EXHIBIT 13
MGM Grand, Inc and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
As of December 31, 1994 and 1993, the Company held cash and cash equivalents of
$75,859,000 and $211,305,000, respectively. Cash provided by operating
activities for 1994 was $94,461,000 versus cash used of $37,596,000 for 1993.
In May 1992, MGM Grand Hotel Finance Corp. completed a public offering of
$220,000,000 of seven year 11 3/4% First Mortgage Notes and $253,000,000 of ten
year 12% First Mortgage Notes, realizing net cash proceeds of approximately
$454,000,000 after underwriting and other related offering costs. Also in May
1992, MGM Grand Hotel Finance Corp. obtained a $60,000,000 bank line of credit
for the MGM Grand Hotel.
In October 1992, the Company completed a rights offering of common stock. Total
common stock sold was 5,785,918 shares at $17.50 per share, resulting in net
proceeds of approximately $100,000,000.
In June 1993, Grand Laundry, Inc., a wholly-owned subsidiary of MGM Grand
Hotel, obtained a $10 million loan from a financial institution for a laundry
facility constructed in North Las Vegas, Nevada. The facility was completed in
December 1993, and provides the laundry and dry cleaning services for the MGM
Grand Hotel. The loan was paid off on December 27, 1994.
In August 1993, the Company completed a public offering of common stock. Total
common stock sold was 1,955,000 shares at $37.75 per share, resulting in net
proceeds of approximately $70,600,000.
During 1993, the Company completed equipment lease financings for MGM Grand
Hotel equipment. In December 1994 and January 1995, the Company terminated
certain leases and purchased the equipment for approximately $42,000,000 (see
Note 13). During 1994, the Company completed equipment lease financings for the
production show.
Capital expenditures in 1994 were $65,976,000, consisting of $59,967,000 for
expenditures related to the MGM Grand Hotel, $5,552,000 for refurbishment of
aircraft and spare parts, $119,000 related to other hotel/casino activities,
and $338,000 related to furniture, fixtures and equipment.
Capital expenditures in 1993 were $480,054,000, consisting of $474,454,000 for
expenditures related to the MGM Grand Hotel, $5,568,000 for refurbishment of
aircraft and spare parts, and $32,000 related to furniture, fixtures and
equipment.
In addition to final construction expenditures of $4,104,000 accrued at
December 31, 1994, expenditures for 1995 are expected to be $18,000,000,
consisting of $15,000,000 at the MGM Grand Hotel for general property
improvements, and $3,000,000 for completion of construction of the MGM Grand-
Bally's monorail project. In addition, the Company acquired land for
approximately $36,500,000 (see Notes 1 and 17).
The Company and Primadonna Resorts, Inc. have entered into a limited liability
company, in which the Company has a 50% interest, to construct, own and operate
NEW YORK-NEW YORK, a New York themed hotel and casino resort facility to be
located across the Las Vegas Strip from MGM Grand Hotel. Ownership in the
venture will be equal between the two parties. During January 1995, the Company
contributed land, as noted above, to the limited liability company. Further
project funding is expected to be obtained by the limited liability company
from banks and financial institutions.
Planning and design of the monorail linking the MGM Grand Hotel and Bally's Las
Vegas is complete, and construction began during July 1994. The project is a
one-mile, high-capacity, transit-grade system with an estimated cost of
$25,000,000. The project costs are shared equally with Bally's Las Vegas. As of
December 31, 1994, each partner has contributed $9,500,000 to the joint
project. The system is scheduled to be operational by June 1995.
The Company expects to finance operations and capital expenditures through cash
flow from operations, cash on hand, and the bank line of credit.
Results of Operations
The Company operates in the Hotel/Casino industry segment through the
operations of the MGM Grand Hotel commencing on December 18, 1993.
26
1994 Compared to 1993
Net revenues for the year ended December 31, 1994 were $742,195,000 compared to
$37,016,000 for the year ended December 31, 1993. Casino revenue for the year
ended December 31, 1994 was $434,297,000 compared to $26,702,000 for the 14 day
period ended December 31, 1993. Room revenue for the 1994 year was $145,196,000
on an occupancy of 91.6%, compared to the fourteen day period ended December
31, 1993 of $4,505,000 on an occupancy of 58%. In order to open the MGM Grand
Hotel three months ahead of schedule, the occupancy rates were affected by the
partial availability of hotel rooms during December 1993 and January 1994.
Entertainment, Retail, Food and Beverage and Other Revenue was $214,324,000 in
1994 compared to $8,862,000 in the prior year.
Operating income for 1994 was $129,715,000 compared to an operating loss of
$44,546,000 in 1993 which included a non-recurring charge of $45,130,000 for
hotel pre-opening costs. Pre-opening costs included direct project salaries,
advertising and other pre-opening services incurred during the pre-opening
period of the MGM Grand Hotel.
MGM Grand Air revenues for the year ended December 31, 1994, which have been
reclassified to Discontinued Operations due to the sale of the airline on
December 31, 1994, were $19,535,000 compared to $20,784,000 for the year ended
December 31, 1993. The operating loss for 1994 was $7,012,000 compared to
$78,691,000 in 1993. The operating loss in 1993 included an adjustment of
$68,948,000 resulting from the revaluation of the carrying value of aircraft
and related equipment.
Interest and other income. Interest and other income was $5,752,000 for the
year ended 1994 versus $12,247,000 for the year ended 1993. Interest was higher
during the 1993 period as a result of short term investment of construction
funds.
Interest expense. Interest incurred was $61,927,000 for the year ended 1994,
compared to $59,472,000 for the year ended 1993. Capitalized interest was
$52,876,000 in 1993.
