UNITED STATES SECURITIES & EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------------- FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997 ------------------------------------------------- [ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition period from -- to -- ---------------------- -------------------------- Commission File Number: 0-16760 -------------------------------------------------------- MGM GRAND, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 88-0215232 - -------------------------------- ----------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3799 Las Vegas Boulevard South, Las Vegas, Nevada 89109 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (702) 891-3333 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at August 11, 1997 - ------------------------------ ------------------------------------ Common Stock, $.01 par value 57,973,527 shares
MGM GRAND, INC. AND SUBSIDIARIES FORM 10-Q I N D E X <TABLE> <CAPTION> Page No. -------- PART I. FINANCIAL INFORMATION <S> <C> <C> Item 1. Financial Statements Condensed Consolidated Statements of Operations for the Three Months and Six Months Ended June 30, 1997 and June 30, 1996.................... 1 Condensed Consolidated Balance Sheets at June 30, 1997 and December 31, 1996............. 2 Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1997 and June 30, 1996.................... 3 Notes to Condensed Consolidated Financial Statements......................................... 4-8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations... 9-14 PART II. OTHER INFORMATION Item 1. Legal Proceedings.................................. 15 Item 4. Submission of Matters to a Vote of Security Holders at the Annual Shareholder Meeting Held on May 6, 1997..................................... 15-16 Item 6. Exhibits and Reports on Form 8-K................... 16 Signatures......................................... 17 </TABLE> Exhibit I Exhibit II
MGM GRAND, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) <TABLE> <CAPTION> Three months ended Six months ended June 30, June 30, ----------------------- ----------------------- 1997 1996 1997 1996 ---------- ---------- ---------- ---------- <S> <C> <C> <C> <C> REVENUES: Casino $113,108 $105,489 $220,204 $234,437 Room 43,085 43,624 86,421 87,425 Food and beverage 23,858 19,441 45,427 39,535 Entertainment, retail and other 30,357 33,002 56,231 62,111 Income from unconsolidated affiliate 14,706 - 29,428 - -------- -------- -------- --------- 225,114 201,556 437,711 423,508 Less: promotional allowances 16,029 12,319 31,128 26,275 -------- -------- -------- -------- 209,085 189,237 406,583 397,233 -------- -------- -------- -------- EXPENSES: Casino 58,375 49,358 111,532 106,146 Room 11,712 12,449 22,828 23,774 Food and beverage 14,015 12,113 26,254 24,239 Entertainment, retail and other 20,960 20,113 39,602 42,481 Provision for doubtful accounts and discounts 5,917 4,541 14,330 20,167 General and administrative 24,804 25,140 50,239 49,072 Depreciation and amortization 15,934 15,426 31,392 30,642 -------- -------- -------- -------- 151,717 139,140 296,177 296,521 -------- -------- -------- -------- OPERATING PROFIT BEFORE CORPORATE EXPENSE 57,368 50,097 110,406 100,712 CORPORATE EXPENSE 3,289 1,482 4,778 2,874 -------- -------- -------- -------- OPERATING INCOME 54,079 48,615 105,628 97,838 -------- -------- -------- -------- OTHER INCOME (EXPENSE): Interest income 381 1,841 580 3,422 Interest expense, net of amounts capitalized (268) (15,942) (1,242) (31,739) Interest expense from unconsolidated affiliate (2,543) - (5,008) - Other, net (212) (183) (444) (662) -------- -------- -------- -------- ( 2,642) (14,284) (6,114) (28,979) -------- -------- -------- -------- INCOME BEFORE PROVISION FOR INCOME TAXES 51,437 34,331 99,514 68,859 Provision for income taxes (18,438) (13,696) (36,365) (13,696) -------- -------- -------- -------- NET INCOME $ 32,999 $ 20,635 $ 63,149 $ 55,163 ======== ======== ======== ======== PER SHARE OF COMMON STOCK: Net income $ 0.56 $ 0.41 $ 1.07 $ 1.11 ======== ======== ======== ======== Weighted average shares outstanding (000's) 58,863 50,160 58,805 49,745 ======== ======== ======== ======== </TABLE> The accompanying notes are an integral part of these condensed consolidated financial statements - 1 -
MGM GRAND, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA) (UNAUDITED) ASSETS <TABLE> <CAPTION> June 30, December 31, 1997 1996 ----------- ------------ <S> <C> <C> CURRENT ASSETS: Cash and cash equivalents $ 47,413 $ 61,412 Accounts receivable, net 61,036 80,529 Other receivables 15,000 - Prepaid expenses and other 11,084 13,208 Inventories 16,259 13,520 Deferred tax asset 23,138 58,039 ---------- ---------- Total current assets 173,930 226,708 ---------- ---------- PROPERTY AND EQUIPMENT, NET 928,839 884,750 OTHER ASSETS: Investments in unconsolidated affiliates 97,364 72,896 Deposits 423 15,255 Excess of purchase price over fair market value of net assets acquired, net 39,110 39,622 Other assets, net 53,034 48,458 ---------- ---------- Total other assets 189,931 176,231 ---------- ---------- $1,292,700 $1,287,689 ========== ========== </TABLE> LIABILITIES AND STOCKHOLDERS' EQUITY <TABLE> <S> <C> <C> CURRENT LIABILITIES: Accounts payable $ 28,528 $ 32,995 Income taxes payable - 23,653 Current obligation, capital leases 2,327 2,769 Current