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, 1996
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[_] 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
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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
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(Registrant's telephone number, including area code)
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(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 9, 1996
----------------------------- -----------------------------------
Common Stock, $.01 par value 57,765,578 shares
MGM GRAND, INC. AND SUBSIDIARIES
FORM 10-Q
I N D E X
Page No.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Operations for the
three months and six months ended June 30, 1996 and June
30, 1995..................................................... 1
Condensed Consolidated Balance Sheets at June 30, 1996
and December 31, 1995........................................ 2
Condensed Consolidated Statements of Cash Flows for the
six months ended June 30, 1996 and June 30, 1995............. 3
Notes to Condensed Consolidated Financial Statements......... 4-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................... 9-17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................ 18
Item 4. Submission of Matters to a Vote of Security Holders at
the Annual Shareholder Meeting Held on May 7, 1996........... 18-19
Item 5. Development of MGM Grand Atlantic City....................... 19
Item 6. Press Release Dated July 9, 1996............................. 19
Signatures................................................... 20
Exhibit I
MGM GRAND, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
1996 1995 1996 1995
-------- -------- -------- --------
REVENUES:
Casino $106,737 $ 85,879 $236,993 $177,205
Room 43,624 40,493 87,425 79,384
Food and beverage 19,441 24,080 39,535 46,874
Entertainment, retail and
other 33,002 32,360 62,111 55,010
-------- -------- -------- --------
202,804 182,812 426,064 358,473
Less: promotional allowances 12,319 14,415 26,275 28,191
-------- -------- -------- --------
190,485 168,397 399,789 330,282
-------- -------- -------- --------
EXPENSES:
Casino 49,738 47,296 106,068 97,028
Room 12,835 11,658 24,617 22,482
Food and beverage 12,056 15,386 24,329 30,098
Entertainment, retail and other 20,701 25,183 43,322 44,192
Provision for doubtful accounts
and discounts 4,541 19,070 20,167 27,245
General and administrative 24,938 24,447 49,660 48,975
Depreciation and amortization 15,426 13,939 30,642 26,510
-------- -------- -------- --------
140,235 156,979 298,805 296,530
-------- -------- -------- --------
OPERATING PROFIT BEFORE
CORPORATE EXPENSE 50,250 11,418 100,984 33,752
CORPORATE EXPENSE (1,635) (2,738) (3,146) (4,765)
-------- -------- -------- --------
OPERATING INCOME 48,615 8,680 97,838 28,987
-------- -------- -------- --------
OTHER INCOME (EXPENSE):
Interest income 1,841 442 3,422 990
Interest expense, net of
capitalized interest (15,942) (15,784) (31,739) (31,114)
Other, net (183) 25 (662) 25
-------- -------- -------- --------
(14,284) (15,317) (28,979) (30,099)
-------- -------- -------- --------
INCOME (LOSS) BEFORE PROVISION
FOR INCOME TAXES 34,331 (6,637) 68,859 (1,112)
Provision for income taxes (13,696) - (13,696) -
-------- -------- -------- --------
NET INCOME (LOSS) $ 20,635 $ (6,637) $ 55,163 $ (1,112)
======== ======== ======== ========
PER SHARE OF COMMON STOCK:
Net income (loss) $ .41 $ (.14) $ 1.11 $ (.02)
======== ======== ======== ========
Weighted average shares
outstanding (000's) 50,160 48,063 49,745 48,000
======== ======== ======== ========
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
June 30, December 31,
1996 1995
---------- ------------
CURRENT ASSETS:
Cash and cash equivalents $ 210,194 $ 110,017
Accounts receivable, net 45,347 78,559
Prepaid expenses and other 14,682 13,186
Inventories 10,120 10,982
---------- ----------
Total current assets 280,343 212,744
---------- ----------
PROPERTY AND EQUIPMENT, NET 899,258 903,906
OTHER ASSETS:
Investments in unconsolidated affiliates 55,497 53,611
Deposits 15,269 16,340
Excess of purchase price over fair market
value of net assets acquired, net 39,953 40,662
Other assets, net 57,089 54,959
---------- ----------
Total other assets 167,808 165,572
---------- ----------
$1,347,409 $1,282,222
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 7,837 $ 20,746
Note payable 1,968 -
Current obligation, capital leases 2,726 2,170
Accrued interest on long term debt 9,368 9,368
Other accrued liabilities 97,544 87,146
---------- ----------
Total current liabilities 119,443 119,430
---------- ----------
DEFERRED REVENUES 8,800 8,568
DEFERRED INCOME TAXES 4,443 8,134
