UNITED STATES
SECURITIES & EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q/A
AMENDMENT NO. 2
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
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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 -
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Commission File Number: 0-16760
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MGM GRAND, INC.
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(Exact name of registrant as specified in its charter)
Delaware 88-0215232
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3799 Las Vegas Boulevard South, Las Vegas, Nevada 89109
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(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 January 25, 1999
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Common Stock, $.01 par value 58,033,094 shares
MGM GRAND, INC. AND SUBSIDIARIES
Items 1 and 3 of Part I are not applicable to this Amendment No. 2.
(None of the Items in Part II are applicable to this Amendment No. 2)
The undersigned registrant hereby amends, in its entirety, Item 2 of
Part I of the Company's Quarterly Report on Form 10Q for the quarter ended
September 30, 1998 to read as follows:
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
The Company, through its wholly-owned subsidiaries, owns and operates
MGM Grand Las Vegas and MGM Grand Australia (see Note 1). The Company also
owns 50% of New York-New York Hotel and Casino, which commenced operations
on January 3, 1997 (see Note 1).
(in thousands) (in thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ---------------------
1998 1997 1998 1997
-------- -------- -------- --------
Net Revenues:
MGM Grand Las Vegas $173,758 $185,754 $502,639 $546,972
MGM Grand Australia 9,228 9,814 25,033 26,336
MGM Grand South Africa 1,305 - 2,564 -
Income from unconsolidated affiliate 9,849 12,923 29,526 42,351
Eliminations and other (433) (92) (843) (677)
-------- -------- -------- --------
$193,707 $208,399 $558,919 $614,982
======== ======== ======== ========
Operating Profit (Loss):
MGM Grand Las Vegas $ 21,654 $ 41,595 $ 59,080 $121,915
MGM Grand Australia 2,423 1,901 5,403 2,559
MGM Grand South Africa 970 - 1,536 -
Income from unconsolidated affiliate 9,849 12,923 29,526 42,351
-------- -------- -------- --------
34,896 56,419 95,545 166,825
Master Plan asset disposition - 28,566 - 28,566
Corporation expense (income) 714 (3,466) 6,102 1,312
-------- -------- -------- --------
Operating income 34,182 31,319 89,443 136,947
Interest income 2,910 381 12,120 961
Interest expense, net of amounts capitalized (7,691) - (17,735) (1,242)
Interest expense from unconsolidated affiliate (2,117) (2,511) (6,473) (7,519)
Other, net (641) (205) (1,788) (649)
-------- -------- -------- --------
Income before provision for income taxes and
extraordinary item 26,643 28,984 75,567 128,498
Provision for income taxes (9,591) (10,290) (27,854) (46,655)
-------- -------- -------- --------
Net income before extraordinary item 17,052 18,694 47,713 81,843
Extraordinary item, net - (4,238) - (4,238)
-------- -------- -------- --------
Net income $ 17,052 $ 14,456 $ 47,713 $ 77,605
======== ======== ======== ========
-1-
MGM GRAND, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
QUARTER VERSUS QUARTER
Net revenues for the third quarter of 1998 were $193.7 million,
representing a decrease of $14.7 million (7.1%) when compared with $208.4
million during the same period last year. The decrease in net revenues was
largely due to lower casino and retail revenues, and lower earnings from
the Company's 50% ownership in NYNY (see Note 1), somewhat offset by higher
food and beverage revenues.
Consolidated casino revenues for the third quarter of 1998 were $99.5
million, representing a decrease of $15.7 million (13.6%) when compared
with $115.2 million during the same period in the prior year. MGM GRAND LAS
VEGAS casino revenues were $92.2 million, representing a decrease of $15.4
million (14.3%) when compared with $107.6 million during the same period in
the prior year. The reduction in casino revenues at MGM Grand Las Vegas was
a result of lower baccarat volume and win percentage. MGM GRAND AUSTRALIA
reported casino revenues of $7.3 million, representing a decrease of $.3
million (3.9%) when compared with $7.6 million during the same period in
the prior year. The reduction of casino revenue was a result of lower
average exchange rate in the current year's quarter (.5989), compared with
a higher average rate in the prior year's quarter (.7356).