obligation, long term debt 12,173 12,906 Other accrued liabilities 103,779 118,448 ---------- ---------- Total current liabilities 146,807 190,771 ---------- ---------- DEFERRED REVENUES 6,661 6,712 DEFERRED INCOME TAXES 28,414 38,477 LONG TERM OBLIGATION, CAPITAL LEASES 6,704 7,862 LONG TERM DEBT 60,396 70,485 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Common stock ($.01 par value, 75,000,000 shares authorized, 57,968,919 and 57,883,766 shares issued) 580 579 Capital in excess of par value 966,039 963,688 Retained earnings 76,370 13,221 Currency translation adjustment 729 (4,106) ---------- ---------- Total stockholders' equity 1,043,718 973,382 ---------- ---------- $1,292,700 $1,287,689 ========== ========== </TABLE> The accompanying notes are an integral part of these condensed consolidated financial statements - 2 -
MGM GRAND, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED) <TABLE> <CAPTION> Six Months Ended June 30, ---------------------- 1997 1996 --------- ---------- <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 63,149 $ 55,163 Adjustments to reconcile net income to net cash from operating activities: Depreciation and amortization 31,462 30,701 Amortization of debt offering costs 842 1,387 Provision for doubtful accounts and discounts 14,330 20,167 Income from unconsolidated affiliate, net (24,420) - Change in assets and liabilities: Accounts receivable 5,163 13,045 Inventories (3,285) 626 Prepaid expenses and other 2,124 (1,850) Income taxes payable and deferred income taxes 1,184 (8,495) Accounts payable, accrued liabilities and other (20,816) (2,277) Currency translation adjustment 263 (2) -------- -------- Net cash from operating activities 69,996 108,465 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (70,622) (23,202) Disposition of property and equipment, net 123 277 Investments in unconsolidated affiliates (7,183) (3,033) Distributions from unconsolidated affiliate 6,720 - Deposits and other assets, net (9,134) 879 -------- -------- Net cash from investing activities (80,096) (25,079) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayments to banks and others (6,251) - Borrowings under bank line of credit 15,000 4,262 Repayments of bank line of credit (15,000) (2,294) Issuance of common stock 2,352 14,823 -------- -------- Net cash from financing activities (3,899) 16,791 -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (13,999) 100,177 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 61,412 110,017 -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 47,413 $210,194 ======== ======== </TABLE> The accompanying notes are an integral part of these condensed consolidated financial statements - 3 -
MGM GRAND, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION MGM Grand, Inc. (the "Company") is a Delaware corporation, incorporated on January 29, 1986. As of June 30, 1997, approximately 61.4% of the outstanding shares of the Company's common stock were owned by Kirk Kerkorian and Tracinda Corporation ("Tracinda"), a Nevada corporation wholly-owned by Kirk Kerkorian. Through its wholly-owned subsidiary, MGM Grand Hotel, Inc., the Company owns and operates the MGM Grand Hotel/Casino ("MGM Grand Las Vegas"), a hotel/casino and entertainment complex in Las Vegas, Nevada. MGM Grand Hotel Finance Corp. ("MGM Finance"), a wholly-owned subsidiary of the Company, was formed to issue First Mortgage Notes to the public, to incur bank debt and to lend the aggregate proceeds thereof to MGM Grand Hotel, Inc. to finance the construction and opening of MGM Grand Las Vegas. See Note 3 regarding defeasance of MGM Finance First Mortgage Notes. Through its wholly-owned subsidiary, MGM Grand Australia Pty Ltd., the Company owns and operates the MGM Grand Hotel/Casino ("MGM Grand Australia"), a hotel/casino resort in Darwin, Australia. MGM Grand Australia was acquired and commenced operations on September 7, 1995. The Company and Primadonna Resorts, Inc. ("Primadonna") each owns 50% of New York-New York Hotel and Casino, LLC ("NYNY LLC"), which completed development of the $460,000,000 themed destination resort called New York-New York Hotel and Casino ("NYNY") in Las Vegas, Nevada in December 1996. NYNY commenced operations on January 3, 1997. NYNY is located on approximately 20 acres at the northwest corner of Tropicana Avenue and Las Vegas Boulevard, across from MGM Grand Las Vegas. Through its wholly-owned subsidiary, MGM Grand Atlantic City, Inc., the Company intends to construct and operate a destination resort hotel/casino, entertainment and retail facility in Atlantic City, New Jersey, at an approximate cost of at least $700,000,000. On July 9, 1996, the Company entered into an agreement with FC Atlantic City Associates, L.P. (an affiliate of the Forest City Ratner Company) to develop approximately 35 acres of land on the Atlantic City Boardwalk. Construction of the project is subject to the receipt of various governmental approvals. On July 24, 1996, the Company was found suitable for licensing by the New Jersey Casino Control Commission. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the 1996 Annual Report included in Form 10-K. In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements contain all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position as of June 30, 1997, and the results of operations for the three month and six month periods ended June 30, 1997 and 1996. The results of operations for such periods are not necessarily indicative of the results to be expected for the full year. Certain reclassifications have been made to prior period financial statements to conform with the 1997 presentation. - 4 -