LONG TERM OBLIGATION, CAPITAL LEASES 9,092 10,443
LONG TERM DEBT 555,635 551,099
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock ($.01 par value,
75,000,000 shares authorized,
49,145,246 and 48,774,856 shares issued) 491 488
Capital in excess of par value 633,309 623,489
Note receivable from stock sale (5,000) (10,000)
Retained earnings (deficit) 24,678 (30,485)
Currency translation adjustment (3,482) 1,056
---------- ----------
Total stockholders' equity 649,996 584,548
---------- ----------
$1,347,409 $1,282,222
========== ==========
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)
Six Months Ended
June 30,
---------------------
1996 1995
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 55,163 $ (1,112)
Adjustments to reconcile net income to
net cash from operating activities:
Amortization of debt offering costs 1,387 1,660
Depreciation and amortization 30,701 26,559
Provision for doubtful accounts and discounts 20,167 27,245
Change in assets and liabilities:
Accounts receivable 13,045 (1,347)
Inventories 626 580
Prepaid expenses (1,850) (42)
Deferred income taxes (8,495) -
Accounts payable, accrued liabilities and other (2,279) (30,172)
-------- --------
Net cash from operating activities 108,465 23,371
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (23,202) (14,914)
Dispositions of property and equipment, net 277 135
Deposits and other assets, net (2,154) (56,503)
-------- --------
Net cash from investing activities (25,079) (71,282)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowing under line of credit 4,262 15,000
Repayment of line of credit (2,294) -
Issuance of common stock 14,823 2,372
-------- --------
Net cash from financing activities 16,791 17,372
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 100,177 (30,539)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 110,017 75,859
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $210,194 $ 45,320
======== ========
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, 1996, approximately 72.5% 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 MGM Grand Hotel/Casino ("MGM Grand Las Vegas"), a hotel/casino
and entertainment complex in Las Vegas, Nevada. MGM Grand Las Vegas commenced
operations on December 18, 1993.
Through its wholly-owned subsidiary, MGM Grand Australia Pty Ltd., the
Company owns and operates the MGM Grand Diamond Beach Hotel/Casino ("MGM Grand
Australia"), a hotel/casino resort in Darwin, Australia. MGM Grand Australia
commenced operations on September 7, 1995, the date of acquisition.
The Company and Primadonna Resorts, Inc. ("Primadonna") have formed New
York-New York Hotel, LLC ("NYNY"), a 50% joint venture, to equally own, develop
and operate NYNY, located at the northwest corner of Tropicana Avenue and Las
Vegas Boulevard, across from MGM Grand Las Vegas. The plans for NYNY call for
the destination resort to include a 2,035-room hotel and casino, themed
entertainment attractions and restaurants and retail outlets at a budget of
$460,000,000. Completion is scheduled for the winter of 1996-1997.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principals
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 1995 Annual Report incorporated 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, 1996, and the results of operations for the three month and six
month periods ended June 30, 1996 and 1995. 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 1996 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, 1996 and 1995, cash payments made for
interest were $32,535,000 and $29,464,000, respectively.
Cash payments made for state and federal taxes for the six months ended
June 30, 1996 and 1995 were $2,350,000 and $560,000, respectively.
On June 5, 1995, the Company retired all shares of common stock held in
Treasury, which thereupon resumed the status of authorized unissued shares, in a
non-cash transaction in the amount of $42,264,000.
Note 3. Long Term Debt and Notes Payable
Long term debt consisted of the following (in thousands):
June 30, December 31,
1996 1995
--------- -------------
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
Australian Hotel/Casino Loan 82,635 78,099
-------- --------
$555,635 $551,099
======== ========
Total interest incurred for the first six months of 1996 and 1995 was
$33,972,000 and $31,114,000, respectively, of which $2,233,000 was capitalized
in the 1996 period, related to construction of the Company's joint venture
project NYNY. No interest was capitalized in the first six months of 1995.
The Company has a $60,000,000 line of credit with several banks for MGM
Grand Hotel, Inc. No amounts were outstanding under the line of credit during
the six months ended June 30, 1996, and $15,000,000 was outstanding as of June
30, 1995.