1993 Compared to 1992
MGM Grand Hotel commenced operations on December 18, 1993. Net revenues for the
year ended December 31, 1993 were $37,016,000. Casino revenue for the 14-day
period ended December 31, 1993 was $26,702,000. Room revenue for the period was
$4,505,000 on an occupancy of 58%. In order to open the MGM Grand Hotel three
months ahead of schedule, only 3,500 rooms were available for rent.
Entertainment, Retail, Food and Beverage and Other Revenue was $8,862,000 for
the period. The operating loss of $44,546,000 in 1993 included a non-recurring
charge of $45,130,000 for pre-opening costs. Pre-opening costs included direct
project salaries, advertising and other pre-opening services incurred during
the pre-opening period of the MGM Grand Hotel.
MGM Grand Air revenues for the year ended December 31, 1993, which have been
reclassified to Discontinued Operations as a result of the sale of the airline
on December 31, 1994, were $20,784,000 compared to $50,005,000 for the year
ended December 31, 1992, representing a decrease of $29,221,000 (58%). The 1992
period included $29,488,000 of revenue from MGM Grand Air's scheduled service
which was terminated on December 31, 1992. Charter and other revenue increased
$514,000 (3%) due to the use of equipment from scheduled service for the
charter. Operating expenses (before non-recurring adjustments) decreased
$28,562,000 (48%) due to the termination of scheduled service offset by a
$241,000 (6% per gallon) increase in the cost of fuel. The 1992 operating
expenses included a $4,646,000 charge related to the termination of scheduled
service and the bankruptcy of a charter customer. The operating loss in 1993
included an adjustment of $68,948,000 resulting from the revaluation of the
carrying value of aircraft and related equipment.
Interest and other income. Interest and other income was $12,247,000 for the
year ended 1993 versus $16,455,000 for the year ended 1992. Interest was higher
during the 1992 period as a result of short term investment of net proceeds
from the issuance of the First Mortgage Notes and the rights offerings.
Invested fund balances decreased during 1993 due to construction requirements.
Interest expense. Interest incurred was $59,472,000 for the year ended 1993,
compared to $37,733,000 for the year ended 1992. Capitalized interest was
$52,876,000 in 1993 and $19,811,000 in 1992. The increased interest expense
resulted from a full year of interest on the First Mortgage Notes during 1993.
27
MGM Grand, Inc and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
[In thousands, except share data] For the years ended December 31, 1994 1993 1992
................................................................................................................
Revenues:
Casino $ 434,297 $ 26,702 $ --
Rooms 145,196 4,505 --
Food and beverage 91,566 3,696 --
Entertainment, retail and other 122,758 5,166 --
---------- ---------- ----------
793,817 40,069 --
Less: Promotional Allowances 51,622 3,053 --
---------- ---------- ----------
742,195 37,016 --
---------- ---------- ----------
Expenses:
Casino 183,514 9,341 --
Rooms 45,303 1,016 --
Food and beverage 65,043 2,529 --
Entertainment, retail and other 115,443 6,180 --
Provision for doubtful accounts and
discounts 44,181 3,855 --
General and administrative 106,884 6,378 --
Depreciation and amortization 44,433 1,647 --
Hotel preopening expenses -- 45,130 --
---------- ---------- ----------
604,801 76,076 --
---------- ---------- ----------
Operating Profit (Loss) Before Corporate
Expense 137,394 (39,060) --
Corporate expense 7,679 5,486 4,873
---------- ---------- ----------
Operating Income (Loss) 129,715 (44,546) (4,873)
---------- ---------- ----------
Nonoperating Income (Expense):
Interest income 5,544 12,231 16,549
Interest expense, net of amounts
capitalized (61,927) (6,596) (17,922)
Other, net 208 16 (94)
---------- ---------- ----------
(56,175) 5,651 (1,467)
---------- ---------- ----------
Income (Loss) Before Discontinued
Operations 73,540 (38,895) (6,340)
---------- ---------- ----------
Discontinued Operations:
Income (loss) from discontinued operations (7,012) (78,691) (13,732)
Gain (loss) on disposal of discontinued
operations 8,048 -- --
---------- ---------- ----------
1,036 (78,691) (13,732)
---------- ---------- ----------
Income (Loss) Before Provision (Benefit) for
Income Taxes 74,576 (117,586) (20,072)
Provision (benefit) for income taxes -- -- --
---------- ---------- ----------
Net Income (Loss) $ 74,576 $ (117,586) $ (20,072)
---------- ---------- ----------
Per Share of Common Stock:
Income (loss) before discontinued
operations $ 1.50 $ (.82) $ (.15)
Discontinued operations .02 (1.65) (.33)
---------- ---------- ----------
Net Income (Loss) $ 1.52 $ (2.47) $ (.48)
---------- ---------- ----------
Weighted Average Shares Outstanding 48,988,000 47,587,000 42,254,000
---------- ---------- ----------
The accompanying notes are an integral part of these consolidated financial
statements.
28
MGM Grand, Inc and Subsidiaries
CONSOLIDATED BALANCE SHEETS
[In thousands, except share data] As of December 31, 1994 1993
................................................................................