Consolidated room revenues were $42.6 million for the third quarter of
1998 compared with $41 million in the prior year's third quarter,
representing an increase of $1.6 million (3.9%). MGM GRAND LAS VEGAS room
revenues were $42 million, representing an increase of $1.7 million (4.2%)
when compared with $40.3 million in the same period of the prior year. The
increase was primarily due to a higher average room rate for the 1998 third
quarter of $94 compared with $90 for the 1997 third quarter. The increase
was partially offset by a decrease in occupancy to 97.8% for the third
quarter of 1998 when compared with 99% in the same period of the prior
year. MGM GRAND AUSTRALIA room revenues decreased $.2 million (25%) from
$.8 million in 1997 to $.6 million in 1998 due to lower room rates and
average exchange rate, somewhat offset by higher occupancy.
Consolidated food and beverage revenues were $27.1 million in the
third quarter of 1998, representing an increase of $3.2 million (13.4%)
when compared with $23.9 million in the third quarter of the prior year.
The increase was attributable to MGM GRAND LAS VEGAS which had food and
beverage revenues of $25.5 million during the third quarter of 1998,
representing an increase of $3.3 million (14.9%) when compared with $22.2
million in the third quarter of 1997. This increase resulted from the
banquet revenue generated from the Conference Center which opened on April
16, 1998, and the operation of the Studio 54 night club which opened late
December 1997. MGM GRAND AUSTRALIA reported food and beverage revenues of
$1.6 million, which were slightly lower when compared with the same period
in the prior year due to a lower average exchange rate in the current year.
Consolidated entertainment, retail and other revenues increased $1.3
million (4.3%) from $30.5 million in the 1997 period to $31.8 million in
the 1998 period. The increase is primarily a result of strengthened MGM
GRAND LAS VEGAS entertainment revenues and the addition of management and
development fees from MGM GRAND SOUTH AFRICA of $1.3 million. These
increases were partially offset by decreases in theme park revenues due to
the abbreviated seasonal operating schedule during this year's quarter.
Income from unconsolidated affiliate was $9.8 million for the third
quarter of 1998, compared with $12.9 million in 1997, representing the
Company's 50% share of NYNY's operating income. The reduction of earnings
from NYNY is a result of the unprecedented public response in the prior
(first) year of operations.
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MGM GRAND, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
QUARTER VERSUS QUARTER (CONTINUED)
Consolidated operating expenses (before Master Plan asset disposition
and Corporate expenses) were $158.8 million in the third quarter of 1998,
representing an increase of $6.8 million (4.5%) when compared with $152
million for the same period last year. The overall increase was
attributable to MGM GRAND LAS VEGAS which included increased depreciation
expense and operating expenses due to Master Plan assets placed in service
and higher food and beverage expenses associated with increased revenues.
The increases were somewhat offset by decreases in retail expenses in the
current year's quarter due to the abbreviated seasonal operating schedule
of the theme park. MGM GRAND AUSTRALIA operating expenses decreased from
$7.9 million in the 1997 period to $6.8 million in the 1998 period as a
result of continuing cost containment efforts and lower average exchange
rate in the current year.
Master Plan asset disposition relates to the write-off of various
assets related to the transformation of MGM Grand Las Vegas into "The City
of Entertainment." The prior year's quarter write-off of $28.6 million
(pre-tax) is the result of management's decision to enhance and expand the
Master Plan project from $250 million to over $700 million.
Corporate expense for 1998 was $.7 million compared with income of
$3.5 million in 1997, representing an increase of $4.2 million. The 1997
third quarter corporate expense was reduced by a $5.9 million reversal of
previously expensed stock price guarantee amortization (see Note 4), which
was somewhat offset by a payroll-related reversal of $1.6 million in the
1998 period.
Interest income of $2.9 million for the three months ended September
30, 1998 increased by $2.5 million from $.4 million in the third quarter of
1997. The increase was attributable to higher invested cash balances
primarily from the proceeds of the Senior Collateralized Notes (see Note
3).