The First Mortgage Notes Indenture and the Bank Line of Credit contain
provisions which generally limit dividend and other restricted payments by MGM
Grand Hotel, Inc. to the Company unless (1) no default shall have occurred
thereunder, (2) the consolidated net worth of MGM Grand Hotel, Inc. is greater
than $415,000,000, (3) MGM Grand Hotel, Inc. meets its indebtedness tests and
(4) such dividends and other restricted payments do not exceed the sum of
$25,000,000 plus 50% of cumulative consolidated net income.
-5-
MGM GRAND, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 3. Long Term Debt and Notes Payable (continued)
The Australian bank facility provides a total availability of approximately
$82,635,000 (AUS$105,000,000) and includes funding for general corporate
purposes. Interest on the facility is based on the bank reference rate or
Eurodollar rate. The loan agreement contains various restrictive covenants on
the Company and MGM Grand Australia, including the maintenance of certain
financial ratios and limitations on additional debt, dividends, and disposition
of assets. It also restricts acquisitions and similar transactions. The
indebtedness has been wholly guaranteed by the Company and matures in December
2000.
MGM Grand Australia has a $15,740,000 (AUS$20,000,000) uncommitted standby
line of credit, with a funding period of 91 days for working capital purposes.
During the six months ended June 30, 1996, $4,262,000 was borrowed with
$2,294,000 repaid and $1,968,000 remaining outstanding under the bank facility.
On September 20, 1995, NYNY, a joint venture between the Company and
Primadonna Resorts, Inc. (see Note 1) completed its bank financing for up to
$225,000,000. The non-revolving construction line of credit converts to a
five-year reducing revolver upon completion of construction and commencement of
operations. The Company and Primadonna Resorts, Inc. (the "Partners") have
guaranteed completion of the project as a condition to facility availability,
and 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 into compliance with the financial covenants.
Note 4. Issuance of Common Stock
On May 24, 1995, the Company and MGM Grand Hotel, Inc. entered into a
promotion agreement with Don King Productions, Inc. ("DKP"), pursuant to which
MGM Grand Las Vegas will have the exclusive right to present the first 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 for $15,000,000, in exchange for a non-interest bearing
promissory note. Through June 30, 1996, two fights had occurred pursuant to the
agreement, and accordingly, the Company expensed approximately $1,753,000,
representing the accumulated per fight amortization of the difference between
the guaranteed share price and the market price of $40.00 at June 30, 1996. In
addition, at June 30, 1996, the total cash requirement of the guarantee would be
approximately $5,258,000. The remaining balance outstanding of $5,000,000 on the
non-interest bearing promissory note is reflected as a note receivable from
stock sale and is included in stockholders' equity.
-6-
MGM GRAND, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 4. Issuance of Common Stock (continued)
On May 7, 1996, the Company made a commitment to grant 15 shares of
Company's common stock on May 7, 1997, to each of its employees in exchange for
a commitment to continue 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 recognized based upon 8,279
employees and a market price of $40.125 per share on the date of the commitment.
The deferred compensation is included in stockholders' equity, and is amortized
(including adjustment for employee attrition) to compensation expense monthly
over the one year commitment period. As of June 30, 1996, $789,000 had been
amortized to expense and reflected as an increase to stockholders' equity.
Note 5. Treasury Stock
On June 5, 1995, the Company retired all remaining shares of common stock
held in treasury, representing 2,017,949 shares with a cost of $42,264,000,
which thereupon resumed the status of authorized but unissued shares.
Note 6. Earnings per Share
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 50,160,000 and 48,063,000 shares for the three month
periods ended June 30, 1996 and 1995, respectively, and 49,745,000 and
48,000,000 shares for the six month periods ended June 30, 1996 and 1995,
respectively.
Note 7. Income Taxes
The Company accounts for income taxes according to Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS
109 requires the recognition of deferred tax assets, net of applicable reserves,
related to net operating loss carryforwards and certain temporary differences.
The standard requires recognition of a deferred tax asset to the extent that
realization of such asset is more likely than not. Otherwise, a valuation
allowance is applied.