ASSETS
Current Assets:
Cash and cash equivalents $ 75,859 $ 211,305
Accounts receivable, net 82,674 30,516
Prepaid expenses 13,431 11,755
Inventories 17,236 12,662
Note receivable 14,325 --
---------- ----------
Total current assets 203,525 266,238
---------- ----------
Property and Equipment, net 880,023 867,284
---------- ----------
Other Assets:
Deposits 2,434 1,330
Licensed rights and trademarks, net 1,120 1,154
Deferred organizational costs, net 1,375 1,985
Other assets, net 52,276 22,132
---------- ----------
Total other assets 57,205 26,601
---------- ----------
$1,140,753 $1,160,123
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 25,202 $ 14,507
Accrued salaries and related 28,740 8,194
Current obligation, capital leases 2,145 1,830
Current maturities, long term debt -- 1,573
Accrued interest on long term debt 9,429 9,472
Construction payables 4,104 96,844
Other accrued liabilities 41,753 33,176
---------- ----------
Total current liabilities 111,373 165,596
---------- ----------
Deferred Revenues 8,505 10,784
Deferred Income Taxes 5,942 6,517
Long Term Obligation, Capital Leases 12,554 14,044
Long Term Debt, Net of Current Maturities 473,000 481,427
Commitments
Stockholders' Equity:
Common stock ($.01 par value, 75,000,000 shares
authorized, 50,651,016 and 50,579,537 shares issued) 507 506
Capital in excess of par value 663,186 662,365
Common stock in treasury (2,726,506 and 1,734,706
shares) (57,264) (29,490)
Retained earnings (deficit) (77,050) (151,626)
---------- ----------
Total stockholders' equity 529,379 481,755
---------- ----------
$1,140,753 $1,160,123
---------- ----------
The accompanying notes are an integral part of these consolidated financial
statements.
29
MGM Grand, Inc and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) For the years ended December 31, 1994 1993 1992
....................................................................................
Cash Flows From Operating Activities:
Net income (loss) $ 74,576 $(117,586) $ (20,072)
Adjustments to reconcile net income (loss)
to net cash
from operating activities:
Gain on sale of airline (8,048) -- --
Aircraft carrying value adjustment -- 68,948 --
Amortization of debt offering costs 3,858 1,312 1,863
Depreciation and amortization 44,433 8,018 7,356
Aircraft overhaul amortization -- 1,993 2,423
Provision for doubtful accounts and
discounts 44,181 3,855 238
Change in assets and liabilities:
Accounts receivable (93,311) (33,724) 10,653
Inventories (4,574) (12,508) 583
Prepaid expenses (1,677) (10,536) (80)
Accounts payable, accrued liabilities, and
other 35,023 52,632 9,287
--------- --------- ---------
Net cash from operating activities 94,461 (37,596) 12,251
--------- --------- ---------
Cash Flows From Investing Activities:
Purchases of property and equipment, net (65,976) (480,054) (222,229)
Dispositions of property and equipment, net 691 684 1,206
Change in construction payables (92,740) 64,548 28,239
Deposits and other assets (34,930) 2,141 (5,156)
--------- --------- ---------
Net cash from investing activities (192,955) (412,681) (197,940)
--------- --------- ---------
Cash Flows From Financing Activities:
Borrowings from (repayments to) banks and
others (10,000) 10,000 --
Issuance of long term debt, net -- -- 455,906
Issuance of common stock 822 71,619 99,952
Repurchase of common stock (27,774) -- --
--------- --------- ---------
Net cash from financing activities (36,952) 81,619 555,858
--------- --------- ---------
Net Increase (Decrease) In Cash And Cash
Equivalents (135,446) (368,658) 370,169
Cash And Cash Equivalents At Beginning Of
Year 211,305 579,963 209,794
--------- --------- ---------
Cash And Cash Equivalents At End Of Year $ 75,859 $ 211,305 $ 579,963
--------- --------- ---------
The accompanying notes are an integral part of these consolidated financial
statements.
30
MGM Grand, Inc and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the years ended
December 31, 1994,
1993, and 1992
(Dollar amounts in Capital in Retained Total
thousands, except Common Common Excess of Treasury Earnings Stockholders'
share data) Stock Outstanding Stock Par Value Stock (Deficit) Equity
.................................................................................................
Balance at December
31, 1991 41,017,353 $428 $489,933 $(29,490) $ (13,968) $ 446,903
Issuance of common
stock 5,785,918 57 99,894 -- -- 99,951
Net loss -- -- -- -- (20,072) (20,072)
---------- ---- -------- -------- --------- ---------
Balance at December
31, 1992 46,803,271 485 589,827 (29,490) (34,040) 526,782
Issuance of common
stock 1,955,000 20 70,604 -- -- 70,624
Issuance of common
stock pursuant to
employee stock
options 86,560 1 994 -- -- 995
Adjustment to net
sales proceeds in
excess of Desert
Inn assets sold -- -- 940 -- -- 940
Net loss -- -- -- -- (117,586) (117,586)
---------- ---- -------- -------- --------- ---------
Balance at December
31, 1993 48,844,831 506 662,365 (29,490) (151,626) 481,755
Issuance of common
stock pursuant to
employee stock
options 71,479 1 821 -- -- 822
Repurchase of common
stock (991,800) -- -- (27,774) -- (27,774)
Net income -- -- -- -- 74,576 74,576
---------- ---- -------- -------- --------- ---------
Balance at December
31, 1994 47,924,510 $507 $663,186 $(57,264) $ (77,050) $ 529,379
---------- ---- -------- -------- --------- ---------
The accompanying notes are an integral part of these consolidated financial
statements.
31
MGM Grand, Inc and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Organization and Basis of Presentation
................................................................................
MGM Grand, Inc. (the "Company") is a Delaware corporation incorporated January
29, 1986. As of December 31, 1994, approximately 74.3% 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, a hotel/casino and entertainment complex in
Las Vegas. The MGM Grand Hotel commenced operations on December 18, 1993.