MGM GRAND, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) NOTE 2. STATEMENTS OF CASH FLOWS For the six months ended June 30, 1997 and June 30, 1996, cash payments made for interest were $4,087,000 and $32,535,000, respectively. Cash payments made for state and federal taxes for the six months ended June 30, 1997 and June 30, 1996 were $36,090,000 and $2,350,000, respectively. NOTE 3. LONG TERM DEBT AND NOTES PAYABLE Long term debt consisted of the following (in thousands): <TABLE> <CAPTION> June 30, December 31, 1997 1996 --------- ------------- <S> <C> <C> Australian Hotel/Casino Loan $ 72,569 $ 83,391 Less: Current Maturities (12,173) (12,906) -------- -------- $ 60,396 $ 70,485 ======== ======== </TABLE> Total interest incurred for the first six months of 1997 and 1996 was $4,926,000 and $33,972,000, respectively, of which $3,684,000 and $2,233,000 was capitalized in the 1997 and 1996 periods, respectively. During the first six months of 1997, the Company recognized interest expense from unconsolidated affiliate of $5,008,000. On July 3, 1996, the Company deposited $523,231,000 (the "Defeasance Deposit") with the Trustee, U.S. Trust of California, to fund the defeasance of MGM Grand Hotel Finance Corp. First Mortgage Notes ("FMN's") in accordance with the terms of the bond indenture. The Defeasance Deposit was made in the form of U.S. Government securities and was used to fund interest payments on the FMN's through May 1, 1997, at which date the 11-3/4% and 12% FMN's were called at 101.958% and 105.333% of their outstanding principal, respectively. On October 29, 1996, the liens on the assets of MGM Grand Hotel, Inc. were released and accordingly, the defeasance was finalized. On July 1, 1996, the Company secured a new $500,000,000 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 $600,000,000. During the six months ended June 30, 1997, $15,000,000 was drawn down, and repaid against the Facility, and no amounts remained outstanding as of June 30, 1997. In July 1997, the Facility was amended, extended and increased to $1,250,000,000, (the "New Facility") with provisions to allow an increase of the New Facility to $1,500,000,000 as well as to allow additional pari passu debt financing up to $500,000,000. As a result of the New Facility, the Company anticipates a write-off of approximately $6.6 million (before income tax benefit) of unamortized debt costs from the Facility during the third quarter of 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. The New Facility matures in December 2002, with the opportunity to extend the maturity for successive one year periods. - 5 -
MGM GRAND, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) NOTE 3. LONG TERM DEBT AND NOTES PAYABLE (CONT.) The Australian bank facility originally provided a total availability of approximately $78,656,000 (AUD$105,000,000), which was reduced by principal payments totaling $6,251,000 (AUD$8,125,000) made in accordance with the terms of the bank facility, and as of June 30, 1997, $72,569,000 (AUD$96,875,000) remained outstanding. The facility includes funding for general corporate purposes. Interest on the facility is based on the Australian Bank Bill rate. The loan agreement contains various restrictive covenants on MGM Grand Australia, including limitations on additional debt, dividends, and disposition of assets. The loan agreement also restricts certain acquisitions and similar transactions. The indebtedness, which matures in December 2000, has been wholly guaranteed by the Company. MGM Grand Australia has a $14,982,000 (AUD$20,000,000) uncommitted standby line of credit, with a funding period of 91 days for working capital purposes. No amount was outstanding during the six months ended June 30, 1997, and $4,262,000 was borrowed with $2,294,000 repaid during the six months ended June 30, 1996 and $1,968,000 remained outstanding under the line of credit at June 30, 1996. Upon commencement of operations of NYNY on January 3, 1997 (see Note 1), the $285,000,000 non-revolving construction line of credit converted to a five- year reducing revolver. The Company and Primadonna (the "Partners") have executed a joint and several unlimited Keep-Well Agreement, which provides that in the event of insufficient cash flow from NYNY to comply with financial covenants, the Partners will make cash infusions which are sufficient to bring NYNY LLC into compliance with the financial covenants. During the first six months of 1997, $10,000,000 in voluntary principal repayments were made by NYNY LLC. As of June 30, 1997 and December 31, 1996, a total of $275,000,000 and $285,000,000 were outstanding, respectively. On January 21, 1997, NYNY LLC completed an additional $20,000,000 equipment financing with a financial institution. NOTE 4. ISSUANCE OF COMMON STOCK On May 7, 1996, the Company made a commitment to grant 15 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 in the amount of $4,982,000 was charged to stockholders' equity and amortized monthly to compensation expense over the one year commitment period. On May 7, 1997, 98,970 