The provision (benefit) for income taxes for the three and six months ended
June 30, 1996 and 1995, is as follows (in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -----------------
1996 1995 1996 1995
------- ------ ------- -------
Current - Federal $ 4,071 $ - $13,882 $ -
Deferred - Federal 9,625 - (186) -
------- ----- ------- -----
Total $13,696 $ - $13,696 $ -
======= ===== ======= =====
-7-
MGM GRAND, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 7. Income Taxes (continued)
The reconciliation of the income tax rate and the Company's effective tax
rate is as follows:
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1996 1995 1996 1995
------- ------- ------ ------
Income tax rate 35.0% (35.0)% 35.0 % (35.0)%
Permanent and foreign
tax differences 4.9 - 1.5 -
Net operating loss -
no benefit recognized - 35.0 - 35.0
Reduction in valuation
allowance - - (16.6) -
---- ----- ----- -----
Effective tax rate 39.9% - % 19.9 % - %
==== ===== ===== =====
As of June 30, 1996 and December 31, 1995, after having given effect to
SFAS 109, the major tax-effected components of the Company's net deferred tax
liability are as follows (in thousands):
June 30, December 31,
1996 1995
---------- ------------
DEFERRED TAX ASSETS - FEDERAL $ 67,775 $ 71,850
Less: Valuation allowance - (18,013)
-------- --------
Net deferred tax assets 67,775 53,837
DEFERRED TAX LIABILITIES (67,201) (61,971)
-------- --------
NET DEFERRED TAX ASSET (LIABILITY) $ 574 $ (8,134)
======== ========
The net deferred tax asset at June 30, 1996 is included in other assets in
the accompanying condensed consolidated balance sheet.
At June 30, 1996, the Company had a net operating loss carryforward for
income tax purposes of approximately $79,174,000 which expires in different
periods through 2010. General Business Credit carryovers of $2,320,000 which
expire in different periods through 2010, and an Alternative Minimum Tax credit
carryover of $15,906,000 which does not expire.
-8-
MGM GRAND, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This form 10-Q contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended. Actual results could
differ materially from those projected in the forward-looking statements.
Results of Operations
The Company, through its wholly-owned subsidiaries, owns and operates the
MGM Grand Hotel/Casino ("MGM Grand Las Vegas") in Las Vegas, Nevada, and the MGM
Grand Australia Hotel/Casino ("MGM Grand Australia"), which was acquired on
September 7, 1995.
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
1996 1995 1996 1995
-------- -------- -------- --------
(in thousands)
Operating revenues:
MGM Grand Las Vegas $181,910 $168,558 $382,689 $330,519
MGM Grand Australia 8,575 - 17,372 -
Eliminations - (161) (272) (237)
-------- -------- -------- --------
$190,485 $168,397 $399,789 $330,282
======== ======== ======== ========
Operating income:
MGM Grand Las Vegas $ 51,610 $ 11,418 $104,156 $ 33,752
MGM Grand Australia (1,360) - (3,172) -
Corporate expense (1,635) (2,738) (3,146) (4,765)
-------- -------- -------- --------
48,615 8,680 97,838 28,987
Interest income 1,841 442 3,422 990
Interest expense, net (15,942) (15,784) (31,739) (31,114)
Other, net (183) 25 (662) 25
Provision for income taxes (13,696) - (13,696) -
-------- -------- -------- --------
Net income (loss) $ 20,635 $ (6,637) $ 55,163 $ (1,112)
======== ======== ======== ========
-9-
MGM GRAND, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Quarter versus Quarter
Consolidated net revenues for the second quarter ended June 30, 1996 were
$190,485,000, representing an increase of $22,088,000 (13.1%), when compared
with $168,397,000 during the same period in the prior year. The improvement
for the second quarter of 1996 over the same prior year period resulted from
stronger casino revenues and higher average daily room rates and occupancy at
MGM Grand Las Vegas, reflecting the Company's focus on building a higher quality
customer mix while continuing to reduce revenue volatility.
Consolidated casino revenues for the second quarter of 1996 were
$106,737,000, representing an increase of $20,858,000 (24.3%) when compared with
$85,879,000 for the same period in the prior year. The increase was primarily
due to MGM Grand Las Vegas casino revenues of $100,070,000 for the second
quarter of 1996, which increased $14,191,000 (16.5%), compared with $85,879,000
during the same period in the prior year. The increase was primarily fueled by
better hold percentages during the 1996 period.