Interest expense in the third quarter of 1998 was $7.7 million (net of
amounts capitalized) compared with no interest expense in the same period
of 1997, reflecting the issuance of the Senior Collateralized Notes (see
Note 3). Also, the Company recognized interest expense from unconsolidated
affiliate of $2.1 million during the 1998 period compared with $2.5 million
in 1997, reflecting a reduced outstanding balance on the NYNY facility (see
Note 3).
Extraordinary loss in the prior year's third quarter of $4.2 million,
net of income tax benefit, reflects the write-off of unamortized debt costs
from the previous $600 million credit facility (see Note 3).
NINE MONTHS VERSUS NINE MONTHS
Net revenues for the nine months ended September 30, 1998 were $558.9
million, representing a decrease of $56.1 million (9.1%) when compared with
$615 million during the same period last year. The decrease in net revenues
was largely due to lower casino, other retail revenue, and lower earnings
from the Company's 50% ownership in NYNY (see Note 1), somewhat offset by
higher food and beverage revenues.
Consolidated casino revenues for the nine months ended September 30,
1998 were $291.7 million, representing a decrease of $43.7 million (13%)
when compared with $335.4 million during the same period in the prior year.
MGM GRAND LAS VEGAS casino revenues were $271.7 million, representing a
decrease of $43.3 million (13.7%) when compared with $315 million during
the same period in the prior year. The reduction in casino revenues at MGM
Grand Las Vegas was a result of lower table game and baccarat volume and
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MGM GRAND, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
NINE MONTHS VERSUS NINE MONTHS (CONTINUED)
win percentages. MGM GRAND AUSTRALIA reported casino revenues of $20
million which was $.4 million lower than the same period in the prior year,
primarily due to a lower average exchange rate in the current year (.6317)
and a higher average exchange rate in 1997 (.7609).
Consolidated room revenues for the period were $126.7 million compared
with $127.4 million for the same period in 1997, representing a decrease of
$.7 million (.5%). MGM GRAND LAS VEGAS room revenues were $125.4 million,
representing a decrease of $.4 million (.3%) when compared with $125.8
million in the same period of the prior year. The decrease was due to a
lower average room rate for the 1998 period of $97 compared with $98 in
1997. MGM GRAND AUSTRALIA room revenues were $1.4 million for the nine
months ended September 30, 1998, representing a decrease of $.4 million
(22.2%) when compared with $1.8 million for the prior year period, due to
lower room rates and average exchange rates partially offset by higher
occupancy.
Consolidated food and beverage revenues for the period were $75.6
million, representing an increase of $6.3 million (9.1%) when compared with
$69.3 million for the same period of the prior year. The increase was
attributable to MGM GRAND LAS VEGAS which had food and beverage revenues of
$71.5 million during the current period, representing an increase of $7.2
million (11.2%) when compared with $64.3 million in the same period of
1997. This increase resulted from the Company's decision to operate the
Studio Cafe coffee shop which during the 1997 period had been a leased
facility until March 1997, the opening of the Studio 54 night club in late
December 1997, and banquets from the Conference Center which opened in
April 1998. MGM GRAND AUSTRALIA reported food and beverage revenues of
$4.3 million, representing a decrease of $.9 million (17.3%) when compared
with $5.2 million during the same period in the prior year as a result of
lower average exchange rate in the current year.
Consolidated entertainment, retail and other revenues decreased $3.6
million (4.2%) from $86.7 million in the 1997 period to $83.1 million in
the 1998 period. The decrease in entertainment, retail and other revenues
is a result of lower MGM GRAND LAS VEGAS theme park revenues from reduced
covers and the abbreviated seasonal operating schedule during the current
third quarter. The decrease was partially offset by increases in
entertainment revenues from events in the Grand Garden Arena, increased EFX
attendance, increased convention entertainment /audio visual revenue, and
the addition of management and development fees from MGM GRAND SOUTH
AFRICA.