In December 1993, the Company entered into an agreement with Bally's for the
joint development and operation of an elevated monorail linking the MGM Grand
Hotel with the corner of Flamingo Road and the Las Vegas Strip. The project is
a one-mile, high-capacity, transit-grade system with an estimated cost of $25
million. The project costs are shared equally with Bally's. The system is
scheduled to be operational by June 1995.
On December 28, 1994, the Company and Primadonna Resorts, Inc. executed the
definitive agreement for the development of a $350 million themed hotel/casino
called NEW YORK-NEW YORK. The project will be located on the northwest corner
of Tropicana Avenue and Las Vegas Boulevard, across from the MGM Grand Hotel.
The preliminary plans for NEW YORK-NEW YORK call for the destination resort to
include a 2,200-room hotel and casino, themed entertainment attractions and
restaurant/retail outlets. The Company and Primadonna Resorts will jointly own,
develop and operate NEW YORK-NEW YORK, which is expected to break ground during
the first quarter of 1995. The 18-acre site was contributed to the venture by
the Company during January 1995, and NEW YORK-NEW YORK acquired an adjacent
two-acre site in February 1995. Ownership of NEW YORK-NEW YORK is equal between
the Company and Primadonna Resorts.
The Company operated MGM Grand Air, a scheduled and charter airline service,
through its wholly-owned subsidiary, MGM Grand Air, Inc., from September 1987
until December 31, 1994, when MGM Grand Air was sold. (See Note 4).
Note 2. Significant Accounting Policies
................................................................................
a. Principles of Consolidation--The consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiaries. Significant
intercompany accounts are eliminated in consolidation.
b. Cash Equivalents--Cash equivalents consist of investments in bank
certificates of deposit and other interest bearing instruments with original
maturities of 90 days or less. Such investments are carried at cost, which
approximates market value.
c. Inventories--Inventories are stated at the lower of cost or market, which is
determined generally by the FIFO method.
d. Property and Equipment--Property and equipment are stated at cost.
Maintenance, repairs and renewals that neither materially add to the value of
the property nor appreciably prolong its life are charged to expense as
incurred. The Company capitalized interest during the period that the
hotel/casino and entertainment complex was under construction. Gains or losses
on dispositions of property and equipment are included in the determination of
income. Depreciation and amortization are provided on a straight-line basis
over the estimated useful lives of the assets, as follows:
Buildings................................................... 15 to 40 years
Furniture, fixtures and equipment........................... 3 to 7 years
Land improvements........................................... 10 years
Leasehold improvements...................................... 5 to 20 years
e. Debt and Equity Offering Costs--Direct costs incurred related to the sale of
common stock to the public were charged against common stock proceeds at the
time of the sale. Direct costs
32
MGM Grand, Inc and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
related to the debt offering are being deferred and amortized over the debt
repayment period.
f. Licensed Rights and Trademarks--Licensed rights and trademarks are amortized
on a straight-line basis over periods not exceeding 40 years.
g. Deferred Organizational Costs--Organizational costs are amortized on a
straight-line basis over periods not exceeding 60 months.
h. Other Assets--The estimated cost of normal hotel operating quantities (base-
stock) of china, silverware, glassware, linen and utensils is recorded as an
asset and is not depreciated. Costs of base-stock replacements are expensed as
incurred.
i. Revenue Recognition--Casino revenue is recorded as gaming wins less losses.
Through the date of sale of MGM Grand Air on December 31, 1994, passenger
ticket sales and aircraft charter sales were recognized as revenue when the
transportation was rendered. Tickets sold but not used are refundable and
included in other accrued liabilities.(See Note 4).
j. Promotional Allowances--The retail value of accommodations, food, beverages,
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 $51,622,000 and $3,053,000 for
the years ended December 31, 1994 and 1993, respectively. The estimated cost of
providing such promotional allowances was included in casino expenses as
follows:
Years Ended December 31,
-------------------------------
(In thousands) 1994 1993 1992
-----------------------------------------------------------------------
Rooms $ 7,809 $ 659 $ --
Food and beverage 24,115 1,170 --
Other 5,176 84 --
------- ------ ------
$37,100 $1,913 $ --
------- ------ ------
k. Hotel Preopening Expenses--Hotel preopening expenses include direct project
salaries, advertising, and other pre-opening services incurred during the
preopening period of the MGM Grand Hotel. Such costs were expensed in 1993 upon
opening of the facility.
l. Aircraft Valuation Adjustment--The Company reduced the book value of its
aircraft and related equipment to their expected recoverable values, and
recognized an aircraft carrying value adjustment. (See Notes 4 and 11).
m. Income Taxes--The Company adopted statement of Financial Accounting Standard
No. 109, "Accounting for Income Taxes" effective January 1, 1993. (See Note
14). Prior to 1993, the Company accounted for income taxes in accordance with
Accounting Principles Board Opinion No. 11.
n. Net Income (Loss) per Common Share--Net income (loss) per common share has
been computed based upon the weighted average number of shares of common stock
and common stock equivalents, if dilutive, outstanding during each year
(48,988,000 in 1994, 47,587,000 in 1993, and 42,254,000 in 1992).
o. Reclassifications--Certain reclassifications have been made to conform the
prior year with the current year presentation.
Note 3. Statements of Cash Flows
................................................................................
The following supplemental disclosures are provided for the Consolidated
Statements of Cash Flows:
Years Ended December 31,
--------------------------------
(In thousands) 1994 1993 1992
-----------------------------------------------------------------------
Cash payments made for:
Interest, net of amounts capitalized $58,975 $3,535 $8,346
------- ------ ------
State and federal taxes $ 755 $ 203 $ 350
------- ------ ------
33
MGM Grand, Inc and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
In 1993, the Company acquired property and equipment with capital leases
totalling $15,423,000. In 1993, amortization of deferred bond offering costs of
$1,705,000 was capitalized to property and equipment as a component of the
total capitalized interest. In 1993, $940,000 was credited to Capital in Excess
of Par Value in connection with the 1991 sale of the Desert Inn Hotel and
Casino.