MGM Grand Australia reported casino revenues for the period of $6,667,000
(financial results for the prior year period before the September 1995
acquisition of MGM Grand Australia are not applicable). Casino revenues at MGM
Grand Australia were unfavorably affected by abnormally low win percentages. In
addition, MGM Grand Australia was under renovation for much of the quarter,
which adversely affected overall revenues.
Consolidated room revenues of $43,624,000 for the second quarter of 1996
increased $3,131,000 (7.7%), compared with $40,493,000 in the prior year period.
MGM Grand Las Vegas room revenues were $43,070,000, reflecting an increase of
$2,481,000 (6.1%) when compared with $40,589,000 in the same period of the
prior year. The increase was driven by improved occupancy of 99.5% and average
room rate of $97 in the second quarter of 1996, compared with 97.6% and $92,
respectively, in the same period of the prior year. MGM Grand Australia
reported room revenues of $582,000 on a hotel occupancy of 67.1% for the second
quarter of 1996, reflecting the impact of the renovations and the lower
occupancy which is customary during the "wet season."
Consolidated food and beverage revenues were $19,441,000 in the second
quarter of 1996, representing a decrease of $4,639,000 (19.3%)
-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)
compared with $24,080,000 in the same quarter of the prior year. The decrease
was due to the outsourcing of three restaurants at MGM Grand Las Vegas to
independent operators during the third and fourth quarters of 1995. MGM Grand
Australia reported food and beverage revenues of $1,621,000 for the second
quarter of 1996.
Consolidated entertainment, retail and other revenues were $33,002,000 for
the second quarter of 1996, representing a slight increase of $642,000 (2.0%)
when compared with $32,360,000 in the same period of the prior year. The
increases in revenues were attributable to MGM Grand Las Vegas, where rental
income increased as a result of the addition of leased food and beverage outlets
and Star Lane Shops mall during the third and fourth quarters of 1995, coupled
with increased revenues from EFX, when compared with the prior year period. Such
growth in revenues were offset by reductions in Theme Park revenues resulting
from lower attendance, and lower revenues in the MGM Grand Garden Arena, where
fewer events were held during the 1996 period when compared with 1995.
Consolidated operating expenses were $140,235,000 in the second quarter of
1996, representing a decrease of $16,744,000 (10.7%) when compared with
$156,979,000 in the prior year period. The overall improvement in expenses was
attributable to MGM Grand Las Vegas, where reductions in expenses reflect
operating efficiencies, lower food and beverage expenses reflect the conversion
of certain restaurants to tenancies, and lower MGM Grand Garden Arena expenses
which reflect fewer entertainment events held. Additionally, the provision for
doubtful accounts and discounts was significantly reduced, reflecting the
adequacy of the balance in the reserves, as well as the receipt of payments on
fully reserved casino receivables. These decreases in expenses were partially
offset by the addition of MGM Grand Australia, which had operating expenses of
$9,936,000.
Consolidated operating income was $48,615,000 for the quarter ended June
30, 1996, reflecting an increase of $39,935,000 (460.1%) over $8,680,000 for the
same period in 1995. MGM Grand Las Vegas operating income was $51,610,000 for
the second quarter of 1996, representing an increase of $40,192,000 (352.0%)
from $11,418,000 in the prior year quarter. MGM Grand Australia incurred an
operating loss for the period of $1,360,000.
-11-
MGM GRAND, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Quarter versus Quarter (continued)
Corporate and other expenses decreased to $1,635,000 in the second quarter
of 1996, compared with $2,738,000 in the same period of 1995, primarily
attributable to a reduction of amortization related to the Don King Productions,
Inc. boxing agreement. Corporate expenses represent operating expenses generated
by the Company, which benefit the Company and its subsidiaries and do not
directly benefit specific operations.
Interest income of $1,841,000 for the period ended June 30, 1996 increased
by $1,399,000 from $442,000 in the second quarter of 1995. The increase was
attributable to higher invested cash balances at MGM Grand Las Vegas during the
second quarter of 1996, reflecting the strong operating activity and increased
collections on casino receivables, when compared with the lower cash balances in
the prior year.
Interest expense in the second quarter of 1996 of $15,942,000 (net of
capitalized interest) increased slightly compared with $15,784,000 in the same
period of 1995. The increase in the second quarter of 1996 was primarily due to
interest related to the MGM Grand Australia bank loan, which was not outstanding
during the same period in 1995, partially offset by capitalized interest of
$1,117,000 for the New York-New York construction project. Additional interest
expense was incurred in the second quarter of 1995 as a result of $15,000,000
outstanding on the MGM Grand Las Vegas bank line of credit.