shares were issued to employees as a result of the commitment. Over the life of the commitment, approximately $3,962,000 has been amortized to expense, of which $1,143,000 of such expense was recognized during the six months ended June 30, 1997. On May 24, 1995, and as amended on November 27, 1995, the Company and MGM Grand Hotel, Inc. entered into a Promotion Agreement with Don King Productions, Inc. ("DKP"), pursuant to which, among other things, MGM Grand Las Vegas has the exclusive right to present six of Mike Tyson's fights. In addition, MGM Grand Hotel, Inc. made a non-interest bearing working capital advance of $15,000,000 to DKP which calls for repayment on January 25, 1998, and the Company sold DKP 618,557 treasury shares of the Company's Common Stock (the "Shares") for $15,000,000 in exchange for a non-interest bearing promissory note. Through June 30, 1997, five fights have occurred pursuant to the agreement, and the stock promissory note has been paid. 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 Trust Agreement extended the payment date of the working capital advance and the guaranteed share price of $48.50 to March 31, 1998. As of June 30, 1997, the Company has expensed approximately $5,928,000 over the life of the agreement. On July 23, 1997, the Company notified DKP of its breach of the Promotion Agreement - 6 -
MGM GRAND, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) NOTE 4. ISSUANCE OF COMMON STOCK (CONT.) as a result of the revocation of Mike Tyson's Nevada boxing license. As a result of such breach, the Company notified DKP that the Promotion Agreement and guarantee are terminated, that the working capital advance is due and payable, and that the Company is reserving all of its rights and remedies. DKP has disputed the Company's contentions. The outcome of this matter is as yet undetermined. NOTE 5. EARNINGS PER SHARE The Company calculates earnings per share ("EPS") in accordance with Accounting Principles Board Opinion 15, "Earnings per Share" ("APB 15"). Earnings per share is based on the weighted average number of shares of common stock and common stock equivalents, if dilutive, outstanding during each period. Such amounts were approximately 58,863,000 and 50,160,000 shares for the three month periods ended June 30, 1997 and 1996, respectively, and 58,805,000 and 49,745,000 shares for the six month periods ended June 30, 1997 and 1996, respectively. In March 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"), which upon adoption will supersede APB 15 and is intended to simplify and harmonize the EPS calculations in the United States with those common in other countries and to present 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 assumptions that options issued to employees are exercised and repurchased at the average price for the periods presented. SFAS 128 is effective for financial statements for the year ended December 31, 1997, and although early application is prohibited, the following reflects the expected effect of SFAS 128 for the periods presented (in thousands except per share amounts): <TABLE> <CAPTION> Three Months Ended Six Months Ended June 30, June 30, --------------------- ---------------------- 1997 1996 1997 1996 -------- -------- -------- -------- <S> <C> <C> <C> <C> Net Income $32,999 $20,635 $63,149 $55,163 ======= ======= ======= ======= Weighted Average Basic Shares 57,927 48,503 57,882 48,418 ======= ======= ======= ======= Basic Earnings per Share $ 0.57 $ 0.43 $ 1.09 $ 1.14 ======= ======= ======= ======= Weighted Average Diluted Shares 58,808 50,163 58,791 49,746 ======= ======= ======= ======= Diluted Earnings per Share $ 0.56 $ 0.41 $ 1.07 $ 1.11 ======= ======= ======= ======= </TABLE> Weighted average diluted shares include the following: options to purchase 844,000 and 1,245,000 shares issued to employees for the three month periods ended June 30, 1997 and 1996, respectively, and 852,000 and 999,000 for the six month periods ended June 30, 1997 and 1996, respectively; employee grant shares (see Note 4) of 37,000 and 3,000 for the three month periods ended June 30, 1997 and 1996, respectively, and 57,000 and 2,000 for the six month periods ended June 30, 1997 and 1996, respectively; and DKP shares (see Note 4) of 412,000 for the three months ended June 30, 1996, and 327,000 for the six months ended June 30, 1996. - 7 -
MGM GRAND, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 6. INVESTMENT IN UNCONSOLIDATED AFFILIATE On December 28, 1994 the Company and Primadonna formed a joint venture to 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 holds a 50% share interest in the joint venture. The Company has contributed land on which the property is located and cash totaling $70,700,000. During the six months ended June 30, 1997, the Company received income tax distributions from the joint venture of $6,720,000. The joint venture has secured bank financing of $285,000,000, and term loan financing of $20,000,000 (see Note 3). The joint venture partners have executed Keep-Well Agreements in conjunction with the financing. Summary condensed financial information for the joint venture is as follows (in thousands): <TABLE> <CAPTION> Three Months Six Months Ended Ended June 30, June 30, 1997 1997 ------------ ------------ <S> <C> <C> Net Revenues $ 67,401 $135,269 ======== ======== Operating Income $ 29,573 $ 58,834 ======== ======== Interest Expense, net $ 5,086 $ 10,016 ======== ======== Net Income $ 24,487 $ 48,818 ======== ======== As of As of June 30, December 31, 1997 1996 ---------- ------------ Total Assets $478,709 $457,091 ======== ======== Long-term Debt $262,385 $285,829 ======== ======== Members' Equity $161,042 $111,664 ======== ======== </TABLE> - 8 -