Income from unconsolidated affiliate was $29.5 million for the nine
months ended September 30, 1998, compared with $42.4 million in 1997,
representing the Company's 50% share of NYNY's operating income. The
reduction of earnings from NYNY is a result of the unprecedented public
response in the prior (first) year of operations.
Consolidated operating expenses (before Master Plan asset disposition
and Corporate expenses) for the 1998 period were $463.4 million,
representing an increase of $15.2 million (3.4%) when compared with $448.2
million for the same period last year. The overall increase was
attributable to MGM GRAND LAS VEGAS which had higher operating expenses in
the 1998 period as a result of higher food and beverage expenses associated
with the addition of Studio 54 and the longer operating period for the
Studio Cafe and higher banquets expense for the Conference Center.
Additionally, provisions for doubtful accounts were higher due to changes
in anticipated collectability of receivables and uncertain economic
conditions in Asia, higher depreciation expense due to Master Plan assets
placed in service and room expenses for the addition of sales staffing for
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MGM GRAND, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
NINE MONTHS VERSUS NINE MONTHS (CONTINUED)
the Conference Center. These increases were partially offset by lower
casino expenses due to a reduction in casino taxes, as well as decreased
retail expenses relating to the lower retail revenue. MGM GRAND AUSTRALIA
operating expenses decreased $4.2 million (17.6%) from $23.8 million in the
1997 period to $19.6 million in the 1998 period as a result of continuing
cost containment efforts and lower average exchange rate in the current
year.
Master Plan asset disposition relates to the write-off of various
assets related to the transformation of MGM Grand Las Vegas into "The City
of Entertainment." The prior year's quarter write-off of $28.6 million
(pre-tax) is the result of management's decision to enhance and expand the
Master Plan project from $250 million to over $700 million.
Corporate expense for the 1998 period was $6.1 million compared with
$1.3 million in 1997, representing an increase of $4.8 million. The
increase was due to higher operating expenses in the current year and the
$5.9 million reversal of the stock price guarantee amortization that
occurred in the prior year. This was somewhat offset by the current year's
quarter payroll-related reversal of $1.6 million.
Interest income of $12.1 million for the period ended September 30,
1998 increased by $11.1 million from $1 million in the same period of
1997. The increase was attributable to higher invested cash balances
primarily from the proceeds of the Senior Collateralized Notes (see Note
3).
Interest expense for the nine months ended September 30, 1998 of $17.7
million (net of amount capitalized) increased by $16.5 million when
compared with $1.2 million (net of amount capitalized) in the same period
of 1997. The increase in the 1998 period was primarily due to the issuance
of the Senior Collateralized Notes (see Note 3). Also, the Company
recognized interest expense from unconsolidated affiliate of $6.5 million
during the 1998 period compared with $7.5 million in 1997, reflecting a
reduced outstanding balance on the NYNY facility (see Note 3).
Extraordinary loss in the prior year's third quarter of $4.2 million,
net of income tax benefit, reflects the write-off of unamortized debt costs
from the previous $600 million credit facility (see Note 3).
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1998 and December 31, 1997, the Company held cash
and cash equivalents of $90.8 million and $34.6 million, respectively.
Cash provided by operating activities for the first nine months of 1998 was
$104.2 million compared with $127.7 million for the same period of 1997.
On May 6, 1996, MGM Grand Las Vegas announced details of a 30-month,
$250 million Master Plan designed to transform the facility into "The City
of Entertainment." The Master Plan, which on June 3, 1997 was enhanced and
increased to more than $700 million, calls for a new 1,500-room "Marriott
Marquis"; expansion of the resort's casino capacity by nearly 20 percent to
more than 200,000 square feet; and a "Mansion at the MGM Grand" offering 29
exclusive suites and villas. The Company's 380,000 square foot state-of-
the-art conference center opened in April 1998, and the 50 foot tall
polished bronze lion sculpture along with the "Entertainment Casino"
(previously known as the Emerald City casino) were completed during the
first quarter of 1998. Additionally, the new pool and spa complex was
completed and opened for operations in July 1998. Approximately $309.4
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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)
million is anticipated to be expended during 1998 related to the Master
Plan, of which $255.7 million had been expended through September 30, 1998.