Income tax provision of $13,696,000 was recorded at a rate of 39.9% for the
three month period ended June 30, 1996, compared with the prior year when there
was no provision due to the benefit resulting from the reduction of the
valuation allowance.
-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
Consolidated net revenues for the six months ended June 30, 1996 were
$399,789,000, representing an increase of $69,507,000 (21.0%), compared with
$330,282,000 for the same period in 1995. The overall improvement in revenues
for the first six months of 1996 over the prior year period resulted from
stronger casino revenues and higher average daily room rates and hotel occupancy
at MGM Grand Las Vegas, reflecting the Company's emphasis on building a higher
quality customer mix while continuing to reduce revenue volatility.
Consolidated casino revenues for the period were $236,993,000 compared with
$177,205,000 for the same period in 1995, reflecting an increase of $59,788,000
(33.7%). MGM Grand Las Vegas reported casino revenues of $222,817,000 for the
1996 six month period, which increased by $45,612,000 (25.7%) when compared with
$177,205,000 in the prior year period. The increase in casino revenues was
attributable to improved win in both table games and slots over the prior year
period.
MGM Grand Australia reported casino revenues for the period of $14,176,000
(financial results for the prior year period before the September 1995
acquisition of MGM Grand Australia are not applicable). MGM Grand Australia
continued to undergo renovations for much of the first six months ended June 30,
1996, which adversely affected overall revenues. In addition, casino revenues at
MGM Grand Australia were adversely impacted by abnormally low win percentages.
Consolidated room revenues for the period were $87,425,000, representing an
increase of $8,041,000 (10.1%) compared with $79,384,000 for the prior year
period. MGM Grand Las Vegas room revenues were higher in the 1996 period as a
result of higher average room rates and occupancy of $99 and 96.4%,
respectively. MGM Grand Australia reported room revenues of $905,000 on a hotel
occupancy of 61.6% for the six months ended June 30, 1996, reflecting the impact
of the renovations and the lower occupancy which is customary during the "wet
season."
Consolidated food and beverage revenues were $39,535,000 for the six months
ended June 30, 1996, reflecting a decrease of $7,339,000 (15.7%) compared with
$46,874,000 in the same period of the prior year. The overall decrease was
principally due to MGM Grand Las Vegas where three restaurants were converted to
tenancies during the third and fourth quarters of 1995. MGM Grand Australia
reported food and beverage revenues of $2,864,000 for the six months ended June
30, 1996.
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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)
Consolidated entertainment, retail and other revenues were $62,111,000 for
the six months ended June 30, 1996, representing a $7,101,000 (12.9%) increase,
when compared with $55,010,000 for the same prior year period. The increase for
the period was attributable to MGM Grand Las Vegas, where rental income grew as
a result of increased tenancies for food and beverage, and the opening of Star
Lane Shops mall during the third quarter of 1995, combined with increased EFX
revenues. Such improvements were partially offset by lower Theme Park revenues
due to lower attendance, and lower revenues in the MGM Grand Garden Arena due to
fewer events held during the 1996 period, when compared with the same period in
the prior year.
Consolidated operating expenses were $298,805,000 for the six months ended
June 30, 1996, $2,275,000 (0.8%) higher than the prior year period of
$296,530,000. MGM Grand Las Vegas reflected significant overall improvements in
operating expenses attributable to operating efficiencies, lower food and
beverage expenses due to the conversion of certain restaurants to tenancies, and
lower general and administrative expenses due to reduced advertising costs.
Additionally, the provision for doubtful accounts and discounts was
significantly reduced, reflecting the adequacy of the balance in the reserves,
as well as the receipt of payments on fully reserved casino receivables. These
decreases in expenses were partially offset by increased room expenses, due to
higher occupancy, increased entertainment, retail and other expenses due to the
Star Lane Shops mall which commenced operations during the third quarter of the
prior year, and higher depreciation and amortization expense for property and
equipment placed in service during the third and fourth quarters of 1995. MGM
Grand Australia had operating expenses of $20,544,000.