MGM GRAND, INC. AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The Company, through its wholly-owned subsidiaries, owns and operates MGM Grand Las Vegas and MGM Grand Australia (see Note 1). The Company also owns 50% of New York-New York Hotel and Casino, which commenced operations on January 3, 1997 (see Note 1). <TABLE> <CAPTION> Three Months Ended Six Months Ended June 30, June 30, ----------------------- ----------------------- 1997 1996 1997 1996 ---------- ---------- ---------- ---------- <S> <C> <C> <C> <C> (in thousands) Net revenues: MGM Grand Las Vegas $185,832 $180,815 $361,219 $380,133 MGM Grand Australia 8,756 8,575 16,522 17,372 Income from unconsolidated affiliate 14,706 - 29,428 - Eliminations and other (209) (153) (586) (272) -------- -------- -------- -------- $209,085 $189,237 $406,583 $397,233 ======== ======== ======== ======== Operating profit (loss): MGM Grand Las Vegas $ 41,747 $ 51,457 $ 80,321 $103,883 MGM Grand Australia 915 (1,360) 657 (3,171) Income from unconsolidated affiliate 14,706 - 29,428 - -------- -------- -------- -------- 57,368 50,097 110,406 100,712 Corporate expense (3,289) (1,482) (4,778) (2,874) -------- -------- -------- -------- Operating income 54,079 48,615 105,628 97,838 Interest income 381 1,841 580 3,422 Interest expense, net of amounts capitalized (268) (15,942) (1,242) (31,739) Interest expense from unconsolidated affiliate (2,543) - (5,008) - Other, net (212) (183) (444) (662) -------- -------- -------- -------- Income before provision for income taxes 51,437 34,331 99,514 68,859 Provision for income taxes (18,438) (13,696) (36,365) (13,696) -------- -------- -------- -------- Net income $ 32,999 $ 20,635 $ 63,149 $ 55,163 ======== ======== ======== ======== </TABLE> - 9 -
MGM GRAND, INC. AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) QUARTER VERSUS QUARTER Net revenues for the second quarter of 1997 were $209,085,000, representing an increase of $19,848,000 (10.5%) when compared with $189,237,000 during the same period last year. The increase in net revenues was largely due to higher casino and food and beverage revenue in the 1997 period, and income from the Company's 50% ownership in NYNY (see Note 1). Consolidated casino revenues for the second quarter of 1997 were $113,108,000, representing an increase of $7,619,000 (7.2%) when compared with $105,489,000 during the same period in the prior year. MGM GRAND LAS VEGAS casino revenues were $106,448,000, representing an increase of $7,625,000 (7.7%) when compared with $98,823,000 during the same period in the prior year. The increase in casino revenues at MGM Grand Las Vegas was a result of higher volume and win during the 1997 period when compared with the 1996 period. MGM GRAND AUSTRALIA reported casino revenues of $6,660,000 in the second quarter of 1997 which were consistent with the $6,667,000 reported in 1996. Consolidated room revenues were $43,085,000 for the second quarter of 1997 compared with $43,624,000 in the prior year's second quarter, representing a decrease of $539,000 (1.2%). MGM GRAND LAS VEGAS room revenues were $42,579,000 representing a decrease of $491,000 (1.1%) when compared with $43,070,000 in the same period of the prior year. The decrease was primarily due to a lower occupancy of 95.2% for the second quarter of 1997 when compared with 99.5% in the same period of the prior year, which was partially offset by an increase in the average room rate for the 1997 second quarter to $101 from $97 for the 1996 second quarter. MGM GRAND AUSTRALIA room revenues were $588,000 for the 1997 second quarter, consistent with the prior year's quarter of $582,000. Consolidated food and beverage revenues were $23,858,000 in the second quarter of 1997, representing an increase of $4,417,000 (22.7%) when compared with $19,441,000 in the second quarter of the prior year. The increase was attributable to MGM GRAND LAS VEGAS which had food and beverage revenues of $22,092,000 during the second quarter of 1997, an increase of $4,264,000 (23.9%) when compared with $17,828,000 in the second quarter of 1996. This increase resulted from the Company's decision to operate the Studio Cafe, which had been a leased facility during the 1996 period. MGM GRAND AUSTRALIA reported food and beverage revenues of $1,867,000, representing an increase of $246,000 (15.2%) when compared with $1,621,000 during the same period in the prior year. Consolidated entertainment, retail and other revenues decreased $2,645,000 (8.0%) from $33,002,000 in the 1996 period to $30,357,000 in the 1997 period. The decrease in entertainment, retail and other revenues is a result of lower EFX revenues, lower theme park revenues, and lower midway/arcade revenues due to downsizing of the facility. These decreases were partially offset by increases in MGM Grand Garden Arena revenues and increased revenues from the SkyScreamer thrill ride which was not operational during the 1996 period. Income from unconsolidated affiliate was $14,706,000 for the second quarter of 1997, representing the Company's 50% share of NYNY's operating income. The operating results from NYNY were not consolidated with those of the Company since consolidation is required only with greater than 50% ownership (see Note 1). Consolidated operating expenses were $151,717,000 in the second quarter of 1997, representing an increase of $12,577,000 (9.0%) when compared with $139,140,000 for the same period last year. The - 10 -