Note 4. Sale of MGM Grand Air
................................................................................
On December 31, 1994, MGM Grand, Inc. completed the sale of MGM Grand Air for a
note receivable totalling approximately $14,325,000, realizing a pretax gain of
$8,048,000.
The operating results of MGM Grand Air have been accounted for as discontinued
operations, and prior years financial statements have been restated. Summary
operating results of discontinued operations, excluding the above noted gain,
are as follows:
1994 1993 1992
-----------------------------------
Revenues $19,535,000 $20,784,000 $50,005,000
Reduction in aircraft carrying value $ -- $68,948,000 $ --
Operating loss $ 7,012,000 $78,691,000 $13,732,000
Note 5. Rights Offering
................................................................................
On October 15, 1992, the Company completed a common stock rights offering.
Total common stock issued at completion of the offering was 5,785,918 shares at
a subscription price of $17.50 per share, resulting in net proceeds of
approximately $100,000,000. The Company utilized the net proceeds to provide
partial financing for the Company's MGM Grand Hotel.
Note 6. Stock Offering
................................................................................
On August 17, 1993, the Company completed a common stock public offering. Total
common stock issued at completion of the offering was 1,955,000 shares at a
price of $37.75 per share, resulting in net proceeds of approximately
$70,600,000. The Company allocated such funds for general corporate purposes
including additions to property, plant and equipment, and the exploration of
other expansion opportunities.
Note 7. Treasury Stock
................................................................................
On March 9, 1994, the Company announced that it intended to acquire in open
market purchases, from time to time, as many as 1,000,000 shares of its common
stock. During the year ended December 31, 1994, the Company acquired 991,800
shares.
Note 8. Issuance of First Mortgage Notes
................................................................................
On May 14, 1992, MGM Grand Hotel Finance Corp. completed its public offering of
$220,000,000 of seven year 11 3/4% First Mortgage Notes and $253,000,000 of ten
year 12% First Mortgage Notes, realizing net cash proceeds of approximately
$454,000,000 after underwriting and other related offering costs. The Company
utilized the net proceeds to provide partial financing for the Company's MGM
Grand Hotel.
34
MGM Grand, Inc and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 9. Accounts Receivable
................................................................................
Components of receivables were as follows:
At December 31,
---------------------
(In thousands) 1994 1993
---------------------------------------------------------------------
Casino $ 84,496 $27,095
Hotel 14,194 6,732
Airline 1,608 1,422
-------- -------
100,298 35,249
Less: Allowance for doubtful
accounts and discounts (17,624) (4,733)
-------- -------
$ 82,674 $30,516
-------- -------
Credit is issued in exchange for gaming chips as permitted by the regulations
of the Nevada Gaming Commission and the Nevada State Gaming Control Board at
the MGM Grand Hotel.
Note 10. Other Accrued Liabilities
................................................................................
Other accrued liabilities consisted of the following:
At December 31,
-------------------
(In thousands) 1994 1993
----------------------------------------------------------------------
Casino front money $15,252 $ 7,445
Casino chip liability 3,943 3,267
Advance deposits 3,521 10,549
Accrued gaming taxes 2,339 1,636
Other liabilities 16,698 10,279
------- -------
$41,753 $33,176
------- -------
Note 11. Property and Equipment
................................................................................
Property and equipment consisted of the following:
At December 31,
---------------------
(In thousands) 1994 1993
---------------------------------------------------------------------
Land $ 90,567 $ 90,837
Buildings and improvements 621,835 660,612
Airframes, engines and other flight equipment -- 81,842
Equipment, furniture, fixtures and leasehold
improvements 194,756 103,518
Equipment under capital lease 17,793 16,987
Construction in progress 615 --
-------- --------
925,566 953,796
Less: Accumulated depreciation and amortization (45,543) (86,512)
-------- --------
$880,023 $867,284
-------- --------
The accumulated depreciation and amortization at December 31, 1993 included the
$68,948,000 reduction in the carrying value of aircraft and related equipment.
Such assets were included in the sale of MGM Grand Air on December 31, 1994
(See Note 4).
35
MGM Grand, Inc and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 12. Long Term Debt
................................................................................
Long term debt consisted of the following:
At December 31,
---------------------
(In thousands) 1994 1993
-----------------------------------------------------------------
11 3/4% First Mortgage Notes due May 1, 1999 $220,000 $220,000
12% First Mortgage Notes due May 1, 2002 253,000 253,000
Laundry Facility Loan -- 10,000
-------- --------
473,000 483,000
Less: Current Maturities -- (1,573)
-------- --------
$473,000 $481,427
-------- --------
The First Mortgage Notes contain various restrictive covenants including the
maintenance of certain financial ratios and limitations on additional debt,
dividends, stock repurchases, disposition of assets, mergers and similar
transactions. Based on the quoted market value of the First Mortgage Notes at
December 31, 1994, the fair value of the First Mortgage Notes was $513,081,000.
Maturities of the Company's long term debt are as follows:
Year Ending December 31, (In thousands)
----------------------------------------------------------------
1995 $ --
1996 --
1997 55,000
1998 55,000
1999 110,000
Thereafter 253,000
--------
$473,000
--------
On May 14, 1992, the Company secured a commitment from several banks for a
$60,000,000 line of credit for the MGM Grand Hotel. The facility became
available on November 18, 1993. The Company incurs a commitment fee for the
unused portion of the line of credit. No amounts were outstanding under the
line of credit during 1994.