Consolidated operating income for the first six months of 1996 was
$97,838,000, which was significantly higher by $68,851,000 (237.5%) over the
prior year period of $28,987,000. MGM Grand Las Vegas reported operating income
of $104,156,000, reflecting an increase of $70,404,000 (208.6%) over $33,752,000
for the same period in 1995. MGM Grand Australia incurred an operating loss of
$3,172,000 for the six month period of 1996.
Corporate and other expenses were $3,146,000 for the current period, which
improved by $1,619,000 (34.0%) when compared with $4,765,000 in the same period
of 1995, primarily attributable to a reduction in the amortization related to
the Don King Productions, Inc. boxing agreement. Corporate expenses represent
operating expenses generated by the Company, which benefit the Company and its
subsidiaries and do not directly benefit specific operations.
-14-
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)
Interest income of $3,422,000 for the period ended June 30, 1996 increased
by $2,432,000 from $990,000 in the same period of 1995. The increase was
attributable to higher invested cash balances at MGM Grand Las Vegas during the
1996 period, reflecting the strong operating activity and increased collections
on casino receivables, when compared with the lower cash balances in the 1995
period.
Interest expense in the period ended June 30, 1996 of $31,739,000 (net of
capitalized interest) increased slightly by $625,000, compared with $31,114,000
in the same period of 1995. The increase in the June 30, 1996 period was
primarily due to interest related to the MGM Grand Australia bank loan (see Note
3), which was not outstanding during the same period in 1995, partially offset
by capitalized interest of $2,233,000 for the New York-New York construction
project. Additional interest expense was incurred in the 1995 period as a result
of $15,000,000 outstanding on the MGM Grand Las Vegas bank line of credit.
Income tax provision of $13,696,000 was recorded at a rate of 19.9% for the
six month period ended June 30, 1996, reflecting the utilization of the
remaining valuation allowance when compared with the prior year period when
there was no provision recognized due to the benefit resulting from the
reduction of the valuation allowance.
-15-
MGM GRAND, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Liquidity and Capital Resources
As of June 30, 1996 and December 31, 1995, the Company held cash and cash
equivalents of $210,194,000 and $110,017,000, respectively. Cash provided by
operating activities for the first six months of 1996 was $108,465,000 versus
$23,371,000 for the same period of 1995.
Capital expenditures during the first six months of 1996 were $23,202,000,
consisting primarily of $13,365,000 related to MGM Grand Las Vegas general
property improvements (including $1,720,000 for the Master Plan project),
$9,680,000 at MGM Grand Australia for the renovation program which was completed
on June 5, 1996 (including enhanced guest accommodations, public areas, and
other property improvements), and $157,000 for furniture and equipment at the
Corporate offices. The total capital expenditures remaining for 1996 associated
with general property improvements and renovations (excluding the Master Plan)
are approximately $38,243,000, with $36,723,000 and $1,520,000 related to MGM
Grand Las Vegas and MGM Grand Australia, respectively.
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" thus creating additional exciting food, beverage, entertainment
and retail venues. The Master Plan features a series of substantive improvements
and additions throughout its 112-acre destination resort property, including
refurbishment of the lion entry, the porte cochere, casino areas, luxury suites,
parking facilities, and the theme park. In addition, new facilities include a
convention center and entertainment/retail complex, and a second porte cochere
entrance. The Company is evaluating the alternative use and/or disposition of
certain existing assets, which could be affected by the implementation of the
Master Plan. Although the specific assets to be redeployed, or disposed of, in
conjunction with the Master Plan have not yet been determined, the write-down of
the carrying value of such assets is not currently expected to exceed
$50,000,000. Approximately $40,000,000 is expected to be expended during 1996
related to the Master Plan, of which $1,720,000 has been expended to date.
On September 20, 1995, bank financing of up to $225,000,000 was completed
by NYNY. The first draw down occurred on September 30, 1995, and as of June 30,
1996, $185,600,000 had been drawn down under the facility. Additional financing
of up to $75,000,000 is anticipated during 1996. The Company will contribute
additional equity for its share of the amount necessary to complete the project.
As a lender requirement for the project financing, both the Company and
Primadonna were required to enter into a joint and several completion guarantee,
as well as a Keep-Well Agreement (see Note 3).