MGM GRAND, INC. AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) QUARTER VERSUS QUARTER (CONTINUED) overall increase was attributable to MGM GRAND LAS VEGAS which had increased casino expenses in the 1997 period as a result of higher casino taxes due to increased casino revenues, higher casino marketing costs associated with the Tyson/Holyfield event, and higher food and beverage expenses as a result of the Company's operation of the Studio Cafe, partially offset by lower expenses related to EFX. Additionally, the provision for doubtful accounts and discounts increased by $1,376,000 (30.3%) at MGM Grand Las Vegas as a result of higher reserves relating to higher casino volume and win in the 1997 period when compared with the 1996 period. MGM GRAND AUSTRALIA operating expenses decreased $2,096,000 (21.1%) from $9,936,000 in the 1996 period to $7,840,000 in the 1997 period as a result of continuing cost containment efforts. Interest income of $381,000 for the three months ended June 30, 1997 decreased by $1,460,000 from $1,841,000 in the second quarter of 1996. The decrease was attributable to lower invested cash balances at MGM Grand Las Vegas during the second quarter of 1997. Interest expense in the second quarter of 1997 of $268,000 (net of amounts capitalized) decreased by $15,674,000 when compared with $15,942,000 in the same period of 1996. The decrease in the second quarter of 1997 was primarily due to the defeasance of the MGM Grand Hotel Finance Corp. First Mortgage Notes (see Note 3) in the third quarter of 1996. Also, the company recognized interest expense from unconsolidated affiliate of $2,543,000 during the 1997 period. Income tax provision of $18,438,000 has been recorded at a rate of 35.8% for the three months ended June 30, 1997, compared with $13,696,000 at a rate of 39.9% in the prior year. SIX MONTHS VERSUS SIX MONTHS Net revenues for the six months ended June 30, 1997 were $406,583,000, representing an increase of $9,350,000 (2.4%) when compared with $397,233,000 during the same period last year. The increase in net revenues was largely due to income from the Company's 50% ownership in NYNY (see Note 1) partially offset by decreased casino, and entertainment, retail and other revenues. Consolidated casino revenues for the six months ended June 30, 1997 were $220,204,000, representing a decrease of $14,233,000 (6.1%) when compared with $234,437,000 during the same period in the prior year. MGM GRAND LAS VEGAS casino revenues were $207,395,000, representing a decrease of $12,866,000 (5.8%) when compared with $220,261,000 during the same period in the prior year. The reduction in casino revenues at MGM Grand Las Vegas was a result of lower table games win percentages, despite an overall increase in table games volume when compared with the prior year period. MGM GRAND AUSTRALIA reported casino revenues of $12,809,000, which decreased $1,367,000 (9.6%) when compared with $14,176,000 during the same period in the prior year, primarily attributable to lower volume and win percentages in table games partially offset by an increase in slot win. Consolidated room revenues for the period were $86,421,000 compared with $87,425,000 for the same period in 1996, representing a decrease of $1,004,000 (1.1%). MGM GRAND LAS VEGAS room revenues were $85,540,000 representing a decrease of $1,053,000 (1.2%) when compared with $86,593,000 in the same period of the prior year. The decrease was primarily due to a lower occupancy - 11 -
MGM GRAND, INC. AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) SIX MONTHS VERSUS SIX MONTHS (CONTINUED) of 93.6% for the 1997 period when compared with 96.4% in the same period of the prior year, which was partially offset by an increase in the average room rate for the 1997 period to $103 from $99 in 1996. MGM GRAND AUSTRALIA room revenues were $1,005,000 for the six months ended June 30, 1997 representing an increase of $100,000 (11.0%) when compared with $905,000 for the prior year period. Consolidated food and beverage revenues for the period were $45,427,000, representing an increase of $5,892,000 (14.9%) when compared with $39,535,000 for the same period of the prior year. The increase was attributable to MGM GRAND LAS VEGAS which had food and beverage revenues of $42,124,000 during the current period, an increase of $5,429,000 (14.8%) when compared with $36,695,000 in the same period of 1996. This increase resulted from the Company's decision to operate the Studio Cafe, which had been a leased facility during the 1996 period. MGM GRAND AUSTRALIA reported food and beverage revenues of $3,442,000, representing an increase of $578,000 (20.2%) when compared with $2,864,000 during the same period in the prior year. Consolidated entertainment, retail and other revenues decreased $5,880,000 (9.5%) from $62,111,000 in the 1996 period to $56,231,000 in the 1997 period. The decrease in entertainment, retail and other revenues is a