million.
On January 23, 2001, we issued $400 million of senior subordinated notes, which carry a coupon of 8.375% and are due on February 1, 2011. These senior subordinated notes were issued under our shelf registration statement, leaving remaining capacity of $790 million. Any future offering of securities under the shelf registration statement will only be made by means of a prospectus supplement. We repaid the remaining $461 million balance under the $1.3 billion term loan during the first quarter of 2001, principally through proceeds from the senior subordinated note offering. We also reduced the outstanding balances under our other bank credit and commercial paper facilities by $359 million during the first nine months of 2001, bringing total net reductions in the face value of debt during the nine-month period to $420 million.
On April 6, 2001, we entered into an amendment to our $1.0 billion revolving credit facility whereby the maturity date was extended to April 5, 2002 and the lending commitment was reduced to $800 million.
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We intend to focus on utilizing available free cash flow to reduce indebtedness, as well as to finance our ongoing operations and any future share repurchases and investments. We expect to finance operations, capital expenditures and existing debt obligations through cash flow from operations, cash on hand, bank credit facilities and, depending on market conditions, public offerings of securities under the shelf registration statement.
Market Risk
Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates and commodity prices. Our primary exposure to market risk is interest rate risk associated with our long-term debt. We attempt to limit our exposure to interest rate risk by managing the mix of our long-term fixed rate borrowings and short-term borrowings under our bank credit facilities and commercial paper program. Since the Mirage Acquisition was completed on May 31, 2000, we have issued $1.25 billion of long-term fixed rate debt and reduced outstanding bank credit facility and commercial paper borrowings by $2.20 billion. As a result, as of September 30, 2001, long-term fixed rate borrowings represented approximately 61% of our total borrowings. During June 2001, we entered into interest rate swap agreements designated as fair value hedges of our $500 million principal amount of fixed rate debt due in 2005. During September 2001, one of these swap agreements was terminated and replaced by a new agreement. Under the terms of these agreements, we make payments based on specified spreads over six-month LIBOR, and receive payments equal to the interest payments due on the fixed rate debt. Giving effect to these agreements, our fixed rate and floating rate borrowings represent approximately 48% and 52%, respectively, of total borrowings.
The following table provides information about our interest rate swaps as of September 30, 2001:
Recently Issued Accounting Standards
Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets," was issued in June 2001. The statement provides that goodwill will no longer be amortized effective January 1, 2002, but will instead be reviewed for impairment upon adoption of the statement and at least annually thereafter. The balance of goodwill at September 30, 2001 was $103 million. We have not yet completed our initial assessment of potential impairment of this balance.
Safe Harbor Provision
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. Certain information included in this report contains statements that are forward-looking, such as statements relating to plans for future expansion and other business development activities, as well as other capital spending, financing sources, the effects of regulation (including gaming and tax regulations) and competition. Such forward-looking information involves important risks and uncertainties that could significantly affect anticipated results in the future and, accordingly, such results may differ from those expressed in any forward-looking statements made by or on behalf of the Company. These risks and uncertainties include, but are not limited to, those relating to competition, development and construction activities, dependence on existing management, leverage and debt service (including sensitivity to fluctuations in interest rates), domestic or international economic conditions (including sensitivity to fluctuations in foreign currencies), pending or future legal proceedings, 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).
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We incorporate by reference the information appearing under "Market Risk" in Item 2 of this Form 10-Q.
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Part II. OTHER INFORMATION
Item 1. Legal Proceedings
On July 18, 2001, an individual, Mary Kraft, filed a complaint in the Wayne County Circuit Court in Detroit, Michigan, against International Game Technology, Anchor Gaming, Inc. and the three operators of casinos in Detroit, Michigan, including a subsidiary of the Company. The plaintiff claims the bonus wheel feature of the Wheel of Fortune® and I Dream of Jeannie™ slot machines, which are manufactured, designed and programmed by International Game Technology and/or Anchor Gaming, Inc., are deceptive and misleading. Specifically, plaintiff alleges that the bonus wheels on these games do not randomly land on a given dollar amount but are programmed to provide a predetermined frequency of pay-outs. The complaint alleges violations of the Michigan Consumer Protection Act, common law fraud and unjust enrichment and asks for unspecified compensatory and punitive damages, disgorgement of profits, injunctive and other equitable relief, and costs and attorney's fees. The plaintiff seeks to certify a class of any individual in Michigan who has played either of these games since June of 1999. The machines and their programs were approved for use by the Michigan Gaming Control Board, the administrative agency responsible for policing the Detroit casinos. The Company, along with the other casino operators, has filed a motion for summary judgment arguing that the plaintiff's complaint fails to state a claim as a matter of law. No discovery has been taken which would provide information regarding the defenses to liability, the extent of damages or the propriety of class certification, and we are unable to knowledgeably comment on the potential outcome of this matter. However, we intend to continue to defend this case vigorously.
Item 6. Exhibits and Reports on Form 8-K
The Company filed the following Current Reports on Form 8-K during the quarter ended September 30, 2001.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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