On June 16, 1993, Grand Laundry, Inc., a wholly-owned subsidiary of MGM Grand
Hotel, obtained a $10,000,000 loan from a financial institution for a laundry
facility in North Las Vegas, Nevada. As of December 31, 1993, $10,000,000 had
been drawn down under the loan, and construction of the facility was completed.
The loan was paid off on December 27, 1994. The facility provides the laundry
and dry cleaning services for the MGM Grand Hotel.
On April 1, 1994, MGM Dist., Inc., a wholly-owned subsidiary of the Company,
obtained a $4,000,000 loan from a financial institution for the acquisition of
certain signage equipment. The loan was repaid on December 30, 1994.
Total interest incurred during 1994, 1993, and 1992 was $61,927,000,
$59,472,000, and $37,733,000, respectively, of which $52,876,000 and
$19,811,000 were capitalized in 1993 and 1992, respectively.
Note 13. Lease Commitments
................................................................................
The Company and its subsidiaries lease buildings and equipment under non-
cancelable operating lease agreements which expire at various dates through the
year 2000. The leases generally provide that the Company pay taxes, insurance
and maintenance expense related to leased assets.
In 1993, the Company entered into a three year operating lease for hotel/casino
and theme park equipment in the amount of $48,000,000, with quarterly lease
payments of approximately $2,500,000. In December 1994 and January 1995, the
Company terminated the lease and purchased the equipment in the approximate
amount of $42,000,000. In addition, during 1993, the Company entered into
capital leases for hotel/casino and theme park equipment in the amount of
$15,400,000.
In December 1994, the Company entered into an operating lease for production
show equipment in the amount of $5,000,000.
36
MGM Grand, Inc and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Through the date of sale of the airline on December 31, 1994 (see Note 4), MGM
Grand Air had a lease with the City of Los Angeles Department of Airports
covering terminal facilities at Los Angeles International Airport. The lease
was transferred with the sale of the airline.
At December 31, 1994, the Company was obligated under non-cancellable operating
leases and capital leases to make future minimum lease payments as follows:
Operating Capital
Year Ending December 31, (in thousands) Leases Leases
----------------------------------------------------------------
1995 $ 2,598 $ 3,316
1996 2,573 3,151
1997 2,577 3,445
1998 4,697 3,010
1999 743 2,687
Thereafter 16,163 3,049
------- -------
Total Minimum Lease Payment $29,351 18,658
-------
Amount Representing Interest (3,959)
-------
Total Obligation Under Capital Leases 14,699
Less: Amount due within one year (2,145)
-------
Amount due after one year $12,554
-------
Rental expense on the above noted non-cancellable operating leases was
$12,225,000 for the year ending December 31, 1994.
Note 14. Income Taxes
................................................................................
The Company adopted Statement of Financial Accounting Standard No. 109,
"Accounting for Income Taxes" ("SFAS 109") for the year ended December 31,
1993. The impact of adopting this new standard was not material to the
consolidated financial statements of the Company for 1993. Prior to 1993, the
Company accounted for income taxes in accordance with Accounting Principles
Board Opinion No. 11.
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, 1994, the Company determined
that $32,150,000 of tax benefits did not satisfy the recognition criteria set
forth in the standard because of the Company's history of prior operating
results. Accordingly, a valuation allowance was recorded to reserve the
applicable deferred tax assets.
The provision (benefit) for income taxes for the years ended December 31, 1994,
1993 and 1992 is as follows:
Year Ended December 31,
-------------------------------
1994 1993 1992
---------------------------------------------------------------
(in thousands)
Current--Federal $ 575 $ -- $ --
Deferred--Federal (575) -- --
----- ----- -----
Total $ -- $ -- $ --
----- ----- -----
Reconciliation of the Federal income tax rate and the Company's effective tax
rate is as follows:
1994 1993 1992
------------------------------------------------------------------
Federal income tax rate 35% 35% 34%
Change in Valuation Allowance (35) -- --
Net operating loss--no benefit recorded -- (35) (34)
--- --- ---
Effective tax rate -- % -- % -- %
--- --- ---
As of December 31, 1994, after having given effect to SFAS 109, the major tax
effected components of the Company's net deferred tax liability are as follows:
37
MGM Grand, Inc and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(In thousands)
- ----------------------------------------------------------------------
Deferred Tax Asset 1994 1993
-------- --------
Net operating loss carryforward $ 45,559 $ 22,490
Bad debt reserve 6,302 2,707
Aircraft carying value adjustment -- 24,132
Hotel preopening expenses 12,448 15,483
Accruals, reserves and other 1,924 4,496
Alternative minimum tax credit carryforward 1,410 827
-------- --------
67,643 70,135
Less: Valuation allowance (32,150) (51,235)
-------- --------
Total deferred tax asset 35,493 18,900
-------- --------
Deferred Tax Liability
Depreciation and amortization (37,963) (17,315)
Capitalized interest (3,472) (8,102)
-------- --------
Total deferred tax liability (41,435) (25,417)
-------- --------
Net Deferred Tax Liability $ (5,942) $ (6,517)
-------- --------
At December 31, 1994, the Company had a tax return net operating loss
carryforward of approximately $130,200,000 which will expire as follows:
Net Operating Loss Carryforward
Year of Expiration (In thousands)
------------------------------------------------------------------
2005 $ 18,400
2006 9,900
2007 28,200
2008 23,500
2009 50,200
--------
$130,200
--------
In addition, the Company has an alternative minimum tax credit carryforward of
$1,410,000 which does not expire.
Note 15. Stock Option Plan
................................................................................