result of lower EFX revenues, lower theme park revenues and lower midway/arcade revenues due to downsizing the facility. These decreases were partially offset by increases in MGM Grand Garden Arena revenues and increased revenues from the SkyScreamer thrill ride which was not operational during the 1996 period. Income from unconsolidated affiliate was $29,428,000 for the six months ended June 30, 1997, representing the Company's 50% share of NYNY's operating income. The operating results from NYNY were not consolidated with those of the Company since consolidation is required only with greater than 50% ownership (see Note 1). Consolidated operating expenses for the 1997 period were $296,177,000, representing a decrease of $344,000 when compared with $296,521,000 for the same period last year. The overall decrease was due to MGM Grand Australia offset by increases in MGM Grand Las Vegas. The increases at MGM GRAND LAS VEGAS were due to increased casino expenses related to the Tyson/Holyfield event and the slot club, increased food and beverage expenses and advertising expenses offset by lower expenses related to EFX and lower midway/arcade expenses. Additionally, the provision for doubtful accounts and discounts decreased by $5,884,000 at MGM Grand Las Vegas as a result of changes in anticipated collectibility and collections made on previously reserved receivable balances. MGM GRAND AUSTRALIA operating expenses decreased $4,680,000 (22.8%) from $20,544,000 in the 1996 period to $15,864,000 in the 1997 period as a result of continuing cost containment efforts. Interest income of $580,000 for the period ended June 30, 1997 decreased by $2,842,000 from $3,422,000 in the same period of 1996. The decrease was attributable to lower invested cash balances at MGM Grand Las Vegas during the 1997 period. Interest expense for the six months ended June 30, 1997 of $1,242,000 (net of amounts capitalized) decreased by $30,497,000 when compared with $31,739,000 in the same period of 1996. The decrease in the 1997 period was primarily due to the defeasance of the MGM Grand Hotel Finance Corp. First Mortgage Notes (see Note 3) in the third quarter of 1996. Also, the Company recognized interest expense from unconsolidated affiliate of $5,008,000 during the 1997 period. - 12 -
MGM GRAND, INC. AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) SIX MONTHS VERSUS SIX MONTHS (CONTINUED) Income tax provision of $36,365,000 has been recorded at a rate of 36.5% for the six months ended June 30, 1997, compared with $13,696,000 in 1996 at a rate of 19.9% since no provision was recorded in the first quarter due to the benefit resulting from the reduction of the valuation allowance. LIQUIDITY AND CAPITAL RESOURCES As of June 30, 1997 and December 31, 1996, the Company held cash and cash equivalents of $47,413,000 and $61,412,000, respectively. Cash provided by operating activities for the first six months of 1997 was $69,996,000 compared with $108,465,000 for the same period of 1996. On May 6, 1996, MGM Grand Las Vegas announced details of a 30-month, $250,000,000 Master Plan designed to transform the facility into "The City of Entertainment." The Master Plan, which on June 3, 1997 was enhanced and increased to more than $700,000,000, calls for a new 1,500-room "Marriott Marquis at the MGM Grand"; expansion of the resort's casino capacity by nearly 20 percent to more than 200,000 square feet; a "Mansion at the MGM Grand" offering 30 exclusive suites and villas; a 380,000 square foot state-of-the-art conference center; a 6.6-acre Shangri-La pool and spa complex; significantly expanded and improved parking facilities; and a new 45-foot polished bronze lion sculpture on a 25-foot pedestal, which will be the resort's signature, adjoining a re-themed entertainment casino that will include a Rainforest Cafe and a nightclub. The Company also announced that by the year 2000, it plans to begin construction of a 500-room Ritz-Carlton Hotel at MGM Grand Las Vegas -- The City of Entertainment. The Marriott Marquis and the Ritz-Carlton Hotel at the MGM Grand Las Vegas are contingent upon the signing of definitive agreements. As a result of the increased expansion plans, the Company anticipates the disposition of assets in the third quarter of 1997 of approximately $28,000,000 before any income tax benefit. Approximately $195,624,000 is expected to be expended during 1997 related to the Master Plan, of which $37,597,000 has been expended through June 30, 1997. Capital expenditures during the first six months of 1997 were $70,622,000, consisting primarily of $19,363,000 related to MGM Grand Las Vegas for general property improvements, $37,597,000 for the Master Plan project, $1,680,000 at MGM Grand Australia for general property improvements and $11,982,000 for MGM Grand Atlantic City land purchases and pre-construction activities. The total capital expenditures remaining for 1997 related to general property improvements are approximately $32,231,000 for MGM Grand Las Vegas and approximately $1,043,000 for MGM Grand Australia. During the remainder of 1997, the Company also anticipates capital expenditures of approximately $37,003,000 related to land acquisitions and pre-construction activities for MGM Grand Atlantic City. The Company made a capital contribution of $7,000,000 to NYNY LLC during the first six months of 1997. As a lender requirement for the project financing, both the Company and Primadonna were required to enter into a joint and several Keep-Well Agreement (see Note 3). The Company also received $6,720,000 in income tax distributions from NYNY LLC during the six months ended June 30, 1997. The Company expects to finance operations and capital expenditures through cash flow from operations, cash on hand and the bank lines of credit. 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 - 13 -