Capital expenditures during the first nine months of 1998 were $297.5
million, consisting primarily of $24.6 million related to MGM Grand Las
Vegas for general property improvements, $255.7 million for the Master Plan
project, $11.7 million related to the purchase of a Company airplane, $1.3
million at MGM Grand Australia for general property improvements and $4.2
million for MGM Grand Atlantic City land acquisition costs and pre-
construction activities. Anticipated capital expenditures remaining for
1998 are approximately $105.4 million, consisting of approximately $53.7
million related to the Master Plan, approximately $20.9 million related to
general property improvements for MGM Grand Las Vegas, approximately $29
million for MGM Grand Detroit, approximately $1.6 million related to land
acquisitions and pre-construction activities for MGM Grand Atlantic City
and approximately $.2 million for MGM Grand Australia.
On June 23, 1998, the Company announced a $35.00 per share cash tender
offer for up to 6 million shares of Company common stock as part of a 12
million share repurchase program. The offer commenced on July 2, 1998 and
expired on July 31, 1998. Based upon the final results, 10.8 million shares
of the Company's common stock were tendered, and accordingly, the shares
were prorated. The total acquisition cost of the tendered shares was
approximately $210.5 million. The Company anticipates that, depending on
market conditions, the remaining 6 million shares in the repurchase program
may be acquired in the open market, in private transactions, through a
tender offer, offers or otherwise.
The Company expects to finance operations and capital expenditures
through cash flow from operations, cash on hand, and the bank lines of
credit.
OTHER MATTERS
Year 2000 Disclosure
The Year 2,000 Issue is the result of computer programs being written
using two digits rather than four digits to define the applicable year,
which may result in system failures and disruptions to operations at
January 1, 2000. The Company is assessing its Year 2,000 readiness through
an ongoing Year 2,000 Remediation Program that addresses information
technology systems as well as systems outside of the information technology
area. The Year 2,000 Remediation Program takes into consideration all
locations where the Company has operations. The Year 2,000 Remediation
Program includes continuing assessment of the Company's Year 2,000 issues,
contacting the suppliers of certain systems to determine the timing of
applicable upgrades, and implementing applicable Year 2,000 upgrades which
are currently available.
The Company has initiated formal communications with its significant
suppliers to determine the extent to which the Company is vulnerable to
third party failure to remediate their own Year 2,000 issues. In
conjunction with this effort, the Company is assessing the potential impact
of such third party Year 2,000 issues. There can be no guarantee that the
systems of third parties on which the Company's systems rely will be timely
converted, or that a failure to convert by another company, or a conversion
that is incompatible with the Company's systems, would not have a material
adverse effect on the Company.
The Company's Year 2,000 Remediation Program may require enhancements
to ensure there is no disruption to the Company's operations, however, the
financial impact of making such enhancements is not expected to be material
to the Company's financial position or results of operations. During the
current year, the Company has not incurred cost to modify existing computer
systems, however, it is estimated that approximately $700,000 will be
incurred in 1999.
SAFE HARBOR PROVISION
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in
this report contains statements that are forward-looking, such as
statements relating to plans for future expansion and other business
development activities, as well as other capital spending, financing
sources, the effects of regulation (including gaming and tax regulations)
and competition. Such forward-looking information involves important risks
and uncertainties that could significantly affect anticipated results in
the future and, accordingly, such results may differ from those expressed
in any forward-looking statements made by or on behalf of the Company.
These risks and uncertainties include, but are not limited to, those
relating to development and construction activities, dependence on existing
management, leverage and debt service (including sensitivity to
fluctuations in interest rates), domestic or global economic conditions
(including sensitivity to fluctuations in foreign currencies), changes in
federal or state tax laws or the administration of such laws, changes in
gaming laws or regulations (including the legalization of gaming in certain
jurisdictions) and application for licenses and approvals under applicable
jurisdictional laws and regulations (including gaming laws and
regulations).
-6-
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.
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(Registrant)
Date: January 27, 1999 /s/ SCOTT LANGSNER
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Scott Langsner
Secretary/Treasurer
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