The Company has adopted a nonqualified stock option plan and an incentive stock
plan which provides for the granting of stock options pursuant to applicable
provisions of the Internal Revenue Code and regulations. The aggregate options
available under the plans are 2,500,000 shares. In 1994, 273,750 options were
granted at exercise prices ranging from $24.25 to $32.50 pursuant to the
nonqualified plan. During 1994, 71,479 nonqualified stock options were
exercised at $11.50 each. At December 31, 1994, 1,875,850 options at exercise
prices ranging from $10.25 to $32.50 were outstanding of which 435,901 were
exercisable. The Company has agreements with eight 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 760,000.
The plans are administered by a compensation and stock option committee of the
Company's 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 percent of the fair market value of the Company's
common stock on the date of grant. The options generally have ten-year terms
and are exercisable in four annual installments.
Note 16. Employee Pension and Savings Plans
................................................................................
MGM Grand Hotel has a 401(k) employee savings plan for all full time employees
not a part of a bargaining unit. The 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 employee contributions up to
a maximum of 1% of participating employee's gross wages. Additionally, the
Company makes contributions to employee's savings plans based on length of
service which vest over a five year period. Through December 31, 1994, the
Company contributions under this arrangement were $3,300,000.
Effective November 1994, the Company, and MGM Grand Hotel adopted a
Nonqualified Deferred Retirement Plan for
38
MGM Grand, Inc and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
certain key employees not a part of a collective bargaining unit. The
Nonqualified Deferred Retirement Plan allows participants to defer, on a pretax
basis, a portion of their salary and accumulate tax deferred earnings, plus
interest, as a retirement fund. These deferrals are in addition to those
allowed under the Hotel 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.
Through the date of sale of the airline on December 31, 1994, MGM Grand Air
maintained a noncontributory 401(k) employee savings plan for employees not a
part of a bargaining unit. This savings plan allowed participants to defer, on
a pretax basis, a portion of their salary and accumulate tax deferred earnings
as a retirement fund. Maintenance of the savings plan was assumed by the
purchaser of the airline.
Note 17. Related-Party Transactions
................................................................................
In May 1992, Tracinda acquired $30,000,000 of the Company's First Mortgage
Notes (see Note 8) through an open market purchase.
The terms of the First Mortgage Notes (see Note 8) required that the Company's
obligation to obtain an additional $100,000,000 in equity be assured by the
issuance of an irrevocable bank letter of credit in that amount provided by the
Company's principal shareholder, Tracinda. The letter of credit was outstanding
from May to October 1992, when the rights offering was completed. Fees to the
bank issuer of the letter of credit were paid by the Company.
In August 1992, MGM Grand Hotel installed and commenced testing of a property
management computer software system at The Stars' Desert Inn which was then
owned by Tracinda. The system was used at The Stars' Desert Inn until September
1993. MGM Grand Hotel also agreed to use The Stars' Desert Inn casino to test
certain gaming equipment from July to September 1993. MGM Grand Hotel
reimbursed The Stars' Desert Inn for its estimated costs, which were
approximately $13,000 in 1993, and $229,000 in 1994. The Stars' Desert Inn did
not exercise an option to retain the computer software system. The Stars'
Desert Inn retained all revenues generated by the gaming equipment.
During the period from October 10, 1992 through January 20, 1993, MGM Grand
Air, Inc. leased a Boeing 757 aircraft from Tracinda. The lease and related
payments were $479,000. Also during 1992 and 1993, payments by The Stars'
Desert Inn to MGM Grand Air for the charter of aircraft, amounted to $221,000
and $67,000, respectively.
In November 1992, the Company was granted a no-cost two-year option from
Tracinda to purchase approximately 18 acres of undeveloped land across the Las
Vegas Strip from the MGM Grand Hotel. Effective September 1, 1994, the option
was extended to September 1, 1995. The option, which gave the Company the right
to acquire the property at Tracinda's purchase cost of $31,500,000, together
with its actual costs incurred in connection with the ownership of the
property, plus interest, was exercised on January 5, 1995, for a total cost of
approximately $36,500,000.
In November 1993, MGM Grand Hotel agreed to sell to Tracinda two unused parcels
of land (approximately .56 acres total) for $272,950. The Company, based upon
appraisals it received, believes that this sale was on terms comparable to what
it could have obtained for the land on an arms length basis in an equivalent
transaction with a third party. The acquisition was completed on March 1, 1994.
The Company and Tracinda have entered into various other transactions and
arrangements which, individually and in the aggregate, are not material.
39
MGM Grand, Inc and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 18. Industry Segments
................................................................................
The Company operates in the Hotel/Casino industry segment through the
operations of the MGM Grand Hotel since December 18, 1993. Airline operations
have been reclassified for the years presented to Discontinued Operations as a
result of the sale of the airline (see Note 4). Sales between industry segments
are immaterial and generally at prices approximately equal to those charged to
unaffiliated customers. Revenues and assets of operations outside the United
States are not significant.
Years ended December 31,
--------------------------------------
(In thousands) 1994 1993 1992
- ----------------------------------------------------------------------
Net revenues:
Hotel/Casino $ 742,195 $ 37,016 $ --
---------- ---------- ----------
$ 742,195 $ 37,016 $ --
---------- ---------- ----------
Operating income (loss):
Hotel/Casino $ 137,394 $ 6,070 $ --
Corporate expenses (7,679) (5,486) (4,873)
Hotel preopening expenses -- (45,130) --
---------- ---------- ----------
$ 129,715 $ (44,546) $ (4,873)
---------- ---------- ----------
Identifiable assets:
Hotel/Casino $1,076,009 $1,071,612 $ 961,761
Discontinued operations--airline 2,618 2,501 73,773
Corporate 62,126 86,010 27,952
---------- ---------- ----------
$1,140,753 $1,160,123 $1,063,486
---------- ---------- ----------
Capital expenditures:
Hotel/Casino $ 60,086 $ 474,454 $ 217,207
Discontinued operations--airline 5,552 5,568 4,669
Corporate 338 32 353
---------- ---------- ----------
$ 65,976 $ 480,054 $ 222,229
---------- ---------- ----------
Depreciation and amortization:
Hotel/Casino $ 44,346 $ 1,593 $ --
Corporate 87 54 --
---------- ---------- ----------
$ 44,433 $ 1,647 $ --
---------- ---------- ----------
40
MGM Grand, Inc and Subsidiaries
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, 1994 and 1993, and
the related consolidated statements of operations, stockholders' equity and
cash flows for each of the three years in the period ended December 31, 1994.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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, 1994 and 1993, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1994 in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Las Vegas, Nevada
February 17, 1995
41
MGM Grand, Inc and Subsidiaries
SELECTED QUARTERLY FINANCIAL RESULTS
For the years ended December 31, 1994 and 1993
(Unaudited)
(In thousands except share data)
Quarter
--------------------------------------
1994 First Second Third Fourth Total
................................................................................
Net Revenues $174,958 $186,846 $208,558 $171,833 $ 742,195
Operating income (loss) 18,201 34,426 49,437 27,651 129,715
Income (loss) before
discontinued operations 3,876 20,258 35,399 14,007 73,540
Net income (loss) 3,354 20,195 31,785 19,242 74,576
Per share of common stock:
Income (loss) before
discontinued operations $ .08 $ .41 $ .72 $ .29 $ 1.50
Discontinued operations (.01) -- (.07) .11 .02
-------- -------- -------- -------- ---------
Net income (loss) $ .07 $ .41 $ .65 $ .40 $ 1.52
======== ======== ======== ======== =========
1993
................................................................................
Net Revenues $ -- $ -- $ -- $ 37,016 $ 37,016
Operating income (loss) (1,184) (1,534) (4,601) (37,227) (44,546)
Income (loss) before
discontinued operations (416) 743 (2,093) (37,129) (38,895)
Net income (loss) (2,742) (2,056) (4,522) (108,266) (117,586)
Per share of common stock:
Income (loss) before
discontinued operations $ (.01) $ .02 $ (.04) $ (.76) $ ( .82)
Discontinued operations (.05) (.06) (.05) (1.46) (1.65)
-------- -------- -------- -------- ---------
Net income (loss) $ (.06) $ (.04) $ (.09) $ (2.22) $ (2.47)
======== ======== ======== ======== =========
1994 1993
------------------- --------------------
Common Stock Prices High Low High Low
.............................................................................
For the year
ended December 31,
First quarter $ 39 3/8 $ 27 3/4 $ 28 5/8 $ 19 1/8
Second quarter 29 3/4 23 1/4 36 3/8 26 5/8
Third quarter 32 24 1/4 48 3/4 28 1/4
Fourth quarter 32 1/4 24 1/8 48 7/8 36
The Company's Common Stock is listed on the New York Stock Exchange. Its symbol
is MGG.
42
MGM Grand, Inc and Subsidiaries
CORPORATE INFORMATION
Directors and Officers
................................................................................
Fred Benninger
Chairman
Robert R. Maxey
President and Chief
Executive Officer
James D. Aljian
Executive, Tracinda Corporation
Las Vegas, Nevada
Terry N. Christensen
Partner, Christensen, White,
Miller, Fink & Jacobs
Los Angeles, California
Glenn A. Cramer
Willie D. Davis
President and Director,
All-Pro Broadcasting, Inc.
Los Angeles, California
Alexander M. Haig, Jr.
Chairman
Worldwide Associates, Inc.
Washington, D.C.
Lee A. Iacocca
Chairman
Iacocca Capital Group
Southfield, Michigan
Kirk Kerkorian
President and
Chief Executive
Officer,
Tracinda Corporation
Las Vegas, Nevada
Walter M. Sharp
President, Walter M. Sharp
Company
Beverly Hills, California
K. Eugene Shutler
Executive Vice President
and General Counsel
E. Parry Thomas
Consultant to
Bank of America--Nevada
Las Vegas, Nevada
Alex Yemenidjian
Executive Vice President
and Chief Financial
Officer
...................
Scott Langsner
Secretary/Treasurer
MGM Grand Hotel Senior Officers
................................................................................
Larry J. Woolf
Chairman, President and
Chief Executive Officer
Daniel M. Wade
Executive Vice President and
Chief Operating Officer
Robert V. Moon
Senior Vice President
Casino Marketing
Richard A. Sturm
Senior Vice President
Marketing and Entertainment
Joseph T. Murphy
Senior Vice President and Chief
Financial Officer
Addresses
................................................................................
MGM Grand, Inc.
3799 Las Vegas Boulevard South
Las Vegas, Nevada 89109
MGM Grand Hotel, Inc.
3799 Las Vegas Boulevard South
Las Vegas, Nevada 89109
Transfer Agent and
Registrar For Common Stock
Mellon Bank
85 Challenger Road
Ridgefield Park, NJ 07660
Independent Public
Accountants
Arthur Andersen LLP
3320 W. Sahara Avenue
Las Vegas, Nevada 89102
Form 10-K
................................................................................
A copy of the Company's annual report on Form 10-K, as filed with the
Securities and Exchange Commission, will be furnished without charge to any
stockholder upon written request to: Mr. Scott Langsner, MGM Grand, Inc., 3799
Las Vegas Boulevard South, Las Vegas, Nevada 89109.
43