MGM GRAND, INC. AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) SAFE HARBOR PROVISION (CONTINUED) as statements relating to plans for future expansion and other business development activities, as well as other capital spending, financing sources, the effects of regulation (including gaming and tax regulations) and competition. Such forward-looking information involves important risks and uncertainties that could significantly affect anticipated results in the future and, accordingly, such results may differ from those expressed in any forward- looking statements made by or on behalf of the Company. These risks and uncertainties include, but are not limited to, those relating to development and construction activities, dependence on existing management, leverage and debt service (including sensitivity to fluctuations in interest rates), domestic or global economic conditions (including sensitivity to fluctuations in foreign currencies), changes in federal or state tax laws or the administration of such laws, changes in gaming laws or regulations (including the legalization of gaming in certain jurisdictions) and application for licenses and approvals under applicable jurisdictional laws and regulations (including gaming laws and regulations). - 14 -
MGM GRAND, INC. AND SUBSIDIARIES PART II. OTHER INFORMATION Items 2, 3 and 5 of Part II are not applicable. ITEM 1. LEGAL PROCEEDINGS On April 5, 1996, a lawsuit was filed in the Superior Court of California, County of Los Angeles by Sheldon Gordon and Randy Brant against the Company. The suit alleges that the Company breached an oral joint venture agreement to have real estate developers Gordon/Brant design and develop a retail and entertainment center at the portion of the hotel/casino which fronts the Strip. They are suing for $350,000 in costs advanced in anticipation of the project being constructed, as well as for damages in excess of $100,000,000 from lost profits that would have resulted from the project, and damage to their reputations. Management believes that the claims are totally without merit and does not expect that the lawsuit will have a material adverse effect on the Company's financial condition or results of operations. On July 8, 1996, the jurisdiction of the lawsuit was transferred to the U.S. District Court for the District of Nevada. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS AT THE ANNUAL SHAREHOLDER MEETING HELD ON MAY 6, 1997. <TABLE> <CAPTION> (A) The following persons were elected Directors: Share Voting Results ---------------------------------- For Withheld/Not Voted ---------- --------------------- <S> <C> <C> James D. Aljian 53,838,960 332,582 Fred Benninger 53,862,065 309,477 Terry Christensen 53,888,765 282,777 Glenn A. Cramer 53,862,650 308,892 Willie D. Davis 53,888,517 283,025 Alexander M. Haig, Jr. 53,833,907 337,635 Kirk Kerkorian 53,835,121 336,421 J. Terrence Lanni 53,863,535 308,007 Walter M. Sharp 53,864,965 306,977 Alex Yemenidjian 53,863,120 308,422 Jerome B. York 53,837,960 333,582 </TABLE> (B) Approval of an amendment of the Company's Certificate of Incorporation. <TABLE> <CAPTION> Share Voting Results: <S> <C> For 54,098,862 Against 41,407 Abstain 31,273 </TABLE> (C) Approval of the Proposed Annual Performance Base Incentive Plan for Executive Officers. <TABLE> <CAPTION> Share Voting Results: <S> <C> For 53,907,009 Against 218,258 Abstain 46,275 </TABLE> - 15 -
MGM GRAND, INC. AND SUBSIDIARIES PART II. OTHER INFORMATION (CONTINUED) ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS AT THE ANNUAL SHAREHOLDER MEETING HELD ON MAY 6, 1997 (CONT.). (D) Approval for an amendment to the Company's Nonqualified Stock Option Plan. <TABLE> <CAPTION> Share Voting Results: <S> <C> For 49,921,863 Against 4,197,424 Abstain 52,255 </TABLE> (E) Ratification of the selection of Arthur Andersen LLP as independent auditors. <TABLE> <CAPTION> Share Voting Results: <S> <C> For 54,131,045 Against 16,808 Abstain 23,689 </TABLE> ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (A) Exhibits EX99.1 Press Release dated June 3, 1997 EX99.2 Press Release dated July 23, 1997 (B) Reports on Form 8-K Bank of America Senior Secured $1,250,000,000 Credit Facility dated July 17, 1997. A report on Form 8-K dated July 23, 1997 was filed with respect to the amended, restated and extended $1,250,000,000 Senior Secured Bank Credit Facility. - 16 -
MGM GRAND, INC. AND SUBSIDIARIES SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MGM GRAND, INC. ------------------------------------- (Registrant) Date: August 11, 1997 /s/ Alejandro Yemenidjian ------------------------------------- Alejandro Yemenidjian President, Chief Operating Officer, and Chief Financial Officer (principal financial officer) Date: August 11, 1997 /s/ Scott Langsner ------------------------------------- Scott Langsner Secretary/Treasurer (principal accounting officer) - 17 -