-16-
MGM GRAND, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Liquidity and Capital Resources (continued)
On July 1, 1996, the Company completed its new $500,000,000 senior reducing
revolving credit facility with BA Securities, an affiliate of Bank of America
NT&SA, ("BofA"). The facility also allows the Company the right to accept an
additional commitment of $100,000,000 as arranged by BofA, which is anticipated
to be effective during the third quarter 1996. The funds are to be used to: (i)
refinance certain existing indebtedness of the Company and its subsidiaries,
(ii) finance initial development costs for a new project in Atlantic City, and
(iii) fund general Corporate purposes. As of August 6, 1996, $61,000,000 had
been drawn down against the facility, with $40,000,000 related to the defeasance
of the MGM Grand Hotel Finance Corp. First Mortgage Notes (see Note 3), and
$21,000,000 related to acquisitions of property and property rights for MGM
Grand Atlantic City (see Exhibit I).
On July 2, 1996, the Company completed the public offering (the "Offering")
of 8,625,000 shares of common stock (including underwriter's option to purchase
1,125,000 shares of common stock) in an underwritten offering. Based upon the
Offering price of $39.50 per share, and estimated offering costs, the net
proceeds were approximately $328,000,000. The proceeds from the Offering were
used for the defeasance of the First Mortgage Notes (see below).
On July 3, 1996, the Company drew down $40,000,000 on the BofA facility,
used net proceeds of approximately $328,000,000 from the Offering and cash on
hand of $161,000,000 to fund the defeasance of the MGM Grand Hotel Finance Corp.
First Mortgage Notes (see Note 3). The combined funds totaling approximately
$529,000,000 were deposited ("Defeasance Deposit") with the Trustee in the form
of U.S. Government securities. The Defeasance Deposit will be used to fund the
redemption and call premiums on the First Mortgage Notes through May 1, 1997, as
well as the interest payments and related expenses through that date. The
defeasance will result in an extraordinary charge of approximately $31,000,000
in the quarter ending September 30, 1996, net of tax benefits, to reflect the
extinguishment of the First Mortgage Notes and the expenses related thereto.
-17-
MGM GRAND, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
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 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 material adverse effect on the
Company's financial condition or results of operations.
Items 2 and 3 of Part II are not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
at the Annual Shareholders Meeting held on May 7, 1996.
(A) The following persons Share Voting Results
were elected Directors: --------------------------------
For Withheld/Not Voted
---------- ------------------
James D. Aljian 46,189,358 2,895,717
Fred Benninger 46,189,118 2,895,957
Terry Christensen 45,997,102 3,087,973
Glenn A. Cramer 46,204,257 2,880,818
Willie D. Davis 46,199,062 2,886,013
Alexander M. Haig, Jr. 45,987,589 3,097,486
Lee A. Iacocca 46,193,194 2,891,881
Kirk Kerkorian 46,189,333 2,895,742
J. Terrence Lanni 46,189,218 2,895,857
Walter M. Sharp 46,203,911 2,881,164
Alex Yemenidjian 46,187,122 2,897,953
Jerome B. York 46,203,533 2,881,542
(B) Approval of amendment of the Company's Nonqualified Stock Option Plan and
Incentive Stock Option Plan to increase the number of shares of common
stock subject to the plans by 2,500,000.
Share Voting Results:
For 46,319,653
Against 19,502
Abstain 51,089
Not Voted 2,694,831
-18-
MGM GRAND, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION (Continued)
(C) Other Matters:
Ratification of the selection of Arthur Andersen LLP as independent
auditors.
Share Voting Results:
For 40,689,118
Against 2,238,036
Abstain 51,205
Not Voted 6,106,716
(D) Not Applicable.
Item 5.(a) Development of MGM Grand Atlantic City
On July 9, 1996, the Company announced an agreement with Forest City Ratner
Corporation to develop approximately 30 acres of land on the Atlantic City
boardwalk. The details of the plan are described in the press release attached
hereto as Exhibit I, and incorporated by reference.
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
I. Press Release dated July 9, 1996
(B) Reports on Form 8-K
None
-19-
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 9, 1996 /s/ ALEJANDRO YEMENIDJIAN
-------------------------------
Alejandro Yemenidjian
President, Chief Operating
Officer, and Chief Financial
Officer
(principal financial officer)
Date: August 9, 1996 /s/ SCOTT LANGSNER
-------------------------------
Scott Langsner
Secretary/Treasurer
(principal accounting officer